Orica Limited · ASX:ORI
Orica — H1 2013 Earnings Presentation
42 slides from Orica's earnings presentation, May 6, 2013
Slide 1: 2013 Half Year Results
For personal use only 2013 Half Year Results Monday 6th May 2013 Ian Smith – Managing Director and CEO Noel Meehan – Executive Director Finance © Orica Limited Group Slide 1
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: Presentation Outline
Presentation Outline For personal use only Financial Performance 4-6 Cash Flow & Balance Sheet 7 - 13 Ground Support 14 - 18 Projects Update 19 - 21 Strategy & Fundamentals 22 - 39 Slide 3
Slide 4: Group Financial Performance
Group Financial Performance For personal use only Half year ended 31 March (A$M) 2013 2012 % EBITDA1 578.2 537.1 8 EBIT2 441.7 418.7 6 Statutory profit after tax3 266.8 253.3 5 Net operating cash flow 295.2 38.8 661 Earnings per share (cents) 73.5 67.9 8 Interim dividends per share (cents) 39.0 38.0
Slide 5: Group EBIT
Group EBIT For personal use only A$M 600 EBIT 6% 550 15 (11) (47) 19 90 500 (18) (18) (5) (3) 450 442 419 400 350 300 2012 EBIT KI Shutdown Net Price Service & Volume Ground Net Other Depreciation / Associate FX 2013 EBIT Product Mix Support costs Amortisation Income Non-recurrence of the Kooragang
Slide 6: Net Price, Mix and Volume Impacts
Net Price, Mix and Volume Impacts (excluding Ground Support) For personal use only Region Variance Net Price Volume Mix (A$M) Australia / Pacific +23 n Explosives AN/Bulk +2% Services Emulsion Sodium cyanide Sodium cyanide +6% Product only contract North America +6 Explosives AN / Bulk -10% Emulsion
Slide 7: Cash Flows
Cash Flows For personal use only Half year ended 31 March (A$M) 2013 2012 $ Net operating cash flows 295 39 256 Net investing cash flows (400) (306) (94) Net financing cash flows 130 182 (52) Total 25 (86) 111 Operating Cash Flows Investing Cash Flows • Non-recurrence of Kooragang Island • Higher ca
Slide 8: Rolling TWC to Rolling Sales %
Rolling TWC to Rolling Sales % For personal use only 20% 19% Old project 18% Rolling TWC / Sales % 17% 16% New working capital management project 15% 14% 13% 12% 11% 10% HY FY HY FY HY FY HY FY HY FY HY FY HY FY HY FY HY FY HY FY HY 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Renewed focu
Slide 9: Investing Activities
Investing Activities For personal use only Capital Expenditure1 / Acquisitions Actual HY2013 Forecast 2013 Sustaining 125 300 Expansion 174 280 Burrup2 127 200 Capital expenditure will reduce in 2H 2013 to equal or better initial guidance 1. Excludes capitalised interest. 2. Classified as an investm
Slide 10: Capital Management – Key Measures
Capital Management – Key Measures For personal use only Half year ended 31 March (A$M) 2013 2012 Net debt (A$M) 2,553.6 2,297.9 Net interest expense (A$M) 66.2 65.3 Interest cover (times)1 6.7 6.4 Operating cash ($) 295.2 38.8 Cash conversion (%) 60.0 46.4 Rolling TWC to rolling sales (%) 13.6 13.0
Slide 11: Drawn Debt Maturity Profile
Drawn Debt Maturity Profile For personal use only A$M 700 600 500 6 267 400 300 571 200 416 311 292 329 110 100 90 81 77 82 96 11 11 11 11 0 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20 Sep-21 Sep-23 Sep-26 Sep-31 Commercial Paper Committed Bank Facilities & Export Credit Finance Private
Slide 12: Debt Maturity Profile
Debt Maturity Profile For personal use only A$M 1,200 Total debt facilities of $4.1 billion Undrawn debt of $1.3 billion 1,000 800 385 121 600 6 267 400 455 189 571 200 416 311 292 329 110 175 90 81 11 11 11 77 82 96 11 0 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20 Sep-21 Sep-23 Sep-26 S
Slide 13: Environmental Provisions
Environmental Provisions For personal use only Environmental Spend (A$M) HY Actual FY Forecast 2013 2013 2014 2015 2016 Major environmental spend: Botany groundwater remediation1 6 13 13 13 13 HCB remediation2 5 8 2 2 2 Botany mercury remediation 1 6 10 - - Other 6 17 29 22 2 Total environmental spe
Slide 14: Ground Support
Ground Support For personal use only Slide 14
Slide 15: Ground Support
Ground Support For personal use only AUD$m FY 2013 1H FY 2013 2H FY Forecast EBIT 10 7 - 15 17 - 25 Optimisation Costs (6) (14 - 16) (20 - 22) Underlying EBIT 16 21 - 31 37 - 47 The major contributor to the deterioration in ground support activity is the downturn in underground coal volumes which ar
Slide 16: Ground Support Optimisation Effects
Ground Support For personal use only Optimisation Effects Australia, South Africa & Latin America have already been integrated into Mining Services. North America, Europe and China will be integrated by the end of September 2013. The ongoing beneficial effects from the optimisation and integration w
Slide 17: Ground Support Scenario
Ground Support For personal use only Scenario 1 If FY2014 recovers volumes by 10% over 2013 levels with the same pricing as FY2013 2013 Underlying EBIT ~ $42m Effect of Optimisation ~ $24m Effect of 10% Volume Uplift ~ $24m ~ $90m Scenario 2 If FY2015 recovers volumes by 15% over 2013 levels with th
Slide 18: Competitiveness of US Coal vs. Gas
Competitiveness of US Coal vs. Gas For personal use only $6 $5 Central Appalachian competitive at >$4.50 $4 2012 $/mmbtu Illinois Basin competitive at $3.25 - $3.50 $3 Powder River Basin competitive at $2.50 - $2.75 $2 $1 $0 2010 2012 2014 2016 2018 2020 Henry Hub Sources : Wood Mackenzie : Global G
Slide 19: Projects
For personal use only Projects Slide 19
Slide 20: Bontang Ammonium Nitrate Plant
Bontang Ammonium Nitrate Plant For personal use only • Indonesian plant commissioned with capacity of kt Bontang Ammonium Nitrate Production 300 - 330ktpa 350 300 250 Annualised 200 • Plant is currently operating at name plate 150 capacity on an annualised basis and product 100 quality is within spe
Slide 21: HONCE Initiating Systems
HONCE Initiating Systems For personal use only • Construction is substantially complete with commissioning underway • Commissioning will occur progressively over the next 12 – 18 months • Total project cost expected to be within initial AUD estimates Initial production scheduled for 2013 Slide 21
Slide 22: Strategy
For personal use only Strategy Slide 22
Slide 23: Strategy
Strategy For personal use only Value Adding/extensive Strategic Imperatives Refine the customer value proposition Develop people capability & competence Refresh the capital spending program Drive common systems and processes Focus on performance metrics & targets Renew manufacturing reliability & in
Slide 24: Margin Growth Initiatives
Margin Growth Initiatives For personal use only 1. Structure EBIT Margin (Basis 2012 = 100) Centralised functions assist line management allowing 120 growth without duplication of support. Projects enhance our breadth/depth. 2. Supply & Logistics The best way to provide products and services to our
Slide 25: Supply & Logistics
Supply & Logistics For personal use only • Australian demand for AN in 2012 was approximately 1.8 million tonnes • AN imports have declined as domestic manufacturing capacity has increased • Historically imported tonnes have been 150,000 tonnes or less per annum kt AN Imports into Australia 200 150
Slide 26: Supply & Logistics
Supply & Logistics For personal use only Mining Services Sales Revenue A$M H1 2012 Actual FY13 Other Products Services 5% 9% Ground Support AN/ANFO Emulsion 9% 43% Products 57% Initiating Cyanide Systems 7% 15% H1 2013 Actual Packaged 7% AN/ANFO AN/ANFO Emulsion 38% 18% Products 62% Emulsion Product
Slide 27: Manufacturing Excellence
Manufacturing Excellence For personal use only Kooragang Island Ammonia kt Yarwun Cyanide Production kt 50 200 40 150 30 100 20 50 10 - - Actual Actual Forecast Actual Actual Forecast H2 2012 H1 2013 H2 2013 H2 2012 H1 2013 H2 2013 Slide 27
Slide 28: Manufacturing Excellence
Manufacturing Excellence For personal use only Overall Equipment Efficiency Overall Equipment Efficiency Brownsburg - Electronic Detonator Gyttorp - Electric Detonator Plant 90% 80% 80% 60% 70% OEE OEE 40% 60% 23% 20% 70% 50% 40% 0% January – April 2013 January – April 2013 OEE OEE Moving Average (4
Slide 29: Value in Use
Value in Use For personal use only Accounts Won and Lost at Tender October 2011 to September 2012 October 2012 to March 2013 18% 25% 43% 44% 46% Lost 82% 57% 56% 99% 54% 75% Won Existing customer Competitor-held Green-field account Existing customer Competitor-held Green-field account account accoun
Slide 30: Value in Use
Value in Use For personal use only Customer Feedback for Selecting Orica October 2012 - March 2013 Product Differentiation 25% Customer Service / Supply 56% Price / Cost 19% Service, supply chain and product differentiation are the most important factors to our customers. Slide 30
Slide 31: Value in Use
Value in Use For personal use only Bid Outcomes: Revenue By Service Type H2 2012 H1 2013 Advanced Blasting Services 4% Product only On site 26% product and services 39% Product only 61% On site product and services 70% Slide 31
Slide 32: Value in Use – Case Study
Value in Use – Case Study For personal use only • Client pays for specification of rock size • Over last 12 months Orica has introduced high energy blasting products and techniques • In January 2013 review, client acknowledged Orica has added $25m in value over contract period Last 12 months Loading
Slide 33: Value in Use – Case Study
Value in Use – Case Study For personal use only Joint project with client to maximise underground advance development and blast cycles per day Currently achieving: • Length of each round fired is up 90% • Rounds fired per day is up by 129% 3 Blast cycles per day Target Q4 2014 2 Jan 2013 Feb 2013 Ta
Slide 34: Value in Use – Case Study
Value in Use – Case Study For personal use only • Blasting constraints - fume, vibration, overpressure, dust, proximity to public highway • Patented StratablastTM technique implemented to help address these constraints • Results: • No fume or other environmental exceedances • 112% coal recovery agai
Slide 35: The Fundamentals
The Fundamentals For personal use only Slide 35
Slide 36: Attractive Industry Fundamentals
Attractive Industry Fundamentals For personal use only Growth in Global Commodity Demand: 2010 - 2030 Nickel Copper Aluminium Zinc Lead Iron ore Coal 0 10 20 30 40 50 60 70 80 90 100 Change in global demand, 2010-2030 (%) Source: ABARES, Deloitte Access Economics – Commissioned by Minerals Council o
Slide 37: Attractive Industry Fundamentals
Attractive Industry Fundamentals For personal use only Growth in Australia (1982 – 2011) 1,400 1,200 Ammonium Nitrate Demand 1,000 CAGR 9.0% Index (1982 = 100) 800 Iron Ore & Minerals Prod. 600 CAGR 5.8% 400 200 Coal Production CAGR 4.4% 0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Slide 38: Attractive Industry Fundamentals
Attractive Industry Fundamentals For personal use only Gold Production and Ore Grades Cyanide Demand 120 1.8 180 Gold Production (Index: 2006=100) 160 100 1.7 140 80 1.6 120 100 60 1.5 80 40 1.4 60 40 20 1.3 20 0 1.2 0 2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011 Global Gold Productio
Slide 39: Attractive Industry Fundamentals
Attractive Industry Fundamentals For personal use only • Long term growth in commodity volumes, driven by industrialisation and urbanisation • Declining ore grades and increasing strip ratios and ore-body complexity • Efficiency and productivity focus drives demand for game-changing technology, prod
Slide 40: Supplementary Information
Supplementary Information For personal use only Slide 40
Slide 41: Non IFRS Information Reconciliation
Non IFRS Information Reconciliation For personal use only Half year ended 31 March (A$M) 2013 2012 Statutory profit after tax 266.8 253.3 Adjust for the following: Net financing costs 66.2 65.3 Income tax expenses 98.9 90.0 Non-controlling interests 9.8 10.1 EBIT 441.7 418.7 Depreciation and amortis
Slide 42: Non IFRS Disclosures and Definitions
Non IFRS Disclosures and Definitions For personal use only Term Definition Net profit for the period attributable to shareholders of Orica Limited as disclosed in the Income Statement within Appendix Statutory profit after tax 4D - Orica Half Year Report. EBIT Profit from operations as disclosed in