Orica Limited · ASX:ORI
Orica — HY2007 Earnings Presentation
53 slides from Orica's earnings presentation, Apr 30, 2007
Slide 1: Half Year Result Announcement 30 April 2007
Half Year Result Announcement 30 April 2007
Slide 2: HY 2007 presentation outline
HY 2007 presentation outline • Overview of results Graeme Liebelt • Strategy • Business performance • Cashflow • Balance sheet Noel Meehan • Environmental update • Review of recent activity • Minova acquisition • Business portfolio mix Graeme Liebelt • Outlook 2
Slide 3: Highlights
Half year ended 31 March 2007 Highlights Financial highlights • Sales Revenue – reported +4%, Underlying sales growth +17% • EBIT +25% • NPAT +39% • EPS +21% • Interim dividend up 10 cents to 36 cents per share Operational highlights • Record result in Mining Services • Integration of Dyno proceedin
Slide 4: Financial summary
Half year ended 31 March 2007 Financial summary 2007 2006 % Change Results including significant items: NPAT including significant items A$M 210 123 71 Significant items after tax A$M 7 (23) Underlying Results: Sales Revenue A$M 2,702 2,599 4 EBIT (excluding significant items) A$M 346 276 25 NPAT (e
Slide 5: Significant items (A$M)
Half year ended 31 March 2007 Significant items (A$M) 2007 2006 Legacy Issues Cockle Creek (NSW) - (14) Divestments Adhesives & Resins profit on sale 19 - Dyno Nobel Expenditure Integration costs (12) (8) Net financing expense - (1) TOTAL (after tax) 7 (23) Note: Amounts subject to rounding 5
Slide 6: Shareholder scorecard
Half year ended 31 March 2007 Shareholder scorecard 2007 2006 % Change Results (before significant items) Earnings per share cents 60.1 49.5 21 Return on shareholders' funds % 15.6 15.5 Results (after significant items) Earnings per share cents 62.4 41.7 50 Return on shareholders' funds % 16.1 13.1
Slide 7: Orica's approach – value drivers
Orica’s approach – value drivers 7
Slide 8: Orica – our culture
Orica – our culture • SH&E • Commercial Ownership - Working Capital - Supply chain improvement - Manufacturing efficiency - Active capital management • Creative Customer Solutions - Customer driven - Technology • Working Together “Deliver the Promise” 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: Growth and productivity
Half year ended 31 March 2007 Growth and productivity 2007 2006 Change A$M A$M A$M % Sales revenue 2,702 2,599 103 4.0 Variable costs 1,509 1,589 (80) (5.0) Gross margin 1,192 1,009 183 18.1 Gross margin/sales % 44.1 38.8 Fixed costs (incl D&A) 876 766 110 14.4 Fixed costs/gross margin % 73.5 75.9 1
Slide 11: Growth themes
Growth themes • Mining Services – market volume growth, organic, geographic, acquisition, lateral • Chemical Services – Mining Chemicals, water treatment, Miex™, enzymes • Consumer Products – organic, Asia • Chemnet – geographic expansion 11
Slide 12: Business performance, Cash flow, Balance sheet, Environmental update
Business performance Cash flow Balance sheet Environmental update 12
Slide 13: Financial results: NPAT and ROSHF
Half year ended 31 March 2007 Financial results 220 20 200 18 180 203 16 160 14 NPAT (A$M) ROSHF % 140 146 12 120 128 122 10 100 97 8 80 60 80 6 40 4 20 30 2 0 0 01 02 03 04 05 06 07 Expanded capital base impacted ROSHF • Pre significant items 13 • Pre 2005 not AIFRS adjusted
Slide 14: Sales growth (A$M)
Half year ended 31 March 2007 Sales growth (A$M) 2007 2006 $ Change % Change Mining Services 1,506.5 1,134.2 372.3 33 Consumer Products 424.4 401.8 22.6 6 Chemical Services 229.7 231.3 (1.6) (1) Chemnet 469.5 504.9 (35.4) (7) Intersegment eliminations (43.9) (69.1) 25.2 (36) Underlying Sales Growth
Slide 15: Sales
Half year ended 31 March 2007 Sales A$M 3,200 24 23 3,100 60 116 3,000 312 2,900 2,800 25 2,702 2,700 (422) (35) 2,599 2,600 2,500 HY06 Dyno Minova Mining Consumer Chem Divested Chemnet Elims / HY07 Sales Services Products Services Business FX Sales 15
Slide 16: EBIT growth (A$M)
Half year ended 31 March 2007 EBIT growth (A$M) 2007 2006 $ Change % Change Mining Services 245.2 150.9 94.3 62 Consumer Products 43.2 47.7 (4.5) (9) Chemical Services 32.0 31.5 0.5 2 Chemnet 32.3 28.7 3.6 13 Corporate Centre/Other Support Costs (24.5) (24.5) - - Underlying EBIT Growth 328.2 234.3 9
Slide 17: NPAT analysis
Half year ended 31 March 2007 NPAT analysis A$M EBIT contribution 300 280 1 NPAT 5 4 17 increased 260 39% 54 240 220 (42) 2 1 203 200 (16) 41 (10) 180 160 146 140 120 100 HY06 Mining Dyno Minova OCP Chemnet Chem Divested Tax Yates Minority Interest HY07 NPAT Services Svcs Business Interest NPAT (ex
Slide 18: Mining Services
Mining Services Sales $1,507M; EBIT $245M; Average Net Assets $2,213M A$M 450 18 300 8 26 400 16 EBIT MARGIN % 350 14 53 (22) 300 12 250 (12) 245 EBIT A$M (7) (6) 250 10 200 8 54 150 6 200 100 4 50 2 151 150 0 0 2004 2005 2006 2007 100 1st Half EBIT 2nd Half EBIT EBIT MARGIN HY06 Dyno Variable Net P
Slide 19: Mining Services by geography
Mining Services by geography Australia/Asia North America 250 24 90 10 22 80 EBIT MARGIN % EBIT MARGIN % 200 20 8 18 70 EBIT A$M EBIT A$M 16 60 150 14 6 50 12 10 40 100 4 8 30 6 20 50 4 2 2 10 0 0 0 0 2004 2005 2006 2007 2004 2005 2006 2007 1st Half EBIT 2nd Half EBIT 1st Half EBIT Margin 1st Half E
Slide 20: Dyno performance
Dyno performance EBIT (A$M) Actual Underlying Trading performance of DN Businesses 29.5 Synergies 29.2 Amortisation of intangibles (4.8) 2007 EBIT 53.9 • Defined comprehensive list of projects to deliver synergies target. • Synergies at the end of March $29m. • Of the 700+ headcount reductions ident
Slide 21: Dyno integration costs
Dyno integration costs 2006 Actual 2007 Half Year Cumulative Integration cost category (A$M) Actual (A$M) Actual (A$M) Asset write-offs – non cash 45 - 45 Redundancies 41 - 41 Transitional salaries/other 7 1 8 Synergy implementation costs 4 5 9 Total Integration costs 97 6 103 Project office costs (
Slide 22: Dyno – next steps
Dyno – next steps 2007 and beyond… • Successful implementation of project plans to deliver A$90M in synergies. • Utilise IS manufacturing capacity at Gyttorp, Sweden following the decision to close Troisdorf, Germany. • The business is on track to exit the Dyno Norwegian military business by 31 May
Slide 23: Consumer Products
Consumer Products Sales $424M; EBIT $43M; Average Net Assets $218M A$M 120 14 80 100 12 EBIT MARGIN % 70 10 8 80 EBIT A$M 8 60 10 60 (6) 6 (4) 40 50 48 4 (10) 43 20 2 (3) 40 0 0 2004 2005 2006 2007 30 1st Half EBIT Yates Restructure Impact 20 2nd Half EBIT 1st Half EBIT Margin HY06 Price/Mix Volume
Slide 24: Yates restructuring provision - $9.5M
Yates restructuring provision - $9.5M BENEFITS • Lower cost source of product • Outsourcing manufacture of commodity products • Manufacturing and supply chain rationalisation • Sustainable benefit of cost savings • No change in product offering to customer base COSTS (A$M) Equipment leases 4.2 Plant
Slide 25: Chemical Services
Chemical Services Sales $230M; EBIT $32M; Average Net Assets $382M A$M 80 16 40 70 14 1 EBIT MARGIN % 4 60 12 35 EBIT A$M 50 10 (2) 32 (2) 32 40 8 (1) 30 6 30 20 4 10 2 25 0 0 2004 2005 2006 2007 20 HY06 Mining Miex Watercare Watercare A&R HY07 1st Half EBIT 2nd Half EBIT EBIT MARGIN EBIT Chemicals
Slide 26: Chemnet
Chemnet Sales $470M; EBIT $32M; Average Net Assets $357M A$M 90 12 45 80 EBIT MARGIN % 10 1 70 40 1 10 EBIT A$M 60 8 50 6 35 40 32 (8) 30 4 (1) 20 30 29 2 10 0 0 25 2004 2005 2006 2007 20 1st Half EBIT 2nd Half EBIT EBIT MARGIN HY06 Restructure Latin Profit Volume Forex HY07 EBIT Cost Benefit Americ
Slide 27: Corporate centre and other support services (A$M) EBIT
Corporate centre and other support services (A$M) EBIT 2007 2006 $ Change Corporate Centre (18.5) (17.7) (0.8) Other Support Costs (6.0) (6.8) 0.8 (24.5) (24.5) - Corporate Centre Other Support Services 9 In line with last year 9 Qenos doubtful debt provision reversal ($8M) U Trade working capital i
Slide 28: Cashflow A$M
Half year ended 31 March 2007 Cashflow A$M 2007 2006 $ Change EBITDA 433 350 83 Net interest paid (47) (49) 2 Net tax paid (56) (51) (5) Trade working capital movement (76) (265) 189 Non trade working capital movement 2 (2) 4 Net operating cash flows 256 (17) 273 Net investing cash flows (984) (1,15
Slide 29: Operating cash conversion
Half year ended 31 March 2007 Operating cash conversion 2007 2006 EBITDA 433 350 Net working capital (74) (267) Sustenance capital (58) (103) Cash conversion 301 (20) Cash conversion percentage 70% (5%) 29
Slide 30: Trade working capital
Trade working capital A$M 1,100 100 1,000 90 900 875 800 13 6 789 (276) 6 (26) 700 March 06 Dyno Minova IPL/A&R Creditors Debtors Inventory FX March 07 TWC Divestment Movt Movt Movt Impact TWC Sustained TWC performance in base businesses 30
Slide 31: Underlying trade working capital
Underlying trade working capital Rolling 12 Months TWC/Sales % 20.0 17.5 15.0 12.5 10.0 Sept Mar Sept Mar '05 '06 '06 '07 • Underlying trade working capital/sales ratio 14.2% (pcp 18.4%) Significant sustainable reduction in TWC performance over time 31
Slide 32: Sustenance capital spend
Sustenance capital spend 160 120 140 Sustenance Spend A$M 100 as a % of depreciation 120 80 100 80 60 60 40 40 20 20 0 0 2001 2002 2003 2004 2005 2006 2007 Sustenance % of Depreciation Sustenance capex steady No major turnarounds in the March half year 32
Slide 33: Balance sheet (A$M)
Half year ended 31 March 2007 Balance sheet (A$M) March Sept March 2007 2006 2006 Trade working capital 789 630 875 Net property, plant & equipment 1,664 1,603 1,774 Intangible assets 2,026 1,141 640 Other (liabilities)/assets (584) (405) 752 Net debt (1,233) (302) (1,423) Net Assets 2,662 2,668 2,6
Slide 34: Net debt and gearing
Net debt and gearing Target gearing range shaded 1,600 50 Gearing % Adjusted Gearing % 1,400 40 Net Debt (A$M) 1,200 30 1,000 800 20 600 10 400 200 0 FY03 HY04 FY04 HY05 FY05 HY06 FY06 HY07 z Book Gearing 31.7% z Adjusted Gearing 38.1% (hybrids notionally 50/50 debt & equity split) 34
Slide 35: Environmental provisions update (A$M)
Environmental provisions update (A$M) • Carrying amount 30 September 2006 297 • Provisions made 1H07 5 - Padstow $4M - Whitesides Avenue $1M • Cash Payments made 1H07 (26) - Botany Groundwater $7M - HCB $12M - Seneca $4M - Other $3M • Additions through acquisition of Minova1 6 • Discounting / FX Mov
Slide 36: Environmental provisions
Environmental provisions Environmental Provisions As at 31 March 2007 (A$M) HCB waste processing 118 Botany Groundwater 56 Dyno Nobel1 33 Villawood 32 Seneca 25 Minova1 6 Other2 16 Total Environmental Provisions 286 • Botany Groundwater and HCB waste processing comprise the majority of Orica’s envir
Slide 37: Summary
Summary • Strong result despite softness in some business platforms • Record Mining Services result • Improved underlying result for Consumer Products • Dyno integration on track • Positive start by Minova • Financial discipline and improved cashflow performance • Strong balance sheet capable of fun
Slide 38: Review of recent activity, Minova acquisition, Business portfolio mix, Outlook
Review of recent activity Minova acquisition Business portfolio mix Outlook 38
Slide 39: Orica – the past 18 months
Orica – the past 18 months Sept 05 Dec 05 - Feb Feb 06 May 06 06 Orica Qenos sold to Sale of 70% announced Raised A$1bn China stake in Incitec Dyno acquisition of capital National Pivot Chemical Corp May 06 August 06 December 06 January 2007 EC approval and Yarwun Orica completes Divestment of Dyno
Slide 40: Acquisition of Minova
Acquisition of Minova • Rationale: - expand into a high growth niche market segment - adds further growth to Orica’s portfolio - Minova is a highly cash generative business • The acquisition meets Orica’s strategic criteria: - market leadership - grow “close to the core” - earning the “right to grow
Slide 41: EBIT contribution by business platform
EBIT1 contribution by business platform March 2006 (2) March 2007 (3&4) Orica Mining Orica Mining Services Services 58% 59% Orica Consumer Orica Consumer Products 13% Products 19% Chemnet Minova Chemical Services Chemical Services 11% 12% 8% Chemnet 12% 8% 1. Excludes corporate costs 2. March 2006 E
Slide 42: Gross sales by geography
Gross sales by geography March 2006 (1) March 2007 Australia Australia 44% 50% New Zealand 8% Europe New Zealand 5% 11% Europe Asia 13% 8% North America Latin America Asia 15% North America 8% Latin America 8% 18% 12% 1. March 2006 sales excludes IPL 42
Slide 43: Summary
Summary • Market leadership in chosen businesses • Strong financial discipline, strong returns on capital, ongoing earnings growth and less cyclicality • Strong balance sheet capable of funding strategic growth opportunities and capital management A disciplined approach to growing shareholder value
Slide 44: Outlook
Outlook Subject to global economic conditions, we expect group net profit (before significant items) in 2007, to be significantly higher than that reported in 2006, resulting from a full year contribution from the acquired Dyno businesses, benefits from the recently commissioned ammonium nitrate exp
Slide 45: Half Year Results Announcement April 2007
Half Year Results Announcement 30 April 2007
Slide 46: Supplementary information
Supplementary information 46
Slide 47: Net interest expense
Net interest expense 2007 2006 A$M A$M Net interest expense 54.6 55.6 Comprising: Interest on net debt 48.9 60.4 Less: capitalised interest - (7.9) Add : unwinding of discount on provisions 5.7 3.1 Net interest expense 54.6 55.6 47
Slide 48: Interest on net debt
Interest on net debt A$M Net interest expense excluding funding associated with Minova ($896m1 x 7.4%2 for 6 months) 33.1 Interest on funding associated with Minova ($870m x 7.0% for 3 months) 15.8 Interest on net debt 48.9 1. This is approximately $550m higher than the average of the 30 Sep 2006 an
Slide 49: Impact of Step-up Preference Security (SPS)
Impact of Step-up Preference Security (SPS) Key Points • SPS treated as 100% equity for financial reporting purposes • SPS distributions are treated as dividends and NOT interest • EPS calculation adjusted for SPS distributions on an after tax basis • Rating agencies treat SPS as 50% equity / 50% de
Slide 50: Impact of SPS – earnings per share
Impact of SPS – earnings per share A$M Reported net profit from continuing operations 221.4 Less: Net profit attributable to minorities (11.0) After tax distributions to SPS holders (1) (16.7) Adjusted net profit 193.7 Weighted average ordinary shares on issue 310.4 Earnings per share cps 62.4 (1) D
Slide 51: Impact of SPS – gearing (A$M)
Impact of SPS – gearing (A$M) Reported per Rating Accounts Agency Current borrowings 273.7 273.7 Non-current borrowings 1,212.9 1,212.9 SPS adjustment (2) - 250.0 Less: Cash (253.6) (253.6) Net Debt 1,233.0 1,483.0 Parent entity equity (1) 2,601.4 2,601.4 Minority interests 61.0 61.0 SPS adjustment
Slide 52: Impact of SPS – interest cover (A$M)
Impact of SPS – interest cover (A$M) Reported per Rating Accounts Agency Financial expense 74.5 74.5 Financial income (19.9) (19.9) SPS distribution adjustment (1) - 9.4 Net borrowing costs 54.6 64.0 EBIT 345.6 345.6 Less Share of profits of associates (14.1) (14.1) Adjusted EBIT 331.5 331.5 Interes
Slide 53: Foreign currency - snapshot
Foreign currency - snapshot Material exposures include: 1. Offshore EBIT • North America • Europe • New Zealand • Latin America 2. Transactional Exposures • AUD/USD • USD/Latin American Region • USD/CAD • NZD/USD Net impact of a 1% move in exchange rates on a diversified basket of currencies is appr