ORICA MACQUARIE ANZ CORPORATE DAY

Transcription

1 ORICA MACQUARIE ANZ CORPORATE DAY 30 August - 1 September 2017 Singapore & Hong Kong

2 DISCLAIMER 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 intended to be used as the basis for making an investment decision. This presentation has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the maximum extent permitted by law, none of Orica Limited, its directors, employees or agents, nor any other person accepts any liability, including, without limitation, any liability arising out of fault or negligence, for any loss arising from the use of the information contained in this presentation. In particular, no representation or warranty, express or implied, is given as to the accuracy, completeness or correctness, likelihood of achievement or reasonableness of any forecasts, prospects or returns contained in this presentation. Such forecasts, prospects or returns are by their nature subject to significant uncertainties and contingencies. Before making an investment decision, you should consider, with or without the assistance of a financial adviser, whether an investment is appropriate in light of your particular investment needs, objectives and financial circumstances. Past performance is no guarantee of future performance. Non-International Financial Reporting Standards (Non-IFRS) information This presentation makes reference to certain non-ifrs financial information. This information is used by management to measure the operating performance of the business and has been presented as this may be useful for investors. This information has not been reviewed by the Group s auditor. Forecast information has been estimated on the same measurement basis as actual results. 2

3 ORICA OVERVIEW 00 Month 2016 Presenter Name Presenter Title Presenter Name Presenter Title

4 GLOBAL LEADER IN MINING AND CIVIL BLASTING Economies of scale Scale and efficiency that comes from being the leading supplier of commercial explosives and blasting systems to the mining and infrastructure markets globally Leading brand and strong reputation Leading supplier of commercial explosives globally with c.30% 1 market share, and a strong reputation for innovative solutions, safety and security of supply Highly regulated industry Market leadership in technology Expertise acquired through a long history of operating in a highly regulated industry involving production, storage, transport and handling of dangerous products and chemicals Market leadership in technology and innovation that comes from having more than 140 years of experience. Orica estimates it invests 2-3 times its nearest competitor in R&D and innovation Strong customer relationships Strong and longstanding customer relationships supported by contracts that can span 3-5 years in duration Strong Balance Sheet Disciplined approach to capital management Committed to maintaining an investment grade credit rating (BBB stable outlook) Substantial competitive advantage that is difficult to replicate 1. Management estimate 4

5 TRUE GLOBAL FOOTPRINT Operates in over 50 countries and customers in more than 100 countries worldwide 140+ YEARS of experience and innovation No.1 GLOBAL SUPPLIER of commercial explosives 11,500+ EMPLOYEES serving customers across more than 100 countries 1,500 BLASTS PER DAY on our customer sites 5

6 GLOBAL MARKET LEADER Orica s global leadership is a key differentiator Unrivalled licensing, scale, facility footprint, and market presence to service large customers in multiple jurisdictions regionally and globally Facility proximity to customer operations provide material cost advantages and security of supply Agility to respond to dynamic market requirements through a managed balance of internal manufacturing capacity and third party sourcing Unmatched technology and focus on creating value for blasting customers Orica s key competitors by region Australia, Pacific and Indonesia North America Latin America Europe, Africa and Asia Orica does not have a true global competitor 6

7 FLEXIBLE MANUFACTURING AND SOURCING CAPABILITY Orica complements own manufacturing capabilities with flexible global sourcing arrangements: Highly disciplined approach to the management of the company s AN manufacturing capacity c.50% AN volume globally, strategically 3 rd party sourced to meet specific business/regional requirements Carseland 500 ktpa Bontang 300 ktpa Yarwun Burrup Major 3 rd party AN supplier locations Orica AN manufacturing facilities Supply route (indicative only) ktpa ktpa KI 1. Nameplate capacity reduced to 280 ktpa in 2015 in response to market conditions, ramp-up to full nameplate capacity of 550 ktpa has commenced in line with market demand 2. Orica has a 45% economic interest alongside its joint venture partner Yara. Burrup is expected to be commissioned in FY ktpa 7

8 DIVERSIFIED GLOBAL BUSINESS Diverse geographic portfolio % of HY17 revenue¹ By commodity % of HY17 revenue¹ By product / services offering 2 % of HY17 revenue¹ 20% 9% 30% Australia/Pacific & Indonesia North America Latin America Europe, Africa and Asia Minova 21% 16% Thermal Coal Coking Coal Iron Ore Q&C Copper Gold Other 25% 4% 7% 5% 12% 8% 3% 16% AN/ANFO Bulk Emulsion Packaged Products Initiating Systems Mining Chemicals Onsite Services Resins/Powders/Steel Other 31% 17% 24% 15% 12% 17% 8% 8 1. Excludes inter-segment sales 2. Advanced Products and Services is embedded in several product/services offerings 8

9 PRUDENT APPROACH TO CAPITAL MANAGEMENT Recent Key Deliverables Maintaining an investment grade credit rating S&P affirmed BBB Stable rating Dec 2016 Gearing: 35% Net Debt reduced Capital Management Assessment Framework Preserving the flexibility to facilitate future investment alternatives and respond to changes in the operating environment Revised approach to Capex 20%+ RONA for growth capital projects Capex forecasted for $ m in FY17 Maximising returns to shareholders New payout ratio dividend policy replaced prior progressive dividend Payout ratio to be in range of 40-70% of underlying earnings 9

10 SAFETY AND ENVIRONMENT 00 Month 2014 Presenter Name Presenter Title Presenter Name Presenter Title

11 SAFETY AND ENVIRONMENT Safety Performance Fatalities Major Hazards Initiative (MHI) Total Recordable Injury Frequency Rate FY14 FY15 FY16 HY17 TRIFR (LHS) 1 Fatalities (RHS) Company-wide identification of site major hazards and verification of key controls Hazard awareness - Identification of top 5 major hazards across each site that can lead to fatalities and verification of the effectiveness of preventative controls Hazard Identification and Control Verification - ~100 major hazards identified across Orica - Undertaken +14,000 verifications this year - Action plans to improve control effectiveness identified Leadership Interaction Program - All levels of leadership actively involved in key control verification - Demonstrating visible and felt leadership 1. Total Recordable Injury Frequency Rate (TRIFR) represents total number of recordable cases per 1 million hours worked Safety Spotlight: ASX 100 Companies & More Citi Research September 2016 Safety is our priority. Always. 11

12 BUSINESS IMPROVEMENT INITIATIVES Alberto Calderon, Managing Director and CEO

13 DRIVING EFFICIENCIES AND ADDING VALUE This phase of Business Improvement Initiatives takes a holistic view of the business considering all factors that create value, so that we can: 1. Buy better; 2. Produce more with less; 3. Add value for our customers; and 4. Deliver value to our shareholders 13

14 1. BUYING BETTER Focuses on leveraging Orica s global network to lower unit costs Examples of initiatives delivered: Initiative Reduced ammonium nitrate 3rd party purchase cost Volume Leverage and Competitive Bidding Reducing booster unit cost by maximising existing assets Reducing freight costs Benefit Identified that 3rd party supplier cost of AN to Orica was not optimal Key driver was expensive ammonia feedstock for supplier Assisted supplier to negotiate reduced ammonia input cost given Orica s vast knowledge and leverage of ammonia New contract effective 1st January 2017 with annual savings in excess of $4 million Consolidated AN container volumes from Europe to South America across multiple supply points Competitive Bidding Process New contract effective 1st April 2017 with annual savings in excess of $2 million Make vs Buy analysis on booster network cost undertaken; identified potential savings by increasing own production of boosters rather than sourcing 3 rd party product Increasing production loading of own booster plants enabled improved efficiency of production, lowering unit production costs. Further cost reduction through leveraging increased raw material spend, allowing more competitive pricing of inputs Annual savings in excess of $2 million from make plus leveraged sourcing Leveraging all Orica global container movements (non-hazardous cargoes) and tendering volumes Rates re-negotiated and awarded through a standard process Anticipated $1 million saving annually 14

15 2. PRODUCING MORE WITH LESS ONE MANUFACTURING Focuses on operational performance, quality, and commercial outcomes to support the regional businesses Standardisation Rationalisation Profitability All plants will run their business in the Orica Manufacturing Way using standard measurement and governance systems to maximise the advantage of standardisation Current multiple technologies used for meeting a single customer requirement will be rationalised to the minimum possible to build supply chain integrity and at the same time drive efficiency Plant Managers will be accountable for profitability and RONA performance of their plants moving away from a cost only focus Key benefits: Lower safety risk profile Superior product quality Enhanced supply security (supply anywhere from anywhere) Standardisation of products (reduced, profitable range) Support of lifecycle management of IS/PE products Meets customer product expectations in a consistent way Examples of initiatives delivered: 1. Increasing utilisation rates at existing manufacturing facilities on the Australian east coast Ammonia and ammonium nitrate are key inputs to fertiliser production; Orica s nitrogen manufacturing and supply chain competencies are well aligned to supply this market Previous experience in fertiliser market; Diversifies income base 2. Reducing gas usage at Kooragang Island Replacement of plant catalysts 3. Full automation of Gyttorp assembly packaging process which will form the standard for packaging automation globally 15

16 3. ADDING VALUE TO OUR CUSTOMERS WIRELESS INITIATION Successful commercial trials of the industry's first remote wireless initiation system - 2 underground trials completed in North America and Australia Conventional loading shots fired - ZERO misfires Significant value demonstrated Recovery benefits: - Mine plan optimisation - Reduced dilution - Increased ore recovery Safety benefits: - Fewer misfires - Reduced exposure to blasted/unstable rock - Reduced exposure of people working at mine face Illustrative wireless loading 16

17 3. ADDING VALUE TO OUR CUSTOMERS INTELLIGENT BLASTING ~20 TLS sites 8 sites with tools to customer crews 5 pilot sites with Smart MMU Hundreds of licences globally ~800 monitors, mostly Nordics 6 sites globally BlastIQ for data enabled intelligent blasting - Blast design management - Blast assurance management - Vibration & airblast measurement - Fragmentation measurement - Blast data integration - Licence to operate assurance - For 18 months technologies have been piloted with customer users December 2016 launch; piloted with customer users at 35 mine sites globally Benefits realised: - Predictive blast outcomes - Optimised blasting for mine productivity 9 customer pilot sites 17

18 SUPPLEMENTARY INFORMATION 18

19 HISTORICAL FINANCIALS Revenue 1 ($m) EBIT 1 (excluding individually material items) ($m) 2,809 2,844 2,553 2,539 2, % % 12.4% 12.8% 12.9% H15 2H15 1H16 2H16 1H17 1H15 2H15 1H16 2H16 1H17 EBIT EBIT Margin 1. Continuing Operations 19

20 REGIONAL OVERVIEW: AN VOLUME AND EBIT MARGIN 1 Australia, Pacific & Indonesia North America % 19% 19% 22% 22% 12% 16% 15% 14% 15% 1H15 2H15 1H16 2H16 1H17 1H15 2H15 1H16 2H16 1H17 Latin America Europe, Africa & Asia % 11% 8% 7% 7% 11% 9% 9% 11% 11% 1H15 2H15 1H16 2H16 1H17 1H15 2H15 1H16 2H16 1H17 AN volume (mt) EBIT margin (%) 1. Based on HY17 revenue 20

21 REGIONAL OVERVIEW: REVENUE BY COMMODITY 1 Australia, Pacific & Indonesia North America 12% 7% 4% 8% Thermal coal Coking coal Gold Iron ore Copper Q&C Other 43% 17% 17% 13% Thermal coal Coking coal Gold Iron ore Copper Q&C Other 4% 30% 16% 10% 12% 7% Latin America Europe, Africa & Asia 5% 9% 13% 20% 11% 44% Thermal coal Gold Iron ore Copper Q&C Other 6% 23% 28% Thermal coal Gold Iron ore Copper Q&C Other 14% 4% 23% 1. Percentage based on HY17 revenue 21

22 MINOVA: TURNAROUND CONTINUES Revenue and EBIT margin % 4% Revenue by sector 1 (%) 2% 2% 5% 3% EBIT ($m) 1H16 2H16 1H17 1H15 2H15 1H16 2H16 1H17-1% -2% -5% 32% Coal Hard Rock Civil Tunnelling Construction Geo-technical Other 56% Revenue EBIT margin (%) Turnaround continues EBIT positive Strong pipeline of opportunities in diversified segments (hard rock and non mining) Continued geographic expansion into complementary markets 1. Based on HY17 revenue 22

23 DISCIPLINED CAPITAL MANAGEMENT Capital Expenditure 1 ($m) FY14 Group FY15 Continuing Operations ~$ FY16 HY17 FY17 Forecast Sustaining Capital Growth Capital Burrup AN Plant Disciplined approach to capital management - All license to operate capital expenditure (safety, environment, regulatory) has been approved - Ranking of capital prioritised across the Group Continued focus on working capital and Orica s Capital and Investment Management Framework Gearing at 35% - Expect to be within stated target range of 35% - 45% going forward Net Debt ($m) 1,894 2,054 25% 1,532 HY15 HY16 HY17 1. Excludes capitalised interest 23

24 FX EXPOSURE EBIT Composition (FX Translation) (%) FY17 FX movements (% change from pcp) EBIT Sensitivity to FX Movement 1 (1% change +/-) Canada 8% Latin America 8% Asia 7% United States 38% USD EMEA LATAM USD EMEA LATAM 1.2 m 0.6 m 0.2 m EMEA 19% CAD CAD ASIA 0.3 m 0.3 m Australia 20% ASIA TOTAL 2.6 m -20% -10% 0% 10% Basket of ~45 currencies translated to AUD earnings Broad distribution of earnings provides some insulation against cyclical currency fluctuations 1. Sensitivity based on 6 month EBIT result 24

25 DEBT PROFILE Facility Headroom (A$m) $3,546 $3,644 Drawn Debt Maturity Profile (A$m) 600 Average tenor at March years $1,650 $1, $1,896 $1, Mar-17 Drawn Undrawn Sep-16 0 FY17 FY18 FY19 FY20 FY21 FY23 FY25 FY26 FY31 Committed Bank Facilities Export Credit Finance US Private Placement Other 2 Orica has issued the equivalent of AUD398 million of bonds in the US Private Placement market for a term of 10 years. The bonds issue was completed in May 2017, with the proceeds applied against the redemption of a May 2017 maturity. The bond issue will result in a desired extension of the drawn debt maturity profile to the equivalent of 6.3 years. 1. Drawn Debt average tenor post the May USPP bond issue will be 6.3 years 2. Includes over, lease liabilities and other borrowings 25 25

26 DISCLOSURES AND DEFINITIONS Term AN volume EBIT EBIT margin Capital expenditure Growth Capital Sustaining Capital RONA Net debt Payout Ratio Gearing % pcp S&P Definition Includes Ammonium Nitrate (AN) prill and solution and Emulsion products include bulk emulsion and packaged emulsion Equivalent to Profit/(loss) before financing costs and income tax expense disclosed in note 2 within Appendix 4D Orica 2017 Half Year Report before individually material items EBIT / Sales Comprises total payments for property, plant and equipment and intangibles as disclosed in the Statement of Cash Flows within Appendix 4D Orica 2017 Half Year Report Capital expenditure that results in earnings growth through either cost savings or increased revenue Other capital expenditure Return of Net Asset Total interest bearing liabilities less cash and cash equivalents as disclosed in note 10 within Appendix 4D Orica 2017 Half Year Report Dividends per share for the year / Earnings per share Net debt / (net debt + total equity) Previous corresponding period Standard & Poor s 26