Iluka Resources Limited · ASX:ILU
Iluka Resources — FY2003 Earnings Presentation
40 slides from Iluka Resources's earnings presentation, February 2004
Slide 1: Investor Presentation: 2003 Full Year Results
Investor Presentation 2003 Full Year Results February 2004
Slide 2: Agenda
1 Overview 2 Financial Performance 3 Operational Performance and Outlook 4 Market Outlook 5 Progress Against Strategic Objectives 6 Concluding Comments 7 Appendices
Slide 3: Performance overview – 2003 full year
Performance overview – 2003 full year Production Sales Revenue 2.5 1,000 Tonnes (M's) 2.0 800 1.5 600 A$M 1.0 400 0.5 200 0.0 0 00 01 02 03 00 01 02 03 TiO2 Zircon Coal EBITDA Net Profit 300 120 250 100 200 80 A$M A$M 150 60 100 40 50 20 0 0 00 01 02 03 00 01 02 03
Slide 4: Positive factors influencing 2003 results
Positive factors influencing 2003 results 4 Improved EHS performance 4 MnM cost savings and operational efficiency gains achieved 4 Higher overall production despite CRL’s production difficulties 4 Record zircon production 4 Significantly higher zircon sales and prices 4 USA turnaround on track 4 Ov
Slide 5: Negative factors influencing 2003 results
Negative factors influencing 2003 results 4 Production and sales 4 USA - delayed final commissioning of Old Hickory, Lulaton start up and impact of Hurricane Isabell 4 CRL production difficulties, including a 3 month shutdown of the Yarraman dredge 4 lower SR sales (2002 sales underpinned by invento
Slide 6: Agenda
1 Overview 2 Financial Performance 3 Operational Performance and Outlook 4 Market Outlook 5 Progress Against Strategic Objectives 6 Concluding Comments 7 Appendices
Slide 7: 2003 versus 2002 Net Profit after Tax & OEI
A$M FX on 20 40 60 80 0 100 120 Pr Au io st 20 rY 02 ea Re rT ve 109 ax nu De B e pr en ec ef iat its -49 ion & W Re Am A st ru or -21 -m ct t aj o u r CR rY ing L- -8 OY Co m c st aj o st s US or ite A YO m -6 -m Y s aj co or sti YO te Y m s -13 co 20 st ite 03 m -5 He s 20 dg 02 in gg -1 He ain Di
Slide 8: Financials
Financials 2003 2002 Sales Revenue cont-ops (A$m) 786.0 836.8 Cashflow operating cashflow (A$m) 179.0 139.9 cashflow per share (A$) 0.77 0.62 Profitability EBITDA (A$m) 230.7 237.6 EBITDA/cont-sales (%) 29.4 28.4 EBIT (A$m) 115.1 129.6 NPAT (A$m) 85.2 109.0 EPS (A$m) (Basic) 0.37 0.49 ROE (%) 9.6 13
Slide 9: Financials cont’d
Financials cont’d Group Consolidated 2003 2002 Gearing and interest cover gearing (%) 29 34 interest cover (times) 9.8 9.0 Dividend final dividend (cents) 12 12 total dividend (cents) 22 22 franking (cents) 9.2 2 payout ratio (%) 60.1 46.9
Slide 10: Hedge position/Balance sheet exposure
Hedge position/Balance sheet exposure Hedge position as at 1/1/2004 2004 2005 2006 2007 Hedged US$ 125.0 105.0 73.0 60.0 Av cash rate 0.5508 0.5734 0.5857 0.5690 Balance sheet exposure as 1/1/2004 4 Australian trade debtors - approx US$50m 4 Debt - US Private notes - US$100m 4 Net debt - approx US$5
Slide 11: Corporate tax position
Corporate tax position 4 Tax position going forward is based on the following 4 no further tax expense shelter 4 expect an effective tax rate of around 30% for 2004 4 expect to commence paying tax in 2005 4 2003 full year tax rate was lower than expected 4 FX gain on US$100 million notes not taxable
Slide 12: Dividend - franking outlook
Dividend - franking outlook Payment Cents/ Franking Source of Dividend timing share status franking 2003 Franked CRL Special Div – Sep 2003 10 cents Interim 92% first tranche 2003 Final April 2004 12 cents Unfranked Likely CRL Special Div– Franked ~ 2004 Sept 2004 10 cents Anticipated 90% Interim* s
Slide 13: Agenda
1 Overview 2 Financial Performance 3 Operational Performance and Outlook 4 Market Outlook 5 Progress Against Strategic Objectives 6 Concluding Comments 7 Appendices
Slide 14: Murray Basin overview
Murray Basin overview 4 DFS for Douglas and MSP nearing completion 4 on track for Q2 final investment decision 4 technical and commercial issues progressing as planned 4 key regulatory approvals completed 4 Construction startup and commissioning schedule unchanged 4 mine and MSP construction commenc
Slide 15: Murray Basin – progress update
Murray Basin – progress update 4 Mining unit, wet concentrator plant (WCP) and MSP 4 preliminary design work/formal reviews completed 4 detailed design work nearing completion 4 Contracts awarded/tenders issued 4 pipeline and pumping station contacts awarded 4 road and earthworks tenders issued 4 Co
Slide 16: Murray Basin – new development option
Murray Basin – new development option 4 Euston region is developing as a viable alternative to KWR as the next mining operation 4 grades/assemblage capable of delivering similar/better R&Z production rates 4 lower capital costs, reduced technical risk via dry mining 4 opportunity to defer higher cos
Slide 17: WA Operations review
WA Operations review 1,200,000 4 MnM projects 50% complete by year end 1,000,000 4 Increased zircon production 800,000 4 sourcing/mining higher grades (MW) k tonnes 600,000 4 improved recoveries (SW/MW) 400,000 4 Increased SR production 200,000 4 improvements to kiln operating practices 0 which offs
Slide 18: Western Australia – “One Site Focus”
Western Australia – “One Site Focus” • More remote mine sites • Greater blending of ores • Shared production options • Transport a key issue • Managed as one group CATABY GINGIN WAGERUP
Slide 19: WA Operations – outlook and key challenges
WA Operations – outlook and key challenges 4 Production 4 expected deterioration in grades and assemblages will result in lower rutile and zircon production 4 SR production – slightly higher - includes 4 week maintenance shutdown of SR2 in early Q1 2004 plus 2.5 week shutdown of SR3 and 6 week shutd
Slide 20: CRL Operations review
CRL Operations review 140,000 4 R&Z production lower due to difficult mining conditions 120,000 4 dredge damage at 100,000 Yarraman 4 hard cutting at both k tonnes 80,000 deposits 60,000 4 MnM projects substantially 40,000 complete by year end 4 Dry mining fast tracked to 20,000 offset production lo
Slide 21: CRL Operations – outlook and key challenges
CRL Operations – outlook and key challenges 4 2004 R&Z production impacted by 4 planned 6 week Ibis dredge shutdown in Q1/Q2 4 lower grades during 12 month transition to Enterprise, commencing mid-Q2 2004 4 Heavily reliant on supplementary dry mining to offset lower dredge production and help underp
Slide 22: USA Operations review
USA Operations review 300,000 4 MnM projects substantially complete by year end 250,000 4 Final commissioning of Old Hickory completed in Q1 200,000 k tonnes 4 MC1 relocated in Q1 and 150,000 upgrade commenced in Q4 100,000 4 Production increased at both locations 50,000 4 Construction of Lulaton (M
Slide 23: USA Operations outlook and key challenges
USA Operations outlook and key challenges 4 Florida/Georgia 4 MC1 upgrade and Lulaton (MC2) start ups completed mid-Q1 4 GCS dredge closure planned for end Q1 4 Virginia - full year of production at expanded capacity levels 4 USA combined production expected to be 15% – 20% higher compared with 2003
Slide 24: Agenda
1 Overview 2 Financial Performance 3 Operational Performance and Outlook 4 Market Outlook 5 Progress Against Strategic Objectives 6 Concluding Comments 7 Appendices
Slide 25: TiO2 market outlook
TiO2 market outlook 4 Feedstock market remains competitive with supply outstripping demand 4 TiO2 pigment prices under pressure as producers fight for market share. Pigment producer’s profitability under pressure 4 Additional slag and sulphate ilmenite placing pressure on feedstock prices 4 Customer
Slide 26: TiO2 feedstock supply/demand
TiO2 feedstock supply/demand Chloride TiO2 Supply Demand Price Outlook TiO 2 Units (kt) 4 Synthetic Rutile 4,500 4 prices increasing in US$ to 4,000 establish REV with slag 3,500 4 Rutile 3,000 4 prices increasing in US$ to 2,500 maintain REV with slag 2,000 1,500 4 Chloride ilmenite 1,000 4 price m
Slide 27: 2004 TiO2 sales outlook
2004 TiO2 sales outlook Synthetic Rutile Rutile Sales at production capacity Sales lower due to production constraints 500 250 400 '000 tonnes 200 '000 tonnes 300 150 200 100 100 50 0 0 2003 2004 2003 2004 Chloride Ilmenite Sulphate Ilmenite Slight improvement due to increased Sales under pressure d
Slide 28: Zircon market overview
Zircon market overview 4 Market tightened in 2003 driven mainly by supply side constraints 4 Continuing tight market dynamics forecast as modest demand growth (3% pa) outstrips supply 4 Chinese market is major growth area – Iluka is No.1 in China 4 Significant US$ price increases negotiated for 2004
Slide 29: Zircon sales outlook
Zircon sales outlook Zircon Price ex Australia 2004 sales outlook (ABS 1970 - 1998, IM 1998 - 2003) $1,200 4 Expect a slight reduction $/tonne Real - 2003 $1,000 due to Zircon Price $800 $600 $400 4 large increase in $200 2003 due to $0 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 tem
Slide 30: Market outlook summary
Market outlook summary 4 Two distinct markets in terms of supply/demand 4 TiO2 4 titanium minerals competitors aggressive in US$ pricing 4 REV of high TiO2 feedstocks has been realigned 4 could sell more rutile and SR if product is available 4 Zircon 4 Iluka has achieved a significant US$ increase i
Slide 31: Agenda
1 Overview 2 Financial Performance 3 Operational Performance and Outlook 4 Market Outlook 5 Progress Against Strategic Objectives 6 Concluding Comments 7 Appendices
Slide 32: Progress against strategic objectives
Progress against strategic objectives 4 MnM program implemented – on track to meet target of A$40 million in pre-tax earnings by end 2004 4 A$24 million in pre-tax earnings achieved in 2003 through cost savings 4 USA production and profitability turnaround achieved 4 Good progress with expansion opp
Slide 33: MnM program – 2003 results
MnM program – 2003 results A$24 million in pre-tax benefits achieved through cost savings 4 key areas – WA mining (49%), CRL processing/mining (25%) and USA processing/mining/admin(24%) MnM operational efficiencies 4 mining – additional 211,000 tonnes of HMC produced 4 key areas – SW (56%) and Virgi
Slide 34: MnM program – 2004 targets
MnM program – 2004 targets A$35+ million in pre-tax benefits 4 key areas – WA mining/processing and corporate/admin MnM operational efficiencies 4 mining – additional 328,000 tonnes of HMC produced 4 key areas – WA (43%) and USA (44%) 4 processing – additional 100,000 tonnes of finished product 4 ke
Slide 35: Agenda
1 Overview 2 Financial Performance 3 Operational Performance and Outlook 4 Market Outlook 5 Progress Against Strategic Objectives 6 Concluding Comments 7 Appendices
Slide 36: 2004 financial outlook
2004 financial outlook 4 The 2004 NPAT result will be influenced by FX – a flat result compared with 2003 would be a good outcome based on current FX rates 4 Despite FX issue, 2004 will see an improvement in the quality of earnings 4 The tax holiday has gone and Iluka is transitioning to a more effi
Slide 37: Agenda
1 Overview 2 Financial Performance 3 Operational Performance and Outlook 4 Market Outlook 5 Progress Against Strategic Objectives 6 Concluding Comments 7 Appendices
Slide 38: Group production & sales 2003 v 2002
Group production & sales 2003 v 2002 Product – k tonnes 2003 2002 Rutile production 142 168 Rutile sales 167 172 SR production 472 447 SR sales 467 517 Ilmenite production 1,451 1,363 Ilmenite sales 740 673 Zircon production 406 361 Zircon sales 409 364 Other production 14 11 Other sales 51 47 Coal
Slide 39: Impact of exchange rate on EBIT
Impact of exchange rate on EBIT A$ / US$ EBIT Sensitivity vs 2003 @ 0.67 0.68 0.70 0.72 0.74 0.76 0.78 0.80 A$ EBIT Impact pre hedging -$5.4m -$15.7m -$25.4m -$34.6m -$43.3m -$51.6m -$59.4m A$ Hedging benefit to EBIT $2.7m $8.0m $13.0m $17.6m $22.1m $26.3m $30.3m A$ EBIT & Cash Impact -$2.6m -$7.7m
Slide 40: Debt repayment profile - $million
Debt repayment profile - $million 2004 2006 2008 2010 2011 2013 2015 Senior Notes- US$45 US$45 US$30 US$30 1996 notes Senior Notes - 2003 notes US$40 US$40 US$20 Bank syndicated US$100 Loan (un drawn) Trade Finance A$45* - Facility (A$100m) * Includes A$6m of non-recourse funding