2003 AGM - Chairman's Address

17 December, 2003

Ladies and gentlemen, your Board is confident that Orica is now running well.

We have a clear strategy built on our conviction about the excellence and potential of our four business platforms and the ability of our people to manage them.

Shareholders seem to share this view and we have seen continued restoration of confidence in the Company, tangibly demonstrated by the improvement in the share price.

Total shareholder returns of course include dividend as well as share price.

In November we declared a dividend of 34 cents per share for the half year, 19% franked, bringing the total dividend for the year to 52 cents. This represents a 17% increase in dividend compared with last year, and a dividend yield of 4% based on the closing share price of $13.07 at declaration of the dividend.

Profit before significant items was $270.3 million. After significant items, the profit was $100.7 million.

The principal significant item was the write down of our investment in Qenos – a matter which was reported at the half year, and accepted by the market.

The underlying profit represents a 13% increase over the corresponding period last year. Return on shareholders funds is now 19.6%.

And at this level our economic profit is positive. That is, we earn a surplus after we have returned the cost of capital. In our view, at this performance level we have earned the right to invest for growth.

Each of the business platforms performed creditably. Mining Services achieved double-digit profit growth in all regions except North America. Chemicals reached a $100 million-plus profit for the first time, lifting profit by 22%.

Consumer Products’ improved profit by 18% to $89.1 million.

Fertilisers was the only business which was down on last year, because of the worst drought in Australia in 100 years. Even so, fertilisers delivered a profit of $42.8 million.

I mentioned investing for growth. In the past year, we have invested, in round numbers, $600 million. This has included $491million on mergers and acquisitions, $57 million on brownfield expansions; and $49 million on a share buy-back.

The biggest transaction during the year involved our fertiliser business and included the purchase of Incitec minorities, the merger of the fertiliser interests with Pivot Limited and the integration of Incitec Industrial Chemicals into Mining Services and Chemical Divisions.

There were a number of smaller "bolt-on" acquisitions in Chemicals, Consumer Products and Mining Services which have been – or are being – successfully integrated.

During the year, we demonstrated our ability to not only successfully manage our existing business platforms but also, to grow these businesses. You will see more growth of this nature going forward.

I now want to say a word or two about Corporate Governance.

All of your directors take corporate governance very seriously. Our guiding principle is to work in a way that is best for the Company, its business and its stakeholders.

We have committee structures and Board policies evolved over many years that suit the needs of Orica. Coincidently most of the structures and policies that we have reflect what these days are referred to as Corporate Governance Best Practice Guidelines, although there are areas where we differ, for example on executive remuneration.

The detail of our approach to corporate governance is outlined in the Annual Report and I refer shareholders seeking further information to this source in the first instance.

We did recently have a third party expert look at our Board processes and overall governance framework, and are confident that the way we work is appropriate.

At our last AGM, I spoke to you about our existing incentive arrangements for senior executives and our plans to review these arrangements for the future.

By the way, please recall that all decisions on executive remuneration are made by the Board Remuneration Committee which is comprised entirely of non-executive directors with no participation in Orica’s incentive schemes.

During 2003, the Remuneration Committee, spent considerable time reviewing the alternatives for an incentive scheme to attract and motivate our executive talent in future years. We took independent advice from remuneration experts.

We considered it was important that any scheme be consistent with, and aligned to, the performance of the Company over the longer term, and the interests of shareholders.

The Remuneration Committee has supported the introduction of a new long-term incentive plan to commence in 2007 and it is appropriate that I give you some detail about the new remuneration scheme which I believe most cost effectively meets our objectives.

The proposed plan is related to the existing share loan scheme offered to the CEO and the six members of the executive team which we have found very successful. This is in preference to continuation of the option scheme which is presently in place for other executives at Orica, but which we will discontinue on its completion in 2006.

I will take you through some of the key features.

First, annual loans of an amount related to salary (depending on job level, loans will range from 30 -70% of annual salary) will be made to executives for the purchase of Orica shares. (The shares will be purchased on market to avoid dilution of share capital.) After 3 years, provided that economic profit targets have been met, there will be forgiveness of some part of the loan.

Executives will be required to apply dividends received on their shares to the repayment of the loan which will have recourse limited to the actual shares.

The Company will secure the shares so they cannot be disposed of prior to fulfilment of the 3 year term.

The great merit of this scheme is that the cost to the Company is known at the outset and can be aligned to total remuneration policies; the benefit to employees is open-ended in that there is no ceiling to the potential share price; and the amount of equity involved (unlike in any option scheme) is quite modest.

And can I say again this new scheme is sufficiently similar to that in place today to the Managing Director and his team. We are more than confident that it will be effective.

The Australian Stock Exchange has supported the participation of Orica’s executive directors in this share plan by granting a waiver from Listing Rule 10.14.

Consistent with our approach on disclosure we will include full details of the share plan and performance hurdles in our reports to shareholders.

We are satisfied that our remuneration packages provided to executives are fair and reasonable, and that our disclosure of all elements of the entitlements of executives is transparent.

I mentioned earlier our "significant items", this year amounting to $170 million, relating essentially to a provision for an environmental clean-up program at Botany and also, to Qenos, our 50/50 plastics joint venture with Exxon Mobil.

The environmental issue at Botany involves the clean-up of contaminated groundwater as a result of historic operations.

Let me make it clear.

We are committed to resolving this issue in the same way that we feel obliged to deal with all environmental issues as a result of our operations, even though some are the result of operations ended decades ago. Orica has developed a high level of expertise in remediating our former sites and has a good record. This will continue.

We are working with Government regulatory authorities at a variety of sites in Australia and New Zealand. Sometimes, resolution of these issues is difficult and can even involve development of new technology.

However, our people are steadfast in seeking workable solutions and we look to an effective partnership with the government Environment Protection Authorities as we strive for appropriate outcomes.

In relation to Qenos and the $123 million write-off of our investment, I addressed this matter in the Half Year report and I don’t intend to go into further detail today, except to say that we intend to dispose of this business. We have no doubt that this is a good business in the right portfolio; however, it is not the right business for Orica going forward.

The future for Orica will continue to be focused around our four business platforms. In the past two years, we have demonstrated an ability to achieve good results in tough market conditions, and there appears to be an improving outlook regarding external forces which, during this year, adversely impacted our performance notably the drought and the overall state of the world economy.

In addition, our new investments of the past year will make substantial contributions in the coming years and enable the Company to continue to grow as well as to continue to provide shareholder returns above the market average. The start to the new financial year has been encouraging.

The Board congratulates Malcolm and his team for their hard work and the good results achieved.

I am now pleased to invite, Managing Director, Malcolm Broomhead, to address you.