2004 AGM - CEO & Managing Director's Address

15 December, 2004

Thank you, Don. It is my pleasure to report on further significant progress for your company during 2004.

Orica is now firmly established in the ASX Top 50 in terms of market capitalisation, and has gained recognition amongst our various external stakeholders as a company that is delivering the promise of sound long-term growth.

Today I will give you an outline of Orica’s results and the drivers of the performance. I will also discuss our growth strategy and how we are progressing against the four principles of our Deliver The Promise Culture.

The record result outlined by the Chairman is a further demonstration of the strength of Orica’s four businesses both as a platform for growth and a continued development of the performance-based culture within Orica.

Orica is a company that turns science into solutions for our customers. You will have seen as you entered this room, just some of the ways that we do this through our development of water cleansing technologies, through our research and development of paint and paint preparation products and through our production of high quality products for miners and manufacturers throughout the world.

This is the basis of Orica’s vision which is to be the best performing science-based solutions company in the world. We will achieve this by securing leadership positions in niche markets which build on our strengths and create economic value for our shareholders. By following and executing our low risk growth strategy, we aim to consistently deliver above average market returns for shareholders. In 2004, this approach produced excellent financial results and built a growth platform for the future.

As Don has said, our underlying profit rose 20%, earnings per share increased by 22% and return on shareholders funds increased to 23%. All of this enabled the board to increase dividends by 31%. Each of our businesses achieved a record result.

I want to take a short time to give you a brief overview of the performance of our businesses. Highlights were Orica Consumer Products and Chemicals Group. Consumer Products, for the first time, reached $100 million in Earnings Before Interest and Tax while Chemicals Group topped $1 billion in revenue for the first time.

The factors contributing to the Consumer Products improvement were an increased focus on marketing and products innovation, improved gross margins and volumes and changes to product mix. The integration of the Yates garden care business is meeting all milestones.

The Chemicals Group achieved the sixth consecutive year of profit improvements. The Chemnet business saw growth, in both Australia and New Zealand, with good demand in most major market segments. The bolt-on acquisitions to Chemnet over the past three years are performing well and the business is a great example of building on strength to deliver growth.

For Mining Services, Australia/Asia achieved a record result driven by continued strong coal demand on the East Coast of Australia. North America also achieved a record result with improved demand for coal fired electricity generation in the second half, and good quarrying and construction activity. Latin America grew strongly in most regions, whilst European volumes grew in Scandinavia, Spain and Germany.

During the year, we announced the restructure of our North American Mining Services business. The North American business RONA for the 2004 year was 16% and is well on track to meet Orica’s 18% RONA hurdle assuming normal market conditions.

Turning to Fertilisers, the results for the year have been somewhat mixed given that we are yet to see a full recovery from the drought. However, the merger of Incitec with Pivot has now been bedded-down and has achieved all its goals of realising the synergies and creating a unified culture.

I now want to give you an outline of our broad strategic direction. We see growth coming from four areas: Industry Growth; Productivity Improvements; Capital Expenditure; and Mergers and Acquisitions. There will be organic growth in all the industries in which our businesses operate and we believe that there is continued scope for year on year productivity improvements going forward. The organic growth and the productivity gains will generate significant free cash to be able to fund further capital expansion, as well as bolt-on acquisitions and geographic expansion, provided of course, they all meet our strict investment criteria. This growth will lead to increased profitability, which together with a healthy dividend yield, will result in above average market returns for our shareholders.

So let’s turn to the opportunities. In Mining Services, we are the global leader, and we’ll continue to leverage off this position as we follow the global resource companies into new geographies across the globe. In November 2003, we were pleased to announce the formation of a mining services joint venture in Russia, and in July of this year completed the purchase of electronic detonator technology from Sasol Mining Initiators in South Africa. The Indian business, in which we took our ownership to 100% last year, had a very good first year as part of the Orica Group.

In addition, incremental ammonium nitrate capacity expansions in Australia have continued to provide a very cost effective way of meeting increased demand, particularly in the coal producing regions on the East Coast of Australia. In August this year, we added a further 40%, or 110,000 tonnes of Ammonium Nitrate capacity at Kooragang Island and this project was completed three months ahead of schedule and under budget. Previously, we have also announced that we were intending to further increase our Ammonium Nitrate capacity at Yarwun in Queensland by around 25,000 tpa. This follows a 30,000 tpa debottleneck brought on line early in 2004 and more recently, we announced that we are now planning to add 300,000 tpa of further capacity at Yarwun in 2006. This expansion will essentially double Yarwun’s current size. These capital expansions are excellent examples of economic capital productivity.

In the Chemicals business, we have continued to pursue organic and acquisitive growth, especially through our Chemnet business and during the year we completed a number of further bolt-on acquisitions. I am pleased to report that all of these acquisitions are on track to meet our financial investment criteria. During the year, we completed the acquisition of Bronson and Jacobs and the Marplex Group of companies which has further enhanced Chemnet’s existing polymers and distribution business. More recently, we announced the purchase of Woods and Woods and we will continue to look for further bolt-on opportunities in the Chemicals business going forward.

We’re also pursuing growth through technological advancement into niche markets. Examples of these projects are the MIEX® water cleansing technology and the Landguard enzyme technology. With MIEX®, we are pursuing commercialisation in the USA, UK & Europe, Asia and South Africa. Landguard , which is an enzyme that cleans up pesticide run-off, has been recently launched to the farming community in Australia.

In Consumer Products, we bought the Yates Garden Care business in October last year and we are pleased with the progress made on the integration of this business. We are keen to continue this expansion strategy going forward as well as continuing to lead the market in product development and innovation.

The merger of Incitec Fertilizers and Pivot has gone extremely well and we delivered significantly more efficiencies than the $30 million synergies initially identified. Incitec Pivot, was also successful in having been selected as part of a consortium to conduct a detailed feasibility study into the construction of a large ammonia/urea complex in Brunei.

So right across our businesses there are number of opportunities for growth and further cost and capital efficiencies.

If we look at growth in terms of dollars, during 2004, we spent or committed, in round numbers, just over $300 million on growth initiatives across the Group, on top of the $550 million in the previous year, bringing the running total to a shade over $850 million. Our low risk approach to growth will continue and I’m confident that these projects will meet our 18% return on net assets hurdle in the third year after the expenditure was made.

In terms of efficiency, our focus had been broadened to what we call the Whole of the Cost Bar with a goal of year on year reductions in cost per unit of sales. During the year, revenue grew by 16.5%. In percentage terms, the increase in costs was 0.4% points less than the revenue growth, meaning that our productivity has improved. The result of our broadened approach has been to reduce costs as a % of sales from 89.6% to 89.3%.

This improvement was generated by a combination of efficiency gains; by being more productive; and reducing costs across the whole of the cost bar. This enables us to invest in more business development activity, growth projects and additional marketing. Where appropriate, we will continue to redirect some cost savings into areas that drive revenue growth. This approach will continue in the 2005 financial year as we continue to look at sustainable ways of delivering year on year revenue improvement.

Looking at some of the best companies in the US and Europe, they really put an enormous amount of effort into understanding the customer’s business, and in some cases the customer’s customer, and we intend to pursue further initiatives in this area, thus driving revenue growth and pursuing process and organisational efficiencies. We are forecasting to spend around an additional $30 million on these projects in 2005.

Regarding capital efficiency, the focus on reducing our investment in trade working capital, has continued throughout the year. Manufacturing continues to be a key element of capital efficiency and this efficiency was evident at the ammonium nitrate plants at Kooragang Island and Yarwun and the ChlorAlkali plants in NSW and Victoria which are continuing to operate above name plate capacity.

In terms of capital management, we completed a 5% buy-back of our share capital during the year and plan to spend up to $250 million on another on market buy-back.

In growing the business, we recognise that we must be responsive to the concerns of our employees and the communities in which we operate. This means running our business safely and with sensitivity to the environment.

In safety, we were saddened by the death of four of our work colleagues in two separate accidents in Latin America during the calendar year. I reinforce Don’s remarks that this is unacceptable and confirm that our first principle covering Safety Health and the Environment is a priority for the board and for management.

In safety, we are including contractors as well as Orica employees in the all-worker recordable case rate which measures the frequency of injuries for every 200,000 hours worked. This has improved and is over 10% less than the same period last year.

We also made progress in environmental performance based on our key performance targets such as use of power and water plus emissions to air, water and land. In 2004, compared with the baseline year of 2000, energy use per tonne of production was 18% lower, CO2 emitted per tonne of production was 27% lower and water consumption per tonne of production was 23% lower. Having successfully achieved the ambitious objectives of Challenge 2005 one year ahead of schedule, we are currently setting ourselves even tougher targets under Challenge 2010.

Orica continued to manage projects to remediate and restore legacy contamination sites and address environmental operation of current plants. While our primary focus is to restore sites, we are looking for ways to develop business opportunities from the expertise and experience we are developing in environmental remediation.

The success of the company in 2004 has been achieved through the skill, enthusiasm and loyalty of our employees who have continued to Deliver The Promise. During the year, I have been able to visit many of our operations and sites throughout the world and I never fail to be struck by the quality and commitment of our employees. I want to personally thank all of our employees and I look forward to working together to deliver the promise which Orica offers over the next year.

The commitment of our employees to the Four Principles of Safety Health and the Environment, Commercial Ownership, Creative Customer Solutions and Working Together has been outstanding, although there is always room for improvement.

I have already outlined our commitment to Safety Health and the Environment. Commercial ownership - running the business as if it was your own – continues to be a highlight for Orica and the benefits have once again contributed to our record result. We have a strong balance sheet, strong coverage ratios and we continue to manage the business under the umbrella of strict financial discipline. This is not to say that there isn’t more that can be done and we are working hard throughout Orica to ensure we don’t lose our commitment to cost efficiency.

By Working Together, we have been able to successfully integrate a number of bolt-on acquisitions during the year as well as improve cost and capital efficiency.

Although we can demonstrate many successes, Working Together is an area where we can add value by better accessing the skills and expertise existing within Orica.

Another area where we will apply greater focus in 2005 is Creative Customer Solutions. This includes increasing our marketing spend to maintain the strength of our brands and to support new product launches and also, putting in place processes to underwrite sustainable growth in revenue into the future.

So in summary, earnings momentum has continued and we’ve been able to grow revenue and reduce our cost as a percentage of revenue. We are investing for growth through investment in mergers and acquisitions, plant expansions, new technologies and on supporting growth initiatives throughout the company. We have returned funds to our shareholders, increased our dividend and announced a further buyback of up to $250 million of our share capital.

Above all, we have continued to "deliver on our promises". We will continue to produce strong earnings momentum, subject to normal caveats around the weather and economic conditions, driven by ongoing improvements in our businesses, the full year impact of recent acquisitions; and the benefit of recent ammonium nitrate plant expansions on the East Coast of Australia. Orica’s future prospects continue to be exciting based upon the strong platform of the existing businesses.

On behalf of the entire Orica team, I look forward to the opportunities presented for the coming year and beyond.

END