2006 AGM - Chairman's Address

21 December, 2006

Ladies and gentlemen, last meeting I talked to you about how we were building strong foundations for your company’s future. It is my pleasure today to report that we have over this past year cemented those foundations.

Orica has been through a year of transition and significant change. Yet, throughout these changes your company has delivered excellent results – it has delivered strong earnings and dividend growth. In a short while, Managing Director, Graeme Liebelt, will give more details on these results and our disciplined approach to growing shareholder value.

Of all the developments over the past year, our parting with Incitec Pivot has, perhaps, been the most significant. This business had, and continues to have, very sound fundamentals. However it became increasingly clear that it was not a strategic fit with the rest of our business.

It had its own needs for substantial capital investment and had a very different risk profile to the rest of Orica. There was a real prospect of the requirements of the parent being different to the priorities of the subsidiary. It was in our mutual interests that, at the right time, we go our separate ways. That time arose and has been to both our benefits. 

That decision is something that stands alone as a sensible development. It is not an indication of any general trend towards rationalising our business portfolio. Our four current business platforms, we believe, offer good growth potential and also a less volatile earnings stream. They have a sound business model and they each lead their chosen markets.

However, the Orica structure remains a work in progress.  We continuously review our portfolio, and ensure that each of our businesses remains aligned to our strategy of growing close to the core, being market leaders and that they continue to earn the right to grow.  That strategy has not changed.

We have a wonderful business in consumer products and we continue to assess the opportunities it may have beyond the shores of Australia, New Zealand and the Pacific Islands.

Our Chemical Services business had a record result this year. There is strong demand in the sodium cyanide market and we are the world’s second largest producer. In another example of our organic growth strategy we are expanding our sodium cyanide capacity at Yarwun and this is due online during 2008.

There is terrific potential for growing our Watercare business.  Your company already plays a significant role in the increasingly important water industry here and abroad – servicing both municipal and industrial customers.

Our MIEX water purification technology this year expanded into South Africa and extended its reach in the United Kingdom and the US.

We are the leading supplier of chlorine and sodium hypochlorite to local water treatment markets. We see some growth potential through water recycling  - you will recall that we are already active in this at Botany - as this area becomes increasingly important to communities around the globe.

Chemnet has had a difficult year as a result of slowing market conditions and, with the benefit of hindsight, of too many acquisitions too soon. These needed time to be consolidated.

However, we believe that this year’s restructure of the business positions it to deliver our required level of return on investment. 

Our Mining Services business delivered a record result and there were some very significant changes in that business this year.

After signing the purchase agreement in September 2005, the transfer of the 28 former Dyno Nobel businesses to Orica was completed in June. A lot of the delay was due to time needed to secure the required regulatory approvals.  This timeframe reflected the due process of the European Commission bureaucracy. We didn’t run into any unforeseen difficulty and indeed are advised that the approvals were remarkably quick by the standards of the Commission.

We are delighted with this acquisition and, of course, we continue to have excellent mining services businesses in Australia and North America – which is why, for competition reasons, we couldn’t acquire the Dyno businesses in those countries.

We now have an even stronger presence in Europe, Asia and Latin America. Not only does the acquisition expand our global reach, it gives us outstanding opportunities in growing markets.

And here at home, the expanded Yarwun plant was successfully commissioned in August. Yarwun is now the largest industrial grade ammonium nitrate plant in the world and Orica, in fact, has the three largest plants in the world.

Another more recent development is our acquisition of the Minova company.  It supplies underground mine, tunnel, wall, ceiling and ventilation reinforcement.  This is a major initiative in what I would call an adjacent and very complementary business in terms of customers, technology and geographic reach.

This acquisition allows us to expand into a high growth niche market segment.

The strength of our core mining services business allows us to step out into this neighbouring sector which provides earnings diversification with reduced earnings volatility.

As we mark our first decade as an independent company, perhaps the most symbolic development this year was the completion of the sale of our Qenos joint venture. Orica’s transition from an ICI subsidiary to a true global leader in its own right is complete.

Throughout this year’s journey, we have maintained our financial strategy and the fundamentals that underpin it.  Following our various divestments, acquisitions, rights and hybrid securities issues, we emerge with a conservative but solid financial structure.

We are BBB plus rated and we presently plan to remain so.  We have a progressive dividend policy. We have a target gearing range of 35-45 per cent that we are comfortably within. We believe our financial strategy – our prudence – serves investors well.

We appreciate that may make us interesting to some private equity players – the activities of whom seem to be presently at a heightened frenzy.  Our conservative gearing strategy is in place with a view to the long term and to providing insulation against potential difficulties.

We understand this must be balanced against exposure to short term opportunism. However this is something all companies must grapple with and we would look to our shareholders to recognise the benefits of maintaining a prudent strategy that provides the financial capacity to realise our development plans.

Just as our approach to management of our financial resources underpins our long term outlook so too does our strategy in relation to our people.

Ladies and gentlemen, with the completion of the Minova acquisition, there will be more than 14,000 Orica employees around the globe – more than half of them located outside of Australia. We have operations in 50 countries and customers in twice that many.   

This year has seen the consolidation of our senior management team. There have been some changes and some new faces. I introduced the team earlier.

This is not the first time I have spoken of the importance the board attaches to succession planning. 2006 demonstrated the strength of that planning with appointments to senior management positions and Graeme Liebelt will provide further details on that shortly.

Your company has many outstanding and talented people and we appreciate that makes them attractive to other organisations.  As we attract, nurture and motivate the best people, we would hope their career opportunities and aspirations are fulfilled within Orica.

That, inevitably, is not always the case.  However we have very strong talent coming through the ranks and that is reflected in recent changes. Internal appointments were made in three senior management positions.

In parallel to our talent management strategy, we benchmark our people against the external market to ensure the best candidate is always appointed.

With our strategy of acquisitive growth of course comes the addition of new employees. We have seen that with the Dyno and Minova cases. The quality of their people was part of what attracted us to them.

Regardless of where our people are located across the globe, what language they speak, whether they are newly appointed or long serving  - they share a common commitment to our values and principles.

I’d like to talk briefly about one of those and that is to ‘value people and the environment’.

Orica will not walk away from any part of its legacy responsibilities with regard to the environment – we have always been very clear about that. We have proposed a solution for the HCB waste at Botany and we’re managing the groundwater contamination at that site.  In fact our work on groundwater at Botany is actually assisting the Sydney water supply situation and we could extend that activity if the opportunity arises and we hope that it does.

We acknowledge we are a significant consumer of resources and have an unavoidably large environmental footprint.

We aim to continuously improve and reduce our impact on the environment per unit of product or service. You wouldn’t expect any less of your company. 

Ladies and gentleman, it has been a year of re-shaping for Orica and we feel we are well positioned.

In closing, I would like to thank everyone in the Orica team for their contribution to another successful year.

To tell you about the fundamental drivers of that success, I’ll now hand over to Managing Director, Graeme Liebelt.