Orica Full Year Results

26th October, 2000

Orica Limited today reported a full year profit after tax and before abnormal items of $147 million, down 6% on the 1999 result. This result was in line with the statement issued to the Australian Stock Exchange on August 9.

Three of the company’s four core businesses, Mining Services, Chemicals and Consumer Product, increased their profitability, while the fourth, Agricultural Chemicals, was down due to unfavourable seasonal conditions and reduced earnings in the Crop Care business. In addition, the non-core Australian Vinyls Corporation subsidiary was well down due to a short term raw material pricing spike and low priced dumped imports.

Profit after tax and abnormal items was $113.7 million, down from $186.2 million in 1999. Abnormal items of $33.3 million after tax included an increase of $29.5 million to the provision for the destruction of historical stocks of waste at the company’s Botany, New South Wales site.

Orica managing director and chief executive officer, Philip Weickhardt, said: "Our result this year is something of a mixed bag. While we were down overall, three of our four core businesses have continued to grow earnings, in each case under quite difficult trading conditions. Since the decision to radically reshape the Orica Group, the overall earnings from the four core businesses has grown each year, including a further 3.4% this year."

The mining services business performed strongly with earnings up by over $13 million. "The continued improvement in our core businesses, and in particular the strong showing by international explosives, strengthens our conviction that we are on the right track with our reshaping strategy" Mr Weickhardt said.

The Orica Group’s two year cost and efficiency improvement target of $120 million was exceeded with an annualised total of $159 million in improvements generated over the period. "Most of our key markets have been going through tough times, so we have relied heavily on our internal improvement initiatives, together with holding or lifting market share, to sustain and grow the earnings from our core businesses" Mr Weickhardt said.

Earnings per share after tax and before abnormal items were 53.5 cents, down from 57.8 cents last year. After abnormal items, earnings per share were 41.4 cents, down from 68.8 cents last year. The directors declared a final dividend of 19 cents per share, giving a total dividend for the year of 35 cents, compared with last year’s 37 cents. 11.2 cents of the final dividend will be franked.

Gearing (net debt to net debt plus equity) was 32.1% at the September 30 year end. This is at the lower end of the company’s 30-40% target range.

Significant Events

There were several significant events that have been initiated or completed during the year:

• Commencement of the 50-50 joint venture for explosives with Nelson Brothers in the eastern United States
• The ammonia import tank at Yarwun (Queensland) and the urea granulator at Gibson Island (Queensland) were completed and are now operational.
• Commissioning of the Weihai (China) packaged explosive and initiating system plant took place in May
• A joint venture for explosives was commenced in Venezuela.
• Commissioning of the Carseland (Canada) ammonium nitrate plant capacity expansion to 515,000 tonnes pa.
• Completion of the sale of the Ethane pipeline from Moomba to Botany in New South Wales
• Proposed acquisition of two ammonium nitrate plants in the United States from LaRoche Industries
• Proposed acquisition of Dynamit Nobel Explosivstuff und Systemtechnik (DNES) in Germany

Outlook

World chemical prices and the strength of the domestic and international economies will influence the profit for the coming year. The strong rise in world oil and energy prices has had a significant impact on the costs of the chemical industry globally and has adversely affected a number of Orica’s businesses.

The outlook for the coming year will depend to some extent on the duration of high oil and energy prices and on the ability to pass these costs on to customers through price increases. The growth in profit from overseas Explosives operations due to the restructuring and acquisitions undertaken in the past few years is expected to more than offset the impact of the additional competitive ammonium nitrate capacity in Queensland. Australia based businesses selling to the building industry will also be affected by reduced activity in this sector. The Agricultural Chemicals business will benefit from forecast urea prices and the low Australian dollar.

Recognising these uncertainties, on balance, the company is expecting improved profitability in the coming year.