2000 Annual Report

This is an abridged text only version of the 2000 Orica Limited Concise Annual Report. Click to download the full text version of the 2000 Concise Annual Report or the 2000 Annual Report with full Financial Report (PDF files).

Financial Highlights

Sales
The decrease in sales revenue was mainly due to the divestment of non core businesses and to the equity accounting of some significant joint ventures. With equity accounting, sales are not brought to account.

Profit after tax and before abnormal items
The reduction in 2000 was mainly due to the loss in Australian Vinyls as a result of higher feedstock costs and lower volumes.

Earnings per share (EPS) before abnormal items
EPS fell in line with reduced profitability and an increased number of shares due to the Dividend Reinvestment Plan.

Dividend per share
The Orica Board's current policy is to distribute between 55-65% of available preabnormal profit. This year the total dividend was 35 cents representing 65.5% of preabnormal profits. The total dividend will be franked to 11.2 cents per share (32%).

Return on average shareholders' funds before abnormal items (ROSHF)
Lower profitability and investment in future growth of the core businesses has reduced return on shareholder funds.

Cash flow from operations
Cash flow from operations is lower due to an increase in working capital, lower margin sales and an increase in tax paid.

Abnormal losses
The abnormal loss was due to provisions for restructuring, additional provisions for the destruction of historical waste at the Botany site, and the impact of amended tax assessments in respect of a sale and lease back transaction. This was partially offset by profit from the sale of businesses and other assets.

Capital expenditure and acquisitions
The capital spent on the acquisition of new businesses, on the maintenance of capacity and the development of existing businesses, returned to more normal levels but is a significant investment in growth.

Gearing (net debt/net debt plus shareholders funds)
Orica has a long term gearing target (net debt/net debt plus shareholders funds) in the range of 30-40%. This range allows Orica to balance new investment opportunities as they arise with prudent financial management. The gearing at year end of 32.1% was close to the bottom of the target range. It is important to note that the range is an indication of long term gearing and, for shorter periods of time, the company's gearing may move outside the range.

Long term growth of core businesses
The graph below shows the historical performance of the current core businesses compared with the overall company EBITDA performance as reported at the time. The core businesses have shown steady growth over the period of approximately 6% per annum with little cyclical variation.

Investing for a Profitable Future
Joint message from chairman Ben Lochtenberg and managing director and chief executive officer Philip Weickhardt

Strategy for future growth
Three years ago we announced a far reaching strategy for reshaping the company as a basis for delivering sustainable growth in the future.

The strategy involved some tough decisions. We had just become an independent company, and with our new found independence came threats as well as opportunities. We recognised that the company's strategy had in the past been aligned to our parent company, and we had to assess whether our businesses, procedures and all parts of our organisational structure were appropriate for our future. We took advantage of this new situation to review everything we did, why we did it and how we did it.

Since then we have reshaped and sharpened the focus of our core businesses of Mining Services, Agricultural Chemicals, Consumer Products and Chemicals. We have sold businesses that no longer fitted our strategy, acquired other businesses that did, and completed the joint ventures in our Plastics businesses to create greater long term value. We have sought efficiencies and economies wherever we can, and have introduced a shared services model for Information Technology (IT), Finance, Engineering, Human Resources and now Safety, Health and Environment, to service all our businesses. We have simplified business processes so that we can compete more effectively and responsively in a competitive global marketplace.

The bulk of the reshaping with a number of divestments is now complete, or as complete as one can ever expect in this changing world. We are actively building our Explosives business in new markets in Europe, North America, Latin America and Asia, as well as Australia and New Zealand, and are improving our products and services to customers in all our businesses. We continue to bring new technology such as our i-kon™ electronic detonator system and MIEX® water treatment process to the marketplace, and we are utilising e-commerce technology to offer electronic shopfronts to our customers. Evidence of the improvements we are achieving in our International Explosives business is becoming apparent.

We have made progress at Orica, but continuing effort is needed to attain our goals. World events not controlled by the company such as the Asian economic crisis, recent soaring energy costs and unfavourable weather, have intervened and impacted on the company over the past three years. Despite this, our pursuit of 'self-help' efficiencies has enabled us to deliver profits and significantly 'reform' the company at the same time. We are now focusing our efforts on achieving improved profitability and increased shareholder value from our reshaped business portfolio.

Business reports
Orica is the world's leading supplier of commercial explosives and blasting services and, in the 1999/2000 year, Mining Services showed a stronger performance again with improved results from the international business. The business also benefited somewhat from the weaker Australian dollar. The improvement was partially offset, as foreshadowed at last year's Annual General Meeting, by lower average prices and volumes in Australia due to the introduction of additional competitor ammonium nitrate capacity.

North America made major improvements to its operations this year through a second joint venture with Nelson Brothers, increased capacity at Carseland (Alberta, Canada), further automation at Brownsburg (Quebec, Canada) and the establishment of the technical centre in Denver (Colorado, USA). During the year, prices for products were lower due to intense competition but volumes were significantly better due to winning a number of significant contracts. The acquisition of ammonium nitrate plants from LaRoche Industries will improve the sourcing position of that p roduct in the USA.

Profitability improved in Latin America, in virtually all countries. The business improved both sales volumes and prices and also benefited from a new favourable ammonium nitrate supply contract with Enaex (Chile). The new joint venture in Venezuela is also providing new opportunities.

The European business continued its expansion, winning contracts in Kazakhstan and Kyrgyzstan and further success in Turkey. The announcement of the proposed acquisition of DNES in Germany and Estonia and the joint venture with Kimit in Scandinavia will result in further growth of this business.

The Australian and Asian businesses won significant contracts during the year and consolidated their position in the region, notably with the establishment of a new explosives plant in China (the first such investment in the explosives business by a foreign company) and a joint venture in India. The Australian business partially compensated for the decrease in prices and volumes by reducing operating costs and delivered a good result.

Through Incitec, one of Australia's largest manufacturers of fertilizers and related products, the Agricultural Chemicals core business had a much better second half year after the disappointing first half result. The Fertilizer business in particular benefited from strong volumes and higher prices in the second half, resulting in one of the best half year results ever recorded by that business. Plant performance overall was much better than last year and contributed to the overall improvement. The crop protection business, Crop Care, continued to face difficult seasonal conditions with sales and profitability considerably lower than last year.

A leading manufacturer and supplier of paint and paint preparation products in Australia, New Zealand and South West Pacific, Consumer Products lifted profitability but experienced lower sales. The reduction in sales was due to the divestment of the polyester resins business in the second half last year. The best performing business in this sector was Australian Paints, which lifted sales and profitability in the Retail and Trade sectors. The business continued to release innovative products and, once again, demonstrated its strong position in the marketplace by winning a number of Supplier of the Year awards from its customers. If the effects of the divested polyester resins business are removed, sales would have been higher than last year by 2% and earnings would have been higher by 3%.

A leading supplier of industrial and specialty chemicals in Australia and New Zealand, Chemicals increased its profitability, largely due to efficiency and productivity gains resulting from the restructuring undertaken last year and the move to shared corporate services. However, revenue was down compared to last year due to the sale of the polyurethanes business in the first half year, and reduced prices in a number of businesses.

Plastics, which is reported under non core businesses, had a difficult year. Australian Vinyls, a joint venture with PolyOne (formerly Geon), experienced difficult trading conditions particularly in the second half year with a spike in raw material prices combined with PVC imports at dumped prices, resulting in a loss for the year. This has now been corrected and the business is expected to trade profitably in the coming year. Volumes were strong in the first half year but fell away in the second half as the building industry slowed. Qenos, a joint venture with ExxonMobil, began to benefit from the synergies arising from the joint venture.

Parallelling these activities were the highly successful projects we completed to make the transition to the new millennium and to have all our business systems ready for the introduction of Australia's Goods and Services Tax (GST) on 1 July 2000.

Investing in the future
We have also invested significantly in our IT systems this year, building an infrastructure to support e-commerce initiatives. Sev e ral of our businesses have already established sophisticated electronic shopfronts with customers and suppliers. In addition, a new intranet was launched, with employees in Australia and New Zealand being the first to come on board. Soon other employees from around the world will have the opportunity to use this powerful tool for sharing information and for communication across our company.

A continuous business improvement ethic at Orica is well established and, in the coming year, we will intensify our efforts to develop a culture that encourages all our people to contribute to the full extent of their potential. We have programs and projects across the company to bring out the entrepreneurial thinking of our people, and to fully realise the potential of their extensive technical and creative abilities. The commitment and enthusiasm of our people involved in these activities has been stimulating, and is recognised at our annual Excellence Awards.

Orica is a company with a strong commitment to values like quality, outstanding customer service and satisfaction, leadership, teamwork and particularly, safety, health and care for the environment. We aspire to be among the world's best companies and this year delivered a best ever safety performance as measured by our recordable injury rate. The company finished the year with a recordable injury rate that is outstanding when compared to other Australian businesses.

Our ultimate goal is to conduct our business with zero injuries and zero work related illnesses. Our setting of new safety, health and environment targets to continue to improve our performance in the coming five years to 2005 is part of this drive. In addition to traditional measures, we have introduced aspects that relate to the operations of our company and our role in society. In particular we have set objectives for material efficiency, reduction of greenhouse gas emissions, product life cycle risk assessments and social responsibility, which are all consistent with our commitment to the sustainability of our business and the world we live in. Our inclusion in the Dow Jones sustainability index this year is external endorsement of Orica's safety, health and environment performance initiatives.

Orica is in a strong financial position and has the capability and the determination to grasp the opportunities that will bring further profitable growth to our businesses. We are a company with a clear strategy and vision of where we want to go, and we have a strong management team and resourceful and talented employees to help take us there. Our core business platforms have in aggregate demonstrated a steady level of profitable growth for more than a decade (see the graph on page 3 which demonstrates that this has averaged 6%). This has occurred during a period of major reshaping internally and during a tough economic environment for chemical companies around the world. We are now determined to accelerate this profitable growth by further investments in our core business platforms.

Orica's priorities for 2001

• Strive for significant improvements in returns on funds employed
• Expand core businesses
• Drive for continuing productivity improvements
• Maximise the performance of our non core businesses
• Pursue our 2005 safety, health and environment targets
• Develop and realise the full potential of our people

Review of Operations

Orica businesses will gain advantage by: Providing a safe and rewarding work environment for employees Being world competitive and innovative Delivering outstanding customer satisfaction Developing the full potential of our people to deliver superior results

Mining Services
Our Explosives business is the world's leading supplier of commercial explosives and fully integrated blasting services to the mining, quarrying and construction industries. It operates in more than 30 countries with manufacturing facilities in Australia, the USA, Canada, Brazil, Mexico, Chile, Argentina, Venezuela, Guyana, the UK, Spain, Turkey, Kazakhstan, Kyrgyzstan, the United Arab Emirates, New Zealand, the Philippines, Malaysia, China, Indonesia and Thailand. Our sodium cyanide business, which provides a key raw material for the gold mining sector, is included in this sector report.

Financial Performance

Revenue increased in the international business mainly reflecting higher volumes from growth in market share, expansion into new markets and the lower Australian dollar. This was partly offset by lower revenues in Australia. The higher capital employed is principally attributable to new investments in China and capacity expansion in Canada.

• Orica continued its expansion into new markets, establishing operations in Venezuela, Kazakhstan, Kyrgyzstan, India and China. It announced agreements to acquire Dynamit Nobel GmbH Explosivstoff und Systemtechnik (DNES) commercial explosives and detonators business in Germany and Estonia, and to form a joint venture with Kimit in Scandinavia.
• Orica's share of the North American commercial explosives market grew, with the business winning major new contracts and benefiting from the reorganisation of our surface mining business to include two new joint ventures with Nelson Brothers.
• Large contracts with Inco and Falconbridge in Canada and Rio Tinto in Australia and the Americas were won through a combination of new technology, process improvement, cost efficiencies and global teamwork by our people.
• Plant improvements continued with the uprate of the Carseland (Alberta, Canada) ammonium nitrate (AN) plant to 515,000 tonnes a year, further automation of the Brownsburg (Quebec, Canada) and Helidon (Queensland, Australia) detonator assembly operations and expansion of the Cuatrociénegas (Mexico) packaged explosives plant.
• Sales volume of sodium cyanide to the gold mining industry increased significantly over the year, including exports to Asia, Oceania, South America and Africa.

Progress against business strategies

• Create lowest cost platforms to supply customers with leading high performance products and blasting services.
  The acquisition of DNES will give Orica a centre of excellence in advanced detonator technology complementing the activities of the new US$13.5 million technical centre in Denver (Colorado, USA), Brownsburg and our other centre at Kurri Kurri (New South Wales, Australia).
• Expand in existing markets by investment in world scale, lowest cost ammonium nitrate capacity.
  The successful uprate of Orica's Carseland ammonium nitrate (AN) plant supports our sales of explosives in North America. The acquisition of industrial grade AN plants from LaRoche Industries Inc. in the USA also gives the North American business additional AN manufacturing capability.
• Expand into new markets and improve the position in existing markets by acquisition or joint ventures.
  During the year the business expanded its operations in Europe, Central Asia, Asia, Latin America and the USA.
• Maintain focus on the safety of its operations and products.
  Employee injuries were reduced by almost 50%.
• Create a global marketing platform that offers customers a common image, product and service package.
  The new i-kon™ electronic detonator system launched globally in September 2000 sets a new benchmark in safety, performance and reliability for the mining industry.

The year ahead

Explosives will continue to strengthen customer relationships globally; realise the benefits of the new electronic detonators; deliver increased returns from new investments and exploit industry rationalisation opportunities. While the current environment of high oil and gas prices has increased costs, reasonable levels of demand are expected from our explosives customers. This, together with anticipated AN price increases and ongoing cost and efficiency benefits, positions the business for improved earnings performance.

Agricultural Chemicals
Our agricultural chemical interests are represented by two separate businesses within Incitec Ltd, which is 76.6% owned by Orica. Incitec is Australia's largest manufacturer of nitrogen based chemicals and its business, Incitec Fertilizers, is a leading supplier of phosphatic and nitrogenous fertilizer nutrients in eastern and southern Australia. Crop Care Australasia, a 50-50 joint venture between Incitec and Orica, is the leading supplier of a range of herbicides, insecticides and fungicides to markets in Australia, New Zealand, Papua New Guinea and the Pacific Islands.

Review

• Incitec Fertilizers increased sales volumes and market share during the year and record sales volumes were achieved. While seasonal conditions were not as favourable for crop protection chemicals, the Crop Care business was also able to improve its market share during the year.
• Incitec Fertilizers opened a new $45 million granular urea plant at Gibson Island (Queensland, Australia) in January 2000, reducing production costs and improving product quality and environmental performance.
• Crop Care's new $4 million liquid herbicide plant at Brendale (Queensland, Australia) opened in May 2000, delivering cost benefits as well as product for expanding agricultural markets.
• The $5.6 million upgrade of the Kooragang Island (New South Wales, Australia) Granulock plant, completed in February 2000, has increased capacity and also delivers a higher quality specialty fertilizer product that is easier for farmers to apply.
• Incitec announced in September 2000 that it will exit its position in rural merchandising group, Grow Force.

Financial Performance

Revenue and earnings were adversely affected by lower results from the crop protection chemicals business due to unfavourable seasonal conditions and price competition in some market segments. Urea prices firmed during the year which, together with a lower Australian dollar, improved nitrogen fertilizer revenue and earnings. Investments to improve operating efficiencies and product quality differentiation, and the crop protection business results lowered the return on capital employed.

• Continue to develop advanced products and delivery systems to enhance the productivity of the Australian agricultural sector.
  Productivity improvements of $9 million per annum were achieved during the year through the restructuring of manufacturing operations and distribution systems.
• Build partnerships with customers and world competitive suppliers.
  Incitec Fertilizers significantly expanded its market position in southern Australia by building its relationship with customers.
• Reduce emissions to air and water from its operations.
  Significant reductions were achieved at Gibson Island and this was recognised by the granting of the industry's 2000 PACIA Environment Award.
• Expand product range through technical innovation.
  Granulock sales increased significantly during the year as a result of improved product quality, and Crop Care's new herbicide, Affinity 400 DF, was positively receivedby farmers in Australia and New Zealand.
• Monitor developments of greenhouse gas abatement measures.
  Incitec has signed a Greenhouse Challenge Cooperative Agreement with the Australian Greenhouse Office and is participating with industry groups developing constructive abatement measures.

The year ahead

With consensus forecasts for international urea prices, a continuation of the weak Australian dollar and favourable weather, the outlook is for earnings growth. The business will continue to focus on productivity improvements and growth opportunities to improve its market position and earnings.

Consumer Products
In Australia and New Zealand, Consumer Products markets an extensive range of products through well-known brand names such as Dulux, Berger, British Paints, Levene, Cabot's, Feast Watson, Intergrain, Walpamur, Acratex, Selleys, Rota Cota and Polyglaze.
Consumer Products is organised into eight Strategic Business Units: Trade Decorative Coatings, Retail Decorative Coatings, Texture Coatings, Protective Coatings, Woodcare, Powder Coatings, Selleys, and Decorative New Zealand.

Review

• Once again the business received a number of major supplier awards in recognition of the business' strong customer service focus and commitment to building long term partnerships. In Australia, Dulux Australia won the BBC Hardware, Mitre 10 and 3D Paint Store Supplier of the Year awards. Dulux was Mitre 10's largest supplier for the second year in a row. Orica Woodcare (featuring the Cabot's, Feast Watson and Intergrain brands) won the 3D customer service award. In New Zealand Dulux won the Guthrie Bowron Supplier of the Year Award.
• The business improved its manufacturing facilities at Rocklea (Queensland, Australia) and completed a new technical centre at Clayton (Victoria, Australia).
• In July 2000, the business launched www.duluxtradeonline.com.au an electronic shopfront designed to deliver online trading access to trade painters, government and trade corporate accounts.
• New products and initiatives exploiting technology for the benefit of the business were launched during the year (see Innovation on pages 18 and 19).

Financial Performance

Higher revenues mainly reflect higher volumes and prices in the decorative paints sector. Higher underlying earnings were partly offset by the effect of the divestment of the polyester resins business late last year.
Commissioning of the Rocklea (Queensland, Australia) manufacturing automation and distribution centre and the new technical centre at Clayton (Victoria, Australia) increased capital employed.

• Maintain a strong R&D program and increase the rate of product innovation.
  A new $12 million Research and Development Technology Centre at Clayton was completed in September 2000, for the continuing development of new products for the decorative paints and architectural coatings markets.
• Continue to improve our relationships with customers and suppliers.
  This year over 3000 retailers/customers from Australia and New Zealand took the opportunity to learn about and use our products at the Orica Consumer Products Academy.
• Ensure costs are world competitive.
  The major $16 million upgrade of the Rocklea manufacturing plant was completed in 2000, involving the installation of two automated high speed paint filling lines and construction of a new distribution centre shared by Consumer Products and Chemicals.
• Reduce manual handling injuries.
  There has been a 30% reduction in injuries this year, although the rate is still too high.
• Grow the business in offshore markets.
  The Texture Coatings manufacturing facility in Malaysia began to supply product in Malaysia and surrounding regions in 2000.

The year ahead

The business looks forward to reaping the benefits that flow from the Rocklea upgrade, innovative new product introductions and its new technical centre, as well as the electronic shopfront for trade professionals which lowers the cost of supply. It does however, face uncertain conditions with forecasts of reduced demand by Australia's housing and construction industry.

Chemicals
Orica is the leading supplier of chemical products and services in Australia, New Zealand and in the Asia Pacific region. Key products include: formulated dairy cleaners; sanitisers and water treatment chemicals; solvents and monomers for the surface coatings market; adhesives and resins for the wood panels and specialty binders markets; and a broad range of inorganic and organic chemicals for use in the manufacture of household and institutional cleaners, and for the food and beverage, engineering, construction and mining industries. Incitec's Industrial Chemicals, included in this sector, sells ammonium nitrate to the Australian Explosives business, and also manufactures specialty sulphur products, industrial urea and ammonia, and alum used in water treatment.

Review

• The Chemicals business has improved profitability with process and cost efficiency improvements in all units.
• The newly constructed MIEX® Resin Pilot Plant at Deer Park (Victoria, Australia) produced its first development batch in August, marking another milestone for this water treatment technology which removes dissolved organic compounds from drinking water prior to disinfection.
• In New Zealand, Chemnet and Kiwi Co-operative Dairies signed a long term exclusive agreement for bulk chemical supply and in plant technical service, providing Kiwi Dairies with the most cost effective cleaning of its plants.
• Incitec's Industrial Chemicals business recorded generally strong sales of its key products, with overall performance buoyed by improved plant performance.
• The Polyurethanes business was sold to Huntsman Corporation for $48 million in February.

Financial Performance

Lower revenues were mainly attributable to the divestment of the polyurethanes business during the year and lower prices in some business segments.
Earnings increased despite the polyurethanes divestment, reflecting significant gains in cost performance. Average capital employed increased, mainly due to expenditure on new chlorine plants due for commissioning in 2001.

• Build partnerships with customers and world competitive suppliers.
  Chemnet's Pulp and Paper business renewed its partnership arrangement with Fletcher Challenge Paper Australasia and Tasman Pulp (now Norske Skog) in a strategic supply partnership covering all operations in Australia and New Zealand.
• Continue to realise productivity improvements and cost efficiencies.
  A $145 million reinvestment in the ChlorAlkali business is underway with new, significantly more energy efficient plants being built at Laverton (Victoria, Australia) and Botany (New South Wales, Australia), due for completion in 2001.
• Assist customers with safe storage, handling and use of chemicals.
  Chlorine Safeguard was introduced this year to assist customers with the safe management of chlorine. Safeguard won the industry's 2000 TG Crane/PACIA Health and Safety Award.
• Innovate through partnerships with research organisations.
  Orica Watercare entered into a long-term research partnership with CSIRO Entomology for the development of enzymes for bioremediation and with the Australian Nuclear Science and Technology Organisation for novel mineral beneficiation processes.
• Achieve world competitive performance standards in all business processes and systems.
  The internet shopfront, www.orica-chemicals.com, was launched and the first internet sales were transacted. It automatically interfaceswith our internal business computer systems.

The year ahead

The business aims to strengthen its market position through growth in chemicals trading by expanding the range of products and services and, if appropriate opportunities become available, through new acquisitions. The new chlorine production facilities at Laverton and Botany will deliver benefits, and commercial exploitation of the MIEX® technology will be accelerated.

Non-core businesses
Plastics and other
Our Plastics business is represented through two joint ventures. Australian Vinyls, a joint venture with the USA company PolyOne, which manufactures polyvinyl chloride (PVC) and PVC compounds, and Qenos Holdings Pty Ltd, a joint venture with ExxonMobil Corporation, which manufactures polyethylene, polypropylene and synthetic rubber.
The 'other' segment includes minor, discontinued, divested businesses and non operating assets, and unallocated corporate charges.

Review

• Australian Vinyls experienced difficult trading conditions in 2000, particularly in the second half year. Higher raw material prices and downward pressure on PVC prices, due in part to imports at dumped prices and a significant decline in demand in some market sectors in the second half year, contributed to a disappointing financial performance.
• The equity accounted share of Qenos' profit reflects a full year effect for the first time. While the result reflects some gains from the merging of the previous ExxonMobil and Orica businesses, increased feedstock costs constrained margins, and continued shortages of ethane from the Longford (Victoria, Australia) facility limited production.
• Orica sold its Moomba (South Australia) to Botany (New South Wales, Australia) ethane pipeline for approximately $124 million. A long term transportation contract has been put in place with the new owners for the supply of ethane to the Qenos plant at Botany.
• GBC Scientific Equipment was sold in the first half year.
• Cast Film business in Australia and Malaysia was also sold in the first half year.

Plastics Financial Performance

Revenue was lowered by the full year effect of the formation of the Qenos polyethylene joint venture which is equity accounted. Lower earnings from PVC, attributable to reduced margins and volumes also lowered returns on capital employed.

• Complete the realisation of synergies arising from the Qenos joint venture, expand market share and optimise value growth through productivity improvements.
  Rationalisation of production has begun with planned expenditure of $15 million underway at Botany (New South Wales, Australia) to increase high density polyethylene capacity to replace imports.
• Recover margins in Australian Vinyls through rebalancing feedstock sourcing, productivity gains, and implementation of a low cost option to rationalise the number of compounds business operating sites.
  Options to improve the feedstock position are being implemented and rationalisation of the compound sites is anticipated in the 2001/2002 period.

The year ahead

Australian Vinyls expects a turnaround in margins in the period ahead as a result of more advantageous arrangements being put in place for feedstock sourcing. Some volume improvement is also expected compared to the depressed experience in the second half of 2000, but the risk of decline in the housing and construction sector raises uncertainties about overall PVC demand.
At Qenos, high feedstock prices are expected to be a feature of business conditions and will constrain margins. Competitive import parity prices will increase as a result of the lower Australian dollar. Commissioning of high density polyethylene capacity at Botany will bring benefits as will the continued drive for cost efficiency and productivity improvements.

Safety, Health and Environment
At Orica we are committed to managing all our activities with concern for people and the environment and conducting our business for the benefit of society without compromising the quality of life of future generations.
Orica publishes an annual Safety, Health and Environment Performance Report at the same time that it publishes its Annual Report. Please click here to download the 2000 Safety, Health and Environment Performance Report.

Innovation
To win against the world's best, Orica must nurture and develop innovative ideas and utilise technology so that those projects which have the potential to sustain or reshape the company can be explored as early as possible.

Looking to the future
Orica is built on a strong research and technology base, and it will continue to rely on new and improved products, novel manufacturing processes, smart technology and innovative people, to bring success in the future.

This does not happen overnight as our commercialisation of the MIEX® resin for water treatment and our recent launch of the i-kon™ electronic detonator system show. Both evolved from idea to product over a 20 year period. Dulux Wash & Wear 101 was also developed after many years' work on the underlying latex chemistry.

Orica depends on having new products in the pipeline and this year's addition of two new technology centres - one at Denver (Colorado, USA) for the Explosives business and another at Clayton (Victoria, Australia) for Consumer Products - will ensure that this tradition continues.

In addition, Orica has established a Strategic Technology Fund to explore the potential of ideas and new science from outside the company, with the aim of identifying new opportunities for future business growth over the next five to 10 years. This means accessing the body of knowledge being created within universities, the leading Australian research organisation CSIRO, and other research institutes both within Australia and overseas.

Key to marketing success

The introduction of innovative new products and services are critical to Orica building and strengthening its position in key markets.
Some recent examples:

• Explosives developed the Eclipse range of emulsion based explosive products to enable customers to mine safely in areas where sulphide ores react exothermically with ammonium nitrate based products. Supported by an extensive product stewardship program, Orica has sold over 70,000 tonnes in Australia and South East Asia. The most extreme example of this product's application is at the Lihir Island gold mine in Papua New Guinea where the rock is not only reactive but also geothermally heated up to 150 degrees Celsius.
• Selleys has had strong sales of Polycell Polyfilla Squeeze & Fill in the United Kingdom, following on from the successful launch of Polyfilla Fastfill and No More Gaps Squeeze Pack in the Australian market. Selleys developed, manufactured and supplied the product to the UK market in less than five months.
• Dulux Wash & Wear 101, a washable, stain resistant, hard wearing paint finish, and Dulux Weathershield X10, which offers10 year protection through all weather conditions, have increased sales of premium branded products in Australia and New Zealand.
• Orica supplied the paint for the Sydney Olympic village.
• BreatheEasy was used as the major interior broadwall coating, while Dulux Weathershield X10 was used on the outside. BreatheEasy is a fume free paint that has been endorsed by the Asthma Foundation of Victoria.
• Incitec's new urea granulator plant at Gibson Island (Queensland, Australia) now produces a world class product that meets the increasing quality standards of Australian agricultural customers, consolidating the market position of Australian manufactured urea.

New to the market

• The i-kon™ electronic detonator system launched worldwide in September 2000, delivers greater accuracy, safety and flexibility with blasts.
• As the world's first magnetic ion exchange resin process for water treatment, MIEX®, is opening up new international opportunities in countries such as the USA, where water quality standards are becoming more stringent. Orica is working with the CSIRO on this project.
• Incitec Fertilizer's EASY N, a liquid fertilizer that is applied through irrigation systems, is staking a claim with the vineyard, vegetable and orchard markets. Utilising the unique combination of Orica's ammonium nitrate capability with Incitec's urea manufacture, EASY N was developed to give growers a highly cost effective source of nitrogen for their crops.
• Utilising e-commerce technology to improve customer service and efficiency, Orica launched a number of customer service shopfronts, including www.duluxtradeonline.com.au and www.orica-chemicals.com, with similar applications for Incitec well underway.
• The recently launched home renovating advisory service, Myspace.com.au, aims to use an internet shopfront to bring together home owners and service providers to deliver an efficient and positive experience in the home renovation market.
• Orica joined forces with 13 other major Australian companies in July 2000 to found corProcure, Australia's largest horizontal marketplace for procuring goods and services.
• Orica launched an intranet in September 2000 aimed at improving communications with all employees. A new Human Resources system will soon deliver a sophisticated self service capability via the intranet to Orica employees.

Orica People
To win against the world's best, we recognise that we not only need the best products and services, but the best people.

Making the most of our people
Orica has approximately 9000 people working in 30 countries across the globe. We aim to assist all of our employees realise their potential for their own benefit and for that of the company, with the assurance that they are working in operations which have regard for the highest standards of safety, health and care for the environment.

We know our ability to meet our vision is in the hands of our people.

For this reason we are committed to attracting very high calibre people to the organisation - and to keeping the very high calibre people we already have at Orica.

We invest in our people with graduate development programs, other specialist training including executive management and leadership development programs, and with initiatives such as Live Wire, where employees are encouraged to pursue entrepreneurial and innovative business ideas. Through projects like this, and through media such as our Globe intranet, we are increasingly giving our people the opportunity to communicate their fresh ideas to the rest of the organisation.

These programs and opportunities are supported by the performance management agreement process where employees establish personal objectives each year. This process gives employees a clear understanding of what Orica expects of them in the way of performance standards, and it gives the company a clear understanding of the career goals, development needs and expectations of each employee.

Reward and recognition is an essential part of developing our people. At our annual Excellence Awards we recognise and reward exceptional performance and teamwork of our people, sharing this with employees from across ou r company in a day of recognition and celebration.
As well as providing ongoing development, opportunities and encouragement for existing employees, Orica continues to seek highly talented people from outside to enrich the organisation with their knowledge, their energy and diversity of experience.

It is pleasing to find that in the last year an increasing number of applicants for positions at Orica have seen the company as offering them opportunities that many other companies cannot.

• Jane Slack-Smith, from our Explosives business in Australia, won a Churchill Fellowship to study remediation blasting around the world.
  Through remediation blasting, former mining and quarry sites are much more efficiently converted into safe reuseable land. Winning the Churchill Fellowship is great recognition of Jane's work.
• Hung Nguyen, a scientist with our Chemicals business, was awarded a CSIRO medal for his contribution to the development of the MIEX® resin. CSIRO is Australia's leading research organisation and the awarding of the medal to Hung was the first made by that organisation to someone from a commercial company.
• Eric Jacobsen, plant manager with Adhesives & Resins business at Deer Park (Victoria, Australia), joined Orica in 1996 attracted by the company's two year work rotation program for new graduates. Now Eric supervises another generation of graduates and is enrolled in an Orica management and leadership development program.

Corporate Governance
Protection and enhancement of long term shareholder value is a key outcome of good corporate governance.

The Orica Limited board of directors' primary role is the protection and enhancement of long term shareholder value. It is accountable to shareholders for the performance of the company. It directs and monitors the business and affairs of the company on behalf of shareholders and is responsible for the company's overall corporate governance.
The board has established general principles under which it and management operate to ensure that business is carried out in the best interests of shareholders and other stakeholders. The board responsibilities include:

• appointing the chief executive officer and succession planning
• approving longer term strategic plans
• monitoring the integrity and consistency of management's control of risk
• agreeing business plans and budgets
• approving major capital expenditure, acquisitions and divestments
• approving funding plans and capital raisings
• agreeing corporate goals, and
• reviewing performance against approved plans.

Responsibility for managing, directing and promoting the profitable operation and development of the company, consistent with the primary objective of enhancing long term shareholder value, is delegated to the managing director, who is accountable to the board.

The Board

Composition
The board currently comprises 10 directors: six independent non-executive directors, including the chairman, and four executive directors, including the managing director. On 2 November 2000 executive director Mr P J Clinch retires. Details of the directors, their qualifications and experience are set out on pages 24 and 25.
The composition of the board seeks to provide an appropriate range of experience, skills, knowledge and perspective to enable it to carry out its obligations and responsibilities. In reviewing the board's composition and in assessing nominations for appointment as non-executive directors, the board uses external professional advice as well as its own resources to identify candidates for appointment as directors.
The balance of skills and experience of the board is kept under review.

Board meetings
The number of board meetings held and the attendance details are set out in the directors' report on page 31.
As well as holding regular board meetings, the board sets aside additional time annually to comprehensively review company strategy. The board also visits the company's operating sites and holds meetings at interstate and overseas venues to enable directors to meet with shareholders, customers, government representatives, business leaders, local community representatives and employees.

Independence
The board recognises the special responsibility of non-executive directors for monitoring executive management and the importance of independent views. Currently the chairman and all non-executive directors are independent of executive management and are free from any business or other relationship with the company that could compromise their autonomy and judgment.
If a conflict of interest arises, the director concerned does not receive the relevant board papers and is not present at the meeting whilst the item is considered. Directors must keep the board advised, on an ongoing basis, of any interest which could potentially conflict with those of the company.

Appointment terms
Apart from the managing director, directors are subject to shareholder re-election by rotation at least every three years. Non-executive directors appointed since 1 October 1998 are appointed for a maximum term of ten years or on attaining 70 years of age, whichever is the earlier. All directors must obtain the chairman's prior approval before accepting appointment to a publicly listed company.

Independent advice and access to company information
Each director has the right of access to all relevant company information and to the company's executives and, subject to prior consultation with the chairman, may seek independent professional advice regarding their responsibilities at the company's expense. A director also has the right to have access to all documents which have been presented to meetings or made available whilst in office, or made available in relation to their position as director for a term of seven years after ceasing to be a director or such longer period as is necessary to determine relevant legal proceedings that commenced during this term.

Directors' Orica shareholdings
Directors are required to hold a minimum of 1,000 shares. Their current shareholdings are shown on page 31. Directors and relevant employees may only buy or sell Orica shares during two month periods following the annual and half-year results' announcement and the annual general meeting and only when not in possession of any undisclosed price-sensitive information.
Executive directors and senior managers who are granted options under the Orica Executive Share Option Plan are prohibited from exercising options unless they do so within the above periods and are also not in possession of any undisclosed price-sensitive information.

Directors' fees
Non-executive directors' fees are determined by the board within the aggregate amount of $750,000 which was approved by shareholders at the 1998 Annual General Meeting. In determining the level of fees in the context of the nature of the directors' work and responsibilities, the board reviews external professional advice and survey data on fees paid by comparable companies and considers this against the level of remuneration required to attract and compensate directors of the appropriate calibre.
The amount of directors' fees paid to each non-executive director is presently $60,000 per annum and the chairman receives a multiple of three times this amount. Additional annual fees of $7,500 are paid to members of the Audit Committee, the chairman of which is paid $15,000. No additional fees are payable to the members of the Remuneration & Appointments Committee. Non-executive directors do not participate in any equity incentive schemes.
Retiring non-executive directors are entitled to an allowance, up to a maximum of their last three years' remuneration after five years' service (pro rata for a lesser period). Any superannuation entitlements attributable to compulsory company contributions (currently 8% of remuneration for eligible directors) are deducted from this allowance.
The total remuneration of non-executive directors for 2000 was $548,250 and the details of remuneration paid to each non-executive director during 2000 is set out on page 34.

Board committees
The board has established charters for the operation of its committees.
These charters provide flexibility for the scope and operation of the committees' activities and the minutes of these committees are circulated to the board.

Audit Committee
The Audit Committee comprises three independent non-executive directors.
The current chairman is Mr G E Heeley and the other members are Mr B Healey and Mrs C M Walter. It assesses and reviews external and internal audits and any material issues arising from these audits, and is charged with assessing the adequacy of the company's financial and operating risk management controls, compliance with legal requirements and ethical guidelines affecting the company and corporate governance practices. It also assesses and reviews the accounting policies and practices of the group as an integral part of reviewing the half yearly and full year accounts for recommendation to the board. It also makes recommendations to the board regarding the appointment of external auditors and the level of their fees and provides a facility, if necessary, to convey any concerns raised by the internal and external auditors independently of management influence. The external auditors attend meetings and meet privately with the Committee at least twice per year.

Remuneration and Appointments Committee
The committee, which comprises all the non-executive directors, is chaired by the chairman, Dr B H Lochtenberg. It reviews the performance and remuneration of senior management including executive directors.
Remuneration is set by reference to independent data, external professional advice, the company's circumstances and the requirement to attract and retain high-calibre management. It also has responsibility for the appointment and succession of the chief executive officer and executive directors, the nomination of non-executive directors and a regular review of the board's composition and performance.

Board appraisal
The board carries out a formal annual review of its performance against its responsibilities and examines the processes and effectiveness of each of its board meetings against continuous improvement criteria. A discussion with individual directors is undertaken by the chairman.

Appraisal of managing director
The non -executive directors are responsible for regularly evaluating the performance of the chief executive officer. The evaluation is based on specific criteria, including the company's business performance, short and long term strategic objectives and the achievement of personal objectives agreed annually with the chief executive.

Internal controls and management of risk
The company has established controls at the board and business group level that are designed to safeguard the company's interests and ensure the integrity of its reporting. These include accounting, financial reporting, safety, health and environment and other internal control policies and procedures, which are directed at ensuring the company fully complies with all regulatory requirements and community standards.
The board has in place integrated risk management programs aimed at ensuring the company conducts its operations in a manner that allows risks to be identified, assessed and appropriately managed. Businesses have the responsibility and accountability for implementing and managing the standards required by the program.
Further details of the company's policies relating to interest rate management, forward exchange risk management and credit risk management are included in Notes 10 and 28 of the full financial statements.
Through these and other policies the company seeks to control the risk that arises through its activities. Comprehensive practices are in place with the intent that:

• capital expenditure and revenue commitments above a certain size obtain prior board approval
• financial exposures are controlled, including the use of derivatives
• safety, health and environment standards and management systems are monitored and reviewed to achieve high standards of performance and compliance
• business transactions are properly authorised and executed.

Shareholders
The company has a well established practice of providing relevant and timely information to its shareholders (enhanced by its use of its internet site) and supported by a formal policy and procedures on continuous disclosure.

Code of Ethics
Orica has published a Code of Ethics to provide employees with guidance on what is acceptable behaviour. Specifically, the company requires that all directors, managers and employees maintain the highest standards of integrity and honesty in the day-to-day performance of their duties and in any situations where their actions could influence respect for the company.
The key elements of the code are characterised by:

• fairness, honesty and loyalty supporting all actions
• being aware of and obeying the law
• individually and collectively contributing to the well-being of shareholders, customers, the economy and the community
• avoiding behaviour which is likely to reflect badly on employees and the company
• 'openness' and 'public disclosure' as the test for all actions.

To assist employees in applying the code in practice, the company has developed policies and guidelines dealing with the following:

• safety, health and environment
• protection of information and the company's resources
• trade practices compliance
• conflict of interest
• insider trading and dealing in securities
• equal employment opportunity and harassment
• gifts and benefits
• prevention of, and dealing with, fraud.

The Code of Ethics is reviewed regularly by the board and processes are in place to promote and communicate these policies.