Thank you, Don. Good morning ladies and gentlemen. It’s a pleasure to present my first report as Managing Director and CEO of Orica.
As you know I took over as MD of this great Company some four months ago.
But Orica is not a new organisation for me.
I have been with the Company for quite some time and Orica has not only changed names in that time, it has changed itself, from being a subsidiary of a multinational Company constrained to Australia and New Zealand, to a global Company with leadership positions in each of its chosen markets.
The recent sale of Qenos is the final stage in restructuring the “old” business portfolio, and completes the change to being an outward looking, Australian based, multinational Company, with its destiny in its own hands. Of course, nothing stands still, and the Company will continue to evolve.
The journey of the last four years in particular has been an exciting one, and I believe a rewarding one for shareholders and employees alike. And today I would like to provide you with an overview of what was a solid underlying result in 2005, in a year of varying market conditions for our five businesses.
The result is a pleasing one, and reinforces the resilience of the earnings stream from our current portfolio of businesses. Even with a very tough year in Fertilisers, and a softer year in Consumer Products, we have achieved a record underlying result. We have continued the past four years’ improvement, that has resulted in a step change in the performance of the business.
Also, as Don has just outlined, during 2005, we have built the foundation for further growth into the future. In Mining Services, for example, commitment to the expansion of ammonium nitrate production in Australia, at both Yarwun in Queensland and Kooragang Island in New South Wales, and the major acquisition of part of Dyno Nobel, together will be the springboard to strong earnings improvement from 2007 onwards.
However, the on-going success of our Company will come not just from growth, but also from productivity. In Orica we must never lose sight of the need to continuously enhance our productivity, because most of our customers also face relentless pressure on their margins over time, and they expect us to help them succeed by reducing total costs. This dual approach will be a key focus for me. Superior performance will be delivered through the increased revenue created by organic growth and acquisitions, combined with year-on-year sustainable improvements in cost and capital productivity.
Our focus on efficiency, which has been successful in the past, will be broadened through more extensive implementation of global procurement processes, and the introduction of a number of efficiency improvements.
So, let’s briefly recap the headline result. Net Profit After Tax and Before Significant Items was $335 million, a 3% increase over the previous year.
Sales revenue was up 11% to $5.1 billion. Just under half of this 516 million dollars increase came from the impact of acquisitions. The balance came largely from volume growth in Mining Services, plus some price and volume gains in the two Chemicals businesses.
Mining Services, Chemnet and Chemical Services posted record results, reflecting in part, a relatively positive market environment.
Consumer Products performed very strongly despite softer market conditions, due to strengthening market share and significant efficiency gains made in the business.
Self help through efficiency and productivity was also a focus in the Fertiliser business, which confronted poor seasonal conditions and tougher market competition during the year. Incitec Pivot faced the challenge head-on, by restructuring its business, to ensure that it remains the lowest cost supplier of fertiliser on the East coast of Australia.
Our Chemnet business has grown from sales of around 300 million dollars a few years ago to over a billion dollars last year, and delivered a record profit result. This reflects the benefits of a number of acquisitions over the past three years, but we still have more benefits to realise from two of our recent acquisitions, and they need to come through over the next 18 months.
Chemical Services’ record comes from an excellent result in Watercare, and the business is also enjoying the benefit of the strong resources sector in its Mining Chemicals and Specialties businesses.
A highlight of the year was the continuing strength of the Mining Services business. We saw record results in Australia/Asia, Europe and North America, while Latin America was down on the previous corresponding period.
On a personal note, I was particularly pleased to see the continued improvement in performance of the North American business. As you know, I was previously the CEO of the Mining Services business and I was based in North America for several years.
I am very proud of the efforts of the team in North America, to improve the efficiency of their business, which is now achieving well above our performance hurdle of 18% Return On Net Assets.
The continued strong performance of Mining Services was a key consideration in our decision to acquire the businesses of Dyno Nobel in Europe, Latin America, Asia, Africa and the Middle East.
I said at the time that the acquisition was announced, that this was a once-in-a-lifetime opportunity for our Company. It is still very early in the process of integrating the Dyno Nobel businesses in some 50 countries. We have a quality team working on the project, and I’m pleased to report that the first businesses have already begun to move successfully across.
Given that our AGM is about a month later than usual this year, and we have completed our first quarter of trading, I thought it might be worth providing a brief update on market conditions.
Mining services continues to enjoy strong demand conditions, and the main challenge continues to be in recovering the unprecedented input prices that we have seen in recent months.
Chemical Services overall, is seeing firm market conditions in volume and price.
Chemnet has had a difficult first quarter, with slow market conditions, and the effect of previous loss of market share. An internal project is underway to assess what is required to improve the business performance.
As we had anticipated, Consumer Products continues to be adversely affected by difficult retail conditions in Australia but the fundamental performance of the business remains strong.
Incitec Pivot has made a reasonably good start to the year, with improved seasonal conditions and stronger pricing.
So overall business conditions are mixed, but we continue to expect growth in earnings in the current year, subject to seasonal conditions in the agricultural sector and continuing global economic growth.
I want to take a moment to talk about Safety, Health and the Environment, which is an area in which we need to make further improvement. At the last AGM we mentioned a serious incident in Brazil in which three colleagues were killed, and this year we have had a further fatality at Lampa in Chile.
This, of course, is absolutely unacceptable.
Our overall safety performance is comparable with the world’s best in our peer group. Nevertheless, we are increasing our efforts to ensure that we eliminate the infrequent, but potentially serious incidents, that can lead to fatalities.
I have published to everyone at Orica my own personal safety plan, and I am determined that we will achieve a fatality free workplace, and continue the path towards our vision of “no injuries to any one ever”.
In the first quarter of the new year, I am pleased to report that our safety performance has been excellent.
Turning to the Company’s environmental performance, we have continued to make very good progress.
We are currently managing a number of sites with contaminated soil and groundwater, the legacy of operations which ceased long ago. Equally, we have done much to further improve the environmental performance of current operating plants, so we are not leaving the burden of future environmental legacies, to our successors and to future generations.
I’m proud to say that Orica is a Company that squarely faces its responsibilities in this area, and it is gratifying that our commitment is being recognised by communities and the authorities.
For example, I was pleased to host at our Botany site late last year, the New South Wales Minister for the Environment, the Honourable Bob Debus.
You will know that Botany has been a site with considerable environmental challenges related to contaminated groundwater, and there has been enormous effort within the Government authorities, and in our own Company, to deal with them. The project has been very successful, and the Minister was recently quoted as describing Botany as a model of Government and industry co-operation, to benefit the environment and the community.
2005 has been a successful year for Orica, and one of great change.
I would like to acknowledge the support of the Orica team, including the Board, throughout the year. I would also like to add my thanks to my predecessor, Malcolm Broomhead, for his enormous contribution to the continuing success of the Company. We wish Malcolm well.
In concluding, I would like to make a personal observation. As I mentioned earlier, I joined Orica – or as it was then, ICI Australia – nearly 17 years ago, and so I have a very strong personal and professional stake in the success of your Company.
Over my time with Orica, I have worked with a team of people for whom I have the greatest respect - many are here today.
In terms of their professionalism, commitment and talent, they are without peer. They are the reason that Orica is performing so well. They are the reason that I am so proud to lead this Company and they are the reason I have so much confidence in the future.
Thank you.
· Contacts:
- Frank Micallef, Manager, Investor Relations: (03) 9665 7479 Mob: 0413 187 000
- John Fetter, Group Manager, Corporate Affairs: (03) 9665 7870 Mob: 0412 311 371
