CEO's Speech to Shareholders 30 April 1999

Good morning, ladies and gentlemen.

Orica is much more than a new name. We emerged from being majority owned by ICI to become an independent Australian company almost two years ago now. With that separation came the recognition that we had gained some excellent opportunities. But we also knew that to realise these opportunities we would have to make bold changes, necessary changes for the future success of our company. We had an important objective – to continue to create value for our shareholders.

We developed a strategy to reshape the company which took stock of the dramatic changes occurring in the world chemical industry, and would enable us, as an Australian based company, to grow and prosper in this environment.

The reshaping of Orica is around the four core businesses. These are:

Mining Services, which includes explosives, chemicals and services for international mining and quarrying industries;

Agricultural Chemicals which, through Incitec and Crop Care Australasia, makes us a leading supplier of agricultural products and services to farmers;

Consumer Products, where we have excellent brands such as Dulux, Berger, British Paints, Cabot’s, Selleys and many others …..

…and Chemicals, where we continue to be the leading supplier of chemical products and services in Australasia.

We have made significant progress with the implementation of that strategy.

Firstly, we have made acquisitions involving a total investment of some $600 million which will provide Orica with added sources of income and growth for the future. The biggest acquisition in this list is the International Explosives business but we’ve also been busy building our paints portfolio by buying businesses in the wood care area, adding brands like Intergrain and Feast Watson. We also bought a powder coatings business from HB Fuller … and we’ve invested further in explosives by buying businesses in Thailand and Dubai.

Secondly, we are investing approximately $225 million in projects in some of our core businesses for their future success …

… and thirdly, the $330 million share buy back made in 1997 is another significant investment that should not be forgotten.

On the divestments front we have raised over $840 million from a number of sales. We have divested those businesses where we believed their competitive advantages were not sustainable in the long run in our hands. Some of these involved tough decisions - such as the sale of our Technical Coatings business to PPG - because they were very good businesses. We sold them in a manner - and at a time - to optimise value for our shareholders. Now the focus is on growing those businesses where we can win against the world’s best.

In addition we have announced a number of joint ventures which are part of our strategy. Two weeks ago we made an announcement about one on our list – a joint venture with Kemcor to combine our businesses in the polyethylene plastics area. We announced that both parties had reached agreement on all the major issues to create a highly competitive business with a combined annual turnover of $700 million. We are now looking forward to the signing in the next month and a 1 July start up of that business.

These joint ventures give us the opportunity to leverage increased profitability from dramatically reduced costs achieved through industry rationalisation. Since we have joint ventured our PVC business with Geon to form Australian Vinyls Corporation we have seen the business perform extraordinarily well despite record low product prices internationally.

So how have our businesses performed in the first half of this financial year?

In Mining Services – which includes our Explosives and Mining Chemicals businesses - Orica has maintained or grown its global market share in a highly competitive environment. We are proceeding with initiatives to restructure and improve the businesses at a rapid pace, despite difficult market conditions in the mining industry. Resource commodity prices have continued to fall, causing mine closures and reduced volumes in some regions. This has led to intense competition in the explosives market and has generally affected the profitability of the business. But we have proceeded with the restructuring of our North American operations, the last upgrade of our Carseland Canada ammonium nitrate plant is complete and we have maintained volumes in Australia similar to this time last year.

The Agricultural Chemicals business – made up of Incitec and Crop Care Australasia – showed improved results compared to the first half of last year. This was largely due to Crop Care, our crop protection business, which experienced a strong cotton season with increased sales and profitability. Our fertilizer business lifted volumes but this only partially compensated for the extremely low urea prices.

Sales were up in Consumer Products, particularly in the Woodcare and Powders businesses, with the Feast Watson, Intergrain and HB Fuller businesses acquired last year performing well. The retail decorative paint business grew in a competitive market, with contributions from new innovative products and strong brands, such as Dulux and Berger. The trade decorative business had a more difficult half with softer demand and strong competitive pressures suppressing prices. Selleys also had a better half than last year benefiting from higher sales and improved control of fixed costs.

Sales in our Chemicals business improved on the first half last year. This was largely due to volume improvements with prices either flat or down. This segment now includes our Adhesives & Resins and Polyurethanes businesses. Adhesives & Resins, the Chloralkali businesses and our chemical trading business Chemnet, all improved sales and profit performance. During the first half year Adhesives & Resins commissioned its new Indonesian plant, Chemnet acquired Azko Nobel’s bulk dry chemicals business and approval was given for the construction of a pilot plant at Deer Park in Victoria to make a novel product – Miex resin - for water treatment.

In Plastics – now one of our non core businesses – sales were down 10 per cent on the first half last year. Plastics prices were significantly lower for the first half year this year although volumes have been maintained.

As you can see, our businesses have had to contend with a very difficult trading environment.

As the chairman has already said, the chemical industry around the world is going through a tough time. Much of it is a cyclical industry which means (if you look at this chart) that it goes through periods of high prices, growth and profitability …and everyone says this is terrific, we must expand our capacity. You then get massive overbuilding and the down side of the cycle starts: with overcapacity and lower growth producing poor profits. Unfortunately that is where we are right now in a number of businesses such as polyethylene, sodium cyanide, urea and PVC.

These swings in the profitability of chemical companies around the world get reflected in our share price. Our stock went through a painful cycle in the late ‘80s, early ‘90s and now we’re going through such a down cycle again. Our share price is currently disappointing but, if you look over the long term, this has happened before and yet we have generated superior shareholder returns.

You can see from this chart that since 1980 we have generated a 10 year total shareholder return of around 21 per cent against all ordinaries of 16 per cent.

We’ve done it in the past – and we’re determined to do it in the future.

How will we do it?

Yes, we are missing the profits from the Pharmaceuticals, Technical Coatings and Surfactants businesses which totalled some $65 million last year before interest and tax. And this year, as the chairman has said, we have resumed contributions to our superannuation fund. This is anticipated to cost approximately $40 million before tax during 1999.

Our challenge is to fill this earnings gap … we are confident that, in the longer term, our focus on our four core businesses will achieve better results than if we had stayed with our previous portfolio.

There is no doubt that the productivity and business improvements we have built into our operations over a number of years have helped us weather the worldwide economic difficulties. In the three years since 1995 we have made cost efficiency and productivity improvements of over $240 million. Over the next two years we have targeted savings of a further $120 million.

We are doing this by re-engineering the company to drive costs out of the organisation. We make these savings in all sorts of ways from running our plants better to saving money by being smarter about the ways we buy products. We are also working smarter. For example, in the finance area, where only a few years ago a consolidated balance sheet took 15 days to produce, it now takes four days.

Our plan to fully acquire Incitec was driven by a desire to simplify and further streamline the way we run the company. However, we were very clear about how much this was worth to us and we were not going to overpay. Our relationship with Incitec has been – and still is - an excellent one. We have always ensured that Incitec is managed for the benefit of all shareholders and we will continue to do so.

On 1 May last year we acquired the International Explosives business from ICI PLC. This acquisition was important to our strategy as it took us from being a regional provider of explosives and explosives related services to the leading position in the world. Now about 25 per cent of our sales come from outside Australia and New Zealand.

The international acquisition was a big step … but it is important to remember that we were already running the world’s most successful explosives business here in Australia, and Asia. Now the addition of this new business gives us a superb springboard for growth around the world. With the acquisition we added operations in North and South America and Europe … and we have since added further interests in Thailand, Mexico and the United Arab Emirates.

We make no secret of our aspirations to take our world class explosives expertise to other parts of the world. We are actively pursuing opportunities around the world ... and our recent discussions with AECI in South Africa was one such opportunity. As recently announced, the discussions with AECI were discontinued because we were unable to agree on a price for the business – but there are many other growth opportunities.

The expansion of our operating territory clearly opens significant new growth opportunities for the company. The restructuring of our North American business this year will enable us to exploit those opportunities. The 10 year supply contract for ammonium nitrate, negotiated recently with Enaex in Chile, will enable us to build on our strong business in Latin America. We have also agreed large contracts with both Rio Tinto and WMC in the past months.

As you can see we are seizing the opportunities and backing them up with continuing hard work inside the company to make our business more world competitive through general restructuring, efficiency and productivity improvements.

We are a company with long standing corporate values and we remain uncompromising in our commitment to safety, quality, providing outstanding customer satisfaction, and developing leadership and teamwork in our people.

Although our safety performance is at or close to best practice in Australia, we aspire to be up there with the world’s best. We strive each year to improve on the previous year’s safety results, and this year we are disappointed to report that we have not made the progress we would have liked. However, we have introduced a more stringent reporting system using the US OSHA system which captures more information on injuries which restrict our people from carrying out their normal work. This allows us to benchmark better against the world’s best. We continue to strive towards our safety goal of "No injuries to anyone, ever".

We also have a very clear commitment to being environmentally responsible. We are remediating some of our older sites affected by past manufacturing practices. And, in our establishment of new plants or upgrades of existing plants, we are committed to cleaner production methods which means we aim to minimise any waste created in the first place.

The reshaping of Orica that has taken place this year is essential to delivering future value to our shareholders. Although much has already been achieved, there are still many challenges ahead. We intend to pursue growth in each of our strategic core businesses both from within and, where appropriate, through acquisitions. We have no shortage of opportunities and are actively pursuing the best of them.

Over the long term we have historically delivered excellent shareholder value. With the help of our strong and committed management team and resourceful workforce, we believe that is what we will continue to do in future relative to our peers and the market generally. With our vision of "Winning Against the World’s Best" we have no intention on resting on past successes. We will always strive to do better and reach higher; recognising that our businesses, including our regional ones, have to compete successfully in their markets against all competitors.

Before ending my presentation here today I would like to show you a short video which may give you a better feel for some of things we do in our Explosives business. This was filmed with assistance from our team at Carseland in Canada where we have the world’s largest and lowest cost industrial grade ammonium nitrate plant. Some of the shots of explosions shown, particularly those in slow motion, demonstrate the degree of planning, precision and sophistication that go into making a large blast at a mine successful.

I hope you enjoy watching this video and thank you for being here today.