ORICA LIMITED — Management Reports 2007

Nov 12, 2007

Attention ASX Company Announcements Platform Lodgement of Open Briefing[®]

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Orica Limited 1 Nicholson Street Melbourne Victoria 3000

Date of lodgement: 13-Nov-2007

Title: Open Briefing[®] . Orica Ltd. MD on FY 08 Outlook

Record of interview:

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Orica Limited yesterday reported net profit after tax (NPAT) of $487.7 million for the year ended September 2007, down from $539.1 million in the previous year. NPAT before significant items was $497.8 million up 31 percent. Can you comment on the likely drivers of growth in the current year ending September 2008?

MD & CEO Graeme Liebelt

The momentum for growth in 2008 is coming from many of the things we put in place in 2006 and 2007.

For us, 2007 was a record year, built on record results in three of our divisions: Mining Services, Consumer Products and Mining Chemicals. In addition to underlying growth, earnings from a lot of the investments we’ve made over recent years also came through strongly. We saw the benefits of the acquisition of the ex-Dyno Nobel businesses and Minova coming through as well as the benefits of the investments we’ve made in our sodium cyanide and ammonium nitrate plants at Yarwun.

All of those things helped our result in 2007, and provide the basis for continued earnings momentum in 2008. And of course in October we made another acquisition, Excel Mining Systems, which will also add some earnings momentum to the group during 2008.

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Orica’s measure of productivity – fixed costs as a percentage of gross margin – improved to 69.8 percent in 2007, down from 72.8 percent in the previous

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year. What have been the main drivers of the improvement and how will recent acquisitions impact productivity going forward?

MD & CEO Graeme Liebelt

Productivity improvement is the subject of a relentless drive which is a combination of big things and small things. At times we have an investment like the ex-Dyno businesses, where we realise synergies which play into productivity improvement, or an investment like our ammonium nitrate capacity uprate at Yarwun, which gives us access to manufacturing margin and improves our productivity as well.

We also pursue a range of small projects, and the work we’re doing in our supply chain and manufacturing processes is a good example of that. Our continued implementation of Six Sigma as a technique, and the philosophy of continuous improvement are also important.

Recent acquisitions of course give us an opportunity to realise more synergies, and we’ll build on the successful Dyno acquisition to ensure those are delivered.

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Orica’s Mining Services business was the major contributor to 2007 earnings growth, with EBIT up 40 percent to $575.1 million on revenue of $3.1 billion, up 19 percent. The former Dyno businesses acquired in 2006 contributed $121 million to the result, including synergies of $70 million, ahead of your May forecast of $50 million to $60 million. You now expect to realise the full target of $90 million of synergies in 2008, ahead of plan. Is there further upside in the Dyno synergies? When will integration be completed?

MD & CEO Graeme Liebelt

Mining Services had a terrific result in 2007. Markets were firm, so there was some underlying volume growth, but it actually wasn’t spectacular – middle single digit. So to achieve 40 percent EBIT growth in the face of an appreciating Australian dollar was very pleasing.

A lot of the growth had to do with the acquisition of the ex-Dyno businesses, where we’ve delivered synergies faster than expected. We’re confident we’ll deliver the $90 million of synergies in the current year, and there may be a little further upside in due course, but we’re not at the point of being firm on that. Also, we have to acknowledge that there’ll come a time when it’s difficult to separate the underlying business from the synergies as the businesses are increasingly thoroughly integrated. We expect the integration to be largely complete in 2008.

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Excluding the Dyno contribution, EBIT was up $68 million or 18 percent. Most of this growth appears to have flowed from the Australia/Asia Mining Services business, where EBIT was $314.0 million, up 38 percent. Given you’ve now had a full year’s benefit from the Yarwun ammonium nitrate expansion, can the Australia/Asia sector maintain its growth momentum?

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MD & CEO Graeme Liebelt

There’s further benefit to be gained from the uprate of the Yarwun plant. We got a full year’s benefit in 2007, but we think there’ll be further improvements in 2008. Over time, with more tonnes progressively placed in Australia as the domestic market grows, we’d expect the contribution from Yarwun to improve.

In the Australia/Asian market generally there’s a lot of opportunity still in front of us. With the release of infrastructure constraints, this business may well see strong volume growth in the next few years. We still have great opportunities in China and elsewhere in Asia – those are geographies where we have very small market shares and can grow further. And, the continuous improvement process that applies across all our businesses will apply here too.

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You’ve indicated the Mining Services business continues to progress toward developing an ammonium nitrate facility in Indonesia and is looking at the feasibility of establishing an ammonium nitrate plant in Latin America. What are the likely time lines of these projects and what return profile do you require to justify these types of green field investments?

MD & CEO Graeme Liebelt

These projects are important to us. In the case of Indonesia, the market is now a size that justifies having its own domestic plant, and the project would underpin our very strong market share. In the case of Latin America, the acquisition of the ex-Dyno businesses means we now have a very large business there that we’re seeking to improve.

As to time lines, the board has approved pre-sanction monies for an engineering estimate for the Bontang plant in Indonesia, and in that process we’ll prove up the time line, so we’re not in a position yet to talk about it with any degree of certainty. Latin America is at an even earlier stage – we’re looking at a number of projects. One in Peru looks promising, but we’re not at the point where we can talk about location or time lines with any degree of confidence.

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Minova made a nine-month EBIT contribution of $61.6 million on revenue of $332.1 million. Excluding a one-off $7 million acquisition adjustment charge relating to inventory, EBIT was $68.6 million. Extrapolating this over 12 months gives an EBIT of $92 million. To what extent is this indicative of the likely level of Minova’s earnings going forward?

MD & CEO Graeme Liebelt

Minova has met our expectations in the first nine months of being in the group and we’re very pleased to have it as part of our team.

When we made the acquisition, we were anticipating growth of the order of 8 percent per annum in revenue, and we still think that’s a reasonable growth assumption. We still see good opportunities in that business, much as we saw at the time of acquisition, and the recent addition of Excel gives Minova further opportunities to improve its product offering and deliver synergies.

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Do the slow conditions in North American mining have implications for the expected earnings contribution from Excel in the current year?

MD & CEO Graeme Liebelt

The last 12 months have been reasonably tough in the US coal markets and it’s difficult to predict growth rates in the eastern US coal markets – plenty of commentators are suggesting the next 12 months will be stronger. In any case, when we bought Excel we assumed growth of about 2 to 3 percent for US coal. Through the medium term, those numbers still look realistic.

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The Consumer Products business booked EBIT of $101.6 million in 2007, up 4 percent on revenue of $826.3 million, up 5 percent. Excluding $10 million of provisions, underlying EBIT was $111.1 million, up 14 percent. In the second half underlying EBIT was $58.4 million, representing growth of 10 percent versus the first half. To what extent is the stronger second-half earnings performance sustainable?

MD & CEO Graeme Liebelt

Consumer Products has seen some underlying growth in the market – although it’s been a bit patchy. What’s been outstanding about the Consumer Products business over the past 12 months is that, through continued investment and marketing innovation, we’ve improved our market share. So, we’ve maintained investment in the important things like brands and products, and at the same time worked on productivity improvements and have come through with a strong earnings result as well.

We still expect to see some growth in consumer markets going forward, although we’d acknowledge that there’s more uncertainty with interest rates rising recently. But assuming there is some underlying growth, we have every confidence we’ll continue to see strong results from this business.

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Given recent acquisitions in Consumer Products, such as Yates, have struggled, what are the growth opportunities for the business?

MD & CEO Graeme Liebelt

We believe Yates is fundamentally a very good business, but drought conditions over the last two years have made the market very tough.

We’ve searched for further category expansion opportunities in Australia for Consumer Products, but believe opportunities are limited. Our focus now is likely to remain on growing the paints and Selleys businesses in Asia, particularly China, where we see good opportunities for organic growth.

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Chemical Services booked EBIT of $68.7 million, up 2 percent on revenue to $425.1 million, down 11 percent. The underlying business, excluding the previous year contribution from the divested adhesives and resins business, saw EBIT and sales growth of 11 percent and 10 percent respectively. To

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what extent will current year earnings show the full benefits of the recent capacity additions in sodium cyanide and water treatment?

MD & CEO Graeme Liebelt

In Chemical Services, there’s a mixed picture because in the water treatment market we’ve seen lower throughput in water due to drought-enforced water restrictions, and that’s been tough.

However, we expect the Mining Chemicals business – the sodium cyanide business – to see the full benefit of the 20,000 tonne upgrade of Yarwun. We still expect robust pricing in that market given world markets are fundamentally short. We’re seeing continued improvement in MIEX, and expect it to break even in 2008. Also, depending on water throughput, we’d see some further improvement in the underlying Watercare business as well.

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The Chemnet business booked EBIT of $58.7 million, up 2 percent on revenue of $927.7 million, down 6 percent. RONA was 16.9 percent, below your target of 18 percent. However second half EBIT fell to $26.4 million, down 9 percent, suggesting returns have deteriorated. Given the weak market conditions, what further capacity do you have to reach the RONA target?

MD & CEO Graeme Liebelt

The turnaround of Chemnet is a work in progress. We were looking for $20 million of cost savings in total, and we’ve delivered those without any doubt. What’s proving challenging now is getting some growth back into sales and gross margin.

The half-on-half comparison is a bit misleading because we started to deliver the cost savings in the second half of last year. The fact that this year’s second half looks less strong versus last year’s is partly that effect and shows we’re struggling to restore top line growth.

There are some signs the business is improving, but we still face tough markets in automotive, white goods and cabling.

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Orica had net cash flow from operations of $524.3 million in 2007, compared with $413.9 million in the previous year. Trade working capital was $739.0 million, up from $616.4 million a year earlier, while rolling trade working capital to sales fell to 14.8 percent from 16.6 percent. Is the lower relative level of trade working capital sustainable?

MD & CEO Graeme Liebelt

The rolling trade working capital to sales ratio over 12 months is our preferred measure of working capital. We’ve had our Six Sigma team working on that since May 2006, and we’re pleased to see those results. The reduction in rolling trade working capital to sales since then has released about $130 million in cash, available for investment in growth.

Rolling trade working capital to sales is now embedded as a performance metric in each of our businesses and we continue to look for further improvement going forward, and certainly for some improvement as a

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consequence of the actions we took in 2007. Nonetheless but wouldn’t expect an improvement of the same scale as last year.

We’ve also worked hard on what we call cash conversion – defined as EBITDA less movement in working capital and sustenance capex – which shows the extent to which our businesses are able to make their profits and cash flow available for further growth. In 2007 we improved that measure to 64 percent from 52 percent.

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You’ve announced a 32 percent franked final dividend of 53 cents per share, up from 48 cents in the previous year. This brought the total dividend for 2007 to 89 cents, 35 percent franked, compared with 74 cents, 41 percent franked, in 2006. You expect franking capacity in the near term to be around 35 percent. What is the outlook for dividends in the current year?

MD & CEO Graeme Liebelt

Our current dividend policy is to pay out a minimum of 50 percent of NPAT before significant items. We like to keep our dividends progressive – that’s to say we’ll only increase the dividend where we have confidence we can continue to pay at least that level.

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Mining related businesses – Mining Services and Minova – accounted for 74 percent of Orica’s operating EBIT in 2007, up from 58 percent in the previous year. Given the reduced diversification value of the non-mining related businesses, what is your rationale for continuing to hold these assets?

MD & CEO Graeme Liebelt

Over the last 10 years there’s been a lot of change in our portfolio. We’ve progressively moved towards businesses in which we have confidence, have strong business models and have growth opportunities.

Our board always says the portfolio is a work in progress. But, we’re very busy with our recent acquisitions, and we have nothing in front of the board with respect to radical portfolio change at this time.

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Thank you Graeme.

For more information about Orica, visit www.orica.com or call Investor Relations Manager Stuart Hutton on (+61 3) 9665 7844

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