on SOLID GROUND 2010 annual report contents

About Orica 01 Chairman’s Report 02 Managing Director’s Report 03 Review of Operations and Financial Performance 04 Review of Business Performance 09 Board Members 12 Group Executive 13 Corporate Governance 14 Sustainability 21 Financial Report 23 Directors’ Report 25 Directors’ Report – Remuneration Report 29 Lead Auditor’s Independence Declaration 45 Income Statement 46 Statement of Comprehensive Income 47 Balance Sheet 48 Statement of Changes in Equity 49 Statement of Cash Flows 50 Notes to the Financial Statements 51 Directors’ Declaration 127 Auditor’s Report 128 Shareholders’ Statistics 130 Ten Year Financial Statistics 132

Changes to the Orica portfolio in recent years has sharpened our focus on and infrastructure markets. Mining and infrastructure now accounts for more than 90 percent of our earnings, with all three business platforms significantly Orica Limited exposed to these markets. ABN 24 004 145 868

Orica 2010 annual report 2 About orica

Orica mining minova orica chemicals services Global leading manufacturer Leading global supplier of sodium and supplier of strata support cyanide for use in gold extraction Global market leader in the supply and systems, ventilation, water and and New Zealand’s servicing of commercial explosives control and geotechnical solutions largest supplier and trader of chemical and blasting systems to the mining, to underground mining and products to mining, water treatment quarrying and infrastructure sectors. tunnelling markets. and other industrial markets.

Core Purpose The Core Purpose is complementary Culture – Delivering Now, more than anytime before, we to our strategy and the “Deliver the the Promise are able to clearly articulate Orica’s core Promise” principles. Central to Orica’s success are its purpose – a statement which explains people and culture. At Orica, we have WHY Orica exists and what makes us an Business Strategy and established a high-performance culture important company in achieving society’s Execution that empowers and motivates our people Orica’s core strategy is to be the aims. After extensive consideration of to achieve long-term sustainable results. global leader in the provision of high Orica’s characteristics and beliefs, our This is HOW we go about our business. service consumables to the mining and Core Purpose has been defined as: Orica’s culture is guided infrastructure markets, leveraged to by the “Deliver The Promise” principles “Clever solutions to help our customers long-term increases in production and – four key principles that embody the harness natural resources to improve development volumes. This is WHAT we attitudes, behaviours and ethics that are people’s lives”. do. In executing this strategy we focus on common to all employees. “Clever solutions” – these words refer four criteria which guide our success and –– SH&E – Ensuring our Future to the way in which Orica adds value growth: –– Commercial Ownership for our customers through product and –– Market leadership – we aim to be a service innovation. market leader in each of our chosen –– Creative Customer Solutions “Help our customers” – acknowledges global and regional businesses. –– Working Together that Orica is a customer focused, service –– Invest in the “winners” – we grow our Orica’s 14,000 employees are diverse based organisation, providing solutions best performing businesses that meet in culture, language, geography and at a business-to-business level. financial performance targets and gender. Our company has a long “Harness natural resources” – speaks have earned the right to grow. history of supporting diversity and is about the industries that we work with –– Grow “close to the core” – we a foundation member of the Diversity – mainly mining and infrastructure, but pursue opportunities in related Council of Australia. A formal objective including others, such as agriculture. businesses where we can leverage our was established by the Orica Board knowledge and expertise and achieve in 2009 and this has helped to guide “Improve people’s lives” – these synergies. a strategic approach to enhancing words are about the ultimate outcome the benefits of diversity across our of our activities, whether through the –– We have relentless focus on global business. generation of electricity or through the growth and productivity in all of manufacture of products. They reflect our businesses. With a core purpose, clear strategy and our commitment to environmental strong culture, Orica is well positioned sustainability and the communities in to deliver value to our key stakeholders which we operate, as well as the creation – our employees, our shareholders, our of economic value for our employees and customers and the communities in which shareholders. we operate.

1 Chairman’s Report

will provide the platform for solid growth Australia site, and has supported going forward. significant remediation expenditure. Orica now comprises three divisions, The groundwater treatment plant is Orica Mining Services, Minova, and working well, and in an important Orica Chemicals. development approval has been received for a first shipment of Orica Mining Services again achieved Hexachlorobenzene (HCB) waste to a record result with EBIT up 4 percent Denmark for destruction. Progress is to $768 million. The business has a also being made in other areas. global market leadership position and is well placed to take advantage of any The Orica balance sheet is strong; our upturn in the global economy. The Board gearing at 22.4 percent and interest has approved a number of significant cover at 7.5 are well placed. Whilst this I am pleased to deliver my first report capital investments in new plant that year has been one of consolidation of the to shareholders as Chairman of Orica. will ensure our ability to meet rising three businesses and the demerger of Your company is performing extremely demand. These plants include the new DuluxGroup, Orica is well positioned to well and importantly we have achieved 300,000 tonnes per annum ammonium take advantage of any opportunities that our ninth consecutive year of underlying nitrate plant in Bontang, Indonesia and may become available in the mergers profit growth. the 40 million unit detonator plant in and acquisitions market. Net profit after tax before individually Hunan Province, China. Our earnings per share (EPS) before material items was a record $676 Minova saw an increase in EBIT of 2 individually material items was 185.6 million in 2010, up 5 percent compared percent to $147 million in a tough trading cents, up 6 percent on the previous with $646 million in 2009. Excluding and currency environment. The important corresponding period. DuluxGroup, net profit before individually Chinese market has been growing I would like to take this opportunity material items was up 11 percent to steadily and as safety standards improve to thank Orica management and all $619 million. in this vast market we expect to improve Orica employees for their outstanding Given the healthy state of the market penetration and grow Minova contribution during this year. To deliver a company, the Board has declared a China. Importantly, margins in the US ninth year of consecutive profit growth final dividend of 54 cents per ordinary steel bolts business have improved and is an excellent achievement. Safety is share. Allowing for the separation we are seeing a steady recovery in Russia, also a very high priority for all Directors of DuluxGroup this continues our the Czech Republic and South Africa, and we will continue to give strong progressive dividend policy. The dividend while conditions have remained soft in support to the Company’s aspiration of will be fully franked due to the impact of Western Europe, Poland and the USA. “No Injuries to Anyone, Ever”. With the the settlement of the pharmaceuticals The Chemicals business achieved a demerger of DuluxGroup, Peter Kirby left tax case. However, franking capacity is record result with EBIT, up 10 percent the Orica Board to become DuluxGroup expected to revert back in the near term to $188 million. It is pleasing that there chairman. I would like to thank Peter to approximately 40 percent. has been a steady recovery in the for his invaluable contribution. I would This excellent result has been achieved Australian Chemicals market and that our also like to welcome Lim Chee Onn and in tough economic times across the business in Latin America is performing Ian Cockerill to the Board. They add globe and of particular note for our very strongly. important international insights to company, in spite of the dramatic rise in our deliberations. The Mining Chemicals business has seen value of dollar (60 percent demand for sodium cyanide remain Orica is ready for the challenges of the of Orica’s earnings are made in currencies high, and the Board has approved a future. We have outstanding people, and other than the Australian and New further uprate of the sodium cyanide a strategy that has been tested and has Zealand dollars). manufacturing facility at Yarwun, come through with flying colours. The The Board made the decision last year Australia from 80,000 tonnes per annum Board looks forward to the year ahead. to demerge DuluxGroup, but put the to 95,000 tonnes per annum. Finally, I would like to acknowledge the demerger on hold due to the state The people of Orica are its real strength. contribution of my predecessor, Don of global markets. This year we were The Board is very keen to continue Mercer, who led the board for most of able to go ahead and DuluxGroup is to further develop our people and to the past decade and was key to Orica’s now trading as an independent entity improve both our cultural and gender recovery at the beginning of his tenure on the Australian Securities Exchange. diversity. We have some way to go in and to its outstanding success since then. DuluxGroup is a quality business and this journey and have pursued a diversity we believe it will flourish. program during the year which continues The demerger is part of the reshaping of to gain momentum. the Orica portfolio that began some years The Board is extremely conscious of ago. Orica is now 90 percent exposed to the legacy issues that we are dealing the mining and infrastructure markets. P J B Duncan with, particularly at the Botany, Your Directors believe that this reshaping Chairman

Orica 2010 annual report 2 managing director’s report

Demerger of DuluxGroup As a truly global company, having a During the year we demerged diverse workforce is one of the key ways DuluxGroup and thereby set it free to that we will attain our growth targets navigate its own course. DuluxGroup and improve productivity and efficiency. is an excellent business, but one that is We have launched a global diversity very different from the remaining Orica program to take advantage of these portfolio. It has a completely different business drivers. value creation model, different capital Safety and the environment are a requirements, a different growth key focus of the group. Ensuring that profile, different staffing requirements every Orica employee who comes to and, ultimately, a different shareholder work healthy goes home the same profile to Orica. The demerger will be way is paramount. We are striving for Solid Growth good for both companies and we wish two aspirational goals, “No Injuries to This year has seen Orica focus clearly on DuluxGroup every success. Anyone, Ever” and “No Harm to People the mining and infrastructure sectors. and the Environment”. It has been a year of change where we Solid Manufacturing Growth demerged DuluxGroup and maintained Growing and renewing our manufacturing Operational sustainability is becoming an our commitment to deliver profit growth base for the future is a key focus for the increasingly important aspect of doing for shareholders. For the ninth company. The construction of a new business. Reducing our environmental year in a row we are reporting record 300,000 tonne per year ammonium footprint is vital to our continuing underlying profits. nitrate plant at Bontang, Indonesia, is operations. We have reduced our water, broadly on time and within budget and electricity, waste and greenhouse Our strategy is clear: will open in late 2011. At gas used or generated per tonne of –– We seek to achieve leadership Island, Australia, we have approved the production and will continue to strive for positions in each of our chosen uprating of our plant and best practice in all our activities. businesses; pre-sanction work is underway to uprate ammonium nitrate capacity. In China, we We continue to work to remediate –– We ensure our businesses earn the are building a new world scale detonator environmental issues caused by past right to grow; and plant in Hunan Province. At Yarwun, practices, particularly at the Botany, –– We stay close to our core businesses. Australia, sodium cyanide capacity is being Australia site. The groundwater treatment plant is operating effectively Orica is now well positioned, being increased by 15,000 tonnes per annum. ensuring that the polluted groundwater exposed to the volume side of the mining Orica continues to look for capital is contained and treated. We hope cycle and, to a great extent, the GDP growth opportunities. Where a project to export the first shipment of growth of the emerging economies of is strategically sensible and meets our Hexachlorobenzene (HCB) waste for the world. This means that our exposure financial hurdle rates we have the destruction in Europe before the end to the price volatility of the mining cycle financial capacity and resources to move of 2010. has been greatly reduced. quickly and prudently. During a year of great change we are Orica’s core purpose is to provide “Clever In research and development we proud of the way our people have solutions to help our customers harness continue to invest in the future. Our managed the business. We have achieved natural resources to improve people’s investment is seven to eight times that another year of record profit while lives”. This purpose focuses all our people of our competitors and keeps us one continuing to position the business for on better serving our customers and in step ahead in efficiency, productivity future sustainable growth. As the global the process delivering top quartile profit and importantly, safety. We are always economy recovers, Orica is well placed to returns for our shareholders. striving to offer our customers better continue to provide superior returns to A key challenge going forward will be solutions that will improve their business. our shareholders. exploiting the growth opportunities in Great people front of us. We are well positioned with Our people are our greatest strength. a healthy balance sheet and relatively low We have 14,000 employees in over gearing to take advantage of acquisition 50 countries. All of our employees are opportunities that meet our hurdle rates. dedicated to the “Deliver the Promise” Graeme Liebelt culture and to serving the business’ Managing Director & CEO stakeholders with the highest standards of integrity.

3 Review of Operations and Financial Performance

Net profit after tax NPAT( ) and individually material items for the year ended 30 September 2010 was up $777m to $1,319m, compared with the previous corresponding period (pcp) of $542m. Individually material items in 2010 were a profit after tax of $643m. NPAT before individually material items was $676m, up 5% compared with the pcp of $646m. NPAT from continuing operations before individually material items1 was $619m, up 11% on the pcp of $557m. Return on shareholders’ funds2 up 2.3 percentage points to 18.3% and EPS2 up 6% on the pcp to 185.6 cents. Successful demerger of DuluxGroup (DLX).

FINANCIAL HIGHLIGHTS2 market segments, partly offset by EARNINGS BEFORE INTEREST –– EBIT up 2% to $1.1b; lower average caustic prices. AND TAX (EBIT) –– EBIT from continuing operations –– EBIT from continuing operations OUTLOOK – 2011 increased by 6% to $1.0b (pcp: $954m) up 6% to $1b; –– We expect Group net profit after tax primarily due to: –– Productivity benefits of $64m; (pre individually material items) in –– Net volume and margin 4 –– Rolling trade working capital to sales 2011 to be higher than that reported improvements of $110m, reflecting improved to 13.0% (pcp: 14.5%); in 2010, on a comparable basis, improved AN pricing in Australia, –– Gearing3 at 22.4%, up from 21.6% in subject to the rate of global economic improved margin management the pcp; recovery and extent of further adverse and a recovery in volumes in some movements in exchange rates. –– Interest cover at 7.5 times; and market segments; –– Final ordinary dividend is 54 cents per REVENUE –– Productivity and synergy share (cps) – franked at 54 cps. –– Sales revenue from continuing improvements of $64m from the operations (i.e. excluding DuluxGroup) full year benefit of restructuring BUSINESS HIGHLIGHTS2 of $5.8b decreased by $659m (-10%), activities undertaken in the prior –– Improved results for all businesses, driven primarily by: period in Mining Services and assisted by improvements in pricing synergy benefits in Minova and –– Unfavourable foreign exchange and productivity and a gradual movements ($799m); Chemicals; and recovery in volumes across some of –– Non-recurrence of the under- our markets, which more than offset –– Pass through of lower input costs in revenue; and recovery of steel input costs in a $75m (pre tax) adverse foreign Minova’s North American business exchange movement; –– Lower average caustic prices. in the pcp. –– Good operating cash flow Partly offset by: Partly offset by: performance and improvement in –– Improvements in AN pricing as trade working capital over the pcp; –– Unfavourable impact of foreign contracts roll over; and exchange movements of $75m; –– Record result for Mining Services with –– Higher volumes in some market EBIT up 4% to $768m, reflecting –– Inflationary impact on fixed segments, particularly the pricing and productivity benefits; costs of $45m; and industrial, automotive and mining –– Minova EBIT up 2% to $147m, driven markets within Chemicals, –– Non-recurrence of the favourable by strong volumes in China, improved construction markets in the Nordics lag impact on ammonia cost margins in the US and delivery of and mining markets in Turkey, recovery in the prior period of $17m. synergies; and Africa and Latin America. –– Record result for Chemicals with EBIT –– Other income includes profit from at $188m, 10% ahead of last year, the DuluxGroup (DLX) demerger reflecting stronger volumes in most of $791m.

1 Calculated as consolidated NPAT before individually material items ($675.8m) less discontinued NPAT $57.0m (pcp $89.3m) as disclosed in note 10 of the ASX Appendix 4E. 2 Before individually material items. 3 Net debt/(net debt + book equity). 4 Rolling 12-month average TWC/Rolling 12-month total sales – 2010 excluding DLX.

Orica 2010 annual report 4 shareholder scorecard

EARNINGS PER SHARE* ($) AND RETURN ON YEAR END SHAREHOLDERS’ DIVIDENDS PER SHARE PRICE ($) FUNDS* (%) SHARE ($) 0.74 0.89 0.94 0.97 0.95 1.26 1.49 1.70 1.75 1.85 19.3 19.2 16.9 16.0 18.3

06 07 08 09 10 06 07 08 09 10 06 07 08 09 10

*Before individually material items *Before individually material items

financial summary

NET PROFIT AFTER TAX BEFORE SIGNIFICANT ITEMS/ CASH FLOW SALES ($m) INDIVIDUALLY FROM OPERATING AND EBIT ($m) MATERIAL ITEMS ($m) ACTIVITIES ($m) 5,359 5,527 6,544 7,411 6,539 380 498 572 646 676 414 524 737 855 804 1200 1050 900 750 600 450

300 06 07 08 09 10 06 07 08 09 10 150 0 06 07 08 09 10

EBIT

5 Review of Operations and Financial Performance

INTEREST –– The DLX demerger profit includes offset by TWC acquired of $27m; –– Net interest expense of $128m was after tax costs of $64m and net –– Rolling TWC to sales 3 has improved 4% lower than the pcp ($134m), and foreign exchange losses of $12m to 13.0% (pcp: 14.5%); transferred from the foreign currency –– Interest cover was 7.5 times –– Net property, plant and equipment translation reserve to the Income (pcp 7.8 times). (PP&E) is $160m up on the pcp, Statement. The balance ($870m) is the mainly due to spend on growth CORPORATE CENTRE AND difference between the DLX market projects ($353m), sustenance SUPPORT COSTS value of $938m (VWAP $2.59) less the capital ($176m), capitalised –– Corporate centre costs of $42m were net assets of DLX of $68m. in line with the pcp; and interest ($19m) and PP&E from acquired businesses ($13m); offset –– Other Support costs of $52m were DIVIDEND by depreciation ($199m), the $6m (10%) lower than the pcp. –– The directors have declared a final ordinary dividend of 54 cps – franked demerger of DLX ($148m), foreign TAX EXPENSE at 54 cps. Franking for the final exchange translation ($45m) and –– Tax expense was $262m with an ordinary dividend at 100% is due to disposals ($9m). Significant capital effective tax rate of 26.9% (pcp: the settlement of the Pharmaceuticals spend since the pcp included 27.7%). The lower effective rate was tax case. Bontang ($191m), Kooragang Island uprate ($38m) and Nanling primarily a result of increased profits –– Adjusting for the impact of the ($20m) within Mining Services; and in overseas jurisdictions with lower tax DLX demerger,2 the 2010 dividend the Yarwun 95kt sodium cyanide rates and other foreign deductions. represents an 2 cps increase; and uprate ($11m) within Chemicals; –– Franking capacity is expected to NET PROFIT –– Intangible assets are down $246m reduce back to approximately 40% in –– NPAT before individually material since pcp mainly due to the impact the near term. items increased 5% to $676m (pcp: of foreign exchange translation $646m); DEBT FACILITIES ($192m) and the demerger of DLX –– NPAT and individually material items –– The average term of drawn debt ($92m). Amortisation of intangibles was up 143% to $1.3b (pcp: $542m); facilities is approximately 4.4 years; ($41m) was offset by the and acquisition of businesses/entities –– Bank debt facilities total $2.3b ($65m) and capital expenditure on –– NPAT from continuing operations of which $0.3b was drawn at 1 identifiable intangibles ($15m); before individually material items 30 September 2010; and was $619m, up 11% (pcp: $557m). –– Net other liabilities increased –– The facilities are multi currency, by $171m mainly due to the flexible and cancellable at Orica’s INDIVIDUALLY MATERIAL ITEMS write-off of the tax receivable in option. –– Individually material items for relation to the settlement of the the period were a profit after tax Average funding cost (including fees for Pharmaceuticals tax case ($100m), of $643m (pcp: loss of $104m). undrawn facilities) for the period was and environmental provisions This included profit on the DLX 7.9% (pcp 6.5%). raised relating to Mercury demerger ($794m), the loss on the remediation ($32m) and HCB BALANCE SHEET Pharmaceuticals tax case ($98m); remediation ($13m); the establishment of a provision –– Key balance sheet movements since for the remediation of mercury September 2009 were: –– Net debt decreased by $43m mainly as a result of strong contamination at Botany, Australia –– Trade working capital (TWC) has operating cash flows and the ($32m); an increase in environmental decreased by $126m from the reduction of debt ($245m) on provision for HCB waste disposal pcp as a result of an underlying demerger of DLX partially offset by ($13m) and the ongoing integration improvement of $46m, combined capital expenditure; and of Minova/Excel ($9m). with a favourable foreign exchange impact of $10m and the reduction –– Orica shareholders’ equity from the DLX demerger of $97m decreased by $338m, mainly due to a decrease in the foreign currency translation reserve of $288m partly offset by earnings net of dividends paid and an increase in shares on issue as settlement of dividends under the Dividend Reinvestment Plan.

1 Calculated as consolidated NPAT before individually material items ($675.8m) less discontinued NPAT $57.0m (pcp $89.3m) as disclosed in note 10 of the ASX Appendix 4E. 2 Calculated as continuing EBIT/EBIT x total dividend. 3 Rolling 12-month average TWC/Rolling 12-month total sales – 2010 excluding DLX.

Orica 2010 annual report 6 GEARING Partly offset by: financial –– Accounting gearing (net debt/(net –– A lower inflow of other borrowings debt + equity)) increased to 22.4% of $48m (pcp inflow $78m). LEVERAGE from 21.6% in September 2009. In accordance with accounting ORICA SPS NET DEBT ($m) standards, the SPS securities are –– Two further instalments totalling recognised as equity; and $26m on the SPS securities were paid

during the period; and 302 –– Adjusted gearing, which treats the 1,306 1,021 1,095 1,052 SPS securities as 50% equity and 50% –– The distribution was unfranked and debt (Standard & Poors credit rating the distribution rate was calculated treatment), was 27.8% (pcp 26.5%). as the sum of the 180 Bank Bill Swap Rate (BBSW) plus a margin of 1.35%. CASH FLOW The distribution rate for the current –– Net operating cash inflows decreased period ending 29 November 2010 is by $51m to $804m, compared with 6.30% pa. the pcp mainly due to: MERGERS & ACQUISITIONS –– A lower cash inflow from the 06 07 08 09 10 movement in trade working capital Orica Mining Services completed the of $54m (pcp $104m); acquisition of GL Black Holdings during the period, providing increased access to –– Increased cash outflows from ADJUSTED GEARING high growth metals markets in Western NTWC of $37m; and (%)* Canada and Alaska, and a number of –– $2m increase in income tax paid. other small acquisitions. 39.6 23.8 26.5 27.8 Partly offset by: Minova purchased its joint venture 18.4 –– EBITDA growth of $11m to partner’s 45% interest in the Ruichy $1,341m (pcp $1,330m); and Minova joint venture in Beijing, China, –– Foreign exchange movements. bringing its total ownership to 100%. –– Net investing cash outflows increased During the period Minova also undertook by $182m to $698m, compared with further geographic and technological the pcp due to: expansion through small acquisitions. –– Higher sustenance capital spend This included: of $33m; –– Acquisition of 25% share in FiReP, a 06 07 08 09 10

–– Increased spending on growth Swiss based leading manufacturer of *Adjusted gearing, which treats the Step-up Preference Securities (SPS) capital projects of $139m, mainly glass reinforced plastic products; as 50% equity and 50% debt. due to spend on Bontang, the –– Acquisition of Weldgrip, a UK based Kooragang Island uprate and leading supplier of high quality strata Nanling; and and ground stabilisation products, INTEREST COVER –– A marginal increase in spend on tools and equipment, supplying the (Times) acquisitions of $14m. civil engineering, tunnelling and –– Net financing cash outflows mining industries, which complements our existing UK operations; 7.1 6.6 6.1 7.8 7.5 decreased by $292m to $40m 8 compared with the pcp from: –– Acquisition of 51% of a Chilean bolt –– A reduction in debt of $245m manufacturer, strengthening Minova’s 6 following the DLX demerger; presence in the Latin American market; and –– Proceeds from eligible employees 4 for repayment of LTEIP loans $37m; –– Acquisition of Canadian metal plate manufacturer, Tomco, which will 2 –– A cash saving from pcp of $30m facilitate the introduction of the full due to the issue of shares to satisfy Minova product offering into the 0 the DRP requirements in the Canadian hard rock market. 06 07 08 09 10 current year, rather than shares Target >5x being bought on-market; and –– A reduction in SPS distributions paid of $12m, due to a lower distribution rate.

7 Review of Operations and Financial Performance

BUSINESS DEVELOPMENT –– The ammonia plant expansion project EFFICIENCY During the period, work continued on a at Kooragang Island, for a capacity number of growth projects, including: uprate of 65ktpa. The uprate has GROSS MARGIN received all statutory approvals and –– The ongoing development of the GROWTH ($m) Orica Board sanction, with a target 300ktpa AN facility in Bontang, completion date of late 2011. All Indonesia. Cumulative spend to

major equipment has been ordered 2,125 2,474 2,875 3,182 3,054 30 September 2010 is $339m. and site work is progressing to plan; Onsite construction is 40% complete including the prill tower and absorber. –– The continuation of feasibility work on Erection of the nitric acid plant and An opportunities in Latin America; AN plant is underway. The project is –– Construction of a fully integrated on track for commissioning late 2011; non-electric detonator facility in –– Work on a 320ktpa ammonium Hunan Province, China, commissioning nitrate capacity expansion at of which is expected in late 2011. Kooragang Island, Australia, which will Orica has entered a Joint Venture bring total ammonium nitrate capacity arrangement with Nanling Explosives 06 07 08 09 10 at the plant to 750ktpa. The Orica for the construction and operation Board has approved $75m for the of the plant, with 51% ownership by Orica; and PRODUCTIVITY completion of engineering plans (%) and for ordering long lead items. –– The sodium cyanide plant expansion Expected total cost of the project project at Yarwun, Australia which will

is in the range A$600m–$750m. uprate the plant by 15ktpa, increasing 72.8 69.8 69.0 68.5 66.9 Based on forward demand growth capacity to 95ktpa, which is expected rates of approximately 8% per annum to be operational in 2011. likely timing of the project would be 2014/2015. There is flexibility to delay the project if market conditions soften. All statutory approvals have been received for the proposed expansion;

06 07 08 09 10

Productivity is measured as total fixed cost (including depreciation and amortisation) as a percentage of gross margin.

Orica 2010 annual report 8 Review of Business Performance

Orica Mining Services Record result with EBIT up 4% to $768m. Highlights North America ORICA MINING SERVICES ($m) –– Productivity and efficiency –– EBIT of $128m, up 4% ($5m) on the Year Ended Change improvements with an incremental pcp, achieved through disciplined September 2010 2009 F/(U)* EBIT benefit of $51m delivered in the margin management and productivity Sales Revenue 3,610.7 4,057.8 (11%) period; benefits; EBIT 767.7 736.5 4% –– Benefits of improved AN pricing as –– Unfavourable foreign exchange Operating Net Assets 2,807.1 2,541.5 10% contracts rollover; movements of $21m; EBIT: –– Strong growth in Electronic Blasting –– AN volumes generally in line with the Australia/Asia 436.1 407.8 7% Systems (EBS) with volumes up 32% prior year. North America 127.8 122.9 4% period on period; Latin America Latin America 120.6 116.8 3% –– AN volumes flat compared to the –– EBIT of $121m, up 3% ($4m) on the EMEA 83.2 89.0 (7%) pcp, with improved volumes in Latin pcp; with improvements from stronger * F – Favourable, (U) – Unfavourable America offset by lower volumes in underlying business conditions partly Asia; offset by negative foreign exchange –– New Orica Mining Services global movements of $25m; EBIT head-office established in Singapore; –– AN volumes up 8% with improved AND EBIT MARGIN and conditions in metals markets; –– Foreign exchange movements, net of

–– AN pricing improvement positively 412.0 575.1 635.6 736.5 767.7 hedging, negatively impacted EBIT. impacted margins; and 24 BUSINESS SUMMARIES –– Productivity benefits delivered from various procurement, logistics and Australia/Asia 18 manufacturing efficiency programs. –– EBIT of $436m, up 7% ($29m) on the pcp, achieved mostly through Europe, Middle East and improved AN pricing and productivity Africa (EMEA) 12 benefits; –– EBIT of $83m, down 7% ($6m) on the –– Non-recurrence of the favourable lag pcp; 6 impact on ammonia cost recovery in –– Improving demand in the Nordics, the prior period; Estonia, Turkey, CIS and Africa partly –– AN volumes down 3% due in part to offset by soft market conditions in 0 heavy rain and some market share loss other regions of Europe; and 06 07 08 09 10 in Indonesia; and –– Unfavourable foreign exchange impact EBIT Margin % –– Foreign exchange benefits of $26m on EBIT of $16m. mostly arising from USD raw material purchases. PERSPECTIVES FOR 2011 –– Market recovery in infrastructure and US thermal coal markets; –– Improving demand in base metals as well as Asian and Australian thermal and metallurgical coal markets; –– Ongoing growth in EBS and Blast Based Services (BBS); –– Continued firm ammonia prices; and –– Strong AUD negatively impacting translated EBIT.

9 Review of Business Performance

Minova EBIT up 2% at $147m. HIGHLIGHTS –– Acquisition of Weldgrip, MINOVA ($m) –– Improved margins in the North complementing existing UK Year Ended Change American business; operations; September 2010 2009 F/(U)* –– Continued penetration of the –– Acquisition of 25% share in FiReP, Sales Revenue 835.5 940.9 (11%) Chinese market, with strong volume a leading manufacturer of glass EBIT 147.3 145.1 2% growth. Product expansion has also reinforced plastic products (sold Operating Net Assets 1,519.0 1,701.0 (11%) commenced with the introduction of globally); and * F – Favourable, (U) - Unfavourable steel bolts; –– Improved demand in South Africa. –– Steady recovery in Russia, Czech Australia: Republic and South Africa. Soft –– Volumes and price for resin and steel EBIT trading conditions in some parts of products in the Australian market AND EBIT MARGIN Western Europe, Poland and the USA; negatively impacted by increased –– Active competition in the Australian competition; and 61.6 and North American markets 150.1 145.1 147.3 –– Lower demand for emergency services adversely impacted volumes and price; 20 work versus the pcp. –– Bolt-on acquisitions completed in the –– From 1 October, 2010 Australia will UK, Chile and Canada, developing our operate as a stand-alone business and 15 presence in these markets; South Africa will now be managed –– Integration activities progressed to within the EMEA region. plan; and 10 China: –– Foreign exchange movements –– Continued market penetration with negatively impacted sales by $144m strong volume growth; 5 and EBIT by $15m. –– Acquisition of remaining 45% of BUSINESS SUMMARIES Ruichy Minova; and 0 Minova Americas: –– Expansion of manufacturing 07 08 09 10

–– Margins significantly improved in the capacity to support growth, with the EBIT Margin % US business due to improved steel commissioning of the Daxing resins base pricing and the non-recurrence plant uprate and completion of the under-recovery of steel input of the new Taian bolt plant during costs incurred in the prior period; the period. –– Lower bolt and resin volumes due PERSPECTIVES FOR 2011 largely to ongoing softness in US coal –– Continued growth in China; markets and impact of loss in market share; –– Recovery in mining markets across most regions and steady demand in –– Bolt-on acquisitions in Chile and civil engineering markets; Canada, providing a platform for entry into these markets; and –– Tight cost control and productivity focus; –– Disciplined cost management delivered underlying EBIT –– Continued progress on integration improvement. activities; and –– Strong AUD will negatively impact Minova Europe, Middle East and translated EBIT. Africa (EMEA): –– Steady recovery of demand in Russia; –– Difficult trading conditions in most markets in Western and Central Europe; –– Softer tunnelling activity, period on period, due to extreme Northern European weather conditions;

Orica 2010 annual report 10 ORICA Chemicals Record result with EBIT up 10% to $188m. HIGHLIGHTS Watercare ORICA CHEMICALS ($m) –– Record result for Mining Chemicals; –– Sales down 4% versus the pcp, with Year Ended Change September 2010 2009 F/(U)* –– Steady recovery in industrial, the impact of lower average global automotive and mining markets in caustic prices and unfavourable Sales Revenue 1,427.4 1,548.3 (8%) Australia; foreign exchange movements offset EBIT 188.0 170.4 10% by higher volumes; and –– Significantly improved business Operating Net Assets 785.8 789.7 (0%) –– Volumes up 2% versus the pcp due performance in Latin America; Business Sales mainly to new business. –– Disciplined cost management and General Chemicals 961.7 1,046.3 (8%) delivery of incremental synergy Mining Chemicals Watercare 215.8 224.4 (4%) benefits; –– Sales in Mining Chemicals were Mining Chemicals 296.6 311.4 (5%) down 5% on the pcp, due to the –– Subdued market conditions in New * F – Favourable, (U) - Unfavourable Zealand; unfavourable impact of a stronger AUD and the pass through of lower –– Lower average global caustic price; raw material input costs, offset partly and by higher volumes; and EBIT –– Negative impact to EBIT from AND EBIT MARGIN –– Volumes for sodium cyanide were up movements in foreign exchange rates. 17% versus the pcp, supported by record manufacturing volumes and an

BUSINESS SUMMARIES 124.8 127.4 146.1 170.4 188.0 increase in traded volumes ahead of General Chemicals 15 the 2011 uprate of the Yarwun plant. –– General Chemicals sales down 8% on Demand from gold markets remains the pcp due mainly to the impact of strong. foreign exchange movements; 10 –– Australian trading volumes improved PERSPECTIVES FOR 2011 with a steady recovery in industrial –– Sodium cyanide demand expected to 5 and mining markets. Agricultural and remain firm; construction markets remain soft; –– Steady conditions in most markets in –– Volume growth in Marplex from Australia and Latin America; 0 06 07 08 09 10 improving automotive and general –– New Zealand market not expected to plastics market segments and growth deteriorate further; EBIT Margin % in infrastructure projects; –– Global caustic prices to remain –– Stronger volumes and improved subdued; and margins in Latin America; –– Negative earnings impact of a –– Steady performance from Bronson & stronger AUD. Jacobs; –– Difficult trading conditions and ongoing soft demand in New Zealand; and –– Negative impact of a stronger AUD on trading margins (in absolute dollars).

11 board members

P J B Duncan Graeme R Liebelt noel meehan Michael E beckett BChE (Hons) GradDip (Bus) BEc (Hons) Bsc (Hons), CPA BSc, FIMM, FRSA Chairman, Non-Executive Director Managing Director and Chief Executive Executive Director Finance since Non-Executive Director since July since June 2001, appointed Chairman Officer (CEO) since September 2005. September 2005. Member of Corporate 2002. Member of the Safety, Health in December 2009. Chairman of the Executive Director since July 1997. Governance and Nominations & Environment Committee and the Corporate Governance and Nominations Member of Corporate Governance and Committee. Former Chief Financial Corporate Governance and Nominations Committee. Nominations Committee. Officer of Orica Chemicals, Orica Committee. Group Investor Relations Manager and Chairman of Scania Australia. Former Director of Melbourne Business School Chairman of Thomas Cook Group plc and Corporate Reporting Manager. director of Limited and Business Council of Australia. Endeavour Mining Corporation. Director Limited, GasNet Australia Limited and Board member of The Global Foundation. Prior to joining Orica, he held a variety of of Northam Platinum Limited (South CSIRO and former member of Siemens Former CEO of Orica Mining Services, finance roles both within Airways Africa), Mvelaphanda Resources Limited Australia Advisory Board. Former Chief Chairman and Director of Incitec Limited, Limited and Australian Airlines Limited. (South Africa), Egypt Trust Limited. Executive Officer of the Shell Group of General Manager of Plastics Companies in Australia. and Managing Director of Dulux.

russell R caplan Gary a Hounsell Michael tilley nora scheinkestel LLB, FAICD BBus (Accounting), FCA, GradDip, BA PhD, LLB (Hons), FAICD, Non-Executive Director since October CPA, FAICD Non-Executive Director since November Centenary Medal 2007. Chairman of the Human Resources Non-Executive Director since September 2003. Chairman of the Safety, Health Non-Executive Director since August and Compensation Committee. Member 2004. Member of the Audit and Risk & Environment Committee. Member of 2006. Chairman of the Audit and Risk of the Corporate Governance and Committee, Human Resources and the Audit and Risk Committee and the Committee. Member of the Human Nominations Committee. Compensation Committee and the Corporate Governance and Nominations Resources and Compensation Committee Director of QR National. Former Chairman Corporate Governance and Nominations Committee. and the Corporate Governance and of the Shell Group of Companies in Committee. Former Managing Director and Chief Nominations Committee. Australia. Former Director of Woodside Chairman of PanAust Limited. Director of Executive Officer of Challenger Financial Director of AMP Limited, Pacific Brands Petroleum Limited. Qantas Airways Limited, Limited Services Group Limited. Former member Limited and Corporation Limited. and DuluxGroup Limited. Former Chief of the Takeovers Panel. Former Non- Former director of PaperlinX Limited, Executive Officer and Country Managing Executive Director of Incitec Ltd and Limited, Mayne Group Partner of Arthur Andersen and former former Chairman and Chief Executive Ltd, Mayne Pharma Limited, North Ltd, Senior Partner of Ernst & Young. Officer of Merrill Lynch Australasia. MBF Health Fund, Docklands Authority, IOOF Funds Management and a number of utilities across the gas, water and electricity sector. Also former Chairman of South East Water Limited and the Energy 21 and Stratus Group.

Lim Chee Onn ian cockerill Annette M Cook BSc (Hons), MPA, D.Eng (Honorary) BSc (Hons) Geology, Dip Bus (Accounting), Dip Bus Non-Executive Director since July MSc (Mining), MDP, AMP (Data Processing), CPA 2010. Member of the Safety, Health Non-Executive Director since July Company Secretary of Orica Limited & Environment Committee and the 2010. Member of the Safety, Health since 16 February 2005 and prior to that Corporate Governance and Nominations & Environment Committee and the was assistant Company Secretary from Committee. Corporate Governance and Nominations August 2002. Joined Orica in July 1987 Senior adviser to Keppel Corporation Committee. and has had a variety of roles in Business Limited. Former Executive Chairman of Chairman of the Petmin Limited. Services, IT and Finance. Keppel Corporation Limited. Former Former Chief Executive Officer of Anglo member of the Singaporean parliament Coal and Gold Fields Limited. Former and served as Political Secretary in the executive with AngloGold Ashanti Ministry of Science and Technology. and Anglo American Group.

Orica 2010 annual report 12 group executive

Graeme R Liebelt Noel Meehan Trisha McEwan John Beevers BEc (Hons) BSc (Hons), CPA Dip Bus (Admin) BEng (Mining), M.Bus Managing Director Executive Director Finance General Manager, Human Resources Chief Executive Officer, Graeme has held a variety of key positions Noel joined Orica in April 1999 as and Communications Orica Mining Services within the Orica Group since joining in Corporate Reporting Manager. Since Trisha joined Orica in June 2009 and Since joining Orica in 1985, John has held 1989 including Chief Executive of ICI then, he has held a number of other senior has had a broad HR career spanning a variety of positions in Mining Services Paints Pacific, General Manager Plastics finance roles within the Group, including a number of industry sectors, mainly with leadership roles in Technology, and Advanced Sciences Groups and Chief CFO for Chemicals and Orica Group within New Zealand and Australia. Operations and Business. In 2005 he was Executive Officer Orica Mining Services. Investor Relations Manager. Noel was Trisha recently spent seven years as appointed General Manager, Chemical Prior to joining Orica, Graeme held a appointed to the role of Chief Financial Group Director Human Resources with Services, returning to Mining Services number of senior positions including Officer in May 2005 and Executive Telecom NZ, helping build people and as General Manager Australia/Asia in Marketing Director Repco (Australia), Director Finance in September 2005. organisational capability as the business 2006. John was appointed to his current Marketing Director Philip Morris underwent a period of major change. position in November 2008. (Australia) and Consultant for Pappas Carter (now Boston Consulting Group).

Craig Elkington Michael Reich Andrew Larke Greg Witcombe BBus (Acc), CPA B Mining Eng LLB, BComm, Grad Dip BSc President, Orica Mining Services, Chief Executive Officer, Minova (Corporations & Securities Law) Chief Executive Officer, Chemicals North America Michael was appointed to the role Group General Manager, Greg joined the company in 1977 as a Craig joined Orica in 1994 initially with of Chief Executive Officer Minova in Mergers and Acquisitions, research chemist with the Agricultural corporate accounting responsibilities December 2007. Prior to his appointment, Strategy and Technology Products business before moving before moving into several senior he was CEO of Minova’s European Andrew has more than 18 years into a series of commercial roles in finance roles across the Group’s business business for five years. Michael has experience in corporate strategy, the Chemicals business. His senior platforms. In 1998 he moved to Denver, extensive experience in the mining mergers and acquisitions, divestments management positions have included, Colorado to join the North American industry, particularly in the area of and corporate advisory. He joined Orica General Manager of Trading (Chemnet) mining services business following the underground coal mining operations. in 2002 and has been responsible for and Mining Chemicals, General acquisition of ICI’s explosives operations. Throughout his career he has held a leading Orica’s corporate strategy and Manager of the Polyethylene Group, In recent years he has held the CFO number of positions, including sales mergers and acquisitions program, Manager Director of Incitec Ltd and positions of the company’s former and operations management. including the merger of Incitec and Pivot Managing Director of subsidiary Incitec Ltd, the Chemicals and the subsequent divestment of Orica’s Limited. Prior to his current appointment, Division and most recently as CFO of shareholding, the acquisitions of Dyno Greg was General Manager People the global mining services Group. Nobel and Minova and the demerger of and Community with responsibility for Craig was appointed to his current DuluxGroup. Andrew is also responsible Human Resources, Safety Health and position in December 2007. for Orica’s SH&E, procurement, Environment, Corporate Affairs, engineering and technology activities. Six Sigma and Group Procurement. Prior to joining Orica, Andrew was head of Mergers and Acquisitions at resources company North Limited and prior to that was a Mergers and Acquisitions lawyer at Blake Dawson Waldron.

13 CORPORATE GOVERNANCE

Orica’s directors and management are committed to conducting the Company’s business ethically and in accordance with high standards of corporate governance. This statement describes Orica’s approach to corporate governance.

The Board believes that Orica’s policies –– safety, health and environment –– clear communication and consultation and practices comply with the Australian standards and management systems across the business; Securities Exchange (ASX) Corporate to achieve high standards of –– using a structured, systematic and Governance Council Principles and performance and compliance; and explicit risk assessment process. Recommendations. The Company’s –– that business transactions are properly The process requires four core corporate governance policies can be authorised and executed. components: viewed on the Company’s website at –– a comprehensive structured risk www.orica.com. Internal audit has a mandate for reviewing and recommending identification and assessment Integrity of Reporting improvements to controls, processes and process that identifies material The Company has controls in place that procedures used by the Company across financial and non-financial are designed to safeguard the Company’s its corporate and business activities. The business risks and develops an interests and integrity of its reporting. Company’s internal audit is managed understanding of the risks; These include accounting, financial by the Chief Risk Officer and supported –– a decision making process, based reporting, safety, health and environment by an independent external firm of on the outcomes of the risk and other internal control policies accountants. analysis, about the risks needing and procedures, which are directed treatment and treatment priorities; The Company’s financial statements at monitoring whether the Company are subject to an annual audit by an –– a risk register which records risks complies with regulatory requirements independent, professional auditor who identified across businesses, and community standards: At each also reviews the Company’s half-yearly operations, functions and projects; reporting period, both the Managing financial statements. The Board Audit and Director and Executive Director Finance and Risk Committee oversee this process –– planned management actions are required to state in writing to the on behalf of the Board. to mitigate or eliminate the risk Board that: through the establishment of –– the Company’s financial statements Risk Identification and mitigation plans. and associated notes give a true and Management Orica recognises the importance of –– reviewing the risk profile and fair view of the Group’s financial treatment plans on an ongoing basis position and performance and are in risk management practices across all businesses and operations. Effective to ensure that the risks reflect the accordance with relevant accounting prevailing circumstances; and standards; and risk management highlights for management’s attention the risks of loss –– regular reporting to management and –– these statements are founded on a of value, reputation or opportunity and the Board of risks for the Company. sound system of risk management provides a framework to achieve and The Board establishes the policies for the and internal control and that the deliver the Company’s strategy. system is operating effectively in oversight and management of material all material respects in relation to Orica aims to maintain a consistent business risks and internal controls. financial reporting risks. organisation-wide approach to the The design and implementation of the management of risks by: risk management and internal control These assurances are based on a financial systems to manage the Company’s –– maintaining a Risk Management letter of assurance that cascades down material business risks is the responsibility Framework that provides a through management and includes sign- of management. off by business chief executive officers transparent approach to managing and business chief financial officers. risk across Orica; The Board, through the Board Audit and Risk Committee, satisfies itself Comprehensive practices have been –– understanding the environment that the Company is operating in; that management has developed and adopted to monitor: implemented a sound system of risk –– that capital expenditure and revenue management and internal control. commitments above a certain size The Managing Director and Executive obtain prior Board approval; Director Finance have provided a report –– financial exposures including the use to the Board that the risk management of derivatives; and internal control systems have been designed and implemented to manage

Orica 2010 annual report 14 the Company’s material business risks, The Board recognises the respective roles basis from the perspective of both the and management has reported to the and responsibilities of the Board and Company and the director. Materiality is Board as to the effectiveness of the management in the charters prepared assessed by reference to each director’s Company’s and consolidated entity’s for the Board, Managing Director and individual circumstances, rather than by management of its material business risks. Chairman and in the Company’s reserved applying general materiality thresholds. authorities approved by the Board. Each director is obliged to immediately A separate role of Chief Risk Officer inform the Company of any fact or exists, reporting to the Executive Director Composition circumstance, which may affect the Finance and with direct access to the The Board considers that its structure, director’s independence. Board Audit and Risk Committee, to size, focus, experience and use of manage the Company’s risk management committees enables it to operate If a conflict of interest arises, the director and internal audit program. effectively and add value to the concerned does not receive the relevant Board papers and is not present at the One or more independent external Company. Orica maintains a majority meeting whilst the item is considered. firm(s) of accountants assists the Chief of non-executive directors on its Board Directors must keep the Board advised, Risk Officer in ensuring compliance with and separates the role of Chairman and on an ongoing basis, of any interests that internal controls and risk management Managing Director. could potentially conflict with those of programs by reviewing the effectiveness The Board currently comprises ten the Company. of the risk management and internal directors: eight independent non- control systems, and periodically provides executive directors, including the Selection and Appointment assistance and input when undertaking Chairman, and two executive directors, of Directors risk assessments. being the Managing Director and the The directors are conscious of the need Executive Director Finance. Details for Board members to possess the The Board Role of the directors as at the date of this diversity of skill and experience required The Board of Orica Limited sees its report, including their qualifications and to fulfil the obligations of the Board. primary role as the protection and experience, are set out on page 12. In considering membership of the enhancement of long-term shareholder Board, directors take into account the value. The Board is accountable to The composition of the Board seeks to appropriate characteristics needed by shareholders for the performance of the achieve a diversity of perspective through the Board to maximise its effectiveness Company. It directs and monitors the a range of experience, skills, knowledge and the blend of skills, knowledge and business and affairs of the Company on and backgrounds to enable it to carry experience necessary for the present behalf of shareholders and is responsible out its obligations and responsibilities. In and future needs of the Company. for the Company’s overall corporate reviewing the Board’s composition and in Nominations for appointment to the governance. assessing nominations for appointment Board are considered by the Corporate a