Edited from the chairman's report and the managing director's report, annual report 2008 and 2009 strategy.
Orica states that its main strategy is based on “planning for business growth” in 2009. The board's long term growth strategy of supporting and developing its business platforms has been underpinned by activities to improve its productivity and efficiency. Its overall aim is to establish a “solid foundation” to achieve this growth.
“Orica has been guided by a strategy of pursuing market leadership positions in businesses offering resilient earnings streams with limited exposure to market volatility. This has seen us divest a number of more cyclical businesses which did not meet our strategic objectives and strengthen our position in businesses where we could be leaders in markets offering long term, steady growth in demand for our products and services”, says chairman, Don Mercer.
“Over the past 10 years there have been dozens of acquisition and divestment transactions involved in the strategic restructure of Orica. Our business activities are structured around what we regard as the enablers to success, namely Growth, productivity and culture”, continues Mercer.
Growth strategy
Its growth strategy is focussed on three key points:
(1) Market leadership – the company aims to be market leader in each of its
businesses either globally or locally and to ensure that it has the competitive
advantage to sustain that position;
(2) Grow “close to the core” – it will pursue opportunities in related businesses where
it can use its knowledge and expertise and achieve synergies; and
(3) Invest in the “winners” – it will only grow its best performing businesses that meet
financial performance targets and have earned the right to grow.
“We grow through organic means and through acquisition, extending into new geographies, expanding into new categories and improving our ability to meet customers’ needs”, says Mercer.
Productivity strategy
Improving productivity, which Orica measures by the ratio of total fixed costs to gross margin, is a key element of how it says it does business. Its aim is to improve productivity year-on-year by way of efficiency, effectiveness or leveraging its fixed cost base. All its business units are focused on improving efficiency, paying particular attention to manufacturing and supply chain improvements.
The company says that the adoption of Six Sigma plays an important role in its productivity improvement programme. “This ongoing drive for productivity is intrinsic to our integration of acquisitions, where we continually look for synergies as part of the integration process“, says Mercer.
For example, Orca identified $90m/year of synergy benefits associated with its integration of Dyno in Europe, Latin America and Asia. Orica says that it has now realised those synergies 12 months ahead of schedule. The integration of its latest major acquisition, Minova (including Excel), is said to be “on track“.
Culture strategy
Orica says it will continue to expand its business geographically across diverse cultural, language and workplace relations backgrounds. The four ‘Deliver the Promise’ principles that support its performance based culture and against which its performance is measured, revolve around safety, health and environment, commercial ownership, creative customer solutions and working together.
Orica's growth strategy for fiscal 2009 includes:
(1) Securing market leadership positions in selected “niche” markets;
(2) Developing and retaining technological advantage and achieving the benefits of
scale;
(3) Growing only value adding businesses - those that have “earned the right to
grow”;
(4) Growing “close to the core” businesses;
(5) Achieving strict financial criteria, such as its 18% return on net assets requirement
for new investments; and
(6) Continuing to provide the financial discipline required for assessing growth
opportunities.
Orica sees its growth coming from four areas:
(1) Industry and organic growth;
(2) Productivity improvements;
(3) Expansion capital expenditure; and
(4) Mergers and acquisitions.
Looking ahead, the company believes that its market conditions in 2009 will remain “strong”. Subject to global economic conditions, its net profit before individual material items in 2009 is expected to be higher than that reported in 2008.
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Financial highlights: Orica, year ended 30 September
|
|
2009 |
2008 |
2007 |
2006 |
2005 |
|
Sales ($ m) |
7,411 |
6,544 |
5,527 |
5,359 |
5,127 |
|
EBIT ($ m) |
1,082.5 |
970 |
813 |
658 |
601 |
|
Total Assets ($ m) |
-- |
8,008 |
6,204 |
5,713 |
4,470 |
|
Diluted earnings per share ($) |
133.5 |
1.58 |
1.44 |
-- |
-- |
|
Number of Employees |
15,000 |
15,268 |
14,174 |
13,458 |
10,952 |
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Orica
Company Structure
Orica is a publicly-owned Australian company employing around 14,000 people in around 50 countries and with annual sales of Aus$5.3bn. The business started in 1874 as a small explosives firm based in Victoria, Australia. The Orica name came into existence in February 1998 after trading under the ICI Australia banner for 70 years.
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