Also Ammonium nitrate.
Notes are written in chronological order.
In 1998 it purchased for A$570 million the American and European business of ICI Plc's explosives business to represent 20 per cent of the world's explosives business. It will increase its turnover in explosives by around 140 per cent - from around A$550 million in Australia to A$1 300 million world wide. Explosives will thereby increase its importance to Orica from 12 per cent to 25 per cent of turnover. Companies targeted for acquisition are AECI Ltd in South Africa and Sasol Limited (that was prevented from buying AECI earlier in 1998).
The decision immediately increased overseas sales from 5 to 25 per cent (though acquisition is anticipated to be loss maker in short term). It is useful to note that that while Orica derives 19 per cent return on revenue in Australia, at the purchase price of A$570 million it would derive only a 4 per cent return!
It appears that around A$500 million of the cost of the explosives business will be derived from sale of its pharmaceutical business in Australia to UK based Zeneca and its Moomba-Sydney ethane gas line (as we presume as a precursor to the eventual sale of its interest via Qenos in the Botany complex that seeded ICI entry into Australia in 1940).
Orica once had a monopoly in explosives in Australia but allowed Dyno to form partnership with Wesfarmers in late 1980s. Dyno is now expanding in Australia. Note also the Wesfarmers acquisition of Howard Smith. Today it is the world's largest explosives manufacturer.
It would not bid low enough against Wesfarmers/Dyno for BHP contract that required development of the Moura project though that has been contested on grounds of not being allowed to bid. Orica would have benefited from the facility as it has a facility at Yarwun using ammonia road freighted (some 2000 km) from Newcastle NSW and it will soon be operating at under capacity (or export). In other words, it should have been able to underbid Dyno especially when the penalty of lost economies at Yarwun are factored in. Relevant too is that Queensland Phosphates, near Mt Isa, will manufacture ammonia, but not ammonium nitrate. Orica should have been able to negotiate a relationship with WMC.
In April 2003, Orica purchased 30 per cent of Initiating Explosive Systems for A$16m (previously with ownership from Ensign Bickford (USA) that had merged with Dyno Nobel, Orica's competitor. IES manufactures non-electric initiating systems including detonators, detonating cords and boosters and is the largest initiating explosives systems maker in Australia operating plants at Helidon in Queensland and Deer Park in Melbourne.
Orica through its relationship with ICI Plc has acquired explosives businesses including Carseland in Canada. Carseland is large, but purchases its ammonia at arms length and transports ammonium nitrate into US. In other words, some scale benefit is lost to transport costs.
In South America Orica competes against ammonium nitrate manufacturer Eneax/Austin (Austin has a JV with Dyno).
In South Africa Orica does not have an effective manufacturing presence.
Dyno Nobel aquistion
In August 2005 Orica paid $685 million,12-times earnings (before interest, tax, depreciation and amortization) for 40 per cent of the Dyno Nobel dynamite and blasting services as part of a $1.7 billion purchase. Orica has thereby obtained the the European, African, Latin American and Asian and businesses of the Oslo-based Dyno while Sydney-based Macquarie Bank has obtained the Australian and North American businesses. Orica's share of the $8 billion world explosives market was thereby increased to about 25 percent more than double its next largest competitor. In this relationship with Macquarie, Orica is able avoid antitrust regulations in the USA and Australia.
Orica plans to sell its interest in polythene and polypropylene polymers (Qenos - not until June 2002 being bound by contract) and PVC (Australian Vinyls) which was finally sold in January 2002.
Qenos shareholding sold
Qenos formerly Kemcor Australia and the polyethylenes production part of Orica is the major operator at the petrochemical complexes at Altona and Botany was formed in 1999 to prepare for its sale by owners Orica and by Exxon Mobile Corp. In October 2005 it was sold for at least A$200million to the China National Chemical Corp. formed in 2004 by the combination of China National Bluestar Group and China Haohua Chemical Industrial Corp. Orica will book a lose of A$34 million. (In 2003, Orica wrote its shareholding in Qenos to zero but increased it recently to A$19million.
Orica's chief executive Mr Philip Weickhardt resigned presiding over the $2 billion reduction of shareholder's funds over the past four years, joining the growing list of chief executives to depart high-profile public companies in Australia in recent months. Australian Financial Review 06 Jul 2001.
Orica is signalling a move away from plastics already having sold its interests in Visqueen polyethylene film, its Propafilm business, polyethylene Cast Film (to Stellar Films) and its polypropylene resin business (to Basell). It is aiming to sell its (62 per cent) share holding in the recently formed Australian Vinyls Corporation and is forming a joint venture with Kemcor in its last remaining resin, polyethylene. (In July 1998, the company announced deferment of the sale).
The sale of its ethane gas line to Botany will see an end to its interest in Botany as we anticipate the final transfer of its share holding in the joint venture with Kemcor. Orica will concentrate on value adding (like its parent ICI Plc) though unlike its parent, extending into explosives. In April 1999, ICI Plc, the world's fourth biggest chemical producer incurred a 51 per cent drop in first quarter profits attributed to falling commodity chemical prices. ICI has put its industrial chemicals and acrylic business for sale and aims to focus on additives for food and drugs.
In December 1998, Orica indicated its intention to buy 26.7 per cent of ammonia, ammonium nitrate manufacturer Incitec not already owned valuing company at A$670 million. With sales of pharmaceuticals and its technical coatings business earlier in 1998, the company gearing even with a $180 million cash offer for Incitec, will leave its gearing ratio below 40 per cent.
In December 1998, Orica announced it was selling its surfactant business at Botany to Huntsman Corporation (manufacturing styrene polymers and owner of Huntsman Chemicals operating at Footscray Victoria) for A$155 million.
The deal includes the surfactant plants at Orica's complex at Botany Under terms of the agreement, Orica will toll produce additional specialty surfactants for Huntsman at Deer Park, near Melbourne. The sale price includes a 10-year interest-bearing deferred settlement of A$20 million. Payment of the deferred amount is subject to the business achieving certain performance targets. The business includes production of ethylene oxide, alcohol ethoxylates, alkylphenol ethoxylates, and specialty surfactants and chemicals. Huntsman says Orica is the only integrated surfactants business in Australia and New Zealand. The purchase gives Huntsman access and license to Orica-ICI surfactants technology and intellectual property, and to Orica's R&D and pilot facilities. "The Orica business comes to us with specialty surfactant and ethylene oxide chemical product technology that services virtually all key end-use markets," says Richard E. Lundgren, Huntsman's v.p./surfactants. The acquired business, which has sales of A$150 million/year, markets detergents and emulsifiers for agricultural, home and industrial cleaning, personal care, and food applications. Orica managing director and CEO Philip Weickhardt says surfactants "has been a sound business," but its value "can best be realized by selling to a more natural long-term owner." Orica will report after-tax proceeds of A$26 million from the sale.
Given that surfactants was the only significant other activity at Botany owned by Orica with the JV with Kemcor, it could be interpreted as marking the end of Orica's ownership of ICI's entry into Australia. Orica will retain the surfactant operation at Deer Park Victoria as it is deemed important to the explosives business.
In February 2000, Orica sold its polyurethanes business to Huntsman Corporation for A$48m.
Its Moomba to Botany ethane pipeline was sold in December 1999 for A$124 million to a management team.
In October 2000 Orica reported a 38 per cent drop in full-year net profit to $186.2 million, including a net abnormal loss of $33.3 million, attributed mostly to restructuring charges. In 1999, the agricultural chemicals business generated an 8.9 per cent drop in earnings before interest and tax, while earnings from the other core consumer products and chemical divisions were flat.
Orica signalled it will channel more resources into its non-explosive operations to resurrect its share price from an eight-year low of $5.46 earlier this month. In 1997 Perth-based Wesfarmers Ltd made a takeover bid of $12 a share for Orica.
The MD, Mr Philip Weickhardt, said management had been ``distracted" from the growth of its agricultural chemicals, consumer products and chemical divisions by the restructuring and expansion of the international explosives business over the past three years.
Finance director, Mr Tony Larkin, said that Orica's balance sheet could withstand up to $1 billion being spent on acquisitions.
He claimed the polyvinyl chloride (PVC) business would be profitable this financial year despite a slowing building sector and a disastrous final quarter performance, which saw the business generate a loss of $2 million for the full year. In ``some senses this is not the right time to divest that business".
In November 2000 Qenos Olefins announce loss of 120 jobs (10 per cent of national employment) from its Altona petrochemical facility and concentrate production at its Botany plant in New South Wales and import rubber from overseas.
Reported a 50.9 per cent slide in first half net profit to $49.4 million but increased sales by 6.2 per cent to $1.873 billion during the period, up from $1.764 billion last year. However, the mining services arm continued to be hit by higher input costs and the downturn in the Australian building industry affected the consumer products and Australian Vinyls operations. Abnormal items for the period totalled $19.3 million profit after tax. This included a $32.1 million profit after tax and minority interests from termination payments from Syngenta Ltd to Orica's joint venture Crop Care Australia. Orica also suffered an abnormal loss after tax of $12.8 million due to the restructuring costs from the closure of two plants at its Qenos Holdings Pty Ltd joint venture. Weickardt added that the group's purchase of the ammonium nitrate manufacturing assets of LaRoche Industries in the US last November had "significantly improved" the supply of that key raw material to Orica's North American explosives business. The group's purchase of the commercial explosive operations of Dynamit Nobel in Germany and Estonia in March this year had also given Orica a "strong base for expansion" in Europe.
Orica will shed 800 jobs in a bid to increase efficiency, after posting a A$192.7 million loss compared with a 2000 year net profit of $113.7 million. "The company's efficiency program will involve a reduction of 800 positions and result in cost savings during the 2002 financial year of $70 million after tax. Managing director and chief executive officer Malcolm Broomhead said the company would effect longer-term cultural changes to improve the business.
Orica has confirmed it is interested in pursuing rationalisation of the agricultural chemical industry if it will generate value for Orica's shareholders. With this objective in mind Orica, and its subsidiary Incitec, have been conducting discussions with various parties including Pivot and Nufarm.
The Orica statement followed a report in The Australian Financial Review today that Orica managing director Malcolm Broomhead was considering a radical plan to rationalise the $2 billion Australian fertiliser industry. Included among the options was a merger of Incitec and Pivot - or Incitec and the West Australian business of Wesfarmers, CSBP - followed by the acquisition of WMC Ltd's Hi-Fert unit.
Now rejected (and subject to a court hearing) Orica proposed to merge the fertiliser assets of its 77%-owned subsidiary, Incitec Ltd, with Pivot Limited which is subject to shareholder and regulatory approvals. The merger would create a public company, Incitec Pivot Limited will have more than 800 employees, potential revenue of about $1 billion and annual fertiliser sales of more than 3 million tonnes in Queensland, New South Wales, Victoria, South Australia and Tasmania.
Shareholders in Incitec Pivot Limited would be Orica (54%), Pivot shareholders (30%), Futuris Corporation Limited (15%) and other shareholders (1%). To facilitate the merger, Orica's intends to purchase Incitec's Industrial Chemicals assets comprising explosives and chemicals manufacture and chemicals handling at Brisbane, Newcastle and Port Kembla for $315 million (the net cost to Orica of acquiring the 23% share it does not own through its current Incitec holding, will be approximately $73 million).
September 2002 Orica acquires Nufarm's Fernz Specialty chemicals.:
Orica Ltd will pay A$60 million for Nufarm Ltd's Fernz Specialty Chemical business which distributes a wide range of chemicals in Australia and New Zealand in markets complementary to Orica’s Chemnet's markets including health care, foodstuffs, polymers, pulp and paper and waste and waste water.
Fernz had sales of $190 million over the past
year, would lift annual sales in its chemical trading business Chemnet to $600
million and increase its market share to seven per cent.
For Nufarm, the sale represents a shift in focus to its core global crop protection business and would help fund its recent $75 million purchase of Crop Care Australia Pty Ltd, which was jointly owned by Orica and its 77 per cent owned subsidiary Incitec Ltd.
The directors of Incitec announced plans to build a third nitric acid plant costing A$50million, at the Koorangang Island Complex in NSW which would increase its ammonium nitrate production capacity from 280 000 tonnes to 390 000 tonnes per year.
Orica comes to agreement to purchase the balance of Incitec shares held by Futuris in an out of court settlement.
Orica writes down to zero, its investment in Qenos that has accumulated A$40m losses since 2000. It represents a writedown of A$140m. It's CEO Broomhead said Orica's remaining financial commitments to Qenos included only contingent liabilities. "They all relate to the Cooper Basin pipeline, where we'd have an obligation, if the pipeline stopped producing, of $15 million per year up until 2006," he said in an open briefing lodged with the Australian Stock Exchange. "Plus, there'd be a one-off charge of $13 million. We have no reason to expect any production stoppage."
Orica Ltd has acquired the engineering plastics operations QEP of its Qenos joint venture for A$10 million for integration into Chemnet Orica's chemical network. QEP was a standalone business from the main polyethylene business of Qenos with sales of about A$40 million in 2002, a profit of about A$2 million and assets of around A$10 million.
Orica is seeking to sell the loss-making main business of Qenos.
Orica said the addition of QEP would enhance the specialty plastics distribution business obtained by Orica when it acquired Fernz Specialty Chemicals late last year. The MD of Orica said “The acquisition will add high-value specialty compounding operations and create operational and logistic synergies as well as providing an excellent fit from a customer perspective.” “The acquisition exceeds Orica's strict financial targets of a minimum of 18 per cent RONA (return on net assets) and is strategically consistent with Orica's growth principles based upon low-risk, value-adding acquisitions and supporting our best businesses.”
Orica has purchased a 37.4 per cent interest in Welvic Australia from United States-based PolyOne Corp for A$3.5 million. Welvic makes custom PVC compounds and has sales revenue of about $40 million and will be incorporated into Orica's global chemical network, Chemnet.
Orica purchases the seed and home fertiliser company Yates for $45million. Seen as a complementary activity to Orica's Selleys range of household chemicals.
Qenos has extended its ethane supply contract with the Cooper Basin producers to 2010. The contract signed in 1994, Santos and its partners were to supply 16 petajoules of ethane until 2006 to the Botany plant. That contract and quantity will continue to 2010.
Incitec Pivot's has paid A$165 million to buy BHP's Southern Cross fertiliser operation in Queensland. Incitec Pivot will now buy back the balance of Orica's 70 per cent shareholding at the institutional price of A$21 a share. Orica is set to realise $857 million from the deal, making a profit of A$399 million which will initially go towards repaying short-term debt to reduce its gearing from 38 per cent to 20 per cent.
Southern Cross produces diammonium phosphate (DAP) and monoammonium phosphate (MAP) - two important raw materials in producing fertiliser. Until now, Incitec Pivot has had to import its DAP and MAP because Southern Cross supplies ELF, the opposition.
Orica’s resins and adhesives business, that makes formaldehyde-based resins with production at Deer Park and in New Zealand, with estimated sales of A$100million, was sold to Hexion Specialty Chemicals after approval by the Australian Competition and Consumer Commission late 2006. The adhesives are principally used in wood products in which Hexion is a world leader with its thermoset resins.
History (requires review and consolidation)
See also Orica history
Orica is living up to its ambition in making the change from what we considered to be a poorly managed business as ICI Australia. In support we point to how its soda ash and fatty acids businesses have fared on divestment and Australian Vinyls was sold after a two-thirds write-down.
Orica maintains its interest in the paint industry.
In November 2000, it opened a A$12 million technology centre to house its Orica Consumer Products paint research and development team. The centre, in the south-east Melbourne suburb of Clayton, is staffed by 70 scientists and equipped with a pilot plant facility, a liquid latex laboratory, facilities to optimise colour, quality and viscosity and a constant conditions room for testing paint variation.
It is expanding its water treatment business including with its successful MIEX magnetic ion exchange resin. The MIEX resin is claimed to be one-half the cost of using membrane of activated carbon. It is valuable for reducing the halocarbons produced when chlorine is used in water sterilisation. In September 2001, Orica announced its intention to enter the US market with sales of the resin.
That said, Orica has achieved a minus 11.2% (SROR) - below the sector average of minus 9.5% for three years to 2001 reflecting in part the high price it paid for ICI Plc's explosives business with a 20 times price earnings ratio!
Shareholder Rate of Return (SROR) calculations represent a composite of movement in share price, dividends and imputation tax credits. The SROR takes account of changes in capital and is defined as the annualised total return to shareholders from maintaining their investment in a stock over a period.
ICI Australia was 62 per cent owned by ICI of the UK (but see below) has become Australia's major chemical manufacturer (turnover A$1.8bn in 1995, 1997 capitalisation at A$3.3bn).
It manufactured polyethylene and polyvinyl chloride resins (from imported VCM), ethylene oxide derivatives, urea formaldehyde adhesives, sodium cyanide, via Incitec (72 per cent owned by ICI Australia) ammonia and ammonium nitrate, and ammonium nitrate-based explosives. The company owns more than half Australia's paint manufacturing industry (including the Dulux, British Paints and Berger brand names) and produces speciality chemicals (including the Selleys brand).
In 1997, its profit distribution was;
Especially since the late 1980s, ICI has divested itself of many commodity and speciality manufacturing activities (including its family health business) but has extended into sodium cyanide, ammonium nitrate and explosives. Many divested or closed activities had been underpinned by import tariffs whose reductions exposed high cost activities to international competition. It has also closed its ethylene dichloride/VCM synthesis operations at Botany.
In May 1997, its PVC business was merged with competitor Auseon to form Australian Vinyls Corporation. It comprises Orica (former ICI Australia) 62.6 per cent and the former Auseon 37.4 per cent (owned by the large US-based Geon Corporation. (The Geon Company is one of the largest suppliers of PVC resins in North America and is the world's largest provider of PVC compounds. Australian Vinyls Corporation has been offered for sale (currently listed). In May 1998, Orica indicated it wishes to sell its interest (62.6 % valued at around $150m).
In October 1997, ICI closed its polypropylene plant (that had been using propylene from the Kurnell refinery) but will sell propylene to Basell (in other words, propylene is piped from Kurnell to the Orica site for refining and then trucked to Clyde).
It then also closed its EDC operations (which had been exported to provide an outlet for chlorine co-produced with caustic soda from its Botany Bay chloralkali plant) and will replace its five-decade old chloralkali mercury cell. This rationalisation sees the Botany site becoming ethane-based, largely a producer of polyethylene (i.e.. using South Australia's resource set aside to realise its quarter-century ambition for a chemical project at Redcliffe near Whyalla).
In May 1998 Orica announced it would
merge its polyethylene business with Kemcor assuming a 50 per cent (Kemcor
is 50:50 owned by Mobil and Exxon) to be managed by Kemcor's MD. The joint
venture will therefore produce polyethylenes, polypropylene and SB and
A delivered to market cost reduction of 20 per cent was originally projected by Kemcor but later announced as being A$40 on combined sales of A$700million. In March 1999, the merger was approved by the FIRB and ACCC (regulatory authorities in Australia). The joint venture will produce 470 000 tonnes of polyethylenes valued at A$A$700 million and employ 1200. Botany PE production will be upgraded increasing capacity by 35 per cent.
Given that Botany is now largely a polyethylene business, it effectively means Orica would barely control the nucleus of ICI's core commencement in Australia. Orica is clearly signalling a direction of its parent away from commodity chemicals including plastics.
It is worth noting that though the two companies (as APC, later Kemcor and ICI, now Orica) could be described as long term "archrivals", ICI for many years through its extensive and skilled government lobbying skills, assisted APC who gaining one-half the benefit of ICI's Canberra's endeavours in many polymers (that included a luxurious office maintained for lobbying purposes). The new JV formalises an earlier relationship of sorts!
Technical coatings sale
In August 1998, Orica announced the sale of its technical coatings operations to PPG - a US producer of automotive, industrial and architectural coatings. The operations were based at Clayton Victoria, employing 600 with a turnover of A$165m from assets of A$100m. PPG will move its Asia-Pacific headquarters from Hong Kong to Clayton, a southern industrial suburb of Melbourne, and will switch its Asian export business away from Europe and America to the local plant.
Nuplex Resins paid A$13.7M for Dulux Resins, the unsaturated polyester resins operations of Orica and renamed Nuplex Structural Resins. Sales of the business amount to A$20 M pa.
In March 2000, Orica
commenced construction of a chloralkali plant at Laverton North Victoria
to replace the Yarraville mercury cell plant. The plant will manufacture:
- chlorine which is used extensively in a wide range of applications, including drinking water purification.
- sodium hypochlorite for treating swimming pools ('pool chlorine');
- hydrochloric acid which is used in steel manufacture and
- caustic soda which is used in the manufacture of paper, detergents and soaps, and in food processing.
ICI has been reasonably well managed over many years adapting to the operating environment available in Australia. For example, while Australia's largest firms (with public disclosure) achieved a 5.1% weighted return of net profits after tax over a five year period to 1997, ICI Australia achieved 11.9 per cent! (Source IBIS Business Information "Secrets of Spectacular Success", Business Review Weekly Feb. 17, 1997). During that time, Australia's chemical industry averaged 7 per cent. Its plastics section has been under performing and its effective sale, confirms the trend.
ICI synthesis activities
NOTE: Orica on the Internet.
|LLDPE polyethylene plant commissioned 1992 with nameplate capacity of 100 000 tonnes (cf. world-scale of 250 000 tonnes);|
|LDPE polyethylene plant commissioned 1957 upgraded 1989 with nameplate capacity of 90 000 tonnes (cf. world scale plants of 200 000 tonnes);|
|Ethylene oxide plant commissioned 1966 with a nameplate capacity of about 31 000 tonnes (cf. world scale plants of about 300 000 tonnes) requiring about 20 000 tonnes of ethylene.|
|Ammonium nitrate. Capacity of 220 000 tpa using ammonia freighted from Incitec plants. Yarwun (near Gladstone) Queensland;|
|Sodium cyanide. Capacity of 30 000 tpa. Yarwun (near Gladstone) Queensland;|
|Chloralkali plant (10 000 tpa of chlorine) for caustic soda and hypochlorites Yarwun (near Gladstone) Queensland;|
|Polyvinyl chloride by polymerisation of imported vinyl chloride (capacity of 240 000 tpa) in joint venture as Australian Vinyls Corporation in Victoria|
|Urea and phenol formaldehyde resins. The urea formaldehyde adhesive has a production capacity of 90 000 tpa. Deer Park, Victoria|
|Caustic soda, chlorine and Cerechlor (chlorinated paraffin) at Laverton, Victoria.|
|Ammonium nitrate explosives e.g. Kalgoorlie in WA.|
|Paint and surface coatings (Dulux).|
|Rocklea, Qld (technology take-over from Padstow NSW)|
|Clayton, Victoria- manufacture of a range of solvent-based & water-based paints, powder coatings|
|Laverton, Victoria- manufacture of resins|
|Newcastle and Boolaroo in NSW|
|Pinkenba Qld manufacture of a range of fertiliser & crop care chemicals|
|Formulated pesticides by Crop Care Australasia at Villawood NSW.|
|Dry cleaning products by Stelco Chemicals at Knoxfield, Victoria|
|Textile chemicals by Valchem at Wangaratta, Victoria|
|This is NOT indicative of our
private client reports.
It has been prepared simply
to get you started. Feel free to discuss the preparation of a confidential
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