MANUFACTURING AND SUPPLY CHAIN

APRIL 2019

CARLOS DUARTE, GROUP EXECUTIVE MANUFACTURING & SUPPLY

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CARLOS DUARTEGroup Executive Manufacturing & Supply

Carlos was appointed as Group Executive Manufacturing and Supply in October 2017.

Carlos is responsible for Continuous Manufacturing, IS & PE Manufacturing and Global Supply Chain. He recently also took on responsibility of Global SHES.

Prior to joining Orica, Carlos spent 30 years at Schlumberger, a global oil and gas technology services company. Over this time, he held several senior leadership positions including Vice President Supply Chain, Vice President Manufacturing and Vice President New Businesses.

Our strategic priorities

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Disciplined capital allocation across the portfolio

Manufacturing and Supply Blasting Field Services Productivity Solutions

Cost leader Market leader Value differentiator

Be the market leader in chosen segments; deliver superior returns on investment; and generate strong free cash

Deliver shareholder value

Flexible sourcing capability

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Our global manufacturing network is complemented by third party sourcing

.

Continuous AN Plants

Initiating Systems Plants

Carseland,Canada

Tappen,Canada

Cuatrocienigas,Mexico

Brownsburg,Canada

Minden,USA

Fexar,Colombia

Lorena,Brazil

La Portada,Chile

Chambishi,Zambia

Fujairah,UAE

Gyttorp,Sweden

Karelia,Russia

Ust’Kamenogorsk,Kazakhstan

Wei Hai,China

Honce,ChinaGomia,

IndiaLimay,Philippines

Bontang,Indonesia

Burrup,Australia Yarwun, Australia

Helidon, Australia

Kooragang Island,Australia

Third Party AN Plants

Sirgala,Estonia

Lalahan,Turkey

Hallowell,USA

Itatiaiucu,Brazil

Panaguirishte,Bulgaria

Ulaex,Cuba

Capricorn Park,South Africa

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IMMEDIATE CAUSES:• Low reliability and integrity performance in

continuous manufacturing plants• Low utilisation rates in discrete

manufacturing plants• High and frequent variability in demand and

increased replacement third party sourcing and logistics costs negatively impacting production costs

• Poor performance of the Burrup JV with Yara

KEY FOCUS AREAS: • SHES performance, reduction in downtime

and unplanned maintenance and increase in throughput

• Quality and productivity performance• Product portfolio rationalisation and SKU

reduction to improve utilisation rates and to drive longer-term footprint decisions

• Sales and Operating Planning (S&OP) process – significant improvement on forecast accuracy and planning adherence

Context and backgroundManufacturing performance has been below expectations for more than a decade

Key priorities: short to medium term

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Reliability and Integrity

Utilisation and Cost Reduction

Supply Planning Process

Reduction of downtime and

unplanned maintenance

Improve utilisation rates and drive

long- term footprint decisions

Improvement in forecast accuracy

and plan / schedule adherence

FOCUS

ACTION

BENEFITIncrease throughput

and productivity and lower unit cost

Product portfolio rationalisation

Minimise downtime and optimise plant

maintenance planning

1. CONTINUOUS PLANTS

2. INITIATING SYSTEMS PLANTS 3. SUPPLY CHAIN BUSINESS

Capturing value across the portfolio

1. Continuous plants

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PREVIOUS STATE TODAY AND FUTURE STATE BENEFIT

PEOPLE & PROCESSES

• Pervasive lack of standardisation –organisation structure, business processes and performance metrics

• Suboptimal maintenance practises resulting in high levels of breakdowns

• Standardised organisation design implemented

• Capability and structure in place to drive and implement equipment reliability improvements

• Optimised maintenance strategy to reduce downtime and cost

• Discipline and capability to maintain performance

MAINTENANCE & CAPITAL

EXPENDITURE

• Underspending of sustenance capital, especially in older plants

• Capex allocation process does not always place the right weighting on critical manufacturing projects

• Review maintenance spend against benchmark standards

• Ensure Capex projects capture true cost & benefits of maintenance projects

• Increased plant performance• Reduction in unplanned costs

Focus areas to improve overall AN manufacturing performance

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AN PLANT OEE PERFORMANCE VS BENCHMARK

KI AMMONIA T/A (2017)$8M overspend

$4m other impacts35 days overrun

KI NITRATES T/A (2018)$1.4M underspend

+0.26m other impacts3 days underrun`

1. Continuous plantsImproved AN Manufacturing performance over past 18 months

50%

60%

70%

80%

90%

100%

FY15 FY16 FY17 FY18 FY19 (YTD)

Bontang YarwunCarseland Kooragang IslandBenchmark

20%

40%

60%

80%

100%

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb

Yarwun AN OEE (12 Month Rolling)

Improved consistency

TURN AROUND DELIVERY

Strategic 30+ year asset • Plant located in the Pilbara region of Western Australia;

strong 5-year growth in materials moved (i.e. strip ratio)

• 50% JV with distinct responsibilities; Yara operates the plant, Orica is responsible for sales and marketing

• Plant essentially loaded from FY20

Temporary technical issues • Working with Yara to resolve issues; engagement at CEO

level, with Orica manufacturing presence on the board

• Full rectification project plan has been developed and is progressing; Orica’s engineers on site; all long-delivery replacement equipment ordered/being manufactured

• Interim plant defects are currently being resolved; complete heat exchanger and absorption tower replacement scheduled in 2H19

• Plant will run as much as possible until permanent repairs in place to assist identification and rectification of any further issues

D&A to commence when plant available for use; expected to be in FY20

Burrup Technical Ammonium Nitrate (TAN) plant, Western Australia

2017 2018 2019 2020 2021 2022

120

110

1000

130

Iron Ore Production 2017-22 CAGR = 0.7%

Material Moved 2017-22 CAGR = 3.1%

Australia Iron Ore Production and Material Moved Indexed Volumes (2017 Vol=100)

Source: Wood Mackenzie

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1. Continuous plantsBurrup update: short term challenges, fundamentals remain strong

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2. Discrete plantsGlobal Initiating Systems network with latent capacity

>20 plants globally• Key plants include:

– Helidon, Queensland– Brownsburg, Canada– Gyttorp, Sweden

• Products include:– Boosters, shock tube, detonators

(electric, non-electric and electronic) and packaged explosives

Significant underutilisation across the product range

• Average utilisation is well below 60% across the product range

• Target utilisation is 80%

• Product portfolio rationalisation required to achieve target

2. Discrete plants

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PREVIOUS STATE TODAY AND FUTURE STATE BENEFIT

S&OPPROCESS

• Manufacturing and Supply Chain managed as two independent workflows

• Regular changes to forecasts and manufacturing plans

• S&OP process did not drive accountability

• Regional Presidents own S&OP process

• Manage customer forecast and orders, set limit to forecast and plan variation

• Minimise downtime related to grade changes, reduce slow moving and obsolete inventory, improve product quality and reduce cost

• Optimise plant maintenance downtime according to demand

PRODUCT PORTFOLIO

• Initial number of SKUs (stock keeping units) > 45,000 due to chronic customisation and duplication

• Lack of product lifecycle management leading to failure to retire products

• <20,000 SKUs, mainly due to deletion of unused or duplicate SKUs

• Pathway to further rationalisation and reduction

• Strategic retirement of products through lifecycle management

• Reduced inventory due to smaller product portfolio and reduced slow moving and obsolete stock

• Reduced complexity in manufacturing and supply chain

PLANTS & EQUIPMENT

• Lack of standardisation of manufacturing technologies and process across plants

• Serious underutilisation of plants and single source of supply for some products

• Standardised technologies across the network

• Increased utilisation across the product portfolio

• Potential rationalisation of our manufacturing footprint

• Increased security of supply from standardised product technologies and reduced SKUs

Rationalising and standardising IS manufacturing and supply chain

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IS product portfolio rationalisation simple example: booster

Booster 1

0.5kg

30 per case

POSX8L0.5D

POSX8L0.5DA

35 per case POSX8L0.5D1

40 per case POSX8L500PE

1.0kg 20 per case

POSX8L1000

POSX8L1000PE

POSX8L1.0D

POSX8L1.0DA

POSX8L1.0D1

2.0kg 10 per case

POSX8L2.0D

POSX8L2.0DA

POSX8L2.0D1

2.5kg 8 per case

POSX8L2.5D

POSX8L2.5D1

Original SKU

Duplicate

Customisation

Sales 2018 Stock held In FY19 catalogue PlanCurrent: 14 SKUs

Target: <4 SKUs

2. Discrete plants

Delete immediately

Run down stock, then delete

Retain

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IS product portfolio rationalisation complex example: non-electric detonator 2. Discrete plants

400ms (241 SKUs)

Flat (229 SKUs)

69mm (21 SKUs)

MS (12 SKUs)

Regular (9 SKUs) Orange (9 SKUs)

XU (3 SKUs) Orange (3 SKUs)

Other (9 SKUs)

89mm (38 SKUs)

MS (26 SKUs)

XU (19 SKUs)

Orange (7 SKUs)

Yellow (2 SKUs)

XE (7 SKUs) Orange (7 SKUs)

LP (12 SKUs)

Regular (6 SKUs) Yellow (6 SKUs)

XU (4 SKUs) Yellow (4 SKUs)

XE (1 SKU) Yellow (1 SKU)

XU3 (1 SKU) Yellow (1 SKU)

94mm (170 SKUs)

MS (97 SKUs)

Regular (30 SKUs)

Pink (26 SKUs)

Yellow (4 SKUs)

XU3 (19 SKUs)

Red (14 SKUs)

Yellow (5 SKUs)

XE (19 SKUs)

Yellow (12 SKUs)

Red (6 SKUs)

White (1 SKU)

XU2/XE (15 SKUs) Orange (15 SKUs)

Not found (14 SKUs)

LP (65 SKUs)

Regular (37 SKUs)

Yellow (34 SKUs)

Orange (3 SKUs)

XU3 (26 SKUs) Yellow (26 SKUs)

XE (1 SKU) Yellow (1 SKU)

Not found (1 SKU)

Other (8 SKUs)

Not found in BOM (12 SKUs)

DELAY SHELL TYPE & LENGTH

CAP TYPE

SHOCK TUBE TYPE & COLOUR

LENGTHS

63 unique lengths produced for

Delay A(not displayed for

lack of space)

Product Information

Product type Non-electric detonator

Current number of SKUs

>6000This includes 141 unique delay times in a wide range of lengths, colours and cap types

Target number of SKUs

<4000

Rationalisation Considerations

Sales in FY18? Y / N

Stock currently held?

Y / N

Customers • Any specific customer needs• Listed in FY19 catalogue• Potential substitutes in existing

portfolio• Customer approval process for

change

Manufacturing • Current production facilities• Other facilities capable of production• Single source of supply

Logistics / Supply chain

• Countries/regions of use• Additional logistic requirements of any

substitute products eg cost, inventory, lead time

Regulatory • Regulatory approval process for change

• Import/export licences and limitations

141 unique delay times produced

Delay 1

3. Supply Chain

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PREVIOUS STATE TODAY AND FUTURE STATE BENEFIT

MANAGEMENT & PLANNING

• Lack of standardisation –organisation structure, business processes and performance metrics

• Unreliable process not driving clear accountability

• Poor or changing sales forecast not allowing stable forward planning

• Harmonise organisation design• Supply plan providing full

visibility of capacity and inventory

• Logistics and distribution providing optimum material flow

• Reduced management complexity

• Improved accountability and visibility

• Lower inventory levels

• Reduced logistics costs

SOURCING

• Fragmented negotiation and purchasing not allowing leveraged volume negotiations

• Large supplier base, no preferred suppliers, no supplier management

• Implement strategic sourcing, and contract management

• Preferred suppliers• Enforce compliance to

contractual spend

• Reduced supplier base• Increased spending under

contract

PROCUREMENT

• Purchasing often not supported by purchase orders or contracts

• Uncontrolled purchasing diverting spend to a large pool of suppliers

• Pervasive lack of process discipline and accountability

• Standard procedures globally• No Purchase Order No Pay

policy • Maximize purchases from

suppliers with pre-negotiated price lists and catalogues

• Increased spending visibility• Improved purchasing

Driving change – an integrated supply chain