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Published 03 April 2013 12:32, Updated 04 April 2013 07:25
Orica chief Ian Smith has made a lot of changes very quickly, but the turnaound is far from complete.
When Ian Smith became chief executive officer of explosives and chemicals giant Orica in February 2012 it was no mere cliché to consider the position a “challenge”. The company has a rich heritage, is a global leviathan with 2012 revenue of $6.67 billion and 15,000 employees, and is a market leader.
But when the former CEO of Newcrest Mining took the helm of Orica just over a year ago, the company was not without problems. Given the gusto with which Smith has approached tackling those problems it seems plain that the challenge is precisely what appealed to him.
By the time Smith’s predecessor, Graeme Liebelt, came to the end of his tenure, Orica was reeling from its disastrous handling of chemical leaks from its Kooragang Island ammonia nitrate plant near Newcastle in NSW in 2011 – not for the first time that year. The company’s initially diffident response to the leaks caused relationships with local communities and the NSW government to turn as toxic as its leaks.
One of Smith’s first actions was to create a new senior executive role in charge of corporate social responsibility. It seems extraordinary now that the position did not already exist – but a new set of eyes can often see what others are blind to. Smith also set about personally repairing relations with the government – at one point Premier Barry O’Farrell had threatened to shut down the plant permanently – and local communities, assuring both that lessons had been learned and systems and processes put in place.
It obviously worked. By mid-2012 the NSW government approved the $700 million expansion of Orica’s Kooragang Island plant.
The revamping of Orica’s management structure was another urgent priority for Smith, a process only finalised now. In February, Orica executive Tony Edmondstone was appointed to the executive committee as global head of supply – a new position to be based in Singapore. This month, former Jetstar Airways executive Eileen Burnett-Kant took up her role as executive global head of human resources and Orica executive Ron Douglas became executive global head of projects and technology. Orica executive Alison Andrew was appointed to the role of executive global head of chemicals in December 2012.
The new leadership team reflects a series of challenges for Orica, which since the global financial crisis of 2008 has felt the pressures of a shaky world economy.
Not even being the world’s largest explosives maker with operations in more than 50 countries and customers in 100, is insulated from challenges such as growing competition from market entrants, product oversupply, weakening overseas coal markets, and pressure on prices and margins.
Size can magnify those challenges and make it a more onerous task to adapt a company to new market conditions. But Smith is thriving on the challenge of turning this corporate Queen Mary around. “I’m far happier this year than last,” he told The Australian Financial Review recently.
The 2006 acquisition of British mining services company Minova, a supplier of specialist chemical products for underground mining and civil engineering activities, has been fraught. After initially considering offloading the company, Smith is determined to restructure the business and integrate it into Orica.
Smith has stripped 400 jobs from Minova – about 20 per cent of its workforce – and is focusing on those customers that deliver the most value to its bottom line. In November, Smith announced a writedown of $247 million on the value of the acquisition.
That month, Orica also announced a 37 per cent fall in full-year net profit to $403 million. Orica’s share price of $23.71 is 12 per cent down on a year ago.
However, Smith has done the hard work and in a remarkably short space of time. A restructured management team, the introduction of a five-year plan and formal reviews of the company’s structure and markets bode well for Orica.