Impairments Implode Orica Result
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Shares in explosives manufacturer Orica slumped to three month lows yesterday after the company surprised the market with news of problems at a brand new ammonium nitrate facility in Western Australia, unplanned maintenance and close to $300 million of impairments and provisions on other parts of the business.
Like Harvey Norman on Wednesday when write downs and losses on a dairy venture, as well a sharp slowing in sales growth sent the shares down 12.5% (a 30 year record), Orica shares slumped 5% in early trading. They clawed back some of the losses to end down 3.5% at $18.
Orica told the ASX it expects operational issues and write downs to cut its first-half earnings before interest and tax by nearly $400 million, and to make that news more palatable, it revealed plans for a further streamlining of its businesses, including job losses, to deliver an incremental $30 million per annum from 2018-19, but gave no details (which was not unexpected).
Orica says its Minova ground support solutions business has continued to underperform despite a change in management and while the business is under review, it anticipates it will take a non-cash impairment and increase provisions for environmental commitments totalling $300 million. This business has been weak now for years. The company also expects to write down the value of deferred tax assets and deferred interest in the US by $55 million due to the recent reduction in the US corporate tax rate.
In addition, unplanned maintenance shutdowns at its Yarwun plant in Queensland and Kooragang Island plant in NSW will cut earnings by about $17 million.
It will write off around a further $15 million due to the problems at Minova, the impact of extreme weather on mine operations in US and challenges in the cyanide market.
Plus, it will record a one-off impact of $19 million for the full financial year due to construction quality issues at its Burrup ammonium nitrate plant in WA, with most of it weighted in the first-half accounts.
CEO Alberto Calderon told shareholders at the company’s annual general meeting in December that 2017-18 volumes of is key product, ammonium nitrate shipped would be at the upper end of previous forecasts.
Orica on Thursday reaffirmed that guidance and said the earnings performance will be skewed to the second half of FY18, which is expected to see incremental earnings of around $60 million.
Orica is due to report first-half earnings on May 7. It will be full of red ink.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.