Chemicals maker Orica Ltd has declared an 11% rise in annual profit, and expects another rise in 2009.
Second half earnings rose by around 14%, helping the overall year result to a net of $540 million.
Net profit before "individually material items" was $572.3 million, up 15% on the 2007 year as the considerable investment in the mining industry continued to payoff.
The company declared a final dividend of 55c, 20c franked, up 2c on 2007.
That brought the full year payout to 94c per share, an increase of 5c or 6% on the 2007 final dividend. Earnings per share (EPS) before significant items increased 14%, over the 2007 full year, to $1.70.
That was the seventh consecutive year of EPS growth, according to the company’s statement.
Second half profit rose to A$315 million in the six months to the end of September, from $277.3 million in the same period of 2007.
Orica last Friday abandoned plans to spin off its consumer products unit, which includes brands such as Yates garden products and British Paints, because of the volatility in equity and financial markets.
Orica shares jumped strongly on the ASX after the profit details were released.
The shares ended up 5.5%, or 96c at $18.32.
The shares had fallen 42%, compared with the 35% drop in the ASX200 as investors fretted that it would lose earnings to the domestic building slump and the gathering downturn in mining.
Orica Managing Director Graeme Liebelt said in the statement to the ASX that the result showed the strength across Orica’s business platforms despite some challenging market conditions during 2008, including unfavourable foreign exchange movements and rising input costs.
"The record result marks our seventh consecutive year of profit growth. It also highlights the continued strength in Orica’s underlying earnings with all of our business platforms achieving double digit growth," Mr Liebelt said.
"Orica’s Mining Services business had a record result, with an 11% increase in EBIT reflecting earnings growth in all regions from increasing volumes, benefits from increased ammonium nitrate prices and the successful integration of the former Dyno Nobel businesses.
"All regions within Mining Services achieved record results in 2008.
"The Dyno integration is now complete and has delivered synergies of $92 million (against a targeted $90 million) a full 12 months ahead of schedule.
"Our successful integration model is now being used to imbed the Minova-Excel businesses into Orica and this is on track to achieve the expected synergy targets.
"Minova earnings increased 144% to $150 million as a result of underlying business growth, an additional three months’ contribution from the base Minova business and an Excel contribution in line with expectations.
"Minova’s underlying performance in the mining sector improved – most notably in emerging markets of Russia, Eastern Europe and China.
"The tunnelling business had a much improved second half with the benefit of some major projects in Europe.
"Consumer Products achieved underlying earnings growth of 10% to a record $123 million.
"Most pleasingly, this business continues to increase its market share in Australia across all segments and reap the benefits from a strong focus on branding, innovation and customer service despite relatively subdued market conditions, particularly in New Zealand.
"The recently formed Chemicals division, comprising the former Chemical Services and Chemnet divisions, delivered underlying EBIT growth of 18% to $146 million.
"The improvement in the Chemicals business is on the back of favourable market conditions for sodium cyanide and the benefit from our uprated Yarwun sodium cyanide plant.
"We also saw strong volume growth in most end markets for Watercare’s products and services despite continuing drought conditions in large areas of Australia.
"Chemnet’s bulk chemicals businesses in Australia, New Zealand and Latin America continue to improve and collectively are well ahead of our 18% return on net assets target."
News of the solid profit and higher final payout will go some way to easing the investor disappointment at the scrapping of the planned demerger of its consumer products division.
Orica on Friday blamed the "extreme volatility" on world financial markets for the decision to pull the plug on the deal, which ended four months of work on the spin-off.
The business includes brands such as Dulux, Selleys, British Paints, Yates and Ratsak,
Orica said on Friday the deal had been deferred "indefinitely".
The slump in the Australian housing market (underlined yesterday by another sharp fall in housing finance figures to a seven year low) is a sign that spending in the sector is under pressure and that, as much as the market uncertainty, probably played a part in the deal being pulled.
The $123 million of underlying earnings in Consumer Products was up nicely from the $111 million earned in 2007.
The question is whether those earnings will still be there in a year’s time.
