A big call by Orica Ltd, the world’s largest industrial explosives maker: despite the slump in resources and mining around the world, it’s maintaining its full year earnings forecast.
That’s after a minor, near 2% fall in interim earnings for the six month to March.
Net profit was $220.4 million in the six months ended March 31, compared with $224.5 million in the March half of 2008.
Orica maintained its forecast for an eighth year of growth, in spite of the global slump and the recession that hit the mining and resources sectors.
Orica said it expected demand across its operations to remain “soft” in the short term:
“Our businesses continue to show considerable resilience. However we remain vigilant because of unpredictable global market conditions,” the company said in the profit commentary and report yesterday
The slight fall in profit came on the back of a 31.6% jump in revenue to $3.96 billion.
After material items, net profit was $264.2 million, up 15%.
That and a 3% rise in dividend payout helped send the shares up 11% in morning trading.
They closed up 10.7% at $18.99, a rise of $1.84 on the day.
CEO, Graeme Liebelt said in another statement that because of the resilience of the company’s businesses "we see no reason to alter our previous guidance that we expect group net profit after tax (before individually material items) in 2009 to be higher than that reported in 2008".
Mr Liebelt said the first half result was strong, despite the global economic and financial markets downturn and it endorsed Orica’s strategy of pursuing markets that offered more resilient and predictable long term earnings growth.
"Our strategy is holding up well notwithstanding the market conditions," he said. "It is that, combined with productivity and efficiency improvements, that has delivered a solid first half performance.
"Orica’s strong balance sheet and financial discipline continue to be particular strengths and never more important than in the current crisis in financial markets.
"Net operating cash flows increased 35% reflecting, in part, an excellent performance by the business in management of trade working capital,
"Our Mining Services business had a record 18% increase in profit.
"This was the result of improved ammonium nitrate pricing, firm volumes in gold, thermal coal and copper, combined with productivity and restructuring initiatives in quick response to weak demand in base metal and infrastructure markets.
"With demand in most market segments expected to remain soft in the short term, the business will respond as needed while maintaining focus on long term growth opportunities.
"We are progressing well with our plant in Bontang Indonesia and continue to examine expansion opportunities in Latin America and at our Kooragang Island plant in Australia. We are also well positioned for continued growth in electronic blasting systems and blast based services.
"The Chemicals business achieved a record result with sales up 19% and underlying earnings growth of 19% to $86 million.
"This was driven by continued high caustic prices, synergies from combining the former Chemnet and Chemical Services businesses and an excellent result in Mining Chemicals on the back of strong sodium cyanide volumes and prices.
"Demand in the automotive and general manufacturing sectors remains soft, however tight cost control and restructuring initiatives across all business segments are having a positive impact,” Mr Liebelt said.
Minova, the specialist chemicals business for the underground mining and civil engineering market, saw its EBIT fall 9% to $59 million.
"The business has been impacted in the US bolt business by market slowdown and market share lost in 2008,” Mr Liebelt said.
Margin compression from under-recovery of steel input prices in the US market also had a significant impact in the first half.
The consumer products business, which carries brands such as Selleys, Yates, Dynamic Lifter, Dulux, Berger and British Paints raised EBIT by 2% to $61 million.
"This was primarily driven by record earnings for paints and Selleys,” Mr Liebelt said.
"Most pleasingly the paints business continued to increase its market share despite increased competition.”
Mr Liebelt said the Yates business continued to improve earnings and has benefited from an ongoing restructuring.
The company declared an interim dividend of 40c, up 3% from the previous corresponding period.
"Our strong balance sheet, with low gearing, provides us with a prudent level of flexibility at these unpredictable times,” Mr Liebelt said.
"It also provides the capacity to rapidly respond to what we see as long term growth opportunities in our key markets when the time arises.”
Net operating cash flows increased 35% in the first half. Earnings before interest and tax rose 11% to $469 million in the latest half from $423 million.
With a 32% rise in revenue translating into just an 11% rise in EBIT, the company has obviously had trouble recovering costs and has been maintaining market share and contracts by cutting profit margins.
At March 31, Orica bank debt facilities totalling $2.3 billion, drawn down by $500 million.
It has $1.1 billion of debt facilities due to mature in October, and some $1.2 billion due to mature in December 2010 and 2012. Orica said it has commenced discu
