Mining services and explosives group, Orica withstood the impact of floods and bad weather in Australia and the US and the stronger dollar to report an improved profit performance in the six months to March 31.
The company saw revenue fall 6% to $2.96 billion because of these factors and a couple of other issues.
Overall, the firmer dollar cost Orica $174 million in lost revenue and $17 million off earnings before interest and tax (EBIT)
Net profit after tax, but before individually material items was $264 million, with no individually material items in the current period.
Excluding the earnings contribution from DuluxGroup in the same period of last year ($42 million), net profit after tax before significant items was up 5%.
Earnings before interest and tax (EBIT) from continuing operations increased by 1% to $437 million ($431 million in the first half of the 2010 financial year).
The loss of $17 million because of the currency would have put EBIT at $454 million, or nearly 5% higher.
The Board declared an interim dividend of 37 cents per ordinary share, franked at 18 cents per ordinary share.
Taking into account the demerger of Dulux a year ago, that’s an effective 1c a share increase in the payout from the 41c a share paid a year ago.
Earnings per share from continuing operations was up 3% to 71.1 cents.
Orica shares jumped all over the place yesterday, rising and falling and then rising as investors crunched the numbers.
In the end the market took the result as positive and the shares jumped 66c to 2.5% to end the day at $27.24.
The shares closed up 14c at $26.72 after hitting a day’s high of $26.93 in early trading.
Helping was a fairly confident outlook comment from the company which said:
"It has been a challenging year so far and we are pleased with the company’s performance," CEO Graeme Liebelt said in yesterday’s statement
The company is well placed strategically and operationally,”
"We expect Group net profit after tax (pre individually material items) in 2011 to be higher than that reported in 2010, on a comparable basis, subject to the rate of global economic recovery and extent of further adverse movements in exchange rates.
I wonder what the move in the value of the dollar past $US1.10 yesterday will do to that forecast if it’s sustained through coming months?
Directors said in the statement that "Improved EBIT results for most businesses, due to a slow recovery in volumes across some of our markets and some improvement in pricing and productivity, which more than offset a $17M adverse foreign exchange movement;
"Unfavourable foreign exchange movements cut revenues by $174 million; Adverse weather, including significant rain and flooding in Australia and Asia and severe winter conditions in Europe and North America, which negatively impacted volumes across all businesses, "directors said.
The reason why the profit rise after one off items (individually material items) was so large was that the first half a year ago included the cost of the Pharmaceuticals tax case ($192 million); the establishment of a provision for the remediation of mercury contamination at Botany, in Sydney ($32 million); an increase in environmental provisions for hexachlorobenzene (HCB) waste disposal ($13 million) and the integration of Minova/Excel businesses ($2 million).
Mr Liebelt said the mining services unit, which includes explosives, achieved a one per cent increase in earnings before interest and tax (EBIT) to $335 million, despite significant disruption from flooding in Indonesia and Australia.
In the Minova business, which includes sales of mining equipment, margins were squeezed by strong competition in some markets, while volumes improved.
Minova’s EBIT was down 16% at $55 million.
The strong Australian dollar and movements in exchange rates had a negative impact on Minova EBIT, the company said.
Chemicals achieved a record result with EBIT of $95 million, up one per cent on the first half of 2009/10, due to higher commodity prices and higher volumes, Mr Liebelt said.
Orica said it expects first production from its 300,000 a year ammonium nitrate plant at Bontang, Indonesia, in the first half of the 2012 financial year and the $100 million detonator plant under construction in Hunan province in China expected to be commissioned next year.
