Orica Profit Implodes

Shares in the world’s biggest explosives maker, Orica (ORI), slumped yesterday after the company revealed a 33% slide in interim profit and chopped its dividend by nearly 50%.

As a result Orica shares dropped more than 14% in the wake of the release of the result and ended the day down more than 12% at $13.53.

The plunge wiped nearly $800 million from the company’s market value.

ORI 1Y – Investors blast Orica

At the same time, the company joined the likes of BHP Billiton and Rio Tinto in abandoning so-called progressive dividend policies which saw payouts to shareholders rise.

Instead the company has battened down the hatches to ride out the resources slump with a significant change in dividend policy.

The dividend policy has been replaced with a ratio in the range of 40% to 70% of underlying earnings.

And the payout will be weighted towards the second half of each financial year.

“The new policy will enable greater flexibility and ensure that shareholder returns reflect the company’s position and market conditions throughout the cycle,” Orica said in yesterday’s announcement.

As a result, Interim dividend was cut to 20.5 cents a share, compared with the 40 cents a share payout in the March 2015 half year.

In fact the change in dividend policy and near halving made for a climactic day all round for the company’s shareholders.

The “deterioration” of the global mining industry (especially the US coal mining sector) was behind the weaker than forecast result which saw net profit for the six months to March 31 plunge to $149 million from $222 million.

That was on the back of a 22% slump in group revenue to $2.59 billion as sales of key explosives fell sharply, especially in the US coal industry which is in the midst of a major slump.

“Market conditions deteriorated more than we anticipated during the half, marked by increased volatility,” CEO Alberto Calderon said in yesterday’s statement.

“It is expected that the market will remain challenged for the foreseeable future."

“In a period of sustained difficult market conditions, we will continue to focus on controlling all the elements that we can, supported by rigorous financial and operational processes.

“Today’s results reinforce Orica’s relative resilience, underpinned by an enhanced customer focus, and market leading, value added products and services.

“ ll these factors leave us well positioned to capture opportunities when commodity volumes begin to recover in the medium term, as predicted by market forecasters,” Mr Calderon said in yesterday’s statement.

The result included a “$41 million expense” in relation to its settlement with the Taxation Office. The Federal Court last December the company had avoided tax by using “round robin” financing arrangement it put in place a decade ago to boost profit and ward off takeover bids.

Excluding this one-off expense, net profit fell 10% to $190 million.

The group said EBITDA (earnings before interest, tax, depreciation and amortisation) fell 5% to $450 million.

Orica said ammonium nitrate and emulsion product volumes were down 8.1% at 1.71 million tonnes.

About Glenn Dyer

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.

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