Solid Mining Demand Spurs An Upbeat Orica

By Glenn Dyer | More Articles by Glenn Dyer

A good interim result from explosives maker Orica saw the shares jump yesterday to a new 12 month high as it took the opportunity to boost interim dividend 10%.

The shares hit a high of $20.21 and ended the day up 5.6% at $19.70.

Thanks to the rebound in mining activity, especially in iron ore and coal, Orica’s underlying results were better than expected and investors also picked up on the maintaining of the existing confident outlook.

The company’s first-half net profit before significant items was $167 million, up 35% n the first half of 2017-18 and well ahead of market forecasts around $152 million.

Statutory profit for the period was just $33 million, following $134 million of after-tax writedowns announced in recent weeks. The write-downs reflect defective assets at the company’s Burrup ammonium nitrate (AN) plant in Western Australia and the impairment of some of the company’s IT assets.

Ammonium nitrate production volumes rose 3% in the half in line with expectations, while revenue jumped 12% to $2.8 billion while earnings before interest and tax rose 20% indicating the company rode profit margins higher in the half year.

The solid result saw Orica lift its interim dividend by 2 cents to 22 cents a share.

CEO Alberto Calderon said in the profit announcement: Calderon said: “This result demonstrates growing momentum in Orica’s business driven by stronger operating leverage. Improved operational performance across all regions and businesses, sustainable overhead reductions and improved manufacturing performance, each contributed to significant Earnings Before Interest and Tax (EBIT) uplift in this half.

“Our performance has been supported by contract wins and growing demand from existing customers in our key Australian and Latin American markets, improved performance in our manufacturing operations and fewer unplanned maintenance shutdowns. The commercial environment for Orica’s business is also improving as prices firm and the market moves towards supply/demand balance.”

Orica also gave a reasonably positive outlook even as it stuck to its November full-year guidance with weakness at Burrup offset by productivity gains.

“The outlook for the full year result remains unchanged from our prior guidance in November 2018 with our earnings weighted approximately 45/55 across the halves. Lower utilisation from the Burrup plant in the second half is expected to be mitigated by accelerated business improvement initiatives.

“Going forward we continue to expect stronger EBIT in the second half of 2019 supported by AN volume growth and firm pricing, further improvement in operating performance and efficiency as well as ongoing growth in Orica’s technology and advanced services offerings,” Mr. Calderon said in yesterday’s statement.

Glenn Dyer

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.

View more articles by Glenn Dyer →