Orica Halves Dividend As South American Shutdowns Hit Bottom Line

By Glenn Dyer | More Articles by Glenn Dyer

Explosives manufacturer Orica has chopped its final dividend in half after a 31% slide in full-year statutory net profit, thanks to the impact of COVID on mining activities across many countries such as Peru and Chile.

Orica shareholders will be paid an unfranked final dividend of 16.5 cents a share on January 15, a month later than the final dividend is typically paid. That compares to a final last year of 33 cents a share.

With the interim of 16.5 cents a share, the full-year payout for 2019-20 of 33 cents is also half the 2018-19 payout of 66 cents a share.

The cut and the delay is an indication the company is looking to conserve as much cash as possible heading into the final quarter of its March half year.

Revenue fell 5% to $5.61 billion.

Orica’s financial year ends on September 30 and the company reported underlying EBIT (earnings before interest and tax) of $605 million, in line with guidance and just ahead of market estimates at $604 million.

Statutory net profit dropped to $168.3 million, due in part to $131 million of one-off items (post-tax) which were revealed in October.

Orica recorded an underlying net profit fell 20% to $299.3 million.

CEO Alberto Calderon said in Friday’s statement “Our 2019-20 financial result demonstrates the resilience of our operating and financial performance in the face of the global pandemic.”

“After a strong first half that delivered growth in volumes, revenue, and earnings, COVID-19 temporarily disrupted our strategic momentum.

“Despite this, I am pleased to report that we achieved all the major initiatives, and passed all the key strategic milestones, that we set ourselves for the year,” he said.

Orica said that its ammonium nitrate volumes fell 4% in the year to September (excluding the contribution from South American explosives maker Exsa that was bought during the year).

Mr. Calderon also attributed the fall in earnings to the higher gas costs on the east coast of Australia, which directly increased the company’s expenses.

Orica said the biggest factor was COVID-19 and associated lockdowns which reduced mining activity. The company said it was also affected by weakening coal markets, particularly in the United States and Indonesia.

Mining in Australia remained resilient through the pandemic, the company said, and sales volumes rose. The results from iron ore an metal miners such as copper attest to that, but not coal from the likes of Whitehaven and New Hope.

So far as the 2020-21 financial year the company did not provide numerical guidance, but forecast a significant increase in EBITDA (earnings before interest, tax, depreciation and amortisation) and a return to EBIT growth.

“With most of our customers’ operations returning to pre-COVID activity, we have cautious optimism about the year ahead,” Mr Calderon said in Friday’s statement.

There are similarities with the latest results from global testing giant, ALS. Both companies a small multinationals with links to commodities and mining.

The pandemic hit ALS’s revenues across the board (especially from the coal sector, like Orica), knocked profits lower and saw directors trim the interim dividend to preserve cash in the face of continuing uncertainty about 2021.

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.

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