Orica shares hit after first-half profit falls 37%
Shares in Orica dived more than 7 per cent in early trade after the explosives group sank to a $229 million statutory net loss in a “challenging” first half.
The stock was trading $1.43 lower at $18.86 just after midday.
The company’s first-half result was hit by unplanned maintenance, challenges in the cyanide market and $353 million in one-off significant items. These included a $204 million write-off in the goodwill of Orica’s Minova business, a $115 million increase in the environmental provision for remediation at its contaminated industrial site at Botany in Sydney's east, and a $55 million adjustment in the value of the company’s US deferred tax assets following the Trump administration’s company tax cuts.
Orica chief executive Alberto Calderon said despite growth in demand, the company was “disappointed that the underlying financial performance in the first half was impacted by operational issues”.
He said Orica was working hard to lift operational discipline, excellence and manufacturing reliability.
“We are on track to deliver full-year sales volumes at the upper end of guidance, and improved operational performance across all regions will support a stronger performance in the second half of the financial year,” he said.
Excluding significant items, Orica recorded a net profit for the half of $124 million, down 37 per cent on the previous first half. Earnings before interest and tax (EBIT) for the half was $252 million, a decline of 20 per cent, while underlying EBITDA (earnings before interest, tax, depreciation and amortisation) was down 15 per cent to $378.9 million.
“The second quarter results indicate we are on track to deliver a substantial uplift in the third and final quarters of the year."
Orica CEO Alberto Calderon
Orica shareholders will be paid a first-half dividend of 20¢ a share, unfranked, which will be paid on July 2. The dividend represents a payout ratio of 61 per cent. Orica expects the full-year dividend to be between 40-70 per cent of underlying earnings before significant items.
Mr Calderon said the company believed “that the majority of headwinds are behind us”, and that Orica was well placed to benefit from the better outlook for volume demand and prices.
“The second-quarter results indicate we are on track to deliver a substantial uplift in the third and final quarters of the year, and we expect this momentum to continue into the next financial year,” he said.
Orica’s financial results revealed a 4 per cent increase in sales revenue to $2.53 billion.
“The revenue increase reflected both volume growth and pricing that shows signs of firming,” Orica’s chief financial officer Vince Nicoletti told analysts and investors in a call on Monday.
Mr Nicoletti stressed that the $115 million pre-tax increase for the environmental provision for the remediation of the Botany site “reflects a change to how we account for these costs, rather than a change to the estimate of the costs. The situation on the ground is unchanged”.