Orica Lifts Profit in First Half

2nd May, 2000

Orica Limited today reported an increase in profit for the half year ended 31 March, 2000 despite encountering difficult conditions in its agricultural chemicals segment.

Profit after tax and before abnormal items was up 5.5% to $68.8m and profit after tax and abnormal items was up 5.2% to $100.6m.

While the agricultural chemicals segment was well down, the chemicals, consumer products and mining services segments all produced strong results.

Orica managing director and chief executive officer, Philip Weickhardt, said: "The substantial increases in three of our four core segments more than covered the large, weather and urea price related, earnings drop from our agricultural chemicals business. The radical reshaping strategy Orica embarked on nearly three years ago is clearly bearing fruit".

Mr Weickhardt made reference to the continued improvement in Orica’s international explosives business. "We are seeing the benefits we had anticipated when we acquired the international explosives business. Earnings are up significantly and sales revenue, margins and market share all continue to improve, although there is more for us to do" he said.

Mr Weickhardt also confirmed that Orica’s cost reduction objectives were on track. "We have continued to drive costs out of all of our businesses and are confident we will meet or exceed our two year cost and efficiency improvement target of $120m" he said.

Earnings per share after tax and abnormal items were 37 cents, up from 35 cents in the first half last year. The directors declared an interim dividend of 16 cents per share, 6.4 cents of which will be franked. Last year’s interim dividend was 15 cents per share.

Gearing (net debt to net debt plus equity) was 35% at 31 March, with interest cover at 6.7 times.

Commenting on the agricultural chemicals segment result, Mr Weickhardt said: "While our agricultural chemicals business struggled, so have other industry suppliers. The Australian agricultural industry needs efficient, world scale suppliers if it is to continue to grow and prosper, and as many in the industry have observed, this will require further industry restructuring"

Significant Events

There were several significant events that have been initiated or completed during the half year:

•  Announcement of the 50-50 joint venture for explosives with Nelson Brothers in the eastern United States
• The ammonia import tank at Yarwun and the urea granulator at Gibson Island were completed and are now operational.
• Commissioning of the Weihai China packaged explosive and initiating system plant will take place in May
• A Joint venture for explosives was commenced in Venezuela.
• Commissioning of the Carseland ammonium nitrate plant capacity expansion to 515,000 tonnes pa.

All of these initiatives will deliver earnings growth in the future.

Outlook

The outlook appears to be improving with some strengthening of commodity prices that affect Orica. The sustainability of the recovery however is not yet clear, as overcapacity and aggressive competition are still prevalent, particularly in Asian markets. The Australian Explosives business will see earnings reduced in the period ahead due to additional competitive ammonium nitrate capacity in Queensland. The growth in profit from International Explosives operations is expected to offset this reduction.

The profit for the full year will be influenced by world prices and the strength of the domestic and international economies. Improved conditions for Agricultural Chemicals will also be important.