Orica on Track
29th October, 1999
An 8% improvement in earnings before interest and tax from its core businesses enabled Orica Limited (Orica) to post a full year profit after tax and before abnormal items of $156.4 million.
Although down on the corresponding 1998 figure of $204.6 million, the result demonstrates that the company has made a strong start to filling the earnings gap created by the sale of a number of non core businesses and the resumption of superannuation contributions. Profit after tax and abnormal items was $186.2 million, down from the record $434.9 million posted in 1998 as a result of the business divestments.
Orica managing director and chief executive officer, Philip Weickhardt, said: "We set ourselves some bold objectives when we became an independent company and we are well on track to delivering against them. Our profit result for the year was slightly ahead of our plans. Each of our core businesses lifted their sales and profits compared to 1998
"Growth in our core businesses has already filled around half of the $110 million earnings shortfall resulting from the divestments of non-core businesses and the resumption of superannuation contributions. We had also by year end delivered more than half of our two year cost and efficiency improvement target of $120 million."
Gearing (net debt to net debt plus equity) of 30.8% at the September 30 year end is at the bottom end of Orica’s target range of 30-40%. "We now see most of our reshaping activity behind us and with our strong balance sheet, intend to aggressively pursue investments to build on strong market positions in each of our four core business platforms," Mr Weickhardt said.
Earnings per share after tax and abnormal items was 68.8 cents, down from last year’s 162.8cents. The directors declared a final dividend of 22 cents, giving a total dividend for the year of 37 cents, compared with last year’s 50 cents. 8 cents of the final dividend will be franked.
Mr Weickhardt also expressed satisfaction at the progress made with the international explosives business. "We embarked on an ambitious five year improvement plan when we acquired ICI’s explosives businesses and we have achieved a great deal so far. Joint ventures established this year in India (with ICI India), Germany (DNES) and the USA (Nelson Brothers) have provided further important links in our global strategy. Radical restructuring has also delivered a major reduction in our cost base, particularly in North America," he said.
Referring to the total result from the explosives and other mining related businesses, Mr Weickhardt said "Overall the Mining Services business grew its profits by $8.2 million and produced an EBITA (earnings before interest tax and amortisation) to sales ratio of 9%, a creditable result in a tough environment."
The Surfactants business was sold to Huntsman Corporation in December 1998 for a profit of $37m after tax. The sale was part of the ongoing program of divestment of non-core businesses.
Orica's polyethylene business joint venture with Exxon and Mobil commenced on 1 July. The joint venture changed its name to Qenos Limited on 1 October. No earnings have been reported from the joint venture in the reporting period.
Work has commenced on building the new ChlorAlkali plant in Melbourne and will commence next year on the new Sydney plant as part of a $145m reinvestment in this business.
A takeover bid to acquire the outstanding shares of our partly owned listed subsidiary Incitec Ltd was made in December 1998. The offer closed in March 1999 with the Orica shareholding in Incitec increasing from approximately 73% to approximately 76%.
Three strategically important joint ventures in the Explosives business were announced in September:
- Indian Explosives Ltd, a joint venture with ICI India Limited, commenced on 1 October. Orica acquired a 49% interest.
- Nelson Brothers Mining Services, a joint venture with Nelson Brothers Inc, to focus on open pit mining in the Powder River Basin in the United States, encompassing the States of North and South Dakota, Montana and Wyoming.
- A joint venture with Dynamit Nobel GmbH Explosivstoff und Systemtechnik (DNES), the leading German explosives company, to manufacture state of the art electronic detonators.
The outlook for commodities relevant to Orica appears to be improving with some commodity prices that affect Orica showing signs of recovery. The sustainability of the recovery however is unclear, as overcapacity and aggressive competition are still prevalent in many markets. In particular, the Australian explosives business will see sales and profits reduced in the period ahead due to the start up of a competitive ammonium nitrate plant in Moura, Queensland.
The company's profitability for the next year will be dependant on the extent and duration of volume growth and the recovery in world prices for products we sell. The company's internal productivity improvements and lower operating costs which have lifted the competitiveness of our businesses should also contribute to better performance next year.