Strong first half for Orica  

Orica today announced a net profit after tax and individually material items of $55 million for the half year ended 31 March 2010, down $165 million compared with the previous half year. Excluding individually material items, net profit after tax was $293 million, up 11% on 2009.

The Board has declared an interim dividend of 41 cents per share, franked at 16 cents per share, representing an increase of 3 per cent on the 2009 interim dividend.

Orica also announced that it will proceed with the demerger of DuluxGroup to create a stand-alone, ASX-listed company.  Orica expects the demerger to occur in July 2010, subject to shareholder, court and other approvals. (Please see separate ASX announcement about the demerger.)

Orica Managing Director Graeme Liebelt said the strong first half result demonstrated the resilience of Orica’s core strategic position and the company’s tight control of costs, cash and margins.

“We knew the first half would be tough compared with 2009 and that has proven to be the case, with year on year softness in volumes. But the work we’ve done on the fundamentals in terms of controlling our costs, cash and margins – combined with an ongoing focus on strategic growth priorities – has us very well placed to capitalise on the market recovery we see ahead, based on our customers’ plans,” Mr Liebelt said. 

“All four Orica business platforms achieved record earnings, despite significant headwinds in the form of generally subdued volumes across the globe and the negative impact of the strong Australian dollar,” Mr Liebelt said.

“There’s a great deal of self help in this result. Net operating cash inflows increased by 24% reflecting, in part, further improvement in trade working capital management.

“Orica Mining Services increased earnings before interest and tax (EBIT) by 4% compared with the 2009 first half to $331 million, largely due to productivity improvements and the continued benefits of improved ammonium nitrate (AN) pricing as contracts rolled over.

“Markets were generally soft except in Latin America and Asia which saw improved conditions. In Australia the business saw weakened demand from thermal and metallurgical coal markets, in part due to severe rain in Queensland. The US volume decline was mostly due to softer demand from thermal coal markets and a subdued quarry and construction sector.

“While responding to the immediate market conditions, we continue to invest in long term growth opportunities and have progressed the 300ktpa AN plant in Bontang Indonesia which is due to come online in 2011. Expansion of the ammonia plant at Kooragang Island in New South Wales has commenced and feasibility work continues on the expansion of ammonium nitrate capacity at that site. Further progress was also made towards the 2011 commissioning of an initiating systems facility in Nanling China.

“Minova had a very good first half with EBIT up 13% to $66 million, driven by strong volumes in China and significantly improved margins in the US steel business. This was despite continued difficult trading conditions in the US, Western and Central Europe and negative foreign exchange impacts.

“Orica Chemicals increased EBIT by 8% to $94 million due mostly to a 24% increase in sodium cyanide volumes compared with the 2009 first half and some recovery in general chemicals volumes. This volume growth combined with disciplined cost management to offset lower average global caustic prices and negative foreign exchange impacts.

“DuluxGroup had a very pleasing first half with sales up 4% and EBIT up 6% compared with the 2009 first half.  Profit growth in paints and Selleys benefited from continued investment in marketing and product development. The Australian and New Zealand paints group increased its market share.

“The quality of both DuluxGroup and the core Orica business is evident in Orica’s financial performance and the proposed demerger of DuluxGroup is a natural evolution of Orica’s strategy and should create two even better companies, each free to capitalise on its strategic strengths.

“Orica would then comprise three business platforms: Orica Mining Services, Minova and the Chemicals Group. Together they generate approximately 90% of their earnings from the mining and construction sectors.  Orica will be largely focused on its core business where we are the global leaders in the supply of business-critical consumables and services to these sectors.

“We see a very strong outlook in long term demand for our products driven by increased mining and development volumes, linked to the continuing urbanisation and industrialisation of China, India and other rapidly developing countries. Higher strip ratios, lower ore grades and increasing safety and security regulations are all important underlying growth drivers for Orica’s core businesses.

“Orica businesses have continued to deliver earnings growth in generally subdued markets. Importantly, continued investment in long term growth projects, marketing, research and development, combined with a very strong balance sheet, have us well placed to take advantage of opportunities anticipated from improved market conditions.

There are some early signs of recovery in demand in a number of the markets in which we operate and our businesses are performing well.  We continue to expect Group net profit after tax (before individually material items) in 2010 to be higher than that reported in 2009, on a comparable basis.

3 May 2010

·         Contacts:

-          Analysts’ contact:  Anita Stevenson, Investor Relations Manager, (03) 9665 7844  Mobile: 0416 211 498

-          Media contact: Lisa Walters, Communications Manager, (03) 9665 7538  Mobile: 0421 585 750  

-          Web site: www.orica.com