Explosives, chemicals and consumer products group Orica Ltd says it still expects to grow net profit in its 2009 financial year, despite a tough second half.
The company’s senior management yesterday told investors that Orica was sticking with the forecast for an 8th consecutive growth year, despite facing tougher conditions in the current half, which ends on September 30.
Managing director and chief executive Graeme Liebelt told investors yesterday the group maintained its broad guidance delivered at its half year results in May.
"At the half year we indicated that while the flow of optimistic signs was likely to increase, the reality of the markets would be that the second half would be tougher than the first, and that is the way it is playing out," he said in a speech, which was released to the ASX.
"So far though, we could not say that we see any signs of a sustainable broad based recovery, and there is little sign of benefit from the various stimulus packages that have been proposed by governments in response to the economic crisis," Mr Liebelt said.
“While we remain vigilant about still uncertain external economic conditions, we maintain our guidance that we expect net profit after tax, before individually material items, to be higher than that reported in 2008,” he said.
The market didn’t like the news and sold down the shares by 3% to $20.56, for a fall of 67 cents on the day.
Orica reported a 15% rise in interim earnings before one off items for the March half year: "Net profit after tax was $264 million, up 15% on 2008. Sales revenue increased 32% to $4 billion," the company said.
The company made $572 million after tax and before one offs in the September 2008 year.
The market doesn’t think Orica can top that, judging by yesterday’s fall and the tone of the comments from the CEO.
Orica’s consumer products arm was seeing weaker consumer sentiment affecting the market, especially in paints.
Paint products include Dulux, British Paints, Berger Paints and Selleys. The CEO told the meeting that "Since October last year, we have seen the paint market slow down, and it may not have quite bottomed yet, but it is a testament to the considerable strength of this business that it has increased market share and continues to grow".
(Wattyl, a paint competitor, has seen its shares more than double to around 76 cents in the past couple of months on expectations that the reviving home building sector will boost demand for paint.)
Orica’s much talked about demerger of its consumer products division was again mentioned, but Mr Liebelt offered no time frame for the process.
"It is my belief that it will be an even greater business as an independently listed entity when the time comes," Mr Liebelt said.
Orica’s chemicals division was performing well in patchy business conditions, Mr Liebelt said.
"We have a pipeline of investment projects, including the progression of the ammonium nitrate plant in Indonesia due for commissioning in 2011.
"We are assessing opportunities to further expand sodium cyanide capacity at our plant in Yarwun, and are continuing with planning for the uprate of initially the ammonia plant and then the ammonium nitrate plant at Kooragang Island.
"We continue to progress with our joint venture investment in an initiating systems plant in Nanling China, due for commissioning in 2010."
“Mining chemicals were doing well, but the durable goods manufacturing sectors in Australia and New Zealand were poor.
“Weakness in the price of caustics and acids had had a negative impact in recent months, he said.
"While we remain vigilant about still uncertain external economic conditions, we maintain our guidance that we expect group net profit after tax (before individually material items) to be higher than that reported in 2008," Mr Liebelt said.
Cash flow discipline and productivity remain key focuses during the second half, he said.
He said Orica’s mining businesses were experiencing mixed conditions in the second half, with the quarry and construction sector probably at the bottom of the cycle, but US thermal coal faced further falls
Volumes of ammonium nitrate, a key ingredient in explosives, are expected to fall 2%-3% in the current half from a year ago.
Conditions in mining of thermal coal in Australia and Asia, and gold and copper have been “reasonably resilient" Mr Liebelt said.
