Once again, the final dividend policy of a major industrial has given us a clue as to how the group sees the outlook for the coming year.
Higher dividend means confidence, no change, cautious, lower dividend, who knows what the future holds?
With Orica yesterday it was the former.
Orica, the paint to explosives group, lifted final dividend to 57 cents a share, from the previous 55 cents after reporting a near 13% rise in earnings for the year to September.
That’s only a modest increase, but it is a sign the board sees brighter times ahead and believes the company will have little trouble in reaching higher levels of performance.
Total dividends for the year to September 30 were 97 cents, up from 94 cents in 2008.
"Orica expects earnings growth to continue in 2010," the company said in a statement to the ASX.
"In light of the shape of the economic decline experienced in 2009, we anticipate first half conditions to be more difficult than those of the previous corresponding period.
"Subject to the rate of global economic recovery and the extent of further adverse movements in exchange rates, we expect group net profit after tax (pre-individually material items) in 2010 to be higher than that reported in 2009," the company said.
The shares reacted, jumping by over 5.6%, or $1.26, to close at $23.61, as investors realised they had been far too gloomy about Orica’s prospects.
Orica announced a net profit of $541.8 million for the year ended September 30, up $2.2 million on the prior year.
But net profit after tax before material items was $646.1 million, up 12.9% on last year’s $572.3 million.
Orica said Europe was the only region in which earnings decreased, after a "significant volume decline" especially in infrastructure markets.
Orica Managing Director Graeme Liebelt said the strong result in very challenging market conditions, demonstrated the strength and resilience of Orica’s strategic position and its ongoing focus on controlling the business fundamentals of cost, cash and productivity.
“To achieve double digit growth in earnings before interest and tax (EBIT) in this environment is an excellent result. This year, perhaps more than any other, all that strategic work we have done over the past decade or more is being played out in our results.
"It is that, combined with a tight control of the business fundamentals – cost, cash and productivity – that is at the core of the profit growth this year.
“Operating cash flow improved by 16% to $855 million. Productivity and synergy benefits of $101 million were delivered and underlying trade working capital improved by $51 million.
“We have been able to respond quickly and effectively to the changing circumstances, demonstrating strong financial discipline to achieve these very good results.
“Orica’s Mining Services business achieved a record result with sales up 14% to $4.1 billion and EBIT up 16% to $737 million.
"This was achieved in spite of difficult trading conditions due to cost management and restructuring initiatives across all regions, the continued benefits of improved ammonium nitrate pricing, falling input costs and positive foreign exchange impact.
“All regions achieved good earnings growth except for Europe where earnings decreased as a result of significant volume decline, particularly in infrastructure markets.
“The Chemicals business achieved record results with sales up 10% to $1.5 billion and EBIT up 17% to $170 million.
"The Mining Chemicals business had a record year primarily due to stronger demand for sodium cyanide, which we expect to continue in 2010.
“The General Chemicals business suffered significant volume declines due to the continued slowdown in the automotive and manufacturing sectors in Australia and New Zealand. The merger of the former Chemnet and Chemical Services businesses is complete and resulting synergies delivered EBIT benefits of $12 million during the year.
“The newly named DuluxGroup achieved record sales and EBIT was up 5% to $129 million.
"In a market with declining volumes and increased competition, the business grew sales and market share, demonstrating the strength of its premium brands and excellent channel relationship management.
“EBIT was down by 3% in our Minova business due to difficult trading conditions in the US and Eastern Europe and under-recovery of steel input prices in the US. Fundamentals however were controlled well and we have now rebuilt those margins in the US steel business.
“For Minova businesses outside of the US, pricing and volumes remained steady with the business seeing strong volume growth in China.
“Orica has moved quickly and effectively to manage the fundamentals of cost, cash and productivity in response to external market conditions without jeopardising our long term strategic focus.
"This has seen us progress with investments to ensure we capture the long term growth that we continue to see and to progress with important work in the area of research, development and innovation.
“That focus is supported by a strong balance sheet with relatively low gearing.
"With the successful capital raising last year and the recently extended debt facilities we are well positioned to fund our growth plans.
“We are making very good progress with the 300ktpa ammonium nitrate plant in Bontang Indonesia.
"Feasibility
