Judging by the solid market reaction yesterday, the market (including analysts), got the Orica performance wrong in the year to September 30.
The shares ended up more than 4.5% at $25.41, a rise of $1.11 on a day when the wider market was mostly lower.
The 3.8% rise in full year profit to $642.3 million from $619 million in 2010 was well above the market forecast from analysts of around $621 million.
The 2010 result excluded the Dulux paints business which was spun off in July of last year.
In 2010 net profit after tax and individually material items, including the one-off profit from the demerger of DuluxGroup, was $1.3 billion.
Orica declared a fully-franked final dividend of 53c, down from 54c for the same period last year.
That made a total for the year of 90c, down from 95c. No explanation was given the for lowered dividend.
And, a forecast from the company that it expects to top the 2011 result in the current financial year probably caught some investors by surprise as they continue see doom and gloom and worry about the health of the mining industry and manufacturing.
Orica, which generated a lot of bad publicity in NSW in recent months because of poor pollution controls at some plants (as well as poor management), was a big beneficiary of the recovery in the Queensland coal mining sector as its sales of ammonium nitrate picked up in the second-half as the recovery from the first quarter floods gathered pace.
And the company said yesterday it expects its profit to grow again in 2012, because of the new ammonium nitrate plant in Indonesia which is due to start up next month.
CEO Graeme Liebelt, who retired next March, said in a statement that, "There has been a strong recovery in demand in the second half in some of our markets and this, combined with our continued focus on productivity, has delivered this pleasing result".
He said challenges confronted during the year to September included a high Australian dollar, adverse weather, price competition in Orica’s Minova business, plus the continued shutdown of its Kooragang Island ammonia plant in the NSW Hunter region, after the polluting leak earlier in the year.
The Minova business, which makes specialty bolts and chemicals for underground mines and tunnels, saw 29% fall in earnings before interest and tax (EBIT) to $105 million.
Strong competition, particularly in North America, continued to negatively impact margins, Mr Liebelt said. "We believe that we have seen the worst and expect Minova to improve in the next year," he said.
Orica Mining Services posted EBIT growth of 6% from the previous year to $817 million, due to higher volumes, better productivity and price improvements, he said.
The chemicals business delivered EBIT of $196 million, up 4% from the previous corresponding period.
General chemicals sales were up 6% from the previous year due to higher commodity prices and sales volumes.
Mr Liebelt said the company was working with authorities and the community to rebuild confidence in its Kooragang Island ammonium plant in Newcastle, which has been shut down due to a chemical release.
"We expect to restart the plant later this calendar year," Mr Liebelt said in yesterday’s statement.
"The uprate of the ammonia plant at Kooragang Island to 360ktpa was initially completed in August.
"We regret that during the restart of the plant, an incident occurred resulting in an amount of sodium chromate containing hexavalent chromium being released, traces of which were found in northern parts of the adjacent Stockton area. Independent toxicology studies concluded that there was no threat to human health.
"The incident resulted in the plant being shut down.
"The company is working with authorities and the community to rebuild confidence in its operations and we expect to restart the plant later this calendar year.
"The expansion of the ammonium nitrate plant at Kooragang Island to approximately 750ktpa continues to be progressed as quickly as possible. Commissioning is expected late in the 2014 calendar year.
"The new 300ktpa ammonium nitrate plant at Bontang, Indonesia, is now in the commissioning phase and we anticipate production to commence in the first half of the 2012 financial year.
"The cost of the project is expected to be 10% below the initial estimate. This project has been a highlight for Orica, including the achievement of an outstanding safety record during its construction.
"Construction of the $100 million detonator plant in Nanling, China is behind schedule but under budget and commissioning is expected in late 2012.
"We have achieved another solid result in 2011 in challenging conditions.
"We have maintained a sound balance sheet, our financial coverage ratios are strong, and we are well positioned for the growth opportunities ahead. The commodities market outlook is robust, and we are in a strong position, strategically and operationally, to participate in the market growth,” Mr Liebelt said.
Former Newcrest boss Ian Smith takes over as CEO of Orica from next March.
