Explosives giant Orica (ORI) has finalised the sale of its troubled chemicals business, and will cut 700 other jobs as part of a cost-cutting drive after it yesterday reported weak results for the year to September 30.
Orica also said that it may return capital to shareholders after it banks the $750 million from the sale of the chemicals business to US buyout group Blackstone.
“Given Orica’s improved cashflows, strong balance sheet and anticipated funds from the sale of its chemicals businesss, the board will have the flexibility to consider capital management initiatives,” the company said yesterday.
But after an early, enthusiastic reception to the string of reports, which saw Orica shares jump 3.5% to a day’s high of $19.93, they retraced on second thoughts from investors and finished the day down 4% at $18.47.
ORI YTD – Orica offloads chemicals to Blackstone funds
Investors grew less convinced at the quality of the profit and then the realised that Orica keeps the financial and legal liability for pollution at where the chemicals businesses were located. That won’t move to Blackstone.
“The certainty as to value and outcome of this transaction is a good result for Orica shareholders,” Orica CEO Ian Smith said of the sale of the chemicals business.
Orica will retain any legacy issues relating to toxic leaks and other environmental problems from the chemicals business, especially around the Botany plant in Sydney and at Kooragang Island in Newcastle. Orica has had problems with spills and unlawful emissions at both sites and has been fined heavily by regulators.
Orica reported a statutory full-year net profit after tax of $602.5 million, up just 2% on a year ago and helped by a low tax rate and lower interest costs.
Group earnings before interest and tax fell 4% to $930 million due to continued pressure on volume and pricing in mining services markets and reduced chemicals earnings.
Those pressures are not going away and the company said yesterday it was for that reason it was not providing guidance for 2015.
"The volatility and uncertainty in global resources markets makes it difficult to provide profit guidance for the year ahead. However, the company does not expect a significant improvement in the resources markets reinforcing the requirement for the company to achieve its transformation objectives,” Orica said.
The Orica Board declared a final dividend of 56c per share, up 2%. This takes Orica’s full year dividend payout to 96c per share.
Orica said it will cut approximately 700 jobs in 2015.
Together with other efficiency measures, the job cuts are expected to result in pre-tax cost savings of $140 million to $170 million in 2015 and up to $80 million in 2016.
Under Mr Smith Orica has already cut 1300 jobs in the past two years. The company is struggling as its mining customers cut costs in the face of weak commodity prices.
Mr Smith said that the result demonstrates Orica’s earnings resilience in the face of challenging market conditions.
“Orica’s diverse geographic footprint and commodity exposure, strategic focus on differentiated products and services, and the initial results of the transformation program have largely offset the impact of lower volumes and prices in some markets.
“Efficiency improvements delivered savings of $69M in 2014. With further improvements expected in 2015, Orica’s cost base is being reset and the company positioned to better meet customers’ needs in dynamic market conditions. This process will also allow Orica to capture the benefits of any improvement in the commodity cycle,” said Mr Smith.
