An unchanged dividend after a big write-down and fall in underlying profit is always a far better indicator of the way the board and management sees the outlook for a company, especially a major group like Orica (ORI), the big explosives and mining services group which has had a 2015 to forget.
There was the rapid CEO change at the start of the year after the previous incumbent had serious problems with senior staff, board changes and a new chairman announced, there was the shock write down of well over $1.6 billion in August, and profit downgrade, and then there was yesterday’s full year financial report and a loss of $1.3 billion.
But the real message was in the decision by Orica to pay a steady 56 cent final dividend, partially franked. After the unchanged 40 cents a share interim, the full year payout is a steady 96 cents a share.
If the board had been really concerned a reduction in dividend might well have been on the cards.
The board’s confident view was further underlined by way the steady final dividend will chew up 89% of underlying earnings for the final half, against 59% a year ago.
And adding to the message was the confidence about an improvement in 2016 and 2017.
Orica said yesterday in its outlook that it sees its earnings up slightly in 2016 and sees further improvement the following year.
But the board is sending a message of caution by shitting down its $400 million share buyback (announced in March after the senior management change and designed the support the shares and reassure investors) after just $53.5 million had been spent.
Orica shares eased yesterday in the wider sell down, and then rose in afternoon trading ending up more than 2% at closed at $15.97.
That was after it reported a much predicted whopping loss thanks to the $1.69 billion write-down.
ORI 1Y – Orica sees better times ahead after $1.2 billion loss
Overall, the company posted a $1.23 billion loss for the 12 months to September 30. Excluding the large write-down, net profit slipped to $417 million, compared with $564 million the previous year.
The market had been expecting an underlying result around $433 million. The company earned $603 million in 2013-14.
CEO Alberto Calderon, who came to the job in May from being a non-executive board member after Ian Smith had resigned in March, said in a statement that
“The (explosives) industry is currently experiencing the most dramatic mining downturn in at least the last two decades.”
"Despite this, the underlying performance of the business demonstrates Orica’s relative resilience within the sector."
Revenues for the company fell 10% to $6.123 billion.
In August, Mr Calderon revealed plans for the huge write downs, while the group had also warned of weaker-than-expected profits, which is how the year turned out.
The firm has said it is expecting to reduce its headcount by 700 in the coming year, adding to the 1300 jobs already lost in the past two years.
“Our disciplined transformation program delivered a gross benefit of $175 million, 80 per cent of which is sustainable over the long term," Mr Calderon said yesterday.
After announcing a review of the $400 million share buyback program launched in March, Mr Calderon said the program would be cancelled “with immediate effect”.
"Within the context of the challenging operating environment and following discussions with a range of stakeholders, including investors, lenders and rating agencies, Orica has cancelled the share buyback program," he said.
Looking to 2016, Mr Calderon did foresee some improvement in earnings before interest and tax, before further improvement in the 2017 financial year.
He mentioned medium term global commodity forecasts for commodity volume growth and said actions taken by Orica to strengthen its contract profile gave the board greater comfort around targets for fiscal 2016 and beyond.
“Orica is a business with strong fundamentals,” Mr Calderon said. “2015 has been challenging and has been a period of ‘reset’, in which we took the necessary steps to lay the foundation for improving our performance and embedding long term shareholder value.”
