Shareholders in explosives maker and mining equipment group, Orica will see a small lift in dividend for the six months to March 31, but it will not restore the interim payout to the 40 cents a share it was two years ago.
The company yesterday lifted the interim to 23.5 cents a share from the 20.5 cents a share paid in 2015-16, which was slashed from the previous year’s high level as Orica experienced a sharp fall in revenues and plunging profit margins from the great mining slowdown and cost cutting by companies large and small.
Yesterday the company said it had lifted first-half profit 31% to $195.2 million as underlying earnings stabilised in the wake of the tentative rebound from the recession in the sector.
The net profit for the six month period to March 31 rose from $149 million in the prior corresponding period – which included a hit to the bottom line by a one-off settlement with the ATO – as underlying EBIT came in just 1% lower at $314 million.
“While our turnaround will continue throughout FY17, our underlying EBIT reflects a stabilising business performance,” chief executive Alberto Calderon said in yesterday’s statement.
Orica said the outlook for 2017 remained unchanged from the one given at last November’s AGM.
“Despite the expected external headwinds during the period, we continued our focus on business improvement initiatives,” chief executive Alberto Calderon said.
“These initiatives enabled us to successfully offset these headwinds. Importantly, we also began to see the beginnings of the normalisation of mine plans and the return of more sustainable strip ratios across our mining customer base.”
But despite that some cautious confidence, the company remains deeply concerned at the level of demand. It warned continued tough markets will result in only a ‘gradual’ recovery as the mining industry records only a moderate uplift in activity against the background of a global glut in its key commodities. “Mining services companies have lagged mining companies … in particular in cutting costs," Mr Calderon said.
"This is the first time in four years our first half EBIT [earnings before interest and tax] has not fallen," he said. "This result demonstrates a return to predictability with earnings."
Rising volumes of explosives sold into the Australian market largely reflect a gradual deepening of mine stripping ratios, with the ‘high grading’ seen during the worst of the downturn in commodity prices gradually being reversed, he said.
The group’s troublesome Minova unit (mining equipment) continued to record gains, it said, largely thanks to the sale of a unit in China. Revenues here rose slightly with earnings now positive.
“The turnaround is still early days," Mr Calderon said, with pretax earnings of the unit for calendar 2017 seen running at around $2 million.
Orica rose 1% to $19.60 yesterday, then tipped over and lost more than 3% to end the day at $18.63 – a big thumbs down from the market to the result and the gloomy outlook.
