Orica’s (ORI) dip in interim earnings wasn’t a big deal – otherwise why would have the company lifted the dividend 3% to 40c a share?
The 8% or $21 million slump in first-half net profit to $242 million was triggered by lower volume from the mining services division and weaker profits from chemicals, especially in Australia.
The company, which is the world’s biggest explosives manufacturer, said earnings before interest and tax dropped 7% to $402 million for the six months ended March 31.
That was on a 1% rise in group revenues to $3.36 billion.
The company said its net operating cash flows improved by 11% to $313 million and gearing dropped to 36.5% which was at the lower end of its target range.
The lower interim profit was in line with updated guidance given earlier in the year.
Plant shutdowns and lower demand for chemicals in Australia, driven by the slowdown in resources, saw earnings from the company’s chemicals business slump 32% to $39 million.
That will make Orica’s possible trade sale or spin off of the chemicals business that much harder to sell to investors and/or shareholders.
The Mining services business saw a 2% drop in earnings before interest and tax to $419 million on weaker explosives volumes due to worsening business conditions in the US coal mining industry where several companeis have collapsed or closed mines in the past year.
But while the weakness in the US hurt the overall performance of the explosives business, there was one very bright spot – the huge Pilbara iron ore mines of BHP, Rio Tinto, Fortescue and others.
Higher demand from that sector saw the volume of explosives shipped rise 5% in Australia.
The dividend is partly franked (16c of the 40c a share).
Looking to the rest of the year, the company said, "Group net profit after tax before individually material items in 2014 is expected to be in line with, or exceed, the restated FY2013 NPAT of $592.5 million influenced by a number of assumptions.’ These include improved demand from the resources sector for explosives and for chemicals.
"The expected uplift in explosives volumes in H2 FY 2014 will be the most influential factor in the full year results following a 2% volume decline on the PCP in H1 FY2014," the company said yesterday.
Despite the higher dividend, Orica shares fell more than 5% to $20.79.
