Orica flags first-half earnings hit, then rebound

Explosives and fertiliser maker Orica expects reduced first-half earnings but a much stronger second half.

Orica CEO Alberto Calderon. Pic: Colin Murty

Orica said it expects to report reduced earnings before interest and tax for the first half of the fiscal year, reflecting unplanned plant closures and weather disruptions in North America, but forecast a significantly stronger second half.

The company (ORI) also said it will record a non-cash impairment and increase in provisions totalling about $300 million tied to its underperforming Minova business and a one-off restatement to the value of its US deferred tax assets of about $55 million, following recent US tax reform.

Orica, whose businesses include making explosives for mining companies, said unplanned plant maintenance at the Yarwun and Kooragang Island plants would shave roughly $17 million from its first-half earnings.

“A key focus is on increasing manufacturing reliability and operational discipline and excellence” and “some early improvements are expected in the second half of the year,” the company said.

It forecast a further $15 million hit linked to disruptions because of extreme weather in North America, continued challenges in the cyanide market and ongoing underperformance of the Minova business, which services the mining, tunnelling and engineering industries.

Orica also said its joint-venture operating partner in the Burrup Technical Ammonium Nitrate plant, Yara International ASA (YAR. OS), is addressing problems with heat exchangers that have shown some premature cracking.

“Whilst we do not anticipate any interruption to customer supply, there will be a one-off net negative EBIT impact of approximately $19 million for the full financial year, expected to be weighted towards the first half ... mainly due to additional freight and sourcing costs,” Orica said.

The company, forecasting a stronger end to its fiscal year, said it expects continued volume growth, particularly in Australia, and a better operational performance in Latin America and Europe to contribute to a $60 million boost to earnings in the second half.

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