Orica shares rocket as coal drives result

Orica shares surged after the explosives maker beat full-year production and spending expectations.

Orica’s Alberto Calderon is not ready to call the end of the downturn.

Orica shares surged their most in two years after the explosives maker beat full-year production and spending expectations and chief executive Alberto Calderon flagged improved activity from coalmining customers.

The shares rose $1.30, or 8.3 per cent, yesterday to a 16-month high of $16.90 after the Melbourne-based company reported its full-year profit, bringing gains this financial year to 37 per cent, in no small part thanks to coal price gains.

Mr Calderon said coalminers, Orica’s biggest customers, were selling as much coal as they could into short-term markets.

“We’re not seeing massive investment for production in five years, but we do see investment to do all that is necessary to improve production within the next 12 months,” he told The Australian. “We are exposed to their volumes, so we have good trends in the east and hopefully that will continue.”

Despite a more buoyant attitude from miners, Mr Calderon is not ready to call the end of the downturn.

“There seems to have been an inflection point, but we decided to go for a conservative outlook because we thought that last year, then six months later we were in a different spot,” he said.

“We can see this rally in prices has given customers quite a lot of breathing space in cash flow and balance sheets, and so we are ­seeing activity.”

For the 12 months to September 30, Orica reported net profit after tax of $342.8 million, reversing a $1.27 billion impairment-driven net loss the previous year. Underlying net profit, which strips out one-off items, slid 7 per cent to $389.1m, in line with expectations.

The one-off items included a $21m hit for a Chile plant explosion in which two people died, a previously announced $41m payment to the Australian Taxation Office and a $16m benefit from the sale of the Thai Nitrates company.

While earnings were in line, Orica’s ammonium nitrate sales of 3.54 million tonnes beat previous guidance of 3.45 million tonnes and capital spending of $263m was below the forecast $320m.

Ammonium nitrate volumes are guided to be steady this year.

But the company expects to be hit by $60m of pricing resets and between $50m and $70m of gas price increases and increased depreciation and amortisation, which will be offset by further productivity improvements.

“Orica’s outlook would appear conservative in the context of improving coal markets and a strengthening second half (2016) performance,” Credit Suisse analyst Grant Saligari said.

Orica booked a final dividend of 29c a share, pushing the full-year payout to 49.5c.

This was down from 96c the previous year, before the company abandoned its progressive dividend in favour of a payout ratio.

Mr Calderon’s total remuneration under Australian reporting standards was $3.41m, up from $1.39m a year earlier when he was appointed halfway through the year. His total received remuneration was $2.52m, after being granted 39 per cent of potential short-term bonuses, up from $1.16m the previous year.