Orica beats market expectations on $296m profit
Orica boss Sanjeev Gandhi says more intervention is needed to drive down energy costs for Australian manufacturers.
Orica says it expects to deliver another year of improved earnings as demand for its explosive and mining services grows, despite managing director Sanjeev Gandhi conceding the company will need to factor in higher energy prices for the foreseeable future.
Mr Gandhi reiterated his calls for further federal intervention to bring down gas and electricity prices in Australia after delivering the company’s annual financial results on Thursday, saying prices were still “too high” despite a theoretical $12 gap on domestic gas prices.
Orica will pay a 25c a share final dividend after booking a $295.7m net profit for the year, with the global explosives giant recording a 24 per cent lift in underlying earnings for the year.
Mr Gandhi warned the company it still faced challenges from global inflationary pressures, high energy costs and an uncertain geopolitical environment, but said he still expects profits to improve over the current fiscal year.
The mining services and explosives company delivered its annual financial results on Thursday, saying it had booked underlying earnings before interest and tax of $698.1m for the year, up 24 per cent from last financial year – with earnings from all of its divisions up over the period.
The underlying profits came on top of a 12 per cent lift in revenue, to $7.95bn.
Orica’s statutory result took a $90.8m before-tax hit from the company’s decision to sell its businesses in Turkey and Venezuela.
Mr Gandhi said the profit lift was partly attributable to a doubling of earnings from the company’s hi-tech offerings, which delivered EBIT of $54m for the year, on a 44 per cent improvement in revenue to $212m.
The division, which includes Orica’s digital detonation offerings as well as innovative mining services businesses such as GroundProbe, delivered about 7.7 per cent of the company’s total EBIT on just over 2.6 per cent of total revenue.
“We’re continuing to invest in resources, people, know-how and technology to grow this business because I think this is just the beginning. We have a very long runway ahead of us. Our customer base wants to automate, they are also facing inflationary pressures,” he said.
“In 2023 we have launched 14 new digital products into the market. So the pace of innovation here is obviously very, very fast.”
Jarden analyst James Wilson said the company’s strong result was driven by pricing growth that was well ahead of market expectations, with a strong performance in Orica’s North American division and in Europe, the Middle East and Africa.
Earnings in Orica’s Asia Pacific and Australian operations jumped 24 per cent for the year to $458m, with North America delivering an 11 per cent lift to $149.7m.
While Orica has factored in a strong outlook for the coming year, Mr Gandhi warned that rising gas and energy costs in Asia posed a risk for the company – and that energy costs in Australia were still too high.
“We need more supply, both for renewable energy but also for conventional energy like natural gas. And as long as there‘s not enough supply, we’d always have this conflict between supply and demand – net-back for the gas producers and the challenges that heavy manufacturing in Australia faces,” he said.
“And remember this comes on top of the safeguard mechanism, the fact that we are now pushed to decarbonise even harder – which Orica is doing, we were the first movers in that. We are very, very serious about our ESG responsibilities and net zero. But we do need support and more intervention from the government to ensure that industry in Australia is not punished because of the high energy costs.”
Orica shares rose 2.8 per cent or 42c to $15.48.
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