Orica flags Covid blow to full-year profits

Orica lowers profit expectations, to take a $170m hit as virus affects markets in South America and the developing world.

Orica chief Alberto Calderon. Picture: Colin Murty

Explosives manufacturer Orica has downgraded its profit expectations as the coronavirus crisis damages its markets in South America and the developing world, with the company to take a $170m hit as it rationalises its portfolio.

Orica said explosives volumes will come in at the bottom of earlier forecasts at its May half-year financial results, which had flagged a 10 to 15 per cent fall as key markets in South America reduced mining rates as the coronavirus spread across the continent.

The company said on Monday it expects full-year earnings, before interest and tax, of about $600m, almost 10 per cent below last year’s EBIT of $665m.

“Due to the pandemic impacting developing markets more severely for longer, ammonium nitrate volumes for the second half of FY20 are now expected to be close to 15 per cent below the expected pre-COVID-19 volumes. Higher supply chain costs, largely freight, continue to impact the business as we support customers’ operations during the pandemic,” the company said.

And Orica said it would book $170m in one-off items in its full year results, which will be delayed by two weeks until November 20 as the company comes to terms with its new finance system, introduced in the middle of the pandemic.

Orica said it plans to close two of its detonator manufacturing plants in the US and Canada as a result of its acquisition of Peruvian explosives maker Exsa in February, with the closures likely to cost the company about $80m.

It will also write off about $65m worth of IT systems after the introduction of its new finance software, with redundancies flowing from the decision to cost about another $25m.

Orica shares closed last week at $16.65.