Orica lifts half year earnings as operations hold up in pandemic
Orica says revenue is holding up despite the impact of COVID-19, with the mining services company lifting half-year earnings.
Orica boss Alberto Calderon has backed calls for Nev Power’s coronavirus recovery commission to take on the thorny issues of energy policy as a means to economic recovery, saying high gas charges are still crippling Australian manufacturing despite tumbling global prices.
Speaking after Orica delivered an improved first-half profit result, Mr Calderon told The Weekend Australian the mining services company’s operations revenue was holding up strongly despite the impact of the coronavirus, with the company posting an improved half-year earnings result and declaring a 16.5c a share interim dividend.
Orica booked earnings before interest and tax of $308.6m, up 2 per cent on the same period a year ago before, and net profit of $165.2m.
Mr Calderon said Orica’s key markets in Australia and the US were performing well despite the coronavirus.
“As a result of mining activities being confirmed as essential services in most countries, over 90 per cent of our volumes have remained intact following COVID-19,with limited impact in Australia and the US which are two of our major regions,” he said.
He said the difficult outlook for the global economy was behind the company’s decision to reduce its interim dividend payment for the half, from 22c at the end of the first half of last financial year, to 16.5c in the current period — a payout ratio of 40 per cent of Orica’s earnings.
“If we had had less uncertainty about the future, it would have been 50-60 per cent (payout ratio) in the dividend,” he said.
With the global mining sector largely operating despite shutdowns in many other parts of the economy, Orica says it expects only a 10-15 per cent hit to its product volumes in the second half of its financial year.
But Mr Calderon said the vexed issue of power and gas prices continues to plague Australian manufacturers, despite the coronavirus helping cause steep falls in oil and gas prices on international markets.
Lockdowns across global economies have pummelled gas demand and, with little slowdown in production levels, spot prices for liquefied natural gas cargoes fell to below $US2 per million British thermal units in early May, hitting record lows of about $US1.85/mmbtu.
But Mr Calderon says those precipitous falls have not flowed through to the long-term contracts of most Australian manufacturers, meaning Orica’s offshore competitors can use Australian gas shipped 6600km to out-compete local chemical plants only a few kilometres from a gas pipeline.
“This is something that all of the chemical industry companies have been speaking to the government about. Really there’s been very little impact on long-term contracts, and we all have to operate with contracts,” he said.
“The short-term price has fallen, but still the gas prices are ridiculously high here in Australia. Our Japanese competition using Australian gas produces ammonium cheaper than what we can do in Australia. That hasn’t changed.”
Mr Calderon said the issue would be at the front of discussions with Mr Power when Orica approached the federal government’s COVID-19 Coordination Commission to talk about ways to get Australia’s
Despite uncertainty around how quickly economies will recover from the coronavirus lockdowns, the Orica boss said he expected only a relatively small impact to the company’s business for the remainder of its financial year.
“While it is almost impossible to forecast what will happen in the next six months, we currently expect our volumes in the second half to be somewhere between 10-15 per cent below the pre-COVID-19 expected volumes,” he said.
Orica said its troubled technical ammonium nitrate plant in the Pilbara was finally operational, with production ramping up after the completion of rectification work.
Orica shares closed down 50c, or 3 per cent, at $16.26 on Friday.