Explosives and chemicals manufacturer Orica says it expects full year profit to be above last financial year, although the strong Australian dollar could cost the business $30 million in second half profit.
Explosives and chemicals manufacturer Orica says it expects full year profit to be above last financial year, although the strong Australian dollar could cost the business $30 million in second half profit.
Orica on Monday reported an almost five-fold increase in first half net profit, despite headwinds including severe weather conditions in eastern Australia and Asia and a high Australian dollar.
At 1010 AEST, shares in Orica were up 26 cents at $26.84.
Orica chief executive Graeme Liebelt says he expects market conditions to improve over the remainder of 2011, barring any further one-off events.
"The situation we are in is that demand overall has been subuded first-half on first-half," Mr Liebelt told media on Monday.
"If we can get clear of some of the issues with respect to weather ... and if our customers can indeed realise their plans, then I think the growth would look a bit stronger from here on."
Mr Liebelt said the strengthening Australian dollar had cost the group $17 million in first half profit.
If it stays around $1.10 over the second half, it will cost the group $30 million, he said.
Orica posted a net profit of $263.8 million for the six months to March 31, up 379 per cent from $55 million in the first half of fiscal 2010.
First half revenue was down 8.6 per cent at $2.95 billion.
Mr Liebelt said a modest improvement in overall volumes, higher pricing and productivity had helped achieve the result.
"This result has been delivered in external conditions we would have to describe as mixed," Mr Liebelt said.
"In mining services, we saw reasonably strong growth in south-east Australia, Western Australia and North America.
"In chemicals, we saw growth in demand for mining chemicals."
"The underlying demand in that market continues to be quite strong."
The mining services unit, which includes explosives, achieved a one per cent increase in earnings before interest and tax (EBIT) to $335 million, despite significant disruption from flooding in Indonesia and Australia.
In the Minova business, which includes sales of mining equipment, margins were squeezed by strong competition in some markets, while volumes improved.
Minova's EBIT was down 16 per cent at $55 million.
Chemicals achieved a record result, with EBIT of $95 million, up one per cent on the first half of 2009/10, due to higher commodity prices and higher volumes, Mr Liebelt said.
Orica had a strong growth pipeline, with three major projects underway in Indonesia, China and NSW, that would flow through in 2012, he said.
The group was also interested in making acquisitions across the regions, but particularly in emerging markets where it was weakest, he said.
"I don't foresee that we would step outside of those platforms, but if we could see the right opportunity in explosives or mining services or Minova, we'd look at that," Mr Liebelt said.
The company expects first production from its 300 kilotonne per annum ammonium nitrate plant at Bontang, Indonesia, in the first half of the 2012 financial year.
The $100 million detonator plant under construction in Hunan province in China is progressing and is expected to be commissioned in 2012.
Orica is also expanding its ammonia plant at Kooragang Island in NSW by 320 kilotonnes per annum.
Orica declared an interim dividend of 37 cents per share, 51 per cent franked.
That compares with 41 cents per share, 61 per cent franked, a year earlier.
Meanwhile, Mr Liebelt said the company could do more to reduce its greenhouse gas emissions and the introduction of a carbon tax would "probably" encourage it to make changes.
The explosives and fertiliser manufacturer emits 2.3 million tonnes of carbon dioxide (CO2) equivalent per annum, but says further carbon emission reductions are possible.
"We know that we can put in place further abatement measures to reduce our carbon dioxide emissions," Mr Liebelt said.
"We've abated some of our plants and we can abate further."
When asked whether a carbon tax would encourage the company to take those steps, Mr Liebelt responded saying, "Yes, it probably would."
"But we would prefer an emissions trading scheme, rather than a carbon tax for a range of economic reasons," he said.
Mr Liebelt said a carbon price of between $20 to $30 a tonne would cost the business $40 million to $60 million annually.
He said some of the extra cost could be passed onto customers in the short term, but the company may have to absorb some of the cost when existing contracts expired.
