Orica reports strong '99-'00 interim despite agrochem drag

03 May 2000 03:31  [Source: ICIS news]

SINGAPORE (CNI)--Australian chemicals and industrial explosives major Orica Ltd stated Wednesday that its interim profits after tax and before abnormal items rose by 5.5% on the year to A$68.8m ($43.2m/Euro46.2m) - with difficult conditions in agrochemicals being offset by "significantly more profitable" chemicals and other core interests.

Profits after tax and abnormal items rose by 5.2% to A$100.6m in the six months to 31 March.

Agricultural chemicals, the company stated, had a difficult half year. The fertiliser business was affected by:

• The continuation of low urea prices that reduced the profitability of imported and manufactured products.
• Reduced planting in the cotton sector.
• Wet weather that reduced product application in the sugar cane sector.

The crop protection business, Crop Care, also had a disappointing half year, largely because of cooler conditions in the cotton growing regions of Australia that significantly reduced demand for insecticides.

However, for the fiscal H2, Orica is optimistic that favourable seasonal conditions will be stronger "as domestic urea prices have begun to improve, broadacre planting looks strong and further benefits of recent capital expenditure will be realised".

While the agrochemicals business was reduced in fiscal H1, the chemicals, consumer products and mining services segments all produced strong results.

Managing director and chief executive officer Philip Weickhardt said: "The substantial increases in three of our four core segments more than covered the large weather and urea price related earnings drop from our agricultural chemicals business. The radical reshaping strategy Orica embarked upon nearly three years ago is bearing fruit.

"We are seeing the benefits we'd anticipated when we acquired the international explosives business. Earnings are up significantly and sales revenues, margins and market share have continued to improve, although there is more for us to do."

He said the chemicals business saw higher volumes offset by lower selling prices, particularly in chloralkali, adhesives and resins. The improved profitability was largely from efficiency and productivity gains resulting from the restructuring undertaken in 1999, including the shift to shared support services.

• The Chemnet trading business had better volumes in the New Zealand dairy sector and in Australia. Prices were lower than in H1 the preceding fiscal year, but better than in H2.
• The Incitec industrial chemicals business had higher sales with volumes strongly offsetting lower prices.
• Volumes also were higher in adhesives and resins as the medium density fibre board market continued to improve.
• Work has recommenced on the Laverton, Victoria, chloralkali plant. It had been delayed by labour negotiations between Orica's contractor and unions over employment conditions. The plant is expected onstream in Q1 2001.
• The polyurethanes business was sold to Huntsman Corp at end-February.
• The pricing environment looks better in H2, Orica projected, and chemicals are expected to perform well "if the current level of activity in the economy continues".

Weickhardt said the international development of the company's explosives business continued rapidly, and overall performance was better on the year, while revenue in the consumer products business - especially Australian Paints - was slightly lower on the year but profitability was "significantly higher".

He confirmed that Orica's cost-reduction objectives are on track. "We've continued to drive costs out of our all of our businesses and are confident we will meet or exceed our two year cost and efficiency improvement target of A$120m," Weickhardt stated.

By: Lawrence Basapa
+65 6780 4359

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