Orica shares plunge on unit write-off
Orica's Kooragang Plant. Photo: Peter Stoop
SHARES in Orica were dumped on Monday following a surprise $247 million writeoff against its Minova unit, which was disclosed to the market after the close of trading last week, coupled with mounting caution over future demand levels.
Orica's year to September net profit fell to $423.8 million, from $663.4 million. But stripping out the writeoff, the underlying earnings were little changed.
Orica was hit by a series of production problems at its Kooragang Island plant in Newcastle, which forced the plant to be shut down several times.
The disruptions cost the group $69 million in earnings before interest and tax, with nearly all of that felt in the mining services division. This wiped out a large part of the improvement in margins in other parts of the business unit.
The focus for investors is its mining services division, amid caution over the effect of slowing global demand which, in the US, has been compounded by low gas prices resulting from a switch away from coal as an energy source, in favour of gas.
As a result, global markets for mining services will remain difficult, Orica said, with soft US demand offsetting firmer demand in most other markets.
In this financial year, earnings will receive a boost from the start of production at its Bontang ammonium nitrate plant in Indonesia, while a bulk emulsions plant in the Pilbara is also to begin commissioning.
The focus will remain the planned ammonium nitrate plant on the Burrup Peninsula, also in Western Australia, and the plant proposed for Kooragang Island.
Orica is expected to start construction by mid-2014 of this plant, while competitor Incitec Pivot recently deferred a decision on its ammonia nitrate plant at a neighbouring site.
Ongoing speculation of the deferral of higher cost coal projects in the Hunter Valley may weigh on the ultimate timing - and prospects - of this proposal.
Demand woes, coupled with competitor pricing in the US, forced the heavy Minova writeoff.
Orica paid $857 million in 2006 to buy Minova, and there has been speculation of a write-down against its book value.
It is now seeking to bundle services in a bid to boost margins, which could help offset the effect of slowing demand.
While overshadowed by other parts of the group, the chemicals division was a strong performer, boosting earnings before interest and tax by 8 per cent to $211 million.
At Botany, in Sydney, a drop in remediation costs for hexachlorobenzene in fiscal 2013 to $12 million, from $27 million, will be offset by a rise to $13 million, from $5 million, for other environmental provisions.
Orica shares closed down 99¢ at $24.01, off the day's low of $23.72.