Orica’s strategic focus delivers 32% increase in underlying EBIT to $323 million, and NPAT of $123 million

11 May 2023

Orica (ASX: ORI) today announced a Statutory Net Profit After Tax (NPAT) attributable to the shareholders of Orica for the half year ended 31 March 2023 of $123 million; and underlying earnings before interest and tax (EBIT) of $323 million, up 32% on the prior corresponding period (pcp).   


HY2023 Financial Result Highlights 

  • Statutory NPAT (1) of $122.6 million (pcp: Statutory Net Loss After Tax of $84.6 million), including $40.9 million significant items expense(8) after tax
  • Underlying EBIT(2) of $322.6 million, up 32% on the pcp, before individually significant items
  • Underlying earnings per share(3) of 36.0 cents, flat with the pcp
  • RONA(4) of 12.4%, up from 11.4% in FY2022
  • Interim dividend of 18.0 cents per ordinary share, unfranked, representing a payout ratio(9) of 50%
  • Strong earnings performance has continued into the first half of FY2023. Earnings increased in all regions versus the pcp attributable to embedded commercial discipline, strong customer demand, manufacturing utilisation and increased earnings from advanced technology offerings
  • Axis acquisition successfully completed
  • US Private Placement notes successfully refinanced, extending the drawn debt maturity profile

CEO Commentary 

Reflecting on the positive first half performance, Orica Managing Director and CEO Sanjeev Gandhi said:  

Strategy and Performance

"As we continue to successfully execute our strategy, Orica has delivered another set of improved results. The 32% increase in underlying earnings reflects the embedded commercial discipline across our business and the focus on quality of earnings. Our teams worked hard to bring forward recontracting in the second half of the last financial year, the benefits of which we are seeing flow into these first half results. 

"The external market conditions, while challenging, have highlighted the strength of our people and unmatched global asset and product portfolio, which has enabled us to adapt and manage volatile external operating conditions. Sustained high commodity prices have fuelled demand for our products and services, and driven customers to Orica’s specialised products and technology offerings to deliver further productivity gains and support their sustainability goals. 

"With the completion of the Axis acquisition and growth in our existing Digital Solutions vertical, we have created a new reporting segment that provides increased transparency. The Digital Solutions segment includes Orebody Intelligence; Blast Design and Execution; and GroundProbe. The Axis integration is progressing well and has opened up new international markets for the business. 

Safety and Sustainability

"Our number one priority is to keep our people, customers and communities safe every day and I am pleased to report we have achieved our key safety and environmental targets for the half, including the Serious Injury Case Rate, loss of containment and potable water intensity. The investigations into the two tragic fatalities we reported last year have been completed, and subsequent actions and learnings have been implemented across our global operations.

"During the half, maintenance turnarounds were completed safely at our Kooragang Island, Yarwun and Bontang manufacturing facilities in Australia and Indonesia.

"The Safeguard reforms which were passed in the Australian Parliament in March this year have brought renewed policy confidence and investment certainty for Orica on our decarbonisation plans. We share the Government’s goal of reducing industrial emissions as soon as possible. Orica’s voluntary corporate emissions reduction goals include plans that represent real abatement and real decarbonisation on site, having already delivered a net 14% reduction in our overall emissions since 2019.

"Milestones have been achieved for these tangible emissions reduction projects during the first half. Most notably at Kooragang Island we successfully commissioned tertiary catalyst technology for Nitric Acid Plant 1, with the technology being deployed at the remaining two plants by the end of the year. With the renewed investment certainty, Orica has completed the Final Investment Decision to deploy the same technology at the Yarwun manufacturing facility at the next suitable maintenance shutdown.” 

Dividend and Capital Management

The Board has declared an interim ordinary dividend of 18.0 cents per share, unfranked, representing a payout ratio(9) of 50%. The dividend is payable to shareholders on 3 July 2023 and shareholders registered as at the close of business on 26 May 2023 will be eligible for the interim dividend. 

Return on net operating assets(4) , increased from 11.4% in FY2022 to 12.4% in the first half of the current financial year. This was driven by our improved earnings performance as a result of executing our strategy, and strong current market conditions.  

In March 2023 Orica successfully completed the issuance of USD350 million of fixed-rate unsecured notes in the US Private Placement (USPP) market. This transaction extended Orica’s drawn debt maturity and there are no further refinancing requirements expected until May 2024.  

Gearing remains below the target range of 30 to 40% at 26.2% as at 31 March 2023.

Mr Gandhi said: "Proactive debt management further strengthens our financial position. Our prudent balance sheet positions Orica well to manage the volatile external environment, supporting further business growth and delivering improved shareholder returns."

Full Year 2023 Outlook

  • The strength of Orica’s performance is expected to continue in the second half.
  • The seasonality of earnings will be less skewed to the second half compared with FY2022.
  • Previous expectations of EBIT improvement drivers remain:
    • Anticipated growth in global commodities demand
    • Continued commercial discipline
    • Increased adoption of advanced technology offerings, and contributions from the recently acquired Axis Mining Technology business
  • Orica continues to remain cautious of external challenges from geopolitics, inflationary pressures, higher energy costs, and supply chain dislocations. The business will continue ongoing cost efficiency initiatives to reduce the impact from these pressures.
  • Capital expenditure is expected to be within $400 million to $420 million, higher than pcp due to sustainability and sustenance projects. Depreciation and amortisation is expected to be in line with the pcp.
  • Focus on the balance sheet and cash flow optimisation continues, with gearing anticipated to remain below the target range of 30 – 40%. The inventory value is expected to reduce by the end of FY2023 should current lower ammonia prices persist.
  • Net finance costs are expected to increase on FY2022 due to higher interest rates. The second half is anticipated to be in line with the first half of FY2023.
  • The effective tax rate is expected to be at the lower end of the guided range of 30 – 32%.

Commenting on the full year 2023 outlook, Mr Gandhi said: "We are all deeply committed to our strategy and as we continue to execute it, we expect the strong performance to continue. External challenges are expected to persist, and our teams will continue working hard to mitigate the impact of these on our business.

"Demand for critical minerals remains strong driven by the global energy transition. We expect increased customer activity to continue, as well as increased demand for our products and services and breakthrough technology solutions. While the ammonia landscape has changed during the half, the security of supply is still a challenge globally, one that Orica will continue to navigate with the strength of our global manufacturing and supply network. 

"As our business works to fulfil Orica’s purpose, to sustainably mobilise the earth’s resources, we strive to continue helping our customers achieve their goals and delivering value for our shareholders and broader stakeholders."

Market Briefing   
Orica will provide a market briefing at 11:00am (AEST) today, 11 May 2023. A webcast of the briefing will be available at: https://edge.media-server.com/mmc/p/2hnmbfjt

Documents

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1. Equivalent to net profit/(loss) for the year attributable to shareholders of Orica limited, as disclosed in the Income Statement within the Appendix 4D – Half Year Report
2. Equivalent to profit/(loss) before financing costs and income tax as disclosed in Note 2(b) within the Appendix 4D – Half Year Report, before individually significant items
3. Basic earnings per share before individually significant items as disclosed in in Note 3 within the Appendix 4D – Half Year Report
4. Return on net operating assets = 12 month EBIT /  Rolling 12 month Average Operating Net Assets where Operating Net Assets = Property, Plant & Equipment, Intangibles, Equity Accounted Investees and working capital excluding environmental provisions, excluding Minova. This is a measurement of how efficiently Orica uses its assets.
8. Significant items as disclosed in Note 2(e) within the Appendix 4D – Half Year Report
9. Dividend payout ratio = Dividend amount / Underlying NPAT before individually significant items

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