Mining explosives maker Orica has flagged a cautious outlook for the 2017 fiscal year despite swinging to a full year profit on the back of sharp spending cuts and improving commodities prices.
The company posted a profit of $343 million for the year to September 30, a turnaround from a $1.27 billion loss a year earlier that had followed a large asset writedown. Underlying earnings were lower at $908 million, from $978 million a year earlier.
The result is also a sharp improvement from the 33 per cent drop in profit that it had suffered during the first half of its fiscal year, when commodities prices had slid to multi-year lows in January and February.
Orica – whose fortunes are closely tied to the embattled resources industry – has benefited somewhat from the partial bounce in prices of key commodities like iron ore, oil and coal.
The company reported an improvement in margins across every business in the second half of the year, but chief executive Alberto Calderon still preferred to take a conservative view of the market.
“While there has clearly been some external optimism on the market conditions, we remain conservative and will continue to focus on controllable outcomes,” he said.
“I would agree with most analysts that perhaps there is some exuberance in prices, and they will go back.”
Despite the gains, market conditions continue to be challenging.
Orica expects a hit of $60 million in the current fiscal year from resetting prices in 2015/16. It also expects input costs to increase by between $50 million to $70 million due to previously negotiated materials contracts.
This impact will be offset by spending cuts and business improvement initiatives, the company said.
It managed higher than expected cuts of $76 million through business improvements in 2015/16, and capital expenditure was slashed 40 per cent to $263 million.
For the current fiscal year, Orica has flagged higher capital expenditure of between $300 to $320 million.
“The result represents a solid, if unexciting result in challenging markets,” RBC Capital Markets analyst Andrew Scott said.
“Outlook appears to point to a flat year ahead, consistent with consensus expectations but may disappoint some given the improved coal pricing environments.”
ORICA GETS BACK TO PROFIT
* Net profit of $343m vs net loss of $1.27b
* Revenue down 10pct to $5.092b
* Partly franked final dividend down 26 cents to 29 cents