Orica expects earnings growth in 2010

Explosives, paint and chemicals supplier Orica Ltd expects continued underlying earnings growth in 2010 but says there are no strong signs yet of a recovery from the tough economic conditions of 2009.

Orica on Monday reported an annual net profit of $541.8 million for the year ended September 30, 2009 - up 0.4 per cent on the prior year.

Net profit before material items was $646.1 million, up 12.9 per cent on last year's $572.3 million.

"Orica expects earnings growth to continue in 2010," the company said in a statement.

"In light of the shape of the economic decline experienced in 2009, we anticipate first half conditions to be more difficult than those of the previous corresponding period.

"Subject to the rate of global economic recovery and the extent of further adverse movements in exchange rates, we expect group net profit after tax (pre individually material items) in 2010 to be higher than that reported in 2009."

Orica managing director Graeme Liebelt said Orica's result for 2008/09 was strong given the very challenging conditions and was partly based upon tight control over costs, cash and productivity.

Mr Liebelt said there had been no real deterioration in conditions since February/March but, on the other hand, there had been no real growth in the second half of the financial year either.

"Overall, (there's) nothing that's strong at this point in terms of an underlying recovery," Mr Liebelt told journalists.

Orica said that its biggest division, mining services, achieved a record result in fiscal 2009, with earnings before interest and tax (EBIT) up 16 per cent at $737 million and sales up 14 per cent at $4.1 billion.

The division, which supplies explosives, and blasting technology to the mining, quarrying and construction industries experienced difficult trading conditions but benefited from improved ammonium nitrate pricing, falling input costs and positive foreign exchange effects.

All regions achieved good earnings growth except for Europe, where volumes and earnings fell.

Orica said that in 2010 it expected a slow recovery in the base metal, infrastructure and United States thermal coal markets.

The Minova division, which makes specialty bolts, accessories and chemicals for stabilisation and ventilation systems in underground mining and tunneling operations, reported EBIT down three per cent at $145.1 million.

The company blamed the fall in the Minova business on difficult trading conditions in the US and Eastern Europe and the under-recovery of steel input prices in the United States.

For 2010, a slow recovery was expected in mining markets across most regions and steady demand in civil engineering markets.

Orica's chemicals division achieved record results, with sales up 10 per cent at $1.5 billion and EBIT up 17 per cent at $170.4 million.

Mining chemicals had a record year as a result of stronger demand for sodium cyanide, but volumes of general chemicals fell due to a continued slowdown in the automotive and manufacturing sectors in Australia and New Zealand.

The consumer products division, now called the DuluxGroup (DuluxGroup), which manufactures and supplies paints, handyman, car care and garden care products, achieved record sales and EBIT lifted five per cent to $129 million as it used the strength of its premium brands to lift market share.

Orica said a demerger of DuluxGroup would not occur this calendar year, but the plan remained on the table.

"The explanation for that is that whilst we see equity markets pretty well coming back to a level which we would be confident about, debt markets are not quite there yet for medium-sized companies," the company said.

Orica said it was well positioned to fund its growth plans and was making good progress on a new ammonium nitrate plant at Bontang in Indonesia.

Orica's revenue for 2008/09 rose 13.2 per cent to $7.41 billion.

Orica declared a final dividend of 57 cents, up from 55 cents in the prior year.

The total dividend for the year was 97 cents, up from 94 cents in 2008.

Orica shares were $1.33. or 5.95 per cent, higher at $23.68 at 1443 AEDT on Monday.