Orica (ASX:ORI) share price struggles following $174 million loss

A businessman's head explodes.

The Orica Ltd (ASX: ORI) share price finished the day in the red after the company released its full-year results to the market today.

At the closing bell, the Orica share price was $14.79, 3.65% lower than its previous close.

Let’s take a closer look at how the explosives-focused mining and infrastructure solutions provider performed during the year ended 30 September 2021.

Orica share price slides on 30% drop in EBIT

Here are the key takeaways from Orica’s full-year performance:

  • Statutory net loss after tax of $174 million, including $382 million loss from significant items after tax;
  • Earnings before interest and tax (EBIT) of $427 million – 30% less than that of the previous year before significant items;
  • Underlying earnings per share of 51.2 cents – 32% less than the prior corresponding period (pcp); and
  • 16.5 cent unfranked final dividend.

Over the year just been, the company’s capital expenditure was $323 million, down 5% on the pcp. Its net operating cash flows came to $619 million, up more than 100% on the pcp.

It also recorded net debt of $1.5 billion and gearing at 34.6%.

The company’s final dividend brings its full-year dividends to 24 cents with a payout ratio of 47%.

What happened over the year ended 30 September?

According to the company, its full-year results reflect a challenging year within which it was hit by several market factors.

These included unfavourable foreign exchange movements, disrupted thermal coal trade flows resulting from political tensions with China, increased sea freight costs, and rising input costs.

The company successfully integrated the Exsa business, got the Burrup explosives plant fully operational and producing product, and continued its uptake of technology solutions.

Orica also sold non-core land, generating $140 million of cash in the process.

Over the last 6 months, Orica has refreshed its strategy to deliver solutions and technology that drive productivity for its mining and infrastructure customers.

Over the full year, Orica committed to reduce its operational scope 1 and 2 greenhouse gas emissions by at least 40% on its 2019 levels by 2030. It also recently announced its ambition to achieve net-zero scope 1, 2, and material scope 3 emissions by 2050.

Its volume total ammonium nitrate increased 4% on the pcp over the year ended 30 September. However, its net volume was less than the pcp because of disruptions to Australian East Coast thermal coal trade and lower sales volumes in Colombia and Chile.

Cyanide volumes were also down 6% due to lower demand and shipping constraints.

Orica saw a 14% increase in demand for its Electronic Blasting Systems and an 8% increase in demand for premium emulsion.

Its struggles over the year seem to have been reflected in the Orica share price today.

What did management say?

Orica managing director and CEO Sanjeev Gandhi commented on the company’s results, saying:

The fundamentals of the business are strong. We have refreshed our strategy to refocus on driving profitable growth and creating enduring value for our shareholders and other stakeholders. As our strategy is embedded in our business, we will be well placed to seize opportunities as the market stabilises.

Our four key business verticals will allow us to leverage our strengths and create opportunities for growth beyond blasting…

We expect steady commodity growth in 2022 which will drive stabilised demand for explosives-related products and services…

Earnings in 2022 are expected to improve from increased adoption of our advanced technology offerings, volume growth, supply chain initiatives and sustainable overhead cost reductions.

What’s next for Orica?

Here’s what might drive the Orica share price over the current full year:

The company’s capital expenditure is expected to be between $340 million and $360 million. Its depreciation and amortisation expense is expected to be up to 5% higher. It expects its gearing to remain within the range of 30% to 40%.

It also expects global commodity growth to continue, particularly in the copper and gold, and quarry and construction markets.

The company will keep focusing on its balance sheet and maintaining its cash-flow optimisation.

Over the next 3 years, Orica will look to create a pathway to profitable, organic growth.

It will do so by adopting innovative blasting technologies and digital solutions, both upstream and downstream, and optimising its manufacturing and supply chains.

It also plans to grow into the future-facing commodities space, expanding into the mining chemicals segment, and diversifing its portfolio.

Orica hopes to achieve an average 3-year return on net assets of 10% to 12%, gearing of 30% to 40%, and a dividend payout ratio of 40% to 70%.

It will strengthen its balance sheet by exiting up to 10 countries and continuing its land sales.

Orica share price snapshot

Over the year ended 30 September 2021, the Orica share price fell by around 10%.

It is currently 3% lower than it was at the start of 2021.

The post Orica (ASX:ORI) share price struggles following $174 million loss appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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