Monday, 12 November 2012 14:33
Chemicals company Orica believes a new strategy of commercialising new products faster will lift profit despite a subdued outlook for the global mining industry.
Investors punished the company's shares after it posted a fall in annual profit of 37 per cent.
Shares were almost four per cent weaker at $24.01, at today's close.
Orica's net profit of $402.8 million in the 12 months to 30 September was hurt by a $247 million write-down on its specialty bolts and chemicals business Minova, which Orica announced to the market on Friday.
The temporary plant shut-down at the Kooragang Island ammonia and ammonium nitrate plant due to a chemical leak cost the company about $90 million in earnings.
Orica spent $46.8 million for the year on research and development, priding itself as an innovator.
However CEO Ian Smith said from now on it would aim to improve returns by consulting with customers to more rapidly commercialise new products.
It would pursue new strategic alliances so it could transport its products from its Australian and Indonesian plants around the world, better than its competitors could, Mr Smith told an analysts briefing.
"It means commercialisation rather than innovation in R and D, which we will leverage in ways far in advance of competitors ... we will be commercialising what customers want a lot more rapidly than anyone else," he said.
Orica is a major supplier of explosives to the mining industry and has been hurt by a decline in global demand for commodities, especially coal.
Fortunately its non-mining chemicals division serving industrial sectors lifted profit by eight per cent to $211 million, while there was a 3.0 per cent fall in mining services to $790 million.
The company has forecast a higher net profit excluding one-off items in the 2012/13 fiscal year.
Mr Smith forecast a fightback by coal during the coming Northern Hemisphere winter, saying most pundits were predicting its usage in the energy mix would increase from a current 38 per cent to 40-45 per cent.
The $US800 million ($773.06 million) joint venture ammonium nitrate plant in the Western Australian Pilbara, to supply explosives to iron ore miners, will diversify Orica and expose it to the rapid planned growth in iron ore mining.
Mr Smith was cautious on when Orica would begin expanding the controversial Kooragang Island plant, north of Sydney, saying it would consult with its Hunter Valley coal mine customers to gauge likely demand in the near term.
"We like others expect there to be some weakness in coal production going forward in the shorter term before some of the stimulus measures out of China kick in and put a base back under thermal and met coal," he said.
Morningstar Equities head of industrials research Peter Rae said while the result was a little weaker than expected, he thought Orica was better placed than other mining services firms that were struggling as miners shelved projects.
"If you are looking at mining services they are a better business to look at because they are being driven by volumes and demand for explosives," he told AAP.
Net profit for the year to September excluding one-off items was $650 million, up one per cent from the previous year.
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