Gas prices are among the damaging conditions that have dragged down the profits of ‘s largest explosives manufacturer and led to a sharp fall in its share price.
Shares in Orica tumbled more than 11 per cent on Monday morning, after the company revealed its revenue and underlying profits had been hit by the higher cost of raw materials – including gas and ammonia – and the rising n dollar.
The company’s underlying profit slid 1 per cent from the previous year and fell short of analysts’ expectations.
Orica chief executive Alberto Calderon told investors the company had delivered an encouraging result in the face of “substantial headwinds”.
“Despite these challenges, our continued focus on core disciplines and a program of business improvement initiatives enabled us to deliver a sound financial result,” he said.
“The market may disagree right now and seems to interpret it as bad news. … time will tell. We are quite excited about the future.”
At 11.25, Orica shares had plunged $2.55, or 11.93 per cent.
Orica is one of the world’s largest suppliers of explosives to the mining industry. The company on Tuesday said the mining industry had suffered a severe downturn in recent years, which was now improving.
Mr Calderon said the improvement would continue in 2018, but warned there would be a lag before it made a “material difference to the services sector”.
Orica is an energy-intensive business and is among a number of large n manufacturers who are suffering from the country’s soaring energy prices.
The company said a range of business-improvement initiatives had delivered net benefits of $127 million to offset the higher raw material costs that could not be recovered from existing contracts.
“The business improvement program is focused on embedding new ways of working that make Orica a better business by buying better, producing more efficiently, and bringing more value to our customers,” Mr Calderon said.
“This is starting to deliver material results, with initiatives across every part of Orica that generate revenue, reduce costs, and make us a more effective and efficient organisation.”
Mr Calderon said volumes across the Pacific and Indonesia regions had soared 10 per cent thanks to increased demand from n coal and iron ore miners.
Orica will pay shareholders an unfranked final dividend of 28?? a share.