Orica forecasts further profit growth

Chemicals company Orica has posted a full year profit of more than $600 million. Source: AAP

EXPLOSIVES and chemicals supplier Orica expects higher profits in 2014 as key North American coal markets improve, and the company sells more sophisticated explosives and blasting systems.

The North American coal sector - one of Orica's biggest markets for explosives - built up stockpiles of coal over 2012, but those stockpiles had since diminished, chief executive Ian Smith said.

"What we're seeing in North America is coal volumes starting to come back, and we'll see a progression, hopefully, over the 2014 year to normal levels," Mr Smith said.

Orica would benefit, should prices for thermal coal rise.

Mr Smith said it would be hard for Orica to maintain its sales volumes should the Australian dollar remain too high, and if prices of thermal coal were to drop.

But he said that by the end of 2014 Orica could be a position to return more cash to shareholders via capital management initiatives.

There were also signs of improvement in the quarrying and construction markets in Europe, Mr Smith said.

Orica expects net profit in 2013/14, before material items, to exceed the $602 million it made in the 12 months to September 30, 2013.

But it said market conditions were still volatile.

Shares in Orica hit their highest level since early June, gaining $2.27, or 11.6 per cent, to $21.81.

Orica's 2012/13 profit was up more than 49 per cent from the previous year's $403 million, which was skewed by $247 million in writedowns.

The 2012/13 profit was down $48 million on the prior year, if the writedowns are excluded.

Revenue grew by 3.4 per cent to $6.9 billion despite weakness in demand for Orica's ground support products and services, which provides specialist bolts, resins and powders.

Explosives generated more revenue in all regions as Orica provided more sophisticated and more profitable products, such as emulsion explosives, which could be used in a wider range of operational environments, such as wet weather and blastholes with water in them.

Orica said it was adding services to product sales - such as new blasting techniques - which was attracting new customers.

Mr Smith said ground support services experienced weaker demand as users chose cheaper, less sophisticated ground support systems.

But Orica had restructured the ground support services business - cutting jobs, closing plants, writing off stock and discontinuing unprofitable products - and the business was now set for improvement as the US coal market improves.

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