Efficiency drive saps Orica profit

Explosives manufacturer Orica has outlined the short-term costs of an efficiency drive and investment programme which has been underway for several years.

The Melbourne company has delayed its reporting of full year results by two weeks and told investors that underlying earnings before interest and tax (EBIT) would be ‘slightly above $600 million.’

Chief executive Alberto Calderon said the company had undergone a game-changing transition to a SAP system, with the technology already delivering material operational insights and efficiencies.

“Nevertheless, due to delays caused by Covid-19 quarantine and the impact this has had on closing accounts and auditing them, we have decided it is prudent to defer our financial results release.”

Calderon outlined efficiency costs were expected to be $170 million, comprising $105 million in non-cash costs and $65 million in cash costs.

He said a review of products, technology and explosives initiating systems (IS) plants had led to the closure of IS manufacturing plants at Minden and Hallowell in the United States and Tappen in Canada at a cost of $80 million.

This would increase IS plant utilisation from 48 per cent today to 80 per cent by 2024 when the closures are complete.

A reduction of headcount associated with the SAP rollout would involve redundancy costs of $25 million.

Sales of ammonium nitrate explosive in the second half of 2020 are expected to be 15 per cent below pre-Covid volumes.

Picture: Orica/Kooragang Island

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