The Orica Ltd (ASX: ORI) share price has come under pressure on Monday morning.
At the time of writing the commercial explosives provider's shares are down 1% to $18.81.
Why is the Orica share price in the red?
This morning Orica announced that it expects to recognise approximately $191 million ($134 million after tax) in non-cash adjustments in its FY 2019 first half results announcement scheduled for May 9.
The bulk of this is related to a write down of the Burrup Technical Ammonium Nitrate (TAN) plant, which I doubt will have come as a surprise to the market given its joint venture partner did the same a couple of months ago.
According to the release, rectification works at the TAN plant are progressing in line with expectations. As these rectification and capital works have progressed, the company has identified a number of assets that need to be replaced or repaired.
As a result, the company must recognise the reduced value of plant and equipment that is classified as defective, in line with accounting standards. Orica expects to recognise a non-cash impact of approximately $155 million ($109 million after tax) relating to the TAN plant.
Despite this, management has stressed that it does not affect Orica's view of the long term commercial and strategic value of the Burrup TAN plant. It believes the plant is an important element of Orica's domestic supply strategy, being a 30-plus-year asset positioned in the heart of the Pilbara where the strip ratios are expected to grow at a 3%-plus CAGR over the next five years.
And while the plant's utilisation in FY 2019 will be lower than the previously anticipated 20%, the overall group outlook for the financial year remains unchanged.
The rest of the non-cash adjustment comes from the impairment of IT and other assets. Management advised that as it implements the final stages of its new SAP operating system, $36 million ($25 million after tax) of IT and other assets which are no longer being utilised by the business will be impaired.
Should you invest?
I don't see a lot of value in Orica's shares at the current level and would prefer to see them trade notably lower before I'll consider an investment.
In the meantime, Nufarm Limited (ASX: NUF) shares could be worth a look after their sharp decline over the last 12 months. As could WorleyParsons Limited (ASX: WOR) shares after its update this morning.
