Incitec Pivot Ltd. (IPL), Southbank, Victoria, reported a 44 percent decline in net profits after tax (NPAT) to A$36.4 million on revenue of A$1.72 billion for its first fiscal half-year ended March 31, 2021. This compares to the prior year A$64.6 million and A$1.85 billion, respectively. EBIT was down 31 percent, to A$110.2 million from A$159.2 million.
The company cited a A$59 million impact on NPAT from a reduction in production volumes due to three planned plant turnarounds, delayed due to COVID-19, combined with a A$14 million impact from unplanned outages.
Most notably, the Waggaman, La., ammonia plant was offline for a total of 14.5 weeks in the fiscal first half, with the downtime resulting from a combination of planned major turnaround activity and other unplanned outages (GM May 14, p. 1; April 9, p. 1; Feb. 19, p. 33). Waggaman has a nameplate capacity of 800,000 mt/y.
Dyno Nobel Americas (DNA) reported EBIT of A$31 million, down 72 percent from the year-ago A$113 million, primarily due to the Waggaman turnaround and unplanned outages. DNA revenues were off 13 percent, to A$671.1 million from A$768.8 million. In U.S. dollars, DNA’s EBIT was 69 percent off, at US$23.1 million on revenue of US$503.5 million, down from 1H FY2020’s US$74.9 million and US$513.7 million, respectively.
“Our first-half result was impacted by the COVID-delayed scheduled turnarounds, as well as some unplanned manufacturing outages,” said IPL Managing Director and CEO Jeanne Johns. “Our underlying explosives and fertilisers business performance was strong, reflecting the continued uptake of our premium technology offering, as well as the resilience of our end markets. While the Waggaman plant has demonstrated it’s capable of very good production runs, the recent issues at our plant are clearly disappointing, and our expert taskforce is working hard to get the plant back up and running at nameplate.”
The company said the plant issues have been resolved with the exception of the Waggaman plant.
Waggaman posted a US$18.2 million loss in 1H FY2021 versus a positive EBIT of US$17.9 million for the prior year period. The plant started its first major turnaround since the plant was commissioned in 2016 with several known maintenance issues, but pre-turnaround, the plant had interruptions to production that resulted in four weeks of total downtime, the most consequential of which IPL said was caused by the failure of the regional power grid in the New Orleans area from a late-season hurricane.
Waggaman has been on- and offline ever since. The most recent restart process was stopped on May 8. In its earnings statement dated May 17, IPL said based on current information, repairs and restart are expected now to take three weeks. Earlier this month, the expectation had been two-to-three weeks.
The plant produced 166,900 mt of ammonia in the fiscal first-half, 54 percent less than the year-ago 363,100 mt. However, IPL reported that ammonia sales at 238,800 mt (1H FY2020: 357,600 mt) were above production levels as the business procured product during the plant downtime in order to ensure continuity of supply to its customers.
IPL reported Waggaman has produced 205,000 mt of ammonia in FY2021 to date. It said while it is not aware of “anything specific” that would result in plant downtime in the last four months of the company’s fiscal year (which ends Sept. 30), its team is focused on reducing risks that could cause a plant trip and further downtime.
As previously announced, an outage of up to three weeks is expected during FY2022 or FY2023 to allow for the installation of a new ammonia cooler. The company said Waggaman will be impacted by an increased annual depreciation charge of US$16 million starting from April 1, 2021, as a result of total turnaround costs.
DNA’s Agriculture & Industrial Chemicals (AG & IC) reported a US$2.5 million loss for 1H FY2021, versus the year-ago positive US$1.4 million EBIT. Revenue was down 10 percent, at US$51.8 million.
IPL said AG & IC earnings were negatively impacted by US$5 million in the reporting period as a result of the planned turnaround of the St Helens, Ore., plant, while higher input costs into the Cheyenne, Wyo., operation for ammonia offset higher realized product prices.
Cheyenne operations were impacted by an unplanned outage in 1H FY2021 caused by a bearing failure on the reciprocal compressor, resulting in a 6 percent year-over-year decline in nitric acid production and a 7 percent fall in ammonia production.
An unplanned outage at the Louisiana, Mo., plant caused by a blade failure in the axial compressor resulted in a 37 percent reduction in nitric acid production there compared with a year ago.
Urea and ammonia production from the St Helens plant decreased 33 percent and 32 percent, respectively, in the first fiscal half, mainly due to a planned turnaround.
IPL plans a major turnaround at the Cheyenne plant, currently for 2H FY2022, which is expected to last seven weeks.
There were also planned turnarounds in the reporting period at the Mt. Isa, Queensland, and Phosphate Hill, Queensland, plants, completed in October 2020, as well as the six-week planned turnaround at St. Helens completed in November 2020.
IPL reported that production rates in Australia were largely in line with expectations.
Higher commodity prices, partially offset by a strengthening Australian dollar against the U.S. dollar, had a net favorable earnings impact of A$25 million.
IPL’sFertilisers Asia Pacific segment swung back to the black in 1H FY2021, posting an EBIT of A$20.2 million, versus the year-ago A$9.9 million loss. The company cited its Response Plan savings as the main driver for the improvement, as well as rain boosting agricultural output and demand for fertilizer.
“As we progress our strategy to become a soil health company, good rainfall events across eastern Australia position us well to deliver for the agricultural sector in the second half,” said Johns.
IPL Fertilisers Asia Pacific revenue increased 2 percent to A$628.3 million, up from the prior year A$616.5 million.
Positive contributions to the EBIT result included a A$6 million net increase from manufacturing performance. This was largely due to higher production volume at the Phosphate Hill operation, excluding a planned shutdown of ammonia production at the site.
As of March 31, Phosphate Hill had 55,000 mt of additional manufactured ammonium phosphate product on hand, which IPL said represents a A$6 million earnings impact based on prior-year commodity prices. The company expects the sale of the product on hand at current market prices to realize a profit in excess of A$25 million in total in 2H FY2021.
There was also a A$39 million net increase due to higher global fertilizer prices in the reporting period, which was partially offset by unfavorable movements in exchange rates.
Planned plant shutdowns caused an A$8 million reduction in EBIT. The aforementioned planned shutdown of ammonia production at Phosphate Hill negatively impacted EBIT by A$13 million compared to a year-ago. This was partially offset by higher year-over-year production of urea at Gibson Island in Brisbane due to the 1H FY2020 results, including the impact of a turnaround at the site completed in March 2020 (GM Nov. 13, 2020).
First fiscal half ammonium phosphate production at Phosphate Hill decreased 6 percent year-over-year to 428,500 mt, mainly due to the ammonia plant shutdown. Ammonium phosphates sold amounted to 413,000 mt, down from the prior year 448,000 mt.
IPL expects Phosphate Hill production of ammonium phosphates for 2H FY2021 to be in line with 2H FY2020. It plans a major turnaround of the plant in 2H FY2022, which is anticipated to last seven weeks.
The Gibson Island plant produced 241,800 mt of urea equivalent product, up 54 percent over the prior-year period’s 156,900 mt. Product sold (subject to urea price movement) totaled 126,000 mt, up from the year-ago 110,000 mt.
Overall, Fertilisers Asia Pacific sales volumes were down marginally in the fiscal first half at 1.257 million mt, versus the year-ago 1.262 million mt. IPL said while agronomic conditions have been generally favorable, 1H FY2021 distribution volumes were negatively impacted by product supply constraints out of China, while flooding in Queensland and New South Wales delayed some sales that would have normally occurred in March.
The company highlighted the significantly higher global fertilizer prices in the reporting period, with realized ammonium phosphate prices improving more than 45 percent compared with a year-ago.
IPL said increased soil moisture levels in most districts on Australia’s East Coast, coupled with an outlook from the country’s Bureau of Meteorology for average rainfall, is expected to drive demand for fertilizer through the winter cropping season.
IPL’s Dyno Nobel Asia Pacific (DNAP) segment reported an essentially flat fiscal first half EBIT of A$70.2 million, versus the year-ago A$71.1 million. Revenue fell 7 percent to A$455.8 million, down from A$491.9 million.
Ammonium nitrate manufactured at the Moranbah, Queensland, plant increased 4 percent to 183,000 mt, up from the prior year 175,800 mt, while DNAP volumes of AN sold fell 15 percent, to 319,900 mt, down from 377,500 mt.
The Moranbah plant began a scheduled major turnaround early this month. Nitric acid and ammonium nitrate production are due to recommence in the first half of June, with ammonia production to return to full rates during the second half of June. IPL expects lower second-half FY2021 production at the plant due to the turnaround. The earnings impact is expected to be approximately A$15 million.
IPL did not issue formal guidance for its fiscal second-half, but said it expects stronger-than-normal weighting to 2H FY2021 earnings and cash flow on plant reliability improvement and favorable prevailing fertilizer market conditions relative to the prior year. The company also has unsold manufactured ammonium phosphate product on hand, to realize in excess of A$25 million in profit in the 2H at current market prices, and has just one planned turnaround in 2H FY2021 versus three completed in 1H FY2021 (+A$44 million).
The company said it will pay an interim dividend of one Australian cent per share, 100 percent franked, representing a 53 percent payout ratio of NPAT. It did not pay an interim dividend last year.