Incitec Pivot Ltd. (IPL), Southbank, Victoria, reported a big surge in net profit after tax (NPAT) to A$384.1 million (approximately US$272 million at current exchange rates) for its first fiscal half-year ended March 31, 2022, up from A$36.4 million the previous year. Earnings per share were 19.8 Australian cents versus the year-ago 1.9 cents.
Earnings Before Interest and Tax (EBIT) increased by 416% to A$568.2 million, up from A$110.2 million, while revenue rose 48% to A$2.55 billion, up from the prior year A$1.72 billion.
IPL said in its earnings statement released on May 23 that these first-half results were the best on record, and had “captured the commodity upswing,” with continued customer growth and margin growth.
But EBIT was weaker than anticipated by analysts. Bloomberg cited a note by Jefferies analysts, led by Richard Johnson, who wrote “it looks like this is mostly related to low realized ammonia prices in the second quarter,” adding the explosives result also looks “a little underwhelming.”
Bloomberg also cited Citi analysts, led by Paul McTaggart, who also noted the first-half EBIT growth was not as strong as expected “given moves in urea pricing.”
EBIT for the Fertilisers Asia Pacific business increased to A$256.9 million in the first fiscal half year, up from A$20.2 million in the same year-earlier period, capturing the value of the commodity price upswing. Revenue grew 53% to A$962.9 million, up from the year ago A$628.3 million.
Total volumes sold fell by 13% year-over-year, to 1.098 million mt versus 1.257 million mt, while domestic fertilizer volumes sold were down 3% to 881,900 mt from the prior year 906,300 mt.
IPL attributed the decline as mainly due to applications for the winter season being delayed as a result of recent floods in New South Wales (NSW) and Southern Queensland, and higher prices delaying some farmer demand.
Despite the lower domestic volumes sold, the company reported Distribution earnings were up marginally as a result of a favorable product mix.
At Phosphate Hill, Queensland, ammonium phosphates production saw a marginal uptick (1%), to 431,900 mt in the first fiscal half versus 428,500 mt the previous year, with production for the period averaging 86% of nameplate capacity compared with guidance of 90%. IPL attributed the lower-than-expected production as mainly due to some critical pieces of equipment operating at below capacity leading in turnaround that started in early May.
Phosphate Hill ammonium phosphate volumes sold fell 12% to 364,000 mt, down from 413,000 mt.
The Gibson Island plant in Brisbane, Queensland, produced 194,700 mt of urea equivalent in the reporting period, down 19% from the year-ago 241,800 mt. The company cited the majority of the reduced output as resulting from various minor equipment failures and inefficiencies, the majority of which, it said, have been addressed.
Output sold from the plant in the first fiscal half fell to 136,000 mt of urea equivalent, down from 152,000 mt.
IPL said Gibson Island was able “to rapidly reconfigure” its production with the assistance of Australia’s Federal government to up-rate the production of AdBlue in response to the critical shortage of the diesel engine emissions reduction product in the Australian market resulting from international supply chain disruptions (GM Jan. 28, p. 30; Dec. 31, 2021; Dec. 17, 2021; Dec. 10, 2021).
It said Gibson Island is continuing to produce AdBlue, and is currently producing approximately 80% of Australia’s domestic requirements of AdBlue. The company earlier said it would also produce technical grade urea for AdBlue production at Gibson Island, in addition to manufacturing AdBlue.
But despite the move to produce AdBlue at Gibson Island, the company has maintained its decision to cease manufacturing at the plant at the end of December 2022. IPL announced the planned closure in November last year, due to the company being unable to secure “an economically viable” long-term gas supply to the plant beyond its current supply contract, “despite extensive efforts” (GM Nov. 12, 2021).
The Gibson Island site is currently Australia’s sole urea producer. The site has capacity to produce 340,000 mt/y of granular urea, according to Green Markets data. It also produces ammonia and ammonium sulfate, with nameplate capacity of 300,000 mt/y and 200,000 mt/y, respectively, according to IPL’s website.
IPL said this week that planning for the closure of manufacturing at the site at the end of calendar 2022 “is well underway,” with increased fertilizer import capacity to support its Australian customers. It said the site will remain an important dispatch point for the fertilizer business
Incitec Fertilizers Pty Ltd. (IPF) in May 2021 inked a 20-year offtake agreement with junior producer Perdaman Chemicals and Fertilisers Pty Ltd. with a commitment to take up to 2.3 million mt/y of granular urea from Perdaman’s proposed urea plant at Karratha on Western Australia’s Burrup Peninsula (GM May 7, 2021). But the agreement is subject, among other conditions, to the Perdaman plant being built, and first production is not expected before the first quarter of 2025.
As previously reported, IPL is assessing the industrial-scale production of green ammonia at the Gibson Island fertilizer manufacturing facility in a partnership with global green energy company Fortescue Future Industries Pty Ltd. (FFI), announced last October (GM Oct. 15, p. 1).
IPL said progress on its soil health strategy continues, with growth in Nutrient Advantage earnings and a 25% year-over-year increase in liquid fertilizer sales volumes. It highlighted the performance of the Nutrient Advantage laboratory, which showed an increase of 13% in the number of lab tests conducted in the first fiscal-half compared with the same prior year period.
It reported that the Australian Bio Fert joint venture is progressing to plan, with key management positions in place and planning for the construction of the initial commercial production facility well under way.
IPL, via IPF, bought a majority stake in Rowville, Victoria-based Bio Fert Co. (ABF) late last year for A$38 million, and announced it would build the country’s first large-scale sustainable fertilizer plant (GM Dec. 17, 2021). The granular biofertilizer plant is being built near Lethbridge, Victoria, and will have capacity of 75,000 mt/y. Product is expected to be available in commercial quantities to customers in the middle of 2023.
IPL anticipates potentially three Australian plants in total to service the bio-fert market, although the company said any further investment will be demand-led and subject to their return on investment criteria (GM Jan. 28, p. 30).
A planned turnaround at Phosphate Hill in the second half of FY22 is scheduled to result in eight weeks of lost production. As Gibson Island approaches the end of its turnaround cycle prior to being closed at the end of the calendar year, IPL expects the plant to produce at approximately 85% of the rates achieved in FY21.
Looking ahead, IPL said the company’s Fertilisers business earnings will continue to be dependent on global fertilizer prices, the Australian dollar/U.S. dollar exchange rate, and weather conditions.
The company believes that despite the severe flooding in NSW and southern Queensland, agricultural conditions across Eastern Australia are generally favorable. Increased soil moisture levels in most districts on the East Coast, coupled with high dam levels, is expected to drive demand for fertilizer through the year.
It also sees farm economics remaining favorable through FY22, with farmer cash flows supportive of strong fertilizer demand – although it noted high fertilizer prices can influence volumes.
IPL expects Distribution margins and volumes to remain subject to Australian East Coast agronomic conditions and global fertilizer prices.
With volatile global fertilizer prices and long supply chains increasing price risk, the company said it was actively managing the business to mitigate these risks.
IPL’s Dyno Nobel Americas (DNA) business delivered EBIT of US$182.4 million in the first fiscal half, up from the year-ago US$23.1 million, supported by improved volumes and technology driven margin improvements.
DNA revenue increased 5% to US$801.5 million, up from US$503.5 million.
Waggaman’s earnings swung to the black, posting a first fiscal half EBIT of US$92.7 million versus the year-ago negative EBIT of US$18.2 million. IPL reported that the significant upswing in ammonia prices, which began in the second-half of FY2021 and continued through the first-half of FY2022, driven by high European gas prices impacting supply, favorably impacted Waggaman’s earnings.
The company noted performance at the Waggaman ammonia plant was “very strong” until an incident in mid-February resulting from a release of hydrogen that resulted in an eight-week closure of the facility, of which six weeks fell into the current reporting period (GM Feb. 18, p. 1; Feb. 25, p. 1). The plant restarted on April 19 (GM April. 22, p. 1).
As previously announced, the impact of the outage on the first fiscal-half results was US$96 million (of which US$47 million is the cost of the outage excluding commodity price movements). But this amount does not factor any insurance proceeds covering the incident, with the claim expected to be resolved in the second fiscal half. IPL put the cost of the full eight-week outage at US$128 million.
Since returning to full production following the incident, IPL said the plant has produced efficiently at nameplate capacity, which is 800,000 mt/y of ammonia.
Waggaman produced 307,900 mt of ammonia in the first fiscal half, some 84% more than the 166,900 mt in same prior year period, while ammonia volumes sold were up 53%, at 365,800 mt versus 238,800 mt the previous year.
IPL expects the Waggaman plant to produce at nameplate capacity in second-half FY2022, but added operational earnings of Waggaman remain subject to movements in ammonia and natural gas prices.
The company’s current plan is to install the new replacement cooler at the plant in FY23 at the same time the new boiler is installed. But it said the timing in FY23 will be determined by plant performance and market conditions.
DNA’s Agriculture & Industrial Chemicals (AG & IC) swung to the black in the first fiscal half, posting EBIT of US$37 million versus the year-ago negative EBIT of US$2.5 million. Revenue increased by 122% to US$115.0 million, up from US$51.8 million.
IPL cited the improved performance of the St Helens, Ore., plant in the fiscal first-half following its successful turnaround in FY2021. The improved level of production and plant efficiencies contributed earnings of US$5 million (excluding commodity price movements) in the reporting period compared with a year ago.
But the company said AG & IC earnings remain subject to movements in global fertilizer prices, particularly urea.
IPL also reported improved operating performance at the Cheyenne, Wyo., and Louisiana, Missouri, plants in the first fiscal half. The company plans a turnaround at the Cheyenne plant later this year.
DNA’s Explosives segment posted a 20% increase in EBIT to US$52.7 million in the first fiscal half, up from the prior year US$43.8 million, while revenue was 11% higher at US$447.8 million versus the year ago US$405.2 million.
The company noted that improved reliability at DNA’s two ammonium nitrate (AN) manufacturing plants had resulted in a US$8 million benefit in the reporting period compared with the prior-year period.
IPL’s Dyno Nobel Asia Pacific (DNAP) segment saw fiscal first-half EBIT increase 13% to A$79.1 million from the year-ago A$70.2 million, which the company attributed to solid growth in volumes across all markets, technology, and recovery in the international business. It also noted that the end of unfavorable Western Australian supply contracts accounted for a year-over-year A$4 million earnings improvement.
Revenue was up 13%, reaching A$517.0 million from A$455.8 million the previous year.
Some 12% of DNAP’s revenue was generated internationally by Indonesia, Turkey, and Papua New Guinea, and was 52% higher than the same prior year period.
International volumes increased by 37% as mines that had been shut due to COVID-19 restrictions in FY2020 and FY2021 returned to production.
IPL reported reliability at the Moranbah, Queensland, AN plant was 93% in the fiscal first-half, up from 90% the previous year, with reliability expected to reach the target of 95% in the second fiscal-half.
Moranbah manufactured AN sales volumes dipped 2% in the reporting period, to 178,700 mt from the year-ago 183,000 mt. But DNAP’s total AN first fiscal half sales volumes increased by 7% to 343,800 mt versus 319,900 mt the previous year.
IPL reported that its Moranbah nitrous oxide tertiary abatement project has now been approved, and is moving into the execution phase.
The company will pay a fully franked interim dividend of 10 Australian cents per share, representing a 51% payout ratio of NPAT.