Australian-based Incitec Pivot Ltd. (IPL) reported an 8% decline in net profit before tax (NPAT) to A$353.6 million (approximately US$235.3 million at current exchange rates) for its first half fiscal 2023 year to March 31, 2023, down from A$384.1 million the previous year.
NPAT before individually material items (IMIs) was down 6%, to A$361.9 million versus the year-ago A$384.1 million. Earnings per share excluding IMIs were A$18.6, compared with A$19.8 the previous year.
EBIT before significant items was 3% lower year-over-year at A$551.6 million, down from A$568.2 million. First fiscal-half revenue increased 20% to A$3.06 billion from the year-ago A$2.55 billion.
IPL reported the result was mainly due to weakness in its fertilizer business as a result of lower selling prices and softer demand, as well as higher cost pressures, including a temporary increase in the cost of gas at the Phosphate Hill ammonium phosphates plant in Queensland.
Fertilizer distribution earnings were also impacted and included a A$17 million inventory write-down. Distribution margins “nearly halved” following severe rain and flooding across the East Coast of Australia, which significantly impacted volumes in the spring and summer planting seasons. The company also noted that the “unprecedented” decline in fertilizer prices resulted in delayed purchasing.
IPL’s shares fell as much as 9.7% following the publication of the first fiscal-half results, the lowest since September 2021.
Jefferies analyst Richard Johnson, as cited by Bloomberg, said the result was “materially below forecasts.”
Fertilisers Asia Pacific saw EBIT decline 58% year-over-year to A$107.7 million, down from A$256.9 million a year ago, missing the analysts’ estimate of A$288.2 million (Bloomberg Consensus).
Revenue rose 8% to A$1.04 billion from the prior-year A$962.9 million.
Fertilisers Asia Pacific’s total sales volumes in the half-year were 2% lower than the first fiscal-half FY2022, at 1.077 million mt, down from 1.098 million mt. Domestic sales volumes were 11% down year-over-year, at 784,200 mt compared with 881,900 mt the previous year.
Ammonium phosphates production at Phosphate Hill was largely flat compared to a year ago, with output of 428,000 mt in the current reporting period versus 432,000 mt a year ago.
IPL reported a 72,000 mt output shortfall to expectations, citing an equipment issue in the Phosphate Hill ammonia plant that has since been rectified. It said the plant has been operating at nameplate capacity since the restart in early April. Production volumes sold from Phosphate Hill increased to 405,000 mt from the year-ago 364,000 mt.
Plant performance at the company’s Gibson Island operation in Brisbane was reported to be “strong” in the final months of production before operations ceased – as planned – in January 2023. IPL noted due to carry-over inventory available for sale in February and March, the cessation of production did not negatively impact earnings in the fiscal first half. Production volumes sold totaled 141,000 mt, up from 136,000 mt a year ago.
IPL noted its Easy Liquids and Nutrient Advantage performed well in the fiscal first half, partially offsetting margin decline
Dyno Nobel Americas posted a 43% increase in EBIT for the first half of FY2023 to US$260.4 million, up from the prior year US$182.4 million. In Australian dollars, first-half FY2023 EBIT of A$390.9 million beat the average analyst estimate of US$343.4 million (Bloomberg Consensus).
The business segment’s revenue was up 10% to US$877.9 million, compared with US$801.5 million a year earlier.
While the division saw lower earnings for Explosives and Agriculture & Industrial Chemicals (Ag & IC), Waggaman’s EBIT more than doubled to US$202.6 million from the year-ago US$92.7 million.
IPL said Waggaman ammonia plant reliability was strong in the first fiscal half, with the improved reliability resulting in incremental earnings of US$51 million.
Waggaman produced 11,500 mt above its 800,000 mt/y nameplate capacity, resulting in an increase in ammonia production of 104,000 mt to 412,200 mt from 307,900 mt in the same year-earlier period. Ammonia sales volumes were 411,500 mt versus 365,800 mt a year ago.
IPL in March reached an agreement for the sale of the Waggaman plant to CF Industries Holdings Inc. for a total value of US$1.675 billion (GM March 24, p. 1). Under the agreement, IPL secured a 25-year ammonia supply agreement with CF for up to 200,000 st/y of ammonia at producer cost to support the Dyno Nobel Americas explosives business.
Dyno Nobel Americas’ explosives business EBIT for the first fiscal half was 5% lower than a year-ago, at US$50.2 million, down from US$52.7 million. IPL reported weather-related disruptions and the negative impact (US$5 million) from the planned turnaround at the Louisiana, Mo., plant during the current reporting period was partially offset by the depreciation benefit of US$3 million resulting from the deferral of the 55-day Cheyenne, Wyo., plant turnaround to May/June this year.
At Ag & IC, first fiscal-half earnings were negatively impacted due to equipment issues at the St Helens, Wash., ammonia plant, which resulted in the facility operating at reduced rates in the first quarter of the calendar year, as well as the planned turnaround at the plant in February 2023.
Looking ahead, IPL said favourable agricultural conditions are expected in Eastern Australia for the remainder of the financial year, with Fertiliser earnings, excluding impacts from foreign exchange and commodity price movements, forecast to be skewed to the second fiscal half.
But, the company said, fertilizer earnings will remain dependent on global fertilizer prices. It expects the significant decline in global fertilizer prices will continue to impact distribution earnings in the third quarter of FY2023, but it expects margins to “normalize” by the final quarter of the fiscal year.
Full FY2023 production at Phosphate Hill is expected to be 900,000-930,000 mt. As of March 31, IPL has 100,000 mt of Gibson Island manufactured urea on hand.
It expects second fiscal-half earnings recovery at Dyno Nobel Americas following “firm action to optimize business performance,” with a focus on price pass-throughs and cost reductions. The company noted benefit has been realized from March.
IPL expects the Waggaman plant to produce at nameplate capacity in the second half of FY2023, and reported the replacement of the ammonia cooler temporary repairs allows its replacement to move out to October 2024, to coincide with the next planned turnaround.
It expects the Moranbah ammonium nitrate plant in Queensland – part of the Dyno Nobel Asia Pacific business – to produce around 330,000 mt in its full FY2023 year, the lower output versus FY2022 reflecting reduced supply of ammonia following the cessation of production at Gibson Island in January. It expects the FY2023 impact to be A$12 million.
On May 16, IPL announced that it had agreed to a new long-term gas supply agreement for the Moranbah plant with wholly-owned subsidiaries of Queensland Pacific Metals Ltd. (QPM), which remains conditional on QPM’s successful completion of the acquisition of the Moranbah Gas Project (GM April 7, p. 27).
The new gas supply agreement will commence in April 2026 following expiry of Dyno Nobel Asia Pacific’s current gas supply agreement and continue until at least March 2033.
Meanwhile, IPL’s Board has announced an interim dividend of 10 Australian cents per share, franked to 60%,which represents a payout ratio of 54% of NPAT, excluding individually material items.
The company also said it plans to start the previously announced on-market share buyback of up to A$400 million during permissible trading windows.