Incitec Pivot Ltd.’s (IPL) Fertiliser Asia Pacific segment swung back to the black in fiscal 2020 ending Sept. 30, posting EBIT of A$26.2 million (approximately US$19.1 million at current exchange rates), versus a year-ago A$79.7 million EBIT loss. Revenue increased 6 percent to A$1.50 billion, up from 1.42 billion.
IPL described the result as “a positive outcome given the very low commodity prices during the first half of FY2020.”
The group said the segment’s performance in the first four months of the year was impacted by severe drought, with improved conditions creating a good uplift in demand for the remainder of the year, underpinning a 37 percent increase in earnings from the distribution business.
Distribution volumes contributed A$20 million to the segment’s FY2020 EBIT increase, driven by strong fertilizers sales volumes and favorable product mix following much improved weather conditions across Eastern Australia.
Higher production and improved plant performance at the Phosphate Hill operation in Queensland provided a A$135 million increase.
Phosphate Hill and the Gibson Island ammonia and urea production site in Brisbane benefited from a lower contracted gas cost of A$13 million, and A$9 million from lower third party charges due to improved gas supply reliability and operating efficiencies. These lower charges overall contributed A$22 million to Fertiliser Asia Pacific’s FY2020 EBIT increase.
The permanent closure of the Portland SSP plant in FY2019 provided a $13 million boost to EBIT, while insurance payments of A$7 million received related to the FY2019 Queensland rail outage, and A$2 million benefits from efficiency gains from the company’s COVID-19 Response plan and non-essential spend savings provided a A$9 million increase.
There was also a A$88 million net decrease due to lower global fertilizer prices of A$103 million, partially offset by A$15 million of benefits from the lower Australian dollar-U.S. dollar exchange rate compared to FY2019.
IPL reported FY2020 domestic fertilizer sales volumes were 14 percent up in FY2020 at 2.21 million mt, versus the year-ago 1.95 million mt
FY2020 Phosphate Hill ammoniated phosphates production increased 45 percent, to 979,000 mt from FY2019’s 675,000 mt. The company cited mainly improved plant performance and efficiencies after extended production outages in FY2019 associated with the Queensland rail outages and the phosphoric acid reactor failure (GM Nov. 15, 2019). It reported the plant operated reliably at 93 percent during FY2020 versus 75 percent in the prior year, with more than 1 million mt annual equivalent ammonium phosphates production during the second half of the year.
“The Gibson Island plant produced 401,500 mt of urea equivalent product, up 8 percent from the year-ago 369,700 mt. The planned major turnaround that was required to enable the plant to operate efficiently through 2022 (GM Nov. 15, 2019) was successfully completed in March 2020,” IPL said. The new gas supply from Australia Pacific LNG, which started in April 2020 and continues through to the end of December 2022, delivered a reduction in gas cost of A$5 million in FY2020.
IPL in April announced it had decided to retain its Fertilizer business (Fertilisers Asia Pacific business segment), having concluded a strategic review of the business that was launched in September 2019 (GM April 24, p.1; Sept. 6, 2019). Three possible outcomes had been envisaged – sale, demerger, or retain and invest.
But IPL concluded, given the extraordinary market uncertainty and travel restrictions caused by the COVID-19 pandemic, that the right outcome for its shareholders was for the company to retain Incitec Pivot Fertilisers and focus on its core operations as an industry leader in the supply of fertilizers and services to Australian agriculture.
In its earnings report this week, IPL said its fertilizer business is “well placed to benefit from the growth of new value-added products and services for precision agriculture, as well as any future improvements in commodity prices.”
Group-wide, IPL reported a 29 percent decline in FY2020 net profit after tax (NPAT) of A$123.4 million on revenue of A$3.94 billion, down from the year-ago A$152.4 million and A$3.92 billion, respectively. NPAT excluding individually material items (IMIs) was A$188.2 million, versus FY2019’s A$152.4 million.
In total, the group reported A$64.8 million of IMIs, which related to the write-down of obsolete technology and software, an implementation costs of IPL’s Response Plan, a program designed to reduce costs to mitigate the earnings impacts of softer commodity prices, and COVID-19. The group booked zero IMIs in its FY2019′ earnings.
Earnings per share excluding IMIs was 10.9 Australian cents, up 15 percent from 9.5 cents in FY2019.
Year-on-year, group revenues showed a 24 percent increase.
“While 2020 has been a challenging year on many fronts, our businesses have delivered a strong operating performance and we have made good progress on our strategic agenda,” said IPL Managing Director and CEO Jeanne Johns. “We acted quickly to implement new control measures to keep our people and customers safe throughout the pandemic, which enabled us to provide uninterrupted supply to customers in the essential resources and agricultural sectors.
“We also put in place a company-wide COVID-19 Response Plan to deliver approximately A$60m cash savings over the years, with A$20m delivered this financial year,” she said.
Johns highlighted that IPL’s explosives business has performed well, with the group’s premium technology offering continuing to underpin strong margins in the U.S. business, while demand held up well in Australia.
“Our Manufacturing Excellence strategy is progressing well, with our key plants operating at 86 percent reliability during FY2020,” said Johns. “Phosphate Hill also delivered a strong second-half performance at an equivalent production of 1 million mt/y. We have completed two of four turnarounds scheduled for FY2021, and are on track to deliver our reliability target of 95 percent by FY2022.
“Our businesses are well placed in the current COVID-19 environment. Our premium technology will continue to underpin the growth of our Explosives business, and there is significant upside in our Fertilisers business when commodity prices recover,” she said. “Our balance sheet has been significantly strengthened following the equity raising in the second half, increasing our financial resilience and providing financial flexibility to continue to deliver our strategic agenda.”
Dyno Nobel Americas (DNA) reported a 1 percent drop in EBIT, to A$230.8 million on revenues of A$1.51 billion, down from FY2019’s A$234.0 million and A$1.57 billion, respectively.
In U.S. dollars, DNA EBIT was off 5 percent to US$154.8 million on revenue of US$1.02 billion, down from FY2019’s US$163.5 million and US$1.10 billion, respectively.
Within DNA, the Waggaman ammonia facility in Louisiana saw a 69 percent rise in EBIT to US$32.4 million on revenue of US$164.5 million, versus FY2019’s US$19.2 million and US$193.0 million, respectively. IPL reported a US$21 million increase in EBIT from improved production and higher plant efficiencies compared with a year ago.
But there was a US$2 million net decrease in EBIT from lower ammonia prices of US$23 million, which was mostly offset by the positive impact from lower gas pricing of US$21 million. There was also a US$6 million EBIT decrease, with US$3 million due to temporary cost increases until after the FY2021 plant turnaround to drive plant reliability improvement, and US$3 million of additional operating costs, including higher insurance cost.
The Waggaman plant produced 15 percent more ammonia in FY2020, at 729,000 mt, up from the year-ago 634,400 mt, with IPL reporting the plant operated at 91 percent of nameplate capacity in FY2020 compared with 79 percent in the prior year. It cited improved plant reliability and efficiencies as driving the output increase, highlighting that the plant recorded its second longest uninterrupted production run of 210 days through August 2020.
Waggaman ammonia sales volumes were largely flat year-on-year, at 730,000 mt.
DNA’s Agricultural & Industrial Chemicals (AG & IC) EBIT for FY2020 was US$1.3 million, up from the year-ago US$0.2 million. Manufacturing performance was boosted by US$12 million in net benefits over FY2019 from a lower gas costs and improved plant efficiencies, and an absence of third-party gas supply interruptions that occurred in FY2019 (GM Nov. 15, 2019). There was also a US$3 million increase driven by operational productivity and efficiency gains related to IPL’s COCID-19 Response Plan.
The unit saw a US$12 million decrease, mainly due to a US$7 million impact from lower urea prices, and lower nitrogen prices also had a US$5 million impact on the pricing of products produced at the Cheyenne, Wyo., plant, and the St Helens, Ore., plant.
AG&IC’s sales volumes saw a US$2 million decrease on a year ago, as softer industrial demand from COVID-19 impacted sales volumes.
IPL said the Cheyenne plant produced 3 percent less nitric acid in FY2020 versus the prior year, and ammonia production was down 7 percent due to a planned maintenance outage and unplanned downtime caused by a third-party power supply interruption in the first half of FY2020.
The group’s urea production from the St Helen’s plant increased 20 percent in FY2020, mainly due to improved uptime and efficiencies at the plant and an absence of the gas supply interruptions seen in FY2019. IPL said a major six-week turnaround campaign at the plant started at the end of September 2020.
DNA’s Explosives unit saw an 11 percent decrease in EBIT, to US$121.1 million on revenue of US$768.4 million, down from FY2019’s 136.1 million and US$824.5 million, respectively. Among other factors, IPL cited lower volumes to U.S. iron ore and Mexico customers and lower volumes to the coal sector due to structural demand declines, exacerbated by low U.S. natural gas prices, and lower industrial demand due to COVID-19.
Dyno Nobel Pacific (DNP) reported a 17 percent decline in FY2020 EBIT to A$149.3 million on revenue of A$999.2 million, down from the year-ago A$179.2 million and A$990.7 million respectively. Revenues had a 1 percent uptick. DNP’s ammonium nitrate (AN) output at the Moranbah, Queensland, plant increased 2 percent to 371,300 mt, up from 365,000 mt. But DNP’s total AN sales dipped 3 percent to 762,600 mt, down from 785,700 mt in FY2019.
IPL said it continues to actively manage the risks arising from COVID-19 on its people and operations, including a financial response plan that is expected to deliver cost savings of A$60 million per year by FY2022, of which A$30 million will be delivered in FY2021, heavily weighted to Australian fertilizer manufacturing.
For its Fertilizer business, the group expects favorable weather conditions for the East Coast of Australia to drive strong demand for fertilizers in FY2021, while distribution margins for FY2021 are expected to be largely in line with FY2020, subject to global fertilizer prices and favorable weather conditions.
Phosphate Hill production for FY2021 is expected to be lower due to a planned three-week maintenance shutdown at Mt Isa that reduced sulfuric acid availability to the Phosphate Hill site. The shutdown was completed in October 2020.
IPL expects higher production at the Gibson Island site in FY2021, with no planned outages. It also expects additional benefits of approximately A$5 million in FY2021 from the full-year impact of lower gas supply cost to its Gibson Island production site under the Australia Pacific LNG contract that started in April 2020.
In Dyno Nobel Americas, lower first-half 2021 ammonia production is expected at Waggaman due to an unplanned output outage this November due to hurricane-related power outages, as well as a planned seven-week major turnaround scheduled to begin in January 2021. The EBIT impact of the turnaround is expected to be about US$25 million (including depreciation). Plant reliability is expected to improve following the completion of the turnaround.
In Dyno Nobel Pacific, Australian customer demand is expected to remain solid in FY2021. But the group expects lower second-half 2021 production at the Moranbah plant due to a planned major turnaround scheduled to start in May 2021. The EBIT impact is expected to be approximately A$15 million.
IPL said, as an exception to its dividend policy, its board has determined not to pay a final dividend for FY2020 in light of the ongoing uncertainty due to COVID-19 and the group’s equity raising in May (IPL raised A$600 million in an institutional placement and $57.5 million in a share purchase plan (GM June 12, p. 28). However, IPL said its dividend policy, which is to pay between 30 percent and 60 percent of NPAT, remains unchanged.