Despite the drought and the higher Aussie dollar, fertilizer group, Incitec Pivot is expecting strong global demand for its products and high world prices, to help earnings grow from the 2007 record figures produced yesterday.
IPL said net earnings, including material items, jumped to a record $205.3 million compared to the $46.7 million earned in the 2006 year.
And, excluding individually material items, the company said earnings rose 145% in the 12 months to September 30 to $202.5 million, from the previous year's $82.8 million.
The latest result was struck on a more sedate 24% rise in revenue to $1.373 billion.
The market loved the result, boosting the company's shares more than 8% higher to an intra day high of $94.20, before they settled back to end around $92.49, up $5.49 on the day.
The company only has 50 million shares on issue which are held relatively tightly, so demand from investors can drive big price gains (and losses if there's a negative feeling).
But for the past 18 months IPL has been on a roll since it started a transformation program in the wake of the purchase of Southern Cross Fertilizers from BHP Billiton (the group was owned by WMC which was bought by BHP).
The company calls its transformation program, which includes cutting costs by improving logistics, production processes and using less working capital, Tardis, but there's nothing futuristic or Dr Whoish about that.
CEO Julian Segal says the result was driven by efficiency gains from the 'Tardis' program, a full year contribution from Southern Cross Fertilisers, and those strong global fertiliser prices.
The result came despite a 15% downturn in domestic sales volumes as a result of continued drought conditions. Total sales volumes increased 16% to 3.17 million tonnes through increased traded tonnages, including exports and a lift in industrial sales.
The company sold more fertiliser into South American markets and diverted ammonia in Australia to industrial customers because of the fall off in demand from the rural sector due to the drought.
By maintaining financial discipline and generating strong cash flows, IPL said it ended the year with significant balance sheet capacity. It has a substantial minority stake in listed explosives maker, Dyno Nobel which has risen in value to around $291 million (IPL paid around $257 million for the holding).
And it is working on a significant expansion program in Aceh province in Indonesia that could cost upwards of $800 million.
A decision on the feasibility study, now underway, is due by the end of June 2008.
Mr Segal said the result underscores the value derived from the business strategy IPL has embraced, including the SCF acquisition.
"Each leg of the strategy – lowering the cost base, leveraging our manufacturing know-how or ‘owning the product', expanding trading activities and improving supply chain efficiencies – has delivered significant improvements to our bottom line.
"The past year saw a major transformation of the company and I continue to be impressed by the enthusiasm of all our people to respond positively to new challenges," he said.
IPL's Earnings Per Share (EPS) excluding individually material items increased 175% to $4.02 in 2007.
Directors declared a final normal dividend of $1.91 per share fully franked and a special dividend of 40c a share, fully franked, taking the total dividend payout to $3.00.
Looking to the year ahead, Mr Segal said IPL expected continued strength in fertiliser prices, but anticipated difficult trading conditions for domestic sales and continued strength in the Australian dollar.
Chief financial officer James Fazzino said the strong dollar had cut earnings by $40 million. Every 1¢ movement in the dollar, whether up or down, had an $8 million impact on profit.
"This has to be balanced against global fertiliser prices. Fertiliser prices are so strong that in net, we're still ahead," he said.
The company said the current strength in global fertiliser prices "is demand driven with the traditional drivers off food, feed and fibre remaining strong.
"Low grain inventories, limited medium term supply response and prices have continued to firm into new financial year."
Meanwhile, IPL has yet to make up its mind on what to do with the 13% stake in Dyno Nobel.
Mr Segal said Incitec was awaiting information on the cost of Dyno's proposed ammonium nitrate plant at Moranbah in Queensland.
"I think at the moment we don't have enough information to make a judgment about any further action (in relation to the Dyno stake)," Mr Segal told reporters.
"I think, like all Dyno shareholders, we will be waiting for the company's guidance on the cost of the Moranbah project …"
The company said in a presentation to the market that it "will maintain financial discipline" in relation to the Dyno Nobel stake.
