The weaker Australian dollar has worked some magic on the bottom line of fertiliser and explosives maker Incitec Pivot (IPL) which turned a 6% rise in revenue into a 27% jump in after tax profit.
Group revenue for the six months ended March 31 rose 6% to $1.6 billion but net profit was a solid $146.4 million for the first half of the 2014-15 year, about in line with market forecasts.
Incitec shares will benefit from the upturn in earnings (and the impact of the lower dollar) as directors declared an unfranked interim dividend of 4.4c a share, up more than 26% on a year ago.
The company said better global fertiliser prices and the drop in the dollar against the US dollar boosted the fertiliser business by around $36 million during the half.
Earnings before interest and tax in the fertiliser arm jumped 18% to $59 million, with some negative impact due do drought in Queensland and northern NSW hurting distribution volumes.
The Dyno Nobel mining explosives division delivered a 5% rise in EBIT to $159.8 million, which is not bad given the cost cutting going on in that sector and weak markets.
That’s why the company said market conditions remain challenging in explosives thanks to weak coal and metals prices weighing on mining activity.
Managing director James Fazzino said the company’s continuing cost efficiency drive (called BEx) is also supporting earnings.
“BEx continued to produce results in a period when the company confronted challenging markets with the global mining downturn and drought in much of Eastern Australia,” Mr Fazzino said in yesterday’s statement.
“BEx is driving plant reliability which continues to be a key focus for our manufacturing team,” he said.
IPL 1Y – Incitec Pivot profit jumps 27%
Mr Fazzino said that BEx contributed $16 million worth of manufacturing and supply chain efficiencies in the half, including stronger production volumes at the Phosphate Hill fertiliser plant in Queensland.
A much stronger performance from the Moranbah explosives plant, which has suffered some reliability issues, improved earnings in explosives by $12.1 million.
“For the Full Year, Moranbah is anticipated to produce 330,000 tonnes and about $140 million in EBIT. Additionally, construction of the Louisiana ammonia project is on track with the project 75% complete. Production is set to commence in the 3rd Quarter of the 2016 calendar year,” Mr Fazzino said.
He said that the result also benefitted from the depreciating $A in the Fertilisers and the US businesses, and higher global di-ammonium phosphate (DAP) prices.
“A highlight was the increase in net operating cash flows which improved by $56.4 million to an inflow of $16.5 million, driven in part by an 11% increase in Group Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) and lower Trade Working Capital outflow,” he said.
The company said its $US850 million ($A1.07 billion) ammonia plant, which it is being built in Louisiana in the US, is on budget and on track for first production in the third quarter of 2016.
IPL’s big explosives rival Orica is due to report later today and it will be interesting to see what sort of impact it has received from the weaker dollar, and how its Australian explosives business is going compared to IPL’s.
The shares eased nearly 3% to $3.795.
