Shares in explosives and fertiliser group in Incitec Pivot (IPL) bounced around yesterday as investors couldn’t quite figure out the full year result.
The shares fell 1% to end at $2.96, after trading down by nearly 4% in very early trade. They then bounced 3% higher before falling away towards the end to finish lower on the day.
Investors ignored the sharp, near 27% chop in the total dividend for the year off the back of the slide in earnings.
That was after the company warned it expects markets for its key products to remain weak in 2017, after reporting a 26% drop in annual underlying profit, and a 68% slide in statutory earnings for the year to September.
The world’s number two maker of commercial explosives (behind Orica) has been hit by the long slide in mining activity – especially in the coal industry in Australia – which has slashed demand for the key component in explosives, ammonium nitrate.
“The explosives sector is expected to remain challenged through 2017 largely due to regional oversupply of ammonium nitrate and ongoing customer cost focus," Incitec Pivot said in a statement to the ASX.
It said fertiliser demand may increase in the year ahead following wetter-than-average conditions in the second half of 2016, but warned that "depressed global fertiliser prices may persist in the short term."
Underlying net profit before one-offs fell to $295.2 million for the year to September from $398.6 million a year earlier. Including the one off items (totalling $241 million before tax, $167 million after tax) earnings slumped 67.9% to $128 million in 2015-16 on the back of lower global commodity and fertiliser prices.
Revenue fell 7.9% to $3.35 billion in the 12 months to September 30.
Analysts are forecasting 18% growth in underlying profit for the 2017 financial year.
Incitec’s full-year dividend of 8.7 cents, slashed from 2014-15’s 11.8 cents a share. The final dividend of 4.6 cents a share, cut from 7.4 cents for 2014-15.
Incitec Pivot said its explosives business may benefit from a five-year $US305 billion ($A396 billion) US highway spending bill announced in December of last year.
The group’s industrial chemicals business is expected to benefit from ramped-up production from its Waggaman, Louisiana, plant, however lower global ammonia prices and US natural gas prices will weigh on earnings.
Incitec Pivot (IPL) chief executive James Fazzino said the group had focused on controlling costs during a year of cyclical and structural change.
“The challenges in the global resources industry and cyclical lows in international fertiliser prices are storms that IPL has weathered in the past and is positioned to do so again,” he said in a statement issued with the profit figures.
"I have confidence in our strategic direction based upon our exposure to the world’s two largest economies, China and the US, and balanced end-market product exposure of explosives, industrial chemicals and fertilisers."
