Nufarm, the crop protection group, warned earlier this week that the big dry across much of Australia’s Eastern States would impact 2017-18 earnings (helped by poor weather in the US and Europe). Yesterday, explosives maker, Incitec Pivot cited the dry weather as one of the reasons for its weak first half performance.
It also echoed comments from the country’s other major explosives group, Orica, that challenging conditions in some parts of the mining sector were also taking a toll.
The market didn’t like all the negative talk and marked the shares down more than 5% to $3.55. That’s still well above the year low of $3.11 last August.
Incitec Pivot’s first-half profit, said that its first half profit fell 95% to just $7.6 million for the six months to March 31. That was after a 9.6% rise in revenue to $1.68 billion. Despite the loss the company has maintained interim dividend at 4.5 cents a share.
Excluding the one off impairment costs, Incitec reported a weaker-than-expected $147.1 million underlying profit for the March 31 half year, 3.3% lower than forthe same period of 2016017 and well under the market forecast of $181 million.
The company had previously reported a gas related write down at its explosives services business with a non-cash goodwill impairment of $236 million against its Dyno Nobel Asia Pacific industrial explosives and blasting services business.
In late April, Incitec indicated it would cut the value of its Dyno Nobel Asia Pacific business from $1.145 billion to $908.5 million, partly because of the impact of rising gas prices on the east coast of Australia. That was after it loss explosives contracts to BHP and the Roy hill iron ore mine in Western Australia.
The dry weather saw earnings before interest and tax (EBIT) from Incitec’s Fertilisers Asia Pacific business fell 11.7% following delayed sales of ammonium phosphates for winter crops, in the wake of arid conditions across eastern Australia.
Incitec also said its fertiliser business was also hit by a higher Australian-US dollar exchange rate, partially, which was offset by higher global fertiliser prices (as global oil prices rise).
But the future of the Gibson Island plant in Brisbane was a key focus of the result commentary and there seems to be some light in what has been a difficult situation that has seen IPL threaten to close the plant in recent years if gas could not be secured at competitive prices.
“In March this year, the Queensland Government selected Central Petroleum as the preferred bidder for the gas tender, dedicated to the domestic market. Our partnership with Central Petroleum and the expected successful conclusion of a Joint Venture agreement provides a foundation for a sustainable future for Gibson Island.
“Progress on interim gas for the Gibson Island Plant for the calendar year 2019 is well advanced. If an interim gas agreement was finalised, Gibson Island is likely to operate through 2019, albeit at a higher gas cost. Even though FY19 earnings will be adversely impacted, these arrangements will form a bridge to a potential long-term solution for the plant and its employees.,” IPL said.
