The impact of the drought has driven Incitec Pivot (IPL) to review the future ownership of its Asia Pacific fertilisers business after it again slashed full-year earnings guidance.
Incitec said on Monday it was exploring a potential sale, demerger, or further investment in its Incitec Pivot Fertilisers segment, which makes and distributes fertilisers such as urea and ammonia.
News of the review and the earnings downgrade (which includes the impact of the North Queensland floods in February, problems in its US ammonia plant, the impact of the drought and a factory closure in Victoria) confirms 2019 has been a rotten year for the company.
Incitec Pivot Fertilisers is the only manufacturer of phosphate fertilisers and the only producer of nitrogen fertilisers on the east coast – that’s also where the current drought has hit hardest, especially in NSW and parts of Queensland.
The review will continue into 2020 and be conducted by the investment bank, UBS.
CEO Jeanne Johns said a review was timely, with the business well-positioned to benefit from the emergence of ag-tech.
“(Incitec) is well placed to benefit from an improvement in the commodity cycle,” Ms. Johns said.
The surprise news left investors uncertain and saw the shares dip more than 4% yesterday to close at $3.07.
The downgraded earnings – revealed in a separate announcement on Monday help explain the review of the fertiliser business.
IPL said September 30 full-year earnings are now expected to be between $285 million and $295 million, down from May’s forecast range of $370 million to $415 million.
Incitec blamed the softer outlook, which excludes $20 million in one-off charges, on lower ammonia production in the US, and as a result of continued drought and increased gas costs at its Gibson Island plant in Queensland.
Earlier interest expense guidance of $145 million remains unchanged.
Further details will be provided in Incitec’s full-year results in November.
Incitec Pivot cut its interim dividend in May after the North Queensland floods in February helped cut first-half profit by more than two thirds.
The company also announced in April plans to close a Victorian phosphate factory at the cost of $13 million, while revealing another $20 million earnings hit from dry weather across the eastern states.
