Explosives and fertilizer group, Incitec Pivot Limited's (ASX:IPL) apparently weak financial performance in the March half-year reflected the sale of its US explosives plant in Louisiana in late 2023, as well as the impact of one-off items, including a significant write-down in the value of its soon-to-be-sold fertilizer business.
IPL saw a significant downturn in its financial performance for the March half-year, with revenues and net profits both sharply down compared to the previous year. Revenues dropped by 19.4% to $2.46 billion, while net profit attributable to members plunged to a statutory loss of $148 million (compared to a profit of $354 million a year ago) as it took a write-off in the value of its fertilizer business ahead of an expected sale.
Despite these challenges, the company has declared an interim dividend of 4.3 cents and a special dividend of 10.2 cents, although the Dividend Reinvestment Plan remains suspended.
"The principal driver of the reduced earnings relates to the discontinuation of Waggaman (the Louisiana plant sold on December 1, 2023) and the closure of fertilizer manufacturing at Gibson Island in Brisbane."
The result included one-off items totaling $312 million (after tax), primarily relating to a non-cash $480 million impairment of the value of the fertilizers business, which was partially offset by a gain on the sale of IPL’s ammonia manufacturing facility in Waggaman, Louisiana (WALA).
IPL reported Earnings Before Interest and Tax (EBIT) excluding one-off items of $249 million, down from $552 million a year ago.
"As previously announced, earnings were adversely impacted by interruptions to production at the Phosphate Hill fertilizer facility in Queensland, with these impacts being partially offset by improved reliability at IPL’s other ammonia manufacturing facilities, all of which achieved top-quartile reliability performance,” the company explained.
The sale of the fertilizer business to Indonesia’s PT Pupuk Kalimantan Timur is still being negotiated after 10 months, but the company hopes for a deal soon.
New CEO Mauro Neves made it clear IPL would not sacrifice value to get a sale. “We’re pursuing value. We’re not trying to do a deal at any cost,” he said on Thursday.
The nearly $500 million write-down in the value of the fertilizer arm (which was the company’s main operation for decades) gives it a value of around $1.1 billion, which is close to a suggested sale value.
But Moody’s Analytics analysts warn that the sale might not happen given it will need Foreign Investment Review Board approval (FIRB).
"We note that the discussions to sell its fertilizer business to PT Pupuk Kalimantan Timur (PKT) are still progressing, but no final documents have been signed.
"If an agreement is reached, we believe that as PKT is an Indonesian state-owned enterprise, FIRB approval may be uncertain, given the importance of Incitec Pivot’s fertilizer supply in the Australian food chain,” Moody’s Analytics pointed out.
