Incitec Pivot Ltd, the country’s major fertiliser group, is expecting a slower, but still solid earnings in the 2009 year after tripling net profit after tax (NPAT) (including individually material items) to $614.3 million in the year to September 30, compared with $205.3 million in 2007.
The company confirmed the result (which was expected by the market) as part of documentation and news involving a $1.17 billion fund raising yesterday.
With the heat going out of global potash and other fertiliser prices as the resources boom collapses, the chances of IPL enjoying another boom year in 2009 look very remote.
IPL said it would raise the capital through an accelerated non-renounceable entitlement offer, with shares priced at $2.50 each, a sharp discount to the last sale of $4.14 before a trading halt was called to allow the raising to be conducted.
IPL CEO, Julian Segal said the raising is expected to provide the company with sufficient funding to repay the balance of the $2.4 billion bridging loan used to acquire Dyno Nobel.
"This continues our strategy of prudent economic management which has delivered strong financial results like those announced today," Mr Segal said in a statement to the ASX.
The raising is expected to be completed quickly and follows a host of other fund raisings by leading local groups, including the NAB, CBA, Transfield, GPT, Stockland and Mirvac.
IPL directors said the 2008 result "was driven by the strategy of diversifying income streams and continuing to move the business upstream into manufacturing".
(The acquisition of Dyno Nobel was completed on 16 June 2008. Unless otherwise noted, the Explosives business is only included for the period from acquisition to 30 September 2008 and is not reflected in any historical comparatives).
The company said that after tax profit before individually material items more than tripled to $657.2 million – up $454.7 million from 2007’s $202.5 million, while earnings before interest and tax rose 210% or $656.6 million to $969.1million (2007: $312.5 million).
Earnings per share rose to 61.4c (2007: 20.1c) with dividends up 98% to 29.7c (2007:15c) for the full year.
Directors declared a final dividend of 19.5c per share fully franked. Adjusting for the September 2008 share split, this brings the total 2008 dividend to 29.7c per share, fully franked (2007: 15cps including 2cps special dividend, fully franked).
Total sales revenue increased by $1.545 billion or 113% to $2.918 billion ($1.373 billion in 2007) due to the part year inclusion of Dyno Nobel ($571 million) and higher realised fertiliser prices across both Southern Cross and the Australian Fertiliser Distribution Business.
The performance in 2009 won’t be as dramatic as in 2008; the heat has gone out of the international fertiliser boom, prices have fallen sharply and IPL directors seemed to recognise that with this comment yesterday: that while "trading conditions may be impacted by the global credit crisis, strong long term industry fundamentals remain".
When boards start talking about sound long term fundamentals, you can bet they are really warning about a weak short term performance.
They said the full year earnings seasonality expected to be 30% – 35% weighted towards the first half of the 2009 year with the balance in the second half (which is when the huge grain crops are sown).
But directors did warn of "uncertain near term outlook for fertilisers". (i.e., the chances of lowered earnings is quite high).
“However over recent times A$ fertiliser prices have been stable year-on-year based on current A$ exchange rate (softer US$ global fertiliser prices offset by A$ depreciation)."
Other factors influencing 2009 will include the boost from the first full year of Dyno Nobel earnings, the costs and benefits of "the ramp up in Project Velocity cost cutting and restructuring program; challenging trading conditions in the Australian Fertiliser Distribution business which are expected to continue while the Moranbah ammonium nitrate construction project will continue as planned in Queensland and the debottlenecking of Gibson Island and Southern Cross Fertilisers will be maintained".
IPL said 89% of earnings came from the Southern Cross and IPL fertiliser businesses which earned an EBIT of a record $790 million.
There was also an "excellent performance from the Australian Fertiliser Distribution business in challenging seasonal conditions and $41.7 million rise in profit from IPL’s Trading business, Southern Cross International (SCI)".
Dyno Nobel cost $3.9 billion (enterprise value) and the purchase was completed on June 16 and it contributed EBITDA of $109.5 million from then until the September 30 balance date.
