Shares in fertiliser group, Incitec Pivot jumped yesterday, not because the company cut dividend and reported a drop in net profit after a big write-down, but in appreciation of the reasons for that write-down.
The company will pay a 4.1 cents a share interim dividend on July 1, down from 4.4 cents in the first half of 2014-15.
Net profit in the six months ended March 31 fell 79% to $31 million from $146.4 million in the year-earlier period. The result included a $105.6 million write-down in the value of its Gibson Island fertiliser plant in Brisbane.
According to a report in Fairfax Media outlets, chief executive James Fazzino said the write-down reflected “ongoing challengers facing energy-intensive trade-exposed manufacturing in Australia”.
"We need to lower Gibson Island’s non-gas costs so we are globally competitive by the end of 2016.
“We need broad support, comprising our people, our customers, our farmers, our contractors and suppliers – including gas companies – and governments to pull together on what we call the mission to save Gibson Island,” he said yesterday.
The shares edged higher in early trading, but when investors realised the reasons for the write-down and the arguments from the company, the shares jumped to end the day up 10% at $3.15. It was a big vote of confidence from investors for the hardline the company and its CEO is taking on Gibson Island.
The company employs 200 people, and there are reported to be more than 1200 other workers (contractors, etc) who supply services and labour to the plant.
Mr Fazzino stressed the write-down wasn’t a precursor to closing the factory, which has been operating for about 60 years.
"This is not about closing Gibson Island. [But] the degree of difficulty is high,” he told the media.
Mr Fazzino refused to tell the media how much cost the company hoped to strip out off the plant but said it had to lower its “non gas costs” by the end of the financial year to make it globally competitive.
He said he wasn’t asking for a cash handout from government. But changes to regulation and reform around payroll tax would make the factory – which currently operates at a profit – viable in the long-term.
"The government has got a role to play in terms of the taxes and charges on the plant. We paid $7 million in the last half – that’s a tax on manufacturing jobs," Mr Fazzino said.
"I can assure you that our competitors offshore don’t pay that tax, and in terms of tax reform not enough people talk about tax on jobs, and taxing Australian manufacturing jobs.
"I’m highly aware that at the same time the government has got other calls but one thing for sure is if the plant shuts, we won’t be paying any of those taxes”.
Mr Fazzino said he was confident of achieving a "win/win" for Gibson Island, which is the only factory in Australia that produces nitrogen, a key ingredient in fertiliser.
Ignoring the write-down, IPL’s net profit fell 6.4% to $137.1 million, while revenue meanwhile fell 4.4% to $1.52 billion.
