Incitec Pivot did some house cleaning on asset values for 2009 and ended up reporting a loss for the September 30 financial year.
It was a tack the market liked and the shares rose 6.5% yesterday, or 17c, to $2.79, much stronger than the 1% rise in the wider market.
Besides the write-down of goodwill from its Dyno Nobel business, bought in the 2008 year, IPL also cut dividend and warned that the next year will again be tough.
The company reported a loss of $179.9 million for the 12 months to September 30 compared with a profit of $604.6 million in the prior corresponding period.
That result had been well anticipated given a number of earnings warnings during the year as world fertiliser prices fell and the mining industry stumbled into a slowdown (but recovered more quickly in Australia).
Net profit excluding material items dropped 46% to $347.8 million, as earnings from fertilisers fell away because of challenging conditions in Australia and other major agricultural markets.
Farmers large and small have slashed their use of fertilser (and farm chemicals as well, which hurt Nufarm as well) to save costs, or because they haven’t be able to get credit.
Revenue rose 17% to $3.42 billion as Incitec benefitted from the first full-year contribution from explosives maker Dyno Nobel, which offset the slump in agricultural sales.
Incitec said that Australian conditions in segments of the fertiliser distributions business were likely to remain challenging; business conditions as a whole were expected to be soft in the first half of fiscal 2010 because of the high Australian dollar and ongoing weakness in global fertiliser demand and seasonal conditions in North America.
"Globally, fertiliser prices are driven by soft commodity prices, and movements in the forward price curves of wheat, corn and soybeans will be lead indicators.
"Fertiliser prices now appear to have stabilised albeit on thin volumes," CEO James Fazzino said yesterday in an Openbriefing interview.
"We don’t expect to have further clarity around fertiliser prices until well into the first quarter of calendar 2010, when buyers, in particular from North America, Latin America, India and Pakistan, come back into the market.
"Clearly, 2008 was a boom year in global fertilisers but 2009 was not a normal year either, so it’s not meaningful to extrapolate from either year. It’s important to remember that the outlook for fertiliser remains positive in the medium term, with global food availability an ever increasing concern."
The company is paying a final dividend of 2.3 cents, unfranked, making a total of 4.4c for the year, 48% franked.
Earnings per share fell 63 cents, but at 22c per share, were still way ahead of the dividend payout.
So clearly the company’s board was not interested in boosting the final payout to a higher level (to make up for the lack of franking), because it remains uncertain about the outlook.
Certainly at best, the 2010 interim dividend won’t be franked, the company and management indicated yesterday.
Chief financial Office, Frank Micaleff said the company revised its dividend policy at the half year by lowering the payout range to 20 to 40% of NPAT before individually material items, from 55% to 65%.
"The lower payout range is based on our need, over time, to fund more of our growth from internally generated cash flows and to ensure our balance sheet remains strong and consistent with our target investment grade credit metrics and credit ratings," he said.
"At 2.1 cents per share, our 2009 interim dividend was at the bottom of the new payout range and fully franked.
"The final dividend for 2009 is unfranked as we didn’t have any further franking credits available.
"The lack of franking credits reflects the increased proportion of our Explosives earnings generated outside Australia and tax losses that occurred in 2009, some of which will carry over into the 2010 financial year.
"We have a variety of shareholders on our register, and many retail shareholders in particular rely on the dividends they receive.
"Because we couldn’t frank the final dividend, we’ve kept it to the bottom of our stated payout range, at around 20 percent.
"We’ll continue to be cognisant of balancing the needs of our different shareholders and the needs of the company when considering future dividends, even if we can’t fully frank them.
"This will be particularly relevant until at least the 2011 financial year, a period during which we’re unlikely to be in a position to frank dividends," the CFO said in the briefing.
Mr Fazzino said the trading conditions in 2009 were the toughest he had seen in his 20 years in the chemical industry, with "unprecedented reductions in global fertiliser demand and the consequent volatility in global fertiliser prices, and the recession in the US impacting volumes in our North American business.
"We can’t control trading conditions but we can control the way we run our business.
"What was pleasing about 2009 was that we executed well and acted quickly to mute the impact of the tough trading conditions on both our income statement and balance sheet."
He said the company said it would also benefit from its Velocity cost reduction program, with $US60 million ($65.05 million) of savings targeted for fiscal 2010.
"We experienced unprecedented global volatility in
