Shares in fertiliser and explosives maker Incitec Pivot (IPL) rose strongly yesterday despite the company revealing a near $140 million fall in its full year profit thanks to reduced demand, low prices and the high value of the Australian dollar.
The shares rose just over 7.2%, or 19c to close at $2.80.
Incitec Pivot said it made a net profit of $372 million for the 12 months to September 30, which was down 27% from $510.7 million for the previous year.
After tax profit (excluding material items) was $298.4 million.
The company said that after adjusting the previous corresponding period for the Moranbah unfavourable contract liability release, this was a fall of $64.3 million, or 18%.
And the company gave the impression yesterday it is battening down the hatches with more cost cuts, the final dividend slashed and the reactivation of the dividend reinvestment plan which was suspended in 2010, with a small discount now on offer to entice shareholders.
The final and full year dividends have been chopped as a result (to keep the policy of a 50% payout ratio).
The final payment of 5.8c a share is down sharply from the 9.1c paid for last half of the 2011-12 financial year.
The full year payout is 9.2c a share (boosted by the small rise in the interim dividend to 3.8c a share). Overall the cut is equal to 26% compared to the 27% fall in after tax earnings.
IPL YTD – Shares up as IPL reports lower profits and clouded outlook
Chief executive James Fazzino blamed the fall in profit on the high Australian dollar, low global fertiliser prices and a decline in demand for explosives sold into the resources industry.
He said the company was focused on improving returns from its businesses: ‘‘Our immediate focus is to continue to execute on strategy through maximising returns from our current businesses and to deliver on our core manufacturing expertise through safe and sustained operation of our production plants globally, including Moranbah".
The company announced job cuts in the face of these negative factors, aiming to save $20 million in annual costs, and expected to deliver $12 million of savings in the 2014 financial year.
It did not provide a profit guidance for 2014, but said the company’s earnings are sensitive to "major global fertilizer prices and foreign exchange movements".
Fertiliser prices have been dragged lower in recent months by the ending of the Russian/Ukraine potash cartel which saw global prices fall sharply.
That has in turn put pressure on the huge Canadian industry (the other global marketing cartel) and on smaller producers in other countries, such as IPL.
The company says it will recommence its dividend reinvestment plan (DRP), which was suspended in 2010, in connection with the 2013 final dividend. A discount of 1.5% will be applied in determining the offer price.
That’s as good an indication that the company, for all the confidence in yesterday’s announcement, reckons it needs some loyalty and support from shareholders and in doing so, conserve cash outflows.
The fall in the full year profit follows a 23% or $33 million drop in interim earnings to just over $110 million in the six months to March 31.
Mr Fazzino, said at the time that the 23% decrease in the reported interim result included the impact of the release of the non-cash Moranbah unfavourable contract liability in the prior period.
Excluding the release of the liability, NPAT for the half year decreased by 10% and EBIT (earnings before interest and tax) was down 1%, he said in May.
