Incitec Pivot Drops Dividend On Profit Hit

No final dividend (as expected) from ASX-listed explosives and fertiliser manufacturer Incitec Pivot which reported a fall in its statutory net profit to $123.4 million.

The $4.2 billion company attributed the dividend decision to ongoing uncertainty caused by COVID-19 and the $646 million capital raising conducted earlier this year.

There was no interim paid and the company paid a final in 2019 of 3.4 cents a share.

The company said that its dividend policy, which is to pay between 30% – 60% of NPAT, “remains unchanged.” That means there is a chance of an interim next May.

Investors didn’t like the news or the lower than expected profits and revenues and the shares fell 2.8% to $2.10, thereby missing out in the great Pfizer COVID-19 vaccine surge on Tuesday which came and went in a day.

The company’s bottom line profit was dragged down by $65 million of one-off items including the write-down of intangible assets including obsolete software ($30.3 million), $18 million of redundancy costs, and $16.5 million of impairments of operating assets and site exit costs.

Without the one-offs, Incitec Pivot reported a 12% rise in underlying net profit to $188.2 million – less than market forecasts around the $204 million mark.

Incitec’s full-year revenue rose 1 percent to $3.94 billion, which was also below market expectations around $4.03 billion.

“While 2020 has been a challenging year on many fronts, our businesses have delivered a strong operating performance and we have made good progress on our strategic agenda,” Incitec Pivot’s chief executive officer Jeanne Johns said in Tuesday’s statement.

“We acted quickly to implement new control measures to keep our people and customers safe throughout the pandemic, which enabled us to provide uninterrupted supply to customers in the essential resources and agricultural sectors,” she said.

Ms. Johns said the business had an extensive “COVID-19 Response Plan” which would deliver about $60 million of cash savings over 3 years.

Incitec Pivot reported a strong pick-up in demand for fertilisers in Australia after the drought ended.

The improved conditions helped Incitec’s fertiliser business record $26.2 million of EBIT (earnings before interest and tax), up from a loss of $79.7 million in the previous year.

Returns from the explosives businesses here and offshore were steady on a year earlier.

“Operating in two of the most attractive mining markets in the world, our explosives business has performed well. Our premium technology offering continues to underpin our strong margins in the US business and demand held up well in Australia where we serve some of the most sophisticated mining companies in the world,” Ms. Johns said yesterday.

“Our Manufacturing Excellence strategy is progressing well with our key plants operating at 86% reliability during the year. Phosphate Hill also delivered a strong second-half performance at an equivalent production of 1mtpa. We have completed two of four turnarounds scheduled for FY21 and are on track to deliver our reliability target of 95% by FY22.”

“During the year we took the decision to retain and invest in our Fertilisers business following a strategic review. The business returned to profitability in the second half as improved demand in the last eight months supported a strong performance in our distribution business, helping offset the impact of very low commodity prices in the first half.

“Offering world-class agronomy expertise, the business is focusing on new value-add products and services including efficiency-enhanced coated fertilisers and new soil-testing services for precision agriculture.”

“Our businesses are well placed in the current COVID-19 environment. Our premium technology will continue to underpin the growth of our Explosives business and there is significant upside in our Fertilisers business when commodity prices recover.

“Our balance sheet has been significantly strengthened following the equity raising in the second half, increasing our financial resilience and providing financial flexibility to continue to deliver our strategic agenda,” she said.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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