Incitec Pivot releases Half Yearly Result
Profit Overview: For the six months ended 31 March 2016, Incitec Pivot (ASX: IPL) reported net profit after tax of $ 137.1 million (excluding individually material items) which was 6.4% lower than the corresponding period of the previous year.
The Group EBIT (exclusive of individually material items) was $ 197.3 million ($ 215.6 million in the previous period) with EPS of 8.1 cents per share (8.8 cents per share in the previous period). Net debt at $ 1.7 billion was flat, net debt/EBITDA improved from 2.2x to 2.1x and the interim fully franked dividend was 4.1 cents per share, which amounted to a payout ratio of 50% of net profit after tax. The performance showed the company's resilience because of the focus on the management of controllable factors in external conditions that were challenging.
Earnings and impairments: The EBIT excluding individual material items was flat year-on-year after adjusting for a train derailment in December 2015, which impacted Southern Cross International. The EBIT of Dyno Nobel Americas declined by 14.9% because of lower fertiliser prices, though, despite headwinds, the margin on explosives rose by 1.9%. Dyno Nobel Asia Pacific reported a 4.8% decline in EBIT due to challenging markets, curtailment of gas supply, softer demand in the mining sector and the cost focus of customers. Moranbah manufactured a record 174kt of ANE.
Production of 501kt of ammonium phosphate at Phosphate Hill in spite of the train derailment was recorded. Gas contracts have been secured for Phosphate Hill with the effect of reducing supply costs from 2017 to 2028. The business efficiency demonstrated sustained and growing momentum realising about $ 23 million of BEx benefits.
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Group EBIT Movements (Source: Company Reports)
The construction of a world scale ammonia plant Waggaman, Louisiana is 97% complete with the project on budget and on track, with beneficial production scheduled for the third quarter of the calendar year. The investment thesis remains valid. The strong balance sheet shows flat net debt and lower gearing compared to the previous year despite the expense of $ 128.6 million on the Waggaman plant during the period. Because of declining fertiliser prices, as well as increasing gas costs on the Australian East Coast, the company has recognised impairments in the asset value of Gibson Island amounting to a non-cash charge of $ 105.6 million, net of tax.
Outlook: The explosives and fertiliser markets are expected to continue to be challenging in the second half of this financial year. This includes the potential for further coal volume declines in the US and fertiliser prices below trend; and the rebound in the AUD has also been a head wind. The group has hedged 95% of its estimated second half fertiliser sales at a rate of USD 0.77 with full participation in positive rate movements below this level.
The company has also initiated a series of sustainable efficiency program that are expected to provide operating cost savings of $ 80 million in addition to an incremental $ 20 million from savings on capital expenditure by FY 2017. The cost of the program is estimated to be $ 35 million before tax, which is expected to be booked in the second half of FY 2016.
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