Incitec Pivot waiting for asset-sale dust to settle

Staff reporter

A week after Orica boss Sanjeev Gandhi suggested he had better capital allocation options than share buybacks, interim CEO of major rival Incitec Pivot, Paul Victor, has promised investors a further A$500 million of buybacks after the sale of the company’s Louisiana ammonia manufacturing facility in the USA goes through.

That’s half the $1 billion of shareholder returns expected to flow from the proposed sale of the facility to CF Industries Holdings for US$1.675 billion, with the “[US] regulatory decision on the sale of Waggaman due shortly”.

Incitec previously announced A$400m of share buybacks.

“We are providing shareholders with significant capital returns and a business with a less volatile and stronger earnings profile, led by a focused and talented team,” Victor said.

As well as the Waggaman ammonia plant sale, Incitec is trying to offload its large fertiliser business, which Victor said was “progressing”.

“Due diligence has been completed and we will provide further updates in due course,” he said.

“The reshaping of our portfolio to a leading pure play explosives business is well progressed.”

Incitec Pivot booked statutory net profit after tax for the year to September 30 of A$560 million, versus $1014m last year, on revenue down $307.2m to $6008.1m for the latest year.

Group EBIT for FY23 was $880m, down 41% year-on-year but about 3% ahead of consensus forecasts.

Investment bank Morgan Stanley described Incitec’s “clarity on additional capital management post [the Waggaman] sale” as a positive. It highlighted “no resolution on the major outstanding issues of [the] fertiliser business sale and … no mention of a new CEO” as less than positive. Chair Brian Kruger has meanwhile stepped down, citing personal reasons

“Management indicated that due diligence has completed but [there is] no resolution at this stage,” Morgan Stanley said.

“We remain sceptical about an [Incitec Pivot Fertiliser business] sale [because of potential] gas disruption at Phosphate Hill, sulphur supply certainty and [Australia] Foreign Investment Review Board approval may be required.”

Incitec reported FY23 EBIT of A$588m for its major Dyno Nobel Americas explosives business, down 23% year-on-year, while Dyno Nobel Asia Pacific was up 16% yoy at $188m.

Fertilisers Asia Pacific’s FY23 EBIT of $153m was 75% lower yoy.

Dyno Nobel Asia Pacific’s technology suite, particularly electronic detonators and differential energy emulsions, generated a $13m earnings improvement compared with FY22, the company said.

“The positive customer response to Dyno Nobel’s premium technology was clearly demonstrated by the five-year renewal of Dyno’s contract with Fortescue Metals Group, which includes a unique technology alliance,” Incitec said.

“Positive customer re-contracting outcomes and favourable market conditions in Turkey and Indonesia contributed a further $15m to the FY23 result.

“The Titanobel acquisition continues to deliver against the acquisition business case with an additional $6m contribution from this business compared to the previous corresponding period.”

Incitec cited a $10m improvement in Dyno Nobel Americas earnings from customer and technology growth in the higher margin quarrying and construction, and metals markets, which was partially offset by reduced demand in the coal sector.

“Cost management initiatives and customer price increases more than offset increased costs from above average inflation,” the company said.

“The full benefit of these initiatives is expected to realise in FY24.

“The improved customer mix, increased customer uptake of technology and services and cost management initiatives contributed to significant margin expansion in the second half with margins improving to 12.8% in 2H compared to 10.6% in 1H.”


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