Incitec Pivot to cut debt as Louisiana plant ramps up

Incitec Pivot expects recent rainfall to lift fertiliser demand Photo: Greg McKenzieAfter spending $2 billion on big new projects in Australia and the US in recent years, investors in fertiliser-to-explosives group Incitec Pivot may have to wait a little longer to benefit, with the focus on reducing debt for the time being.
Nanjing Night Net

At the same time, the group was cool towards the recent rise seen in commodity prices, which is yet to be reflected in its order book.

“We are really well placed for the uptick – when it comes,” chief executive James Fazzino​ said on Tuesday. He said he was aware of the reports of the re-opening of mines after the rise in the coal price, but it is yet to be reflected in orders.

“There are some positive signs,” he said. “There will be an upturn and we will generate compelling returns.

“The focus is on de-leveraging the balance sheet.”

He was speaking after the release of earnings for the year to September, which showed the net profit fell to $128.1 million from $398.9 million, due to low fertiliser prices, restructuring charges and write offs.

The final dividend of 4.6¢ gives an annual 8.7¢ a share payout which exceeded the full-year earnings a share of 7.6¢.

Incitec Pivot is expecting a significant lift in earnings over the next two years as it ramps up production at its new ammonia plant in Louisiana which is expected to run at 80 per cent of capacity in the year ahead, rising to maximum output in 2019, coupled with rising product prices. This plant alone is capable of generating about a quarter of the group’s earnings.

“It is a story of two countries,” Mr Fazzino said. “In Australia, and the Pacific, we’re through a lot of the worst – the metallurgical (coking) coal and iron ore outlook is a lot more positive than six months ago, therefore we expect an increase in volumes in Australia.

“In the US the structural change in US coal – it’s moved from the east to the west – to the Powder River Basin and we’re well placed for that,” he said with the Cheyenne, Wyoming, plant.

RBC analyst Andrew Scott said: “This was a credible result against the backdrop of difficult end markets conditions.”

Citi told its clients the results could trigger a sense of relief for investors.

“The outlook commentary looks pragmatic given the tough market backdrop the company currently faces,” it told clients earlier on Tuesday. “Incitec Pivot is not expecting much change in explosives markets this year and is suggesting that average fertiliser prices may continue to reflect further cyclical reductions.

“Given that expectations going into the result were very low this should not come as any great surprise and the result may generate a sense of relief.”

This story Administrator ready to work first appeared on Nanjing Night Net.

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