After a dud start to its 2019-20 trading year, Incitec Pivot's fertiliser business is going gangbusters thanks to rain across much of the Australian grainbelt.
Buoyed by the improved local fertiliser market prospects and a 22 per cent increase in total profits, the fertiliser and explosives maker is now tapping the share market for $675 million to trim debt and brace up its balance sheet in the current coronavirus disrupted economic environment.
Incitec Pivot Limited has just posted a $65m statutory net profit after tax for the first half of 2019-20, but will not pay a dividend for the half year as it focuses on beefing up its books to ride out the global recession.
Earnings before interest and tax (EBIT) were up 34pc to almost $160m.
Fert division losses
However, the fertiliser division can't claim any credit, losing $9.9m in the six months to March 31 because of poor fertiliser sales during the droughty spring and summer, while poor global grain and fertiliser prices also weighed its performance down.
Global nitrogen fertiliser prices are at their lowest point in at least three years.
We are also well placed to benefit from any future improvement in global fertiliser prices
- Jeanne Johns, Incitec Pivot
The company's Fertilisers Asia-Pacific division loss was, however, better than the $32.5m loss reported in the same period last year.
IPL recently opted against spinning off its foundation fertiliser business as a separate entity following a strategic review of its prospects.
Managing director Jeanne Johns said steadily improved weather conditions since Christmas had driven record demand between January and April.
"We are also well placed to benefit from any future improvement in global fertiliser prices," she said.
The company had also implemented a COVID-19 response plan which was expected to achieve about $60m in cash savings through "cost discipline initiatives" and reduced or postponed capital expenditure plans.
Explosive results
Its big explosives operations, Dyno Nobel Americas and Dyno Nobel Asia Pacific, increased their EBIT results by 29pc and 7pc respectively to $113.4m and $74.1m.
The capital raising, announced after a halt to share trading early this week, offered institutional and professional investors shares at $2 each, or an 8.7pc discount to IPL's closing price of $2.19 on May 8.
Retail shareholders have been offered up to $75m in shares at a 2pc discount on the weighted average price of the company's shares in the five days before the purchase plan closes on June 17.
IPL will issue 300m new shares as a result of its institutional offer which was almost entirely snapped up (98pc) by existing shareholders to raise $600m.
COVID-19 adds risk
Ms Johns said coronavirus had not had a significant impact on operations yet, but she expected global economic uncertainty to impact customer demand and "heighten the risk to a recovery in commodity prices".
"The equity raising will strengthen our balance sheet and liquidity position, highlighting our commitment to maintaining a strong investment grade credit rating profile as well as increasing resilience in the current environment," she said.
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The company had $1.88b in net debt on March 31 which will be reduced to about $1.3b by the cash injection from the share offers.
The retail share offer, which is not underwritten, will be spelt out in a booklet to be released to eligible shareholders at early next week.
Shares are proposed to be issued on June 16.
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Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
