Fertiliser and explosives maker, Incitec Pivot, is postponing plans to split its two businesses, possibly until late next year, after booking its biggest ever full year profit of $1.027 billion.
The fertiliser division, which was proposed to be re-established as a standalone company in the first half of 2023, has just contributed $614 million in earnings before interest and tax towards Incitec's 186 per cent leap in net profit after tax for the 2021-22 year.
The fertiliser unit's EBIT was itself up by a considerable 130pc on the previous financial year.
A delay in the demerger of the fertiliser and explosives operations was prompted by the parent company deciding to investigate a quite probable sale of its six-year-old Waggaman ammonia plant on the US Gulf of Mexico.
The asset has become a prime candidate for the production of low carbon emission blue ammonia.
Incitec Pivot has received a number of unsolicited non-binding buyout offers for the Louisiana facility which contracts out the 70 per cent of its production output not used by the Australian giant's Dyno Nobel Americas explosives business.
With global ammonia prices soaring because of sanctions on Russian exports, managing director, Jeanne Johns, said it was an ideal time to consider monetising the Waggaman investment and unlocking value for shareholders at the top of the market cycle.
All options would be considered by the strategic review, including a partial sale of the plant, which could theoretically cost at least $1.5 billion if it was being built today.
She said the site was "a very valuable asset with profound potential" if converted to service the clean energy market.
Blue ammonia is similar to conventional ammonia but processed so as to reduce its carbon emissions by about 90 per cent.
It is a potential energy alternative to diesel.
Ms Johns said Waggaman was an attractive investment opportunity for "high-quality counterparties" given a lot of industry players were looking at the new fuel option.
However, although Incitec had been exploring "an exciting" carbon sequestration option to enable de-carbonised ammonia production at Waggaman, the clean fuel market was not an area it planned to enter, and thus was re-thinking strategic priorities relating to the plant.
In the meantime, after almost tripling its annual adjusted net profit after tax from last year's $359 million, the company will reward shareholders with a 17 cents a share fully franked dividend, and has also flagged a $400m share buyback, worth about 5pc of its total share capital.
The final dividend takes Incitec's total dividend payout for the year to 27c, worth $524m, or 51pc of its profit.
In May Incitec Pivot announced it wanted to separate the Dyno Nobel explosives division which it bought for $3.3b in 2008 to help stabilise and support its fertiliser earnings.
However, the move requires shareholder approval and feedback to date has not been overwhelmingly positive.
Separation of the two businesses still is a top strategic priority- Jeanne Johns, Incitec Pivot
During a briefing after announcing this week's big profit news, market analysts queried Ms Johns about whether stalling the merger for six to 12 months was entirely related to the time required to investigate the Waggaman sale opportunity.
She insisted it was, noting any sale decision and related regulatory approvals and eventual execution required management's serious attention for at least six months.
"Separation of the two businesses still is a top strategic priority," she said.
Chairman Brian Kruger the demerger plans were progressing well towards separation.
Structural separation of Incitec Pivot Fertilisers and Dyno Nobel to create two separately listed companies would sharpen each entity's focus on capital allocation and growth opportunities, ultimately delivering enhanced returns to Incitec Pivot shareholders.
"We are very confident in the value that will be unlocked for shareholders from creating a focused explosives and a focused fertilisers business," he said.
Mrs Johns said told the briefing the fertilisers business enjoyed an unrivalled distribution platform and local manufacturing footprint providing customers security of supply, and the promise of a doubling of distribution earnings in the medium term.
Farm sector economics were expected to stay favourable and the business was well set up for distribution earnings growth.
However, Incitec is on track to close its gas-hungry Brisbane urea plant at the end of this year.
It will convert the site to a distribution centre for imports while also, in conjunction with Fortescue Future Industries, investigating the conversion of the Gibson Island plant into a hydrogen-powered green ammonia facility.
Meanwhile it has been upscaling its company's soil health analytical and advisory service, Nutrient Advantage, and its involvement in bio fertilisers and enhanced efficiency fertilisers and liquid fertilisers, which represented strong opportunities.
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