Incitec Pivot appears more determined than ever to free its Dyno Nobel explosives business from ties with its poorer performing fertiliser sibling, even if efforts to sell the plant nutrition division fall over.
Chairman, Greg Robinson, has made it clear Incitec Pivot intends to "exit the fertilisers business and focus our future on Dyno Nobel".
It's a big step for a company which owes its origins to farm fertiliser operations established in Victoria, NSW and Queensland more than a century ago
"We believe significant value can be unlocked by the proposed separation of the explosive and fertiliser businesses," Mr Robinson told the company's end of year annual general meeting.
However, recent efforts to sell the fertiliser division have moved more slowly than the company would like, coming on top of other market and operational frustrations for the division.
The possible buyer is widely believed to be Indonesian state-owned chemical company, Pupuk Kalimantan Timur (Papuk Kaltim), with industry speculation suggesting the two parties have lately been haggling over a sale price tag of more than $1 billion.
Challenging conditions
While domestic fertiliser sales grew nine per cent last financial year, overall earnings were hit by "challenging market conditions" and poor manufacturing performances.
The division's key asset, and Australia's biggest fertiliser manufacturing operation, at Phosphate Hill in western Queensland, has been a notable reliability drag for Incitec.
A year of shutdowns and production disruptions in 2023 followed similar intermittent output setbacks in prior years.
However, Phosphate Hill was expected to return to full ammonia production later this month, according to acting chief executive officer, Paul Victor.
The site, south east of Mt Isa, has capacity to produce more than 950,000 tonnes of ammonium phosphate products a year, but the company expected output to be restrained at less than 820,000 tonnes in 2023-24.
Mr Victor said a slower than expected production ramp up was part of a more conservative approach being adopted for safety reasons and to "ensure we can sustain the plant's reliability in the long term".
"We're putting additional focus on Phosphate Hill with the deployment of a reliability taskforce," he told shareholders.
"This is producing encouraging improvements."
More broadly, the fertiliser business aimed to grow its market share and services to farmers in 2023-24 and was so far tracking well - as was Dyno Nobel - providing helpful tailwinds for the first half of the financial year.
Despite expecting to announce the fertiliser business' sale soon, chairman, Mr Robinson, conceded the past six months of negotiations with an unnamed potential buyer had been complicated.
Due diligence investigations by the suitor ended in November, but there has been no public indication of its subsequent intentions.
Could walk away
Mr Robinson said Incitec's objective was to complete the deal in the very near future, or walk away, returning to its previous demerger plan.
Back in 2022 Incitec Pivot flagged intentions to split the company into two separate Australian Securities Exchange listed entities.
New board director, Mike Carroll, was designated to chair the stand-alone fertiliser entity, while long-time management team member, Scott Bowman, was appointed last month as its latest interim president.
Many shareholders have, however, expressed unease about the demerger plan.
At the same time, many are keen to see a quick decision one way or the other because the company's promised $400 million share buyback cannot go ahead until the fertiliser business' structural future is decided.
Mr Robinson said the plan was still to start the buyback program when the sale process concluded, "and at the earliest possible trading window".
An AGM vote did, however, ensure a $1b pro-rata capital return to shareholders and a special dividend would be paid this month, after the Australia Tax Office confirmed how payments should be split.
The funds come from the $US1.6b sale of the company's Waggaman ammonia plant in Louisiana to neighbouring industrial giant, CF Industries, which was approved by US regulators late last year.
As part of the sale deal, the Waggaman plant has been contracted to keep supplying Dyno Nobel's needs in the US.
It also generated a bonus $38m in revenue for Incitec this financial while the sale deal awaited official consent.
Mr Robinson assured the AGM that even with these significant payments to shareholders looming, the company's books would be in good shape and management would maintain a conservative, investment grade balance sheet.
Mr Victor also indicated profitability should grow in 2023-24 because of continued commercial discipline and sharper focus on managing costs.
The reassuring messages and payment promises to shareholders ended a turbulent year for Incitec Pivot's share price which was above $4 when the demerger was proposed in October 2022, but sank as low as $2.66 when then managing director, Jeanne Johns, left unexpectedly in June.
Despite briefly recovering above $3 in September, the company's share price since the AGM has lingered around $2.80.
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).
