Incitec adds $1bn to shareholder returns on sale of US plant
Incitec Pivot is edging closer to a deal to sell its fertiliser business despite opposition from some shareholders and a dramatic fall in earnings from the business.
Incitec Pivot is edging closer to a deal to sell its fertiliser business despite opposition from some shareholders and a dramatic fall in earnings from the business.
Interim chief executive Paul Victor said on Monday a proposed suitor for the company’s fertiliser business had completed its due diligence process on the assets, with the companies now believed to be haggling over the price and possible terms of a deal.
Incitec hasn’t commented on the identity of the buyer, but Indonesia’s Pupuk Kaltim has been heavily tipped as the preferred bidder in a deal that could be worth up to $1.5bn.
Mr Victor wouldn’t comment on a potential timeline for any deal, but told The Australian the company’s board was looking to move relatively swiftly – but would not trade value for a quick close to the deal.
His comments come after Incitec booked a dramatic fall in full-year profits from the company’s fertiliser arm on the back of falling phosphate prices, despite a rise in sales volumes.
Incitec booked earnings before interest and tax of $153m from its Asia Pacific fertiliser business for the period, down 75 per cent from the full-year EBIT in 2022. The company said average pricing for its main DAP phosphate product dipped more than 30 per cent compared to the previous year, more than offsetting a 9 per cent lift in sales volumes.
The company was also hit by further outages at its Phosphate Hill plant in North Queensland.
“I think in instances like this, the board has to be careful and balance time with value – and value sometimes trumps time,” Mr Victor said.
“So the board is very cognisant that although its strategy is to separate the businesses and sell this business, that it doesn’t sacrifice the value that’s associated with it.”
Incitec is closing on the sale of its Waggaman plant in the US, however, with the transaction expected to be finalised on December 1. Mr Victor told analysts the company expects to return the bulk of the $US1.7bn ($2.5bn) sale price to shareholders, but will retain some to pay down debts.
The company said it will add another $500m to its share buyback program, on top of its existing $400m buyback – which will only begin when Incitec finalises the sale of its fertiliser business – and return another $500m through a pro-rata capital return.
Incitec declared a 5c a share final dividend on Monday after booking a $560m net profit, down 45 per cent from $1.01bn the previous financial year.
The company booked EBIT of $879.8m for the year, down $605m on lower commodity prices, it said.
Earnings from Incitec’s core explosives business fell 16 per cent to $776m for the year on a 23 per cent drop in profits from its North and South American business, with earnings from the company’s Australian and Asian sales up 16 per cent to $188m.
Mr Victor told The Australian he believed Australian gas prices had largely stabilised after the federal government’s intervention to cap gas prices on the East Coast.
“We are quite encouraged that people are playing ball in terms of the government’s requirements. And then also from a pricing perspective, when we look at our year on year reduction of costs, we will see the benefit of the gas cap also playing in our cost benefits,” he said.
Incitec shares closed up 4c to $2.94.