Incitec Pivot profit down 44 per cent on US manufacturing issues
Incitec Pivot’s interim profit dived 44pc amid ongoing problems at its Waggaman plant in the US and fallout from the pandemic.
Incitec Pivot boss Jeanne Johns says the manufacturing major will go to market to try to win a new gas contract for its Gibson Island fertiliser plant in Queensland, as the turnaround of the company’s fertiliser division offered a bright spot in its half-year results.
Incitec’s net profit dived 44 per cent in the first half of its financial year after it was hit by ongoing problems at its Waggaman plant in the US and the lingering effects of the pandemic.
Incitec said it would pay a 1c a share interim dividend after booking a $36.4m net profit for the half, on the back of earnings before interest, tax, depreciation and amortisation of $285.7m, down from $337.5m in the first half of last financial year.
Revenue was down 6.7 per cent to $1.7bn, and earnings before interest and tax down 31 per cent to $110m.
Incitec said the bulk of the poor result was the result of problems with scheduled maintenance programs at its major manufacturing plants, particularly its Waggaman operations in the US, which cut $59m from its EBIT.
Managing director Jeanne Johns said there were positive signs for the company’s outlook, however, although Incitec did not issue full-year guidance.
But Ms Johns pointed at a strong performance from the company’s fertiliser division, which booked a $20m profit for the half, up from a $10m loss in the first half of last financial year.
Incitec’s Gibson Island urea plant is a key part of its fertiliser business, but was nearly closed in 2019 after Incitec said it could not win an affordable gas contract to supply the plant for the long term.
It received a stay of execution after the state and federal governments stepped in to help secure a new three-year deal with APLNG, which expires at the end of 2022.
The issue of gas contracts for the ageing plant now looms as a major test for the federal government’s promises of a “gas fired recovery” from the coronavirus pandemic.
This month Incitec signed a 20-year offtake deal with WA’s Perdaman Chemicals for up to 2.3 million tonnes of urea from its proposed plant at Karratha, due to be built by 2025.
If the $4.3bn plant is developed, its output would dwarf that of Incitec’s Gibson Island facility and it would be fuelled by gas from the North West Shelf, available to WA-based companies cheap under the state’s domestic gas reservation policy.
Ms Johns told analysts on Monday the Perdaman deal had “no implications” for Gibson Island’s future, but said Incitec would soon “go to market to test future gas supply for the plant from 2023”.
“We continue our efforts to secure affordable internationally competitive gas supply,” she said.
The $30m turnaround of Incitec’s fertiliser division was a highlight of a difficult first half for Incitec, with its performance marred by problems at a number of its manufacturing plants.
“Our first half result was impacted by the COVID-delayed scheduled turnarounds as well as some unplanned manufacturing outages,” Ms Johns said.
“Our underlying explosives and fertilisers business performance was strong, reflecting the continued uptake of our premium technology offering as well as the resilience of our end markets.
“While the Waggaman plant has demonstrated it’s capable of very good production runs, the recent issues at our plant are clearly disappointing and our expert task force is working hard to get the plant back up and running at nameplate.”
The failure of key equipment at Waggaman helped cut earnings at its US explosives business from $113m in the previous financial year to $31m in the six months to the end of March, with its Asia Pacific explosives operations largely flat for the period.
Incitec shares closed down 4c, or 1.7 per cent on Monday at $2.37.