Incitec Pivot Limited to separate into listed fertiliser and explosives companies

Incitec Pivot Limited has made one of the biggest moves in the company’s history, splitting off its fertiliser arm. Here’s what shareholders need to know.

Incitec Pivot Limited will split its company into separate fertiliser and explosives entities each listed on the Australian Securities Exchange. Picture: Zoe Phillips

Incitec Pivot Limited is expected to split into separate fertiliser and explosives companies listed on the Australian Securities Exchange early next year.

The company announced today it was taking advantage of the current strength of both businesses to separate into two stand-alone companies after extensive internal reviews.

The existing company structure would be renamed Dyno Nobel Limited, while the fertiliser business would be demerged into a new company named Incitec Pivot Fertilisers Limited.

The demerger will be implemented by a court-approved scheme of arrangement.

IPL chairman Brian Kruger said an investor day would be held in late August or early September to detail the rationale of the demerger.

Interim chief financial officer Chris Opperman said practical separation of the two arms would be in place by the end of this year.

Mr Opperman said a shareholder vote would be held in the first quarter of 2023, with formal separation following soon after that, assuming approval by shareholders.

“We want to ensure both companies are set up for success as stand-alone entities,” he said.

“The strength of our current balance sheet allows us to do so.”

Existing IPL shareholders would receive shares in Incitec Pivot Fertilisers Limited on a pro rata basis, while retaining their existing shareholding in the rebranded Dyno Nobel Limited.

IPL conducted a review of its businesses in 2019, which looked at what to do with the fertiliser division.

Mr Kruger said the company’s board decided to retain the fertiliser division within the company the following year.

“That decision was the right one at that time,” Mr Kruger said.

“We are now able to pursue a separation from a position of strength.”

Mr Kruger said a key factor in the decision to demerge was due to “all the work Jeanne Johns and the team have done in improving the business”.

He said the board did consider selling off the fertiliser division but decided to set it up as a separate listed company.

He said the separation proposal was well-progressed, with potential board candidates already canvassed.

The separation comes at a time when the fertiliser division was the highest earner for the company in its record first half results.

Earnings before interest and tax was $568m for the six months to March 31, substantially higher than the $110m recorded for the previous corresponding period.

Net profit after tax for the six months was $384m, well above the $36m reported for the first half of 2020-21

The Fertilisers Asia Pacific division reported EBIT of $257m, slightly higher than the $252m attributed to the Dyno Nobel Americas explosives division.

The Dyno Nobel Asia Pacific division reported an EBIT of $79m.

IPL managing director Jeanne Johns said the record first half result reflected a sharp focus on executing business in a high demand, highly disrupted market.

Ms Johns said the company had been able to “capture the very strong commodity price environment and foreign exchange tailwinds, as well as successfully manage inflationary pressures and supply chain disruptions”.

IPL said more than $60 million of EBIT was expected to be realised in the second half of 2021-22 from unsold manufactured fertiliser.

IPL share price on the ASX initially jumped to $4.02 from Friday’s close of $3.74 on the back of the announcement but has since settled back to $3.62, an overall fall of 3.2 per cent.