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Incitec Pivot shareholders to receive $1 billion capital return

Shareholders in the fertilisers and explosives group Incitec Pivot (ASX:IPL) will receive a capital return of approximately $1 billion, in addition to the paused $400 million buyback, once the sale of the company’s vast US ammonia production plant is finalised shortly.

This capital return bonanza will significantly alleviate the financial strain for shareholders, following a reduction in the final dividend to 5 cents per share from 17 cents and a total payout for the year slashed by over 40% to just 15 cents per share.

The news of the planned return coincides with the company reporting its second-highest result in 15 years, with a net profit after tax of $582 million for the financial year ending on September 30.

The company’s earnings before interest and tax, excluding individually material items, amounted to $880 million, down from a record FY22 figure of $1.485 billion.

IPL had announced the sale of the Waggaman facility in March of this year for $US1.675 billion (approximately A$2.50 billion).

In a statement, IPL confirmed it would return $1 billion of the proceeds, in addition to the $400 million buyback announced a year ago but paused to facilitate the Waggaman sale.

Upon completion of the sale, the buyback will resume, with the extra $1 billion to be returned through a proposed $500 million pro-rata capital return and an additional proposed $500 million on-market share buyback.

“These additional capital returns, if approved, would require shareholder approval. IPL intends to seek shareholder approval at the upcoming 2023 Annual General Meeting on December 20, allowing shareholders to vote for a nice Christmas present.

In the 2022-23 report, the company faced challenges in its fertiliser business, particularly at Phosphate Hill in North Queensland, where flooding and heavy rain disrupted operations, leading to increased costs and reliability issues. High gas prices also added to costs and affected profitability.

The Fertilisers Asia Pacific segment reported EBIT of $153 million for the year ending in September, a 75% decrease from the $614 million reported in 2022.

Strong second-half fertiliser sales helped mitigate the challenging trading conditions caused by declining prices. However, unplanned outages at the Phosphate Hill manufacturing plant and higher gas costs had a negative impact on the results.

IPL’s interim CEO, Paul Victor, stated that the company is exploring ways to enhance the reliability of the fertiliser business in FY24.

“Incitec Pivot Fertilisers’ strong brands and unrivalled distribution network helped increase domestic fertiliser sales by 9 percent,” Mr. Victor said in a statement to the ASX. “However, overall earnings were impacted by a challenging market and disappointing manufacturing performance at Phosphate Hill.”

Phosphate Hill’s output in 2022-23 of 864,000 tonnes fell below expectations, and FY24 production is projected to be lower, ranging from 810,000 to 840,000 tonnes, due to scheduled maintenance in the current half.

“In response, we have deployed a Reliability Taskforce at Phosphate Hill to address and implement key actions,” Mr. Victor added in the statement.

IPL confirmed that there have been no further developments in the potential acquisition of its fertilisers business, and discussions are ongoing.

“Due diligence has been completed, and we will provide further updates in due course.”

Mr. Victor stated that IPL is entering FY24 with strong strategic and operational momentum, driven by a robust second-half performance in FY23.

The IPL statement provided no additional updates on the proposed separation of its fertiliser business, except to note that “discussions are progressing.”

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