Fresh from announcing a record $384 million half year net profit, explosives and farm fertiliser kingpin, Incitec Pivot, is poised to break into two independently listed companies.
The one-time farmer-owned fertiliser co-operative is returning to its agricultural roots as a standalone entity, Incitec Pivot Fertilisers, while its huge mining explosives division will trade as Dyno Nobel.
Thriving farm sector markets and seasonal conditions and strong expectations from its explosives operations have convinced the company to re-think a previous review and seize the chance to split the two entities.
Incitec bought the full Dyno Nobel business in 2008 for about $3.3 billion, having already owned 16 per cent of the then US-based company.
Both companies will now to be listed independently on the Australian Securities Exchange.
Best for customers
While the 2019 strategic review of the fertilisers business actually looked at selling it off, then ruled out splitting from the more profitable Dyno operation, IPL now felt the options available would best serve customers and create value for shareholders.
Ongoing revision had found robust underlying market conditions would support each business to move forward with appropriately strong independent balance sheets.
The breakup move comes as Incitec Pivot continues its planned shutdown of the big Gibson Island fertiliser plant in Brisbane and adopts a new strategy to rely on increased fertiliser imports for domestic customers.
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Managing director, Jeanne Johns, noted evolving demand for technology-driven solutions in both businesses meant the two sides had minimal overlap these days.
Even previous advantages in sharing its core ammonia manufacturing capacity were now less meaningful.
She said the company had the financial capacity to ensure both proposed entities had capital structures to support investment and growth.
Shareholders would also get choice "across two attractive category leading ASX exposures, which will potentially drive a market re-rating of each business".
Streamline capital use
The split would streamline capital allocation decisions which would therefore not be encumbered by competing business priorities.
The leading fertiliser and soil health division's extensive vertically integrated network supporting the eastern Australian market was well positioned to capitalise on a step-change in sustainable fertiliser and precision agriculture.
It was developing partnerships for world-class fertiliser sourcing, including a potential Perdaman Chemicals and Fertilisers deal involving a 20-year offtake agreement, which is still to be confirmed by the Perth-based Perdaman.
Incitec Pivot expected future capital and returns would be optimised by matching with the two different capital structures, ultimately accelerating technology-driven growth and unlocking significant improvements for customers, safety, sustainability and infield services.
Chairman, Brian Kruger, said both businesses were positioned to grow and address "opportunities and challenges of decarbonisation of the world's economy".
They would enjoy attractive exposure to the essential minerals and agriculture industries which were being underpinned by important global megatrends.
Profit up from $36m
The proposed split, anticipated in the first half of next year assuming shareholder support, follows Incitec Pivot reporting a lift in net profit after tax from $36m to $384m for the six months to March 31.
It also declared an interim dividend of 10 cents a share.
Earnings before interest and tax jumped $110m on the same time last year to $568m.
The fertiliser business captured good value from the past year's upswing in crop and livestock values, recording a $20m increase in earnings before tax to $257m for the half.
That result was despite global pricing volatility, seasonal disruption, with Ms Johns noting her team had done an excellent job in navigating operational complexities to keep deliveries flowing to customers.
Strong prices
"This has enabled us to capture the very strong commodity prices and foreign exchange tailwinds as well as successfully manage inflationary pressures and supply chain disruptions," she said.
"Our fertilisers team and business continue to strengthen the base business for performance through the cycle.
"We made good progress on our soil health strategy, including the acquisition of Australian Bio Fert which will result in a new category of sustainable fertilisers."
Incitec has also taken advantage of the shortage of heavy machinery fuel additive AdBlue overseas, converting some of its Gibson Island operation to supply the domestic market on a short term basis.
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