Incitec Pivot (ASX:IPL)

Jeanne Johns
MD & CEO
Market Cap (AUD): 5.76B
Sector: Materials
Last Trade (AUD): 3.52 -0.07 (-1.95%)
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1. About

Incitec Pivot Fertilisers is Australia's largest supplier of fertilisers, dispatching around two million tonnes each year for use in the Australian grain, cotton, pasture, dairy, sugar, and horticulture industries.

An ASX 100 Company, IPL had its origins in Europe and North America in the 19th century and Australia early last century. It is now a global leader in the resources and agricultural sectors with an unrelenting focus on Zero Harm. With a diverse leadership, we add value to our customers through manufacturing excellence, innovation, and world class services.

Through Dyno Nobel, IPL is a supplier of industrial explosives and blasting services to the mining, quarrying, seismic and construction industries in North America and a major force in the Australian market.

Blasting is an essential step in extracting the minerals required to meet the world's demand for power, infrastructure, and consumer goods. Mines, quarries and seismic explorers use Dyno Nobel products to achieve safety goals and improve operational efficiency.
Explosives products are sold through a network of wholesale distributors as well as retail sites.
 

2. Business model

 

The Group operates the following divisions:[1]

 

Divisions

Revenue ($M)

% of Revenue

% of Profit (before Int & Tax)

Profit drivers[2]

Incitec Pivot Fertilisers (IPF): Asia Pacific

$1,088

28.2%

7.69%

Domestic distribution volumes decreased to 2.18 million metric tonnes, down 2.1 percent compared to 2017. Distribution earnings were adversely impacted by sales mix in 2018, with drought conditions in NSW and Southern Queensland dampening nitrogen demand for winter crop application in these regions. The impact of dry weather was somewhat mitigated by higher global Urea prices, higher sales volumes in non-drought affected regions and higher distribution margins

Southern Cross International (SCI): Asia Pacific

$605

15.7%

13.25%

Benefits from higher global ammonium phosphates prices more than offset the impact from production outages in 2018

Fertilisers Elimination (Elim): Asia Pacific

($222)

(5.7%)

(0.25%)

Driven by higher commodity prices, mostly offset by lower sales volumes as a result of plant downtime due to turnarounds and unplanned outages, and the impact of dry weather on the East Coast

Dyno Nobel Asia Pacific (DNAP)

$979

25.4%

32.79%

Driven by increased efficiencies at the Moranbah plant and higher sales volumes across the Australian business, in particular to Metallurgical Coal customers in the Bowen Basin

Asia Pacific Eliminations (Elim)

($12)

(0.3%)

0.00%

N/A

Dyno Nobel Americas (DNA)

$1,462

37.9%

46.59%

EBIT from the Dyno Nobel Americas business in 2018 of US$211.6m increased US$38.5m, or 22.2 percent mainly due
to higher margins in the Explosives business, driven by increased sales volume; and higher earnings from Waggaman operations

Group Eliminations (Group Elim)

($44)

(1.1%)

(0.07%)

N/A

Corporate

N/A

0.0%

(3.37%)

N/A

3. Strategy

 

Key business strategies include:[3]

 

  • Group’s key strategic priorities are based around being the best global explosives and international fertiliser company in the resources and agricultural markets
  • Unrelenting focus on Zero Harm is central to Group’s strategy along with delivering added value to customers through manufacturing excellence, product innovation, and world class service
  • Group execute its strategy by positioning themselves on the input side of the value chain, leveraging core nitrogen value chain competency and high explosives chemicals manufacturing expertise, and by servicing customers through market leading Business brands of Dyno Nobel and Incitec Pivot Fertilisers

4. Markets

          

The Group operates in the following industries:[4]

 

Industry (Australia)

Industry Revenue (2017)

Growth Rate

Explosive Manufacturing

$3 billion

0.9% (annual 13-18)

Fertilizer Manufacturing

$4 billion(2018)

2.7% (annual 14-19)

5. Competition

    

Major competitors Include:[5]

 

  • Orica Ltd (ASX:ORI)
  • Wesfarmers Ltd (ASX:WES)
  • Yara Pilbara Holdings Pty Ltd

6. History

 

1831[6]  

IPL’s history can be traced right back to Englishman William Bickford, who invented the safety fuse for explosives

 

1865  

Alfred Nobel – who later established the Nobel Prize - invented detonators and dynamite and established the company that later became Dyno Nobel

 

1919  

The Phosphate Co-operative Company of Australia Limited was formed, which was later to become Pivot Limited

 

1923  

Antecedent companies of Incitec were established

 

2002  

Demerger of Incitec fertilizer business from Orica’s industrial chemicals was completed

 

2003  

Merger with Incitec Fertilizer Ltd was completed

Listed on the Australian Stock Exchange

 

2006  

Southern Cross Fertilisers was acquired

 

2008  

Dyno Nobel was acquired

 

2012  

Moron plant production commenced

 

2013  

Announced investment in WALA - New World class Ammonia plant in USA

 

2016  

WALA plant commissioned and production commenced

IPL announces completion of performance testing and handover of Waggaman Louisiana ammonia plant

IPL announces interim gas supply arrangements for Phosphate Hill Fertiliser Manufacturing Plant

 

2017  

IPL not appointed preferred tenderer in Queensland government's pilot gas tender

 

2018  

Incitec Pivot Limited advised that its Dyno Nobel business has been awarded an explosives products and services supply contract with Fortescue Metals Group subsidiaries Chichester Metals Pty Limited and FMG Solomon Pty Limited From July 2018 until December 2023.

7. Team

 

Board of Directors[7]

 

Paul Brasher – Non-Executive Chairman

Kathryn Fagg – Non-Executive Director

Rebecca McGrath – Non-Executive Director

Graham Smorgon AM – Non-Executive Director[8]

Joseph Breunig – Non-Executive Director

Brian Kruger – Non-Executive Director

Jeanne Johns – Managing Director & CEO

Bruce Brook – Non-Executive Director

 

Management Team

 

Jeanne Johns – Managing Director & CEO

Frank Micallef – Chief Financial Officer

Tim Wall – President, Global Manufacturing & Corporate HSE

Nick Stratford – President, Dyno Nobel Americas

Elizabeth Hunter – Chief Human Resources Officer & Shared Services

Robert Rounsley – Chief Technology Officer

Greg Hayne – President, Dyno Nobel Asia Pacific

James Crough – President, Incitec Pivot Fertilisers (interim)

Seth Hobby – LL.B (Hons), Juris Doctorate

Tamara Kayser – Deputy Company Secretary


read more

8. Financials

 

2018 Full Year Results Presentation

 

Financial Year 2017/18 (ended 30 September):[9]

 

Divisions

Revenue ($M)

% Change

Profit (before Int, Tax, Div. & Amort.) ($M)

% Change

Incitec Pivot Fertilisers (IPF), Asia Pacific

$1,088

7.2%

$68

(20.3%)

Southern Cross International (SCI),  Asia Pacific

$605

8.5%

$117

37.3%

Fertilisers Elimination (Elim):  Asia Pacific

($222)

(3.6%)

($2)

(283.3%)

Dyno Nobel Asia Pacific (DNAP)

$979

4.6%

$289

5.7%

Asia Pacific Eliminations (Elim)

($12)

58.7%

N/A

N/A

Dyno Nobel Americas (DNA)

$1,462

14.4%

$410

17.7%

Group Eliminations (Group Elim)

($44)

(5.4%)

($1)

(300.0%)

Corporate

N/A

N/A

($30)

(57.1%)

Total

$3,856

9.9%

$881

11.0%

9. Risk

 

Major risks include:[10]

 

Financial risks

 

Liquidity risk

The risk that the Group is not able to refinance its debt obligations or meet other cash outflow obligations when required.

Exposure to liquidity risk derives from the Group’s operations and from the external interest bearing liabilities that it holds.

 

Market risk

The risk that changes in foreign exchange rates, interest rates, and commodity prices will affect the Group’s earnings, cash flows and the carrying values of its financial instruments.

Foreign exchange risk

The Group is exposed to changes in foreign exchange rates (primarily in USD) on the following transactions and balances:

  • Sales and purchases
  • Trade receivables and trade payables
  • Interest bearing liabilities

The Group is also exposed to foreign exchange rate movements (primarily in USD) on the translation of the earnings, assets and liabilities of its foreign operations.

 

Interest rate risk

Exposure to interest rate risk is a result of the effect of changes in interest rates on the Group’s outstanding interest bearing liabilities and derivative instruments.

 

Commodity risk

Exposure to changes in commodity prices is by virtue of the products that the Group sells and its manufacturing operations and can be categorised into six main commodities, namely: Ammonia, Ammonium Nitrate, Ammonium Phosphate, Urea-Ammonium Nitrate (UAN), Urea and Natural Gas.

 

Credit risk

The risk of financial loss to the Group as a result of customers or counterparties to financial assets failing to meet their contractual obligations.

The Group is exposed to counterparty credit risk from trade and other receivables and financial instrument contracts that are outstanding at the reporting date.          

References

  1. ^ Annual Report 2018, P. 53 - 54
    https://www.listcorp.com/asx/ipl/incitec/news/annual-report-to-shareholders-2026991.html
  2. ^ Annual Report  2018, P. 4 - 13
    https://www.listcorp.com/asx/ipl/incitec/news/annual-report-to-shareholders-2026991.html
  3. ^ http://www.incitecpivot.com.au/about-us/about-incitec-pivot-limited/company-strategy
  4. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=186
    http://www.ibisworld.com.au/industry/default.aspx?indid=180
  5. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=186
    http://www.ibisworld.com.au/industry/default.aspx?indid=180
  6. ^ http://www.incitecpivot.com.au/about-us/about-incitec-pivot-limited/history
    https://www.listcorp.com/asx/ipl/incitec/news/update-on-western-australia-business-1906164.html
    https://www.listcorp.com/asx/ipl/incitec/news/ipl-not-appointed-preferred-gas-tenderer-1675217.html https://www.listcorp.com/asx/ipl/incitec/news/completion-of-ammonia-plant-performance-test-and-handover-1436823.html
    https://www.listcorp.com/asx/ipl/incitec/news/phosphate-hill-interim-gas-supply-arrangements-1232042.html
  7. ^ http://www.incitecpivot.com.au/about-us/about-incitec-pivot-limited/board-of-directors
    http://www.incitecpivot.com.au/about-us/about-incitec-pivot-limited/executive-team
  8. ^ https://www.listcorp.com/asx/ipl/incitec/news/director-appointment-resignation-2021851.html
  9. ^ Annual Report 2018, P. 53 - 54
    https://www.listcorp.com/asx/ipl/incitec/news/annual-report-to-shareholders-2026991.html
  10. ^ Annual Report, 2018, P. 71 - 77
    https://www.listcorp.com/asx/ipl/incitec/news/annual-report-to-shareholders-2026991.html