Incitec Pivot stems the flow of losses

It has been a very tough year for IPL; caps on phosphates in the subcontinent along with slowing demand for explosives have seen revenue evaporating.

I have been watching the developments in IPL very closely over the year. The quarterly numbers have been consistently below corresponding periods and the final fiscal year numbers look like putting a ruler through what has been a disappointing year.

Net income excluding material items came in at $298.4 million, which is a 25.6% contraction year-on-year, however it was ahead of the consensus estimate of $295.8 million. Sales contracted 2.3% over the year to $3.42 billion but again were ahead of the medium estimate of $3.34 billion. It’s pleasing to see IPL has stemmed the flow of losses.

As expected the pain was felt in the fertiliser business with earnings down 37.4% year-on-year to $169.7 million from $270.9 million the year before, it was also well below consensus expectations of $175.1 million. It is no surprise that the Australia Pacific Dyno division is the one suffering the most; down 29.3% over the year as India particularly bites into earnings.

Explosives were also lower, off 18.1%, however this was expected as contractual work in the US slowed as clearing and exploration requirements plateau. However, costs were well below expectations, at $31.2 million from $71.7 million a year earlier – the structural changes the company is undertaking seem to be working.

That coupled with the fact the company plans to restructure its corporate headquarters and business units to address the effects of soft fertilizer prices and the structurally high AUD, management believe an additional $20 million in savings over the next two years, of which $12 million will fall in FY14, can be found and should again provide structural tailwinds.

Other tailwinds the company may take advantage of over the FY14 are the possible falling AUD and improving conditions in the explosives business as the company looks to improve margins to offset the decline in consumption.

Having contracted 22% year-to-date, the fact IPL has beaten consensus should see a solid pop in the share price, and should see a clear break out of the two-standard deviation Bollinger bands it has been trading in.

IPL share price

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