The Incitec Pivot Ltd (ASX: IPL) share price will be on watch on Tuesday after the manufacturer and distributor of industrial explosives, industrial chemicals and fertilisers to the agriculture and mining industries provided a first half update.
What was announced?
Due to the dry weather being experienced across pasture, summer, and winter cropping regions in Eastern Australia, the company’s Fertilisers Asia Pacific business has seen a sizeable decline in distribution sales during the first half.
According to the release, distribution sales are currently down approximately 200,000 tonnes compared to the prior corresponding period.
The impact of this is expected to reduce first half earnings before interest and tax (EBIT) by $20 million. Management doesn’t expect there to be a meaningful recovery on the lost volumes during the second half.
Rail outage update.
The company also provided an update on the Queensland rail outage that was announced in February.
That outage was expected to hit the company’s full year EBIT by approximately $100 million to $120 million.
Incitec Pivot has been working hard to partly mitigate the impact of the outage by establishing alternative logistics to take advantage of the sections of the rail line already open between Richmond and Townsville.
In light of this, the financial impact of the outage is now anticipated to be around the lower end of the range previously announced.
Single Super Phosphates manufacturing operations.
Incitec Pivot advised that it has completed a review of its Single Super Phosphates (SSP) manufacturing operations in Victoria.
As a result of this review, the Portland SSP manufacturing facility will close in May 2019 and operations will be consolidated to the Geelong SSP manufacturing facility. The Portland Primary Distribution Centre will continue to operate to serve customers as normal.
The total cost associated with the closure and subsequent consolidation of operations to Geelong is expected to be approximately $13 million, consisting of $9 million in cash costs and $4 million in non-cash costs. These costs will be included in the full year FY 2019 results. Synergies are expected to deliver an additional $3 million EBIT per annum from FY 2020.
Louisiana Ammonia Plant.
An issue with the Louisiana Ammonia Plant’s CO2 removal system has been mitigated and will be permanently repaired during the next plant turnaround.
However, the plant is expected to generate EBIT of just $14 million in the first half, down from $62 million a year earlier.
Should you invest?
It really has been a disastrous start to the year for Incitec Pivot and I can’t say I’m surprised to see its shares trading within touching distance of their 52-week low.
While the company could arguably be over the worst of its issues now, I’m going to sit this one out and see how it fares over the rest of FY 2019.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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