Incitec Pivot Successfully Raises A$57.5 Million via Share Purchase Plan

Incitec Pivot Successfully Raises A$57.5 Million via Share Purchase Plan

Summary

  • Industrial chemicals and fertilisers manufacturer, Incitec Pivot Limited, has completed its Share Purchase Plan and raised A$57.5 million.
  • The SPP follows an institutional placement worth A$600 million completed on 12 May.
  • By the end of 1H FY2020, IPL had a closing debt balance of A$1,876 million. The proceeds through capital raising would help in strengthening the balance sheet and improve the liquidity position.
  • The funds would be used in delivering Incitec Pivot’s strategy to drive long-term shareholder value.

Incitec Pivot Limited (ASX:IPL) is a global manufacturer and marketer of commercial explosives and fertilisers. It has an essential role in industries like agriculture and mining, which make many of life's daily requirements.

On 12 June 2020, the Company announced the completion of the Share Purchase Plan (SPP) and managed to raise A$57.5 million. The SPP follows the Company’s A$600 million institutional placement.

The SPP was supported strongly by the retail and institutional shareholders, which is an indication of the confidence of the shareholders in the Company’s business and its long-term strategy.

The proceeds from the placement and SPP would support the Company in bolstering its balance sheet as well as the strengthen its liquidity position. Capital raising would also support the Company’s commitment to maintaining a strong investment-grade credit rating profile. Further, the funds would help in delivering IPL’s strategy to drive long-term shareholder value.

Under the Share Purchase Plan, the Company would be issuing around 28,782,750 new fully paid ordinary shares at A$2.00 per share. IPL shares are expected to get issued on 16 June 2020 and would start trading from 17 June 2020.

On that backdrop, let us try to have a better understanding of the Company’s strategy for the future, the present trading condition, and the capital position.

Strategy:

The Company’s long-term demand fundamentals of mining and agricultural sectors remain strong and are supported by industrialisation, digitisation, urbanisation along with population growth. Further, Incitec Pivot is placed well in the most attractive explosive markets in the world. It has a leading fertilisers distribution business in Eastern Australia.

The Company has a clear strategy where it would improve the shareholder value by utilising strategically located assets, premium technology solutions plus the manufacturing excellence.

Strategic Priorities in FY2020:

  • In FY2020, IPL’s YOY improvement on its Zero Harm balanced scorecard would remain to be its top priority.
  • IPL’s strategy remains unchanged, however, reactive to the existing economic situation.
  • COVID-19 response has increased its focus more on servicing clients who are the providers of essential products and services.
  • It would continue to improve its return; special attention would be given to cost and capital efficiency.
  • Manufacturing Excellence & premium technology solutions are the primary strategic drivers that would support the Company in delivering profitable growth.
  • IPL has focused growth in Fertilisers which is in line with industry drivers which includes precision agriculture & sustainability.

 

Trading Update:

IPL’s Group Result 1H FY2020:

During 1H FY2020 for the period ended 31 March 2020, revenue improved by 6% to A$1,848 million and EBIT by 34% to A$159 million. NPAT enhanced by 54% to A$65 million.

The focus during the period was on improving ‘return on capital employed’ supported by strategic growth drivers. Corporate cost during the period was A$11 million, less than the previous corresponding period (pcp).

Net borrowing cost increased by A$7 million to A$75 million. Tax expenses improved A$9 million on pcp.

Cash Flow Highlights:

  • Improvement was seen in the operating cash inflow as compared to 1H FY2019. Operating cash during the period was A$152 million driven by enhanced business earnings and ongoing working capital management.
  • Cash outflow through the investing activities increased because of the elevated spend on sustenance capital due to Gibson Island major turnaround achieved in 1H FY 2020. Another reason for the cash outflow was the payment on the maturity of the derivative instrument.
  • Cash outflow via financing activities improved during 1H FY2020 as compared to 1H FY2019 because of lower FY 2019 dividend payment, and completion of the share buyback program in December 2018.
  • Closing debt balance by the closure of 1H FY2020 was A$1,876 million.

IPL’s Performance during April 2020:

The sale of explosives during April 2020 was in line with the previous corresponding period. The business was benefitted from good geographic & mining sector diversification. Mining volume in Australia continues to be positive as the mining sector is functioning well amid COVID-19 environment.

The distribution volume of fertiliser was robust during the month with increased demand continuing after significant rainfall events throughout Eastern Australia. Commodity pricing remained weak.

COVID-19 impact on IPL’s business:

IPL’s Managing Director and CEO, Jeanne Johns, stated that the Company did not experience any significant impact on business operations. However, the current global economic uncertainty in the market might affect customer demand and could elevate the risk to a recovery in commodity prices. He said that the equity capital raise would strengthen the balance sheet as well as the liquidity position.

In the present scenario, the Company is actively managing the risks arising from COVID-19 on its people and operations. Its response plan includes:

  • Re-arrangement of capital projects as well as non-critical operational expenses.
  • Working capital management.
  • Assessment of the Group’s hedging instruments plus the foreign exchange exposures.

The extent of the future impact of COVID-19 on the operational and financial performance of the Group depends on certain developments like the period & spread of the epidemic, rules imposed by governments related to the outbreak response, and the effect of the pandemic on the global economy, along with the commodity prices and client demand.

Stock Information:

By the market closure on 12 June 2020, IPL shares settled at A$1.950, down 4.412% from the previous close. The Company has a market cap of A$3.9 billion, with ~1.91 billion outstanding shares. Incitec Pivot has a P/E ratio of 18.720x and annual dividend yield of 2.3%.

 


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