Explosives and fertiliser maker Incitec Pivot says fiscal 2010 will be another challenging year but the company is better placed to meet the challenges ahead,
"I guess in terms of 2010 our view is that it will be another challenging year but...I am confident we are better placed to manage the challenges than we were 12 months ago because the business is a lot fitter," Incitec Pivot chief executive James Fazzino told reporters.
Incitec Pivot on Monday reported a fisc al 2009 net loss after writing down goodwill from its Dyno Nobel explosives business, bought in the prior fiscal year.
The company recorded a loss of $179.9 million for the 12 months to September 30, compared with a profit of $604.6 million in the prior corresponding year,
Net profit excluding material items slumped 46 per cent to $347.8 million as earnings from its fertiliser business fell as a result of of challenging conditions in Australia.
Revenue rose 17 per cent to $3.42 billion as Incitec benefitted from the first full-year contribution from its acquisition of Dyno Nobel.
Mr Fazzino said that, in the medium to long term, he was confident that Incitec had the right strategy in place and the right businesses to capitalise upon an "inevitable" upturn in the economy in North America and an upturn in fertiliser markets.
Incitec Pivot also had a mix of businesses to provide for the industrialisation needs of China and India.
Mr Fazzino said market conditions for fertiliser in Australia had been very tough over the last financial year, with volumes down about 30 per cent.
Fertiliser application rates also were down about 30 per cent globally.
Some fertiliser prices were down by up to 60 per cent.
Mr Fazzino said, however, that Incitec was the leader in the fertiliser market on the east coast of Australia.
"We’re confident in the year ahead we’ll see a recovery in fertiliser application rates as next year’s crop goes in," he said.
Incitec’s Gibson Island and Southern Cross manufacturing plants were also "at the bottom of the cost curve" and Incitec was, therefore, well placed to take advantage of any improvement in the market.
Mr Fazzino said it was too early to more precisely predict domestic demand for fertiliser next year but most farmers had had a better crop this year than in the preceding year.
"That means a couple of things: number one, that crop wasn’t grown on the normal level of fertiliser so there will need to be some nutrient level rebuilding next year," he said.
"And secondly, it means our customers will have had a return from the crop that they’ve put in, so directionally we’re more confident of some sort of rebound.
"We normally form a far better view around February/March."
Mr Fazzino said prices for di-ammonium phosphate (DAP) fertiliser were expected to rise next year given that current global stocks were low and levels of ammonium phosphate in the soil also were low.
"So we would expect to see more positive pricing in the new year when the North American market plants, when Latin America comes back into buying and also when India comes back into buying," he said.
"What will put some cap on those price increases, however, is the Chinese producers.
"China is running at about 70 per cent of normal capacity and, when they go to more normal levels of capacity, we would expect that volume to mute some of the price increases."
Incitec also announced that it would close down two ammonium nitrate plants in North America: Battle Mountain in Nevada, in the United States, and Maitland, in Ontario in Canada.
Mr Fazzino said the plants were costly and Incitec was making nothing from them.
"Hence, we have closed them today."
Incitec also said it would form a joint venture, Quantum Fertilisers, in Hong Kong, which would reduce volatility in its fertiliser business by increasing its geographic spread.
AAP
