Following a record performance for the first half, Incitec Pivot (ASX: IPL) has announced plans to demerge its fertiliser and mining explosives divisions into two separately listed companies by mid next year.
If successful, the separation will see IPL change its name to that of it commercial explosives subsidiary Dyno Nobel , which was initially acquired in 2008 for $3.3 billion, while the board would seek to list Incitec Pivot Fertilisers as its own entity.
The split will incur one-off separation costs between $80 million and $105 million, while ongoing costs are projected to be between $25 million and $35 million per annum.
IPL shares fell 2.67 per cent to $3.64 after the announcement this morning.
“Dyno Nobel has leading technologies and market positions in the most attractive mining markets in the world. Incitec Pivot Fertilisers has an unrivalled distribution footprint in the large and attractive agricultural sector in Australia and an exciting technology led future in soil health solutions and biofertilisers,” IPL managing director and CEO Jeanne Johns said.
“We have excellent financial capacity to provide each business with a capital structure to support their investment and growth characteristics and potential.
“Our businesses are critical to the delivery of sustainability and security to two key industries and both companies will continue to focus on delivering leading technology and services for our high-quality customers.”
The board believes the demerger will allow “significant growth” for both companies, with each to focus on accelerating its tech offering in “two different essential industries.”
The demerger would see IPL shareholders receive shares in Incitec Pivot Fertilisers Limited in proportion to their existing shareholding in IPL. They will also retain their existing IPL shares, which will be rebranded Dyno Nobel Limited.
“A separation process has been designed to minimise cost and disruption to normal operations,” IPL said in an ASX trading update today.
The Melbourne-based company's decision to split comes two years after the company initially looked into selling its fertiliser business, which was scrapped when COVID-19 caused “extraordinary market uncertainty and travel restrictions.”
Record half-year results
The announcement also comes at the same time IPL reported its half-year results, which saw profit surge from $36 million to $384 million year-on-year, on the back of increased demand in “highly disrupted” markets.
Dyno Nobel Americas reported an EBIT of $252 million, up $220 million year-on-year while its Asia Pacific division saw an increase of 13 per cent to $79 million.
The group saw a substantial rise in earnings for the Asia Pacific Fertilisers division as well, up by $237 million year-on-year at $257 million for the half.
“Our people across Dyno Nobel and Incitec Pivot Fertilisers have continued to deliver for our high quality customers across key resources and agricultural markets, while also making excellent progress on a number of strategic initiatives including our sustainability agenda," Johns said.
The company’s fertilisers division saw EBIT increase to $257 million from $20 million. The result comes after IPL acquired a majority stake in Australian Bio Fert for $38 million to help it build a Victorian plant capable of producing 75,00 tonnes per annum of granular biofertilisers.
To be built near Lethbridge, the plant is expected to "deliver a new category of sustainable fertilisers for Australian farmers", according to Incitec Pivot.
"This investment in regional Victoria is a great example of the environmentally friendly circular economy in action and part of a commitment to help our farming customers reduce environmental impacts while using our safe and effective products," Johns said in December.
"The COVID-19 pandemic has shown us the importance of domestic supply chain security, and projects such us this help ensure Australian companies can continue to service our critical agricultural industry and support Australian farmers."
Shares in IPL are down 3.21 per cent at $3.62 per share at 11:54am AEST.
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