Sydney, May 6, 2008 (ABN Newswire) - As expected Incitec Pivot's first-half profit more than tripled, spurred by a huge rise in fertiliser prices which should propel full-year earnings above forecast, IPL said yesterday.

It said it expects growth in demand for agricultural inputs to continue unabated, particularly from China and India, leading to continued strength in fertiliser prices, which is already happening.

The company said yesterday that net profit after tax and material items was $169.8 million for the 6 months to March 31, an increase of $112.6 million, or 197%, on the same period last year.

Excluding those material items, net after tax profit items rose by 245% to $171.1 million. Earnings Before Interest and Tax (EBIT) of $250 million was a 198% increase on the previous corresponding period.

Shareholders see an increased interim dividend of 204 cents per share, up 196% on the 2007 interim dividend of 69 cents per share. Earnings per share (excluding individually material items) rose by 245% to 339 cents per share.

The company launched a bid for Dyno Nobel in March and that seems to be on track, with management confident that the explosives maker will make a good fit.

For the full year the company is expecting EBIT to rise to $850 million, based on an industry forecast price of $US1100 a tonne for di-ammonium phosphate in the second half, Incitec chief financial officer James Fazzino said in a statement.

The company previously forecast EBIT of $700-730 million in an update in early March when it said that it anticipated 2008 earnings before interest and tax (EBIT) would be in the range of $700 million to $730 million, an increase of up to 135% on 2007.

"The improved outlook is largely attributable to an increase in earnings from manufacturing flowing from higher international di-ammonium phosphate (DAP) prices, partly offset by adverse currency movements, higher sulphur costs and lower production volumes at IPL's plant at Phosphate Hill in North West Queensland," it said in a statement.

"The earnings guidance is based upon expectations that global influences will drive an increase in average DAP prices to a range of between $US760/tonne and $US790/tonne in 2008.

"This follows strong international demand, supply disruptions in China and record high input costs of phosphate rock, ammonia and sulphur."

IPL said that, while the outlook for the 2008 winter crop looked promising, it was still too early to anticipate how the season will unfold.

Now the company reckons its existing guidance now looks conservative with some analysts expecting EBIT for IPL for the full year of around $886 million for the full year.

EBIT was $250 million in the March half, so a substantial improvement is expected in the current half to September 30.

"With these factors, it's difficult to predict what the average price for DAP will be for 2008, and clearly our existing guidance now looks conservative, CFO James Fazzino said an interview on the ASX corporatefile Open Briefing.

"If you assume second half prices average US$1,100 per tonne – which is the current consensus forecast of fertiliser industry economists – the average DAP price for our financial year would be US$910 per tonne."

CEO Julian Segal said in the same corporatefile interview:" Overlaying this against our previous guidance would give a full-year EBIT of approximately A$850 million,"

"The longer-term outlook for global DAP pricing has changed significantly since we acquired Southern Cross less than two years ago.

"At that time, the industry view of trend pricing was US$210 per tonne. There has now been a step-change in that view with some analysts forecasting average prices of US$900 per tonne for the next five years, reducing to around US$600 per tonne once Ma'aden is operating at full rates."

"Against this pricing outlook, we're currently engaged in a range of feasibility studies and trials at Southern Cross aimed at increasing plant capacity based on the phosphate rock deposit at Phosphate Hill and in the surrounding areas. This work is preliminary. However, we're moving as quickly as we can to unlock value for shareholders."

"When we announced the Dyno Nobel bid, we understood that we were acquiring a quality business, with privileged manufacturing positions, particularly in North America.

Due diligence and integration planning has confirmed our belief in the quality of the business. In particular, we continue to be impressed by the quality and calibre of the Dyno Nobel people globally. We see similarities between the Dyno Nobel culture and ours that will streamline the delivery of business efficiencies. We have a lot of work to do but I'm confident we have the right people to deliver our targets.

"The first priority will be the integration of the Dyno Nobel manufacturing operations with ours into a single function to leverage the "Fit and Flexibility" created by combining the two businesses and to create a centre of excellence for chemical manufacturing and engineering."

IPL shares jumped on the news of the higher profit yesterday, rising by up to $4.83, or 2.8%, to $176.33 on the ASX, before profit taking saw the shares drop in afternoon trading to end down 50 cents at $171.

The stock has surged more than 300% in the past year, compared with the 9% fall in the ASX 200 as world prices for fertilisers have been driven higher by that rising demand from China and India, and hopes for a solid winter grain crop in Australia, especially in Eastern States where IPL is strong.

But the Australian Bureau of Meterology warned yesterday that more rain is needed in growing areas this winter for the drought to be fully broken.

It said that above average rain for a number of years would be needed to fully break the hold drought still has on wide parts of the country and to restore flows in the Murray Darling Basin.

The drought was so bad it would take years of decent rainfall to return the country to normal, the Bureau said.

"The worst of the long-term deficiencies are likely to remain for some time," the statement said.

"The deficiencies (discussed) have occurred against a backdrop of decade-long rainfall deficits and record high temperatures that have severely stressed water supplies in the east and south-west of the country."

"Several years of above average rainfall are required to remove the very long-term deficits."

Besides the drought, IPL investors should keep an eye on the BG Group's bid for Origin Energy.

It could change the profit equation for fertiliser companies and chemical groups in Australia according to a leading analyst interviewed at the weekend on ABC TV's Inside Business.

Ivor Ries, the research Director of broker EL and C Baillieu said:" I think the market has failed to grasp the fact that global gas prices have quadrupled in the last four years and this company is extremely gas rich, the share price is just taking a long time to catch up with the new global reality.

"Fertiliser manufacturers, chemical manufacturers all make good profit margins in Australia because our gas price is low. That's their main feed stock, it's their main cost input.

"Well, the price of that is going to increase very dramatically over the next few years so obviously pressure is going to come onto politicians to try and somehow quarantine the Australian domestic gas price from these export prices.

"What's going to happen is that as soon as an LNG plant is built in Gladstone, Australia's domestic gas price will move to parity because that will drag prices up," he said..

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