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Nufarm reports financial results for the half-year ended 31 January 2020qrcode

Mar. 26, 2020

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Mar. 26, 2020
Nufarm Limited announced the half-year result ended 31 January 2020. During the half Nufarm reported the sale of the South American businesses to Sumitomo for A$1,188 million. Completion of the sale is expected to occur on 1 April 2020 and the financial performance of these businesses has been included as a discontinued operation for the purposes of this review. Comparative information for the first half of 2019 has been restated on this basis to enable comparison and understanding of the performance of the continuing businesses.

All amounts are in Australian dollars unless otherwise specified.


Nufarm reported a loss for the six months ended 31 January 2020 of $122 million. Revenue from continuing operations declined 12 per cent due to lower demand in North America and Indonesia as customers de-stocked following poor weather conditions, and weak demand in Australia where continued drought reduced sales into summer crop markets. The decline was partially offset by increased revenue in Europe where product availability was improved with the supply chain for products from the acquired portfolios transitioning to Nufarm control.

Gross profit margin from continuing businesses remained relatively stable with the decline in underlying EBITDA of $54 million for the half largely attributable to the reduced revenues in North America, Australia and Indonesia. Lower earnings in the European business also impacted the result with an estimated additional EBITDA contribution of $8 million from the acquired European portfolios more than offset by the impact of strong competition and higher manufacturing, selling, distribution and support costs.

Depreciation costs for continuing operations increased by $20 million, with $12 million of this attributable to the adoption of Accounting Standard AASB 16 Leases. The adoption of this standard had a positive impact on underlying EBITDA from continuing operations of $14 million and increased interest costs by $3 million.

Earnings from discontinued operations in South America benefited from strong demand and revenue growth however this was offset by strong competition impacting margins and resulting in a small decline in earnings. A higher effective tax rate also impacted earnings, and this was offset by recognition of tax assets as a material item.

Material items for the group of $37 million after tax related to the sale of the South American businesses (including costs relating to a planned debt restructuring that did not eventuate due to the decision to divest the South American businesses), recognition and derecognition of deferred taxation assets due to a change in the geographic distribution of assessable income, legal costs for the action brought in the United States to enforce Nufarm’s rights in relation to the omega-3 canola patent estate, and costs relating to implementation of the performance improvement program in Australia.

Net interest expense from continuing operations increased from $34 million to $36 million with $3 million of additional interest expense recognised as a result of adoption of Accounting Standard AASB 16 Leases.

Foreign exchange costs for continuing operations increased by $9 million with foreign exchange losses of $7 million for the period compared to $2 million of gains in the prior period.

Basic earnings per share declined due to the decline in earnings outlined above.

Review of operations

Nufarm’s business has two main reporting segments, crop protection and seed technologies. The crop protection business is focused on major agricultural markets in Europe, North America, South America (discontinued operations), Australia New Zealand and Asia. The seeds technologies business operates in more than 30 countries across the globe.

Australia and New Zealand

Continued drought conditions in Australia limited sales into summer crop markets, reducing revenues and impacting earnings.

The decline in underlying EBITDA of $3 million was mostly attributable to lower sales, partially offset by an incremental benefit of approximately $5 million from the performance improvement program launched at the end of the first half of the prior year. The program has already reached the lower end of the targeted range of annualised benefits of $10 million to $15 million. The program will now be incorporated into the group-wide program recently launched.

Inventory reduction remained a priority and net working capital was reduced by approximately $170 million relative to the first half of the prior year. In response to the weak external demand, production volumes remained at levels below which overhead costs are fully absorbed. The unrecovered overhead costs included in earnings were in line with the first half of the prior year. Rainfall following the half-year end has stimulated demand and production volumes have been increased.


Revenue and earnings in Asia were impacted by drought conditions in Indonesia reducing demand and increasing competition. Sales into other Asian markets were impacted by a shift in the timing of sales to the second half of the financial year with February sales up on the prior year.


Sales revenue continued to increase with market share gains in key cereals markets and improved product availability for the acquired portfolios as the supply chain transitions to Nufarm control.

The acquired portfolios contributed an estimated additional $8 million to underlying EBITDA compared to the prior year. This was more than offset by increased manufacturing, selling, distribution and support costs. Earnings were also impacted by $9 million of rebates relating to the prior year which were brought to account in the current period (as previously advised on 25
November 2019).

The second half of the year has commenced with demand in line with the prior year. Supply constraints relating to the availability of some products from China continue, and raw material costs remain at elevated levels, similar to the prior year.

North America

Demand in crop protection markets was impacted by high channel inventory following adverse weather and tariff impacts. The turf and ornamental segment continued to see market share improvement however some sales shifted to the second half of the year.

Earnings declined $24 million, with margins impacted by strong competition on foundational products in an oversupplied market. Greenville commissioning costs also had a small negative impact on earnings for the first half.

Successful commissioning of the Greenville formulation plant will support customers in southern and eastern US States in the second half and a positive EBITDA benefit is expected in the 2021 financial year. A new distribution agreement with Nutrichem to market Goal® herbicides from September 2020 will further strengthen market presence.

South America

On 30 September 2019, Nufarm announced the sale of crop protection and seed treatment operations in Brazil, Argentina, Columbia and Chile to Sumitomo Chemical Company Limited for $1,188 million. The sale is expected to complete on 1 April 2020.

Increased soy plantings in Brazil drove volume and revenue growth. This was offset by strong competition which reduced margins, resulting in a small decline in earnings.

It is expected that the South American operations will contribute an EBITDA loss of approximately $10 million in the second half of the year prior to completion of the sale, reflecting the normal seasonal trading patterns of these businesses.

At the time of the sale, Nufarm entered into a two-year agreement to supply Sumitomo with certain crop protection products for the South American businesses. The supply contract operates on a cost basis plus a procurement fee. Future sales from this arrangement will be reported as external sales for the regions manufacturing or procuring the relevant products.

Seed Technologies

The seed technologies segment includes sales of seed managed by the Nuseed business and seed treatment chemistry. Prior year comparatives have been adjusted to reflect the sale of the South American seed treatment businesses to Sumitomo. These sales are included in the discontinued operations segment.

Seed technology revenues and earnings were impacted by poor weather conditions in Australia and North America and a shift of sunflower sales in Europe into the second half of the financial year.

Sorghum, canola and sunflower demand is expected to strengthen in the second half driven by new product launches, including our first hybrid canola registration in Canada. An improved outlook for winter cropping conditions in Australia may also positively impact second half earnings. Our new seed treatment product, TrunemcoTM was launched in the first half with sales expected to ramp up into FY21.

In November 2019 Nuseed acquired assets relating to the commercialisation of the oil seed crop carinata, a best-in-class, plant-based feedstock for the production of biofuels. Carinata has undergone small scale testing and development in South America over the past two years and the first commercial sales are forecast for the second half of the financial year.

During the half, Nuseed received validation of the omega-3 canola oil patent estate with a favourable finding from a USA federal court.

ADM has been contracted to provide crushing and processing services to support the first commercial sales of the omega-3 canola oil in the second half. Plans to more than double oil production in 2020 for the 2021 season are underway.

While the aquaculture market remains the initial focus for commercialisation, omega-3 canola oil is also being developed for the human nutrition market and is in the final stages of a clinical trial evaluation.


The majority of Nufarm’s full year earnings for continuing businesses are generated in the second half of the financial year. The discontinued operations in South America are expected to contribute a loss of approximately $10 million EBITDA in the second half of the year prior to completion of the sale, reflecting normal seasonality of these businesses.

The sale is expected to result in a loss for accounting purposes and this will be recorded as a material item in the second half. Additional costs relating to the completion of the sale will also be recorded as a material item. Further legal costs concerning the omega 3 canola patent estate and restructuring costs relating to a group wide program to improve costs and efficiencies are also expected to be reported as material items in the second half.

Interest costs for continuing and discontinued businesses are expected to be approximately $90 million to $100 million for the financial year. This includes approximately $6 million of increased financing costs relating to adoption of accounting standard AASB 16.

Hedging costs and foreign exchange gains and losses will continue to be incurred in relation to management of currency exposures in continuing crop protection and seed technologies businesses.

Depreciation and amortisation costs are expected to be approximately $220 million for the financial year assuming no significant movement from exchange rates prevailing at the end of the half year.

The underlying effective tax rate is expected to increase as a result of the sale of the South American businesses, with the non-recognition of current year tax losses in certain countries also impacting the outlook for the financial year. As a result, the effective tax rate is expected to be higher than the outlook of 33 per cent provided in September 2019.

Corona virus COVID-19

Nufarm is monitoring the potential impacts arising from travel restrictions and other measures taken by various Governments from February onwards as a result of the COVID-19 outbreak. The company also notes unusually large volatility in global markets which has impacted exchange rates and other markets.

Demand for our products is strong following the end of the financial period, reflecting the fact that the majority of earnings are derived from customers exposed to end markets in food production. Product supply from China is progressively recovering from the initial delays caused by COVID19. While regional restrictions are creating distribution delays and upward cost pressure in some countries, the impacts have been manageable.

Future demand and the company’s ability to meet demand could be impacted by an escalation in disruptions. The potential future impact on Nufarm’s financial performance cannot reasonably be estimated at this time.

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