Nufarm agchems sales up 21% in H1 FY2014

Nufarm's crop protection sales rose by 21.2% to Aus$1,084.2 million in the six months ended January 31, 2014. Nufarm Group 's sales increased by 21.8% to Aus$1,138.2 million in the first half of FY 2014. On a constant currency basis, revenues increased by 11%.

Nufarm’s agrochemical sales by region in H1 2014 (Aus $ million)
Six months ended 31 January	2014	2013	change%
Australia & New Zealand	249.0	235.8	+5.6
Asia	71.2	62.7	+13.6
Europe	170.3	153.6	+10.9
North America	180.7	170.3	+6.1
South America	412.8	272.1	+51.7
Total	1,084.2	894.4	+21.2

Nufarm's crop protection revenues generated an average gross margin of 25.8%. Herbicide sales were up by 21% to Aus $711 million. These sales generated an average gross margin of 25% and represented 66% of total crop protection sales. While hot and dry conditions in Australia limited demand for herbicides, sales in South America and in some North American segments were strong. Glyphosate sales volumes were similar to the first half period of the previous year, but raw material costs and selling prices were higher leading to a larger sales value. There was a slight improvement in glyphosate margins. Herbicide sales into the pasture segment in Brazil were higher, as were dicamba sales in the US.

Insecticide sales rose by 52% to Aus$171.4 million, accounting for 16% of the total sales.These sales generated an average gross margin of 32%. Insect pressure in the South American soy crop was extremely high and Nufarm was well positioned to take advantage of the stronger demand.

First half fungicide sales were decreased 6.2% to Aus$100.3 million, contributing to 9% of total sales. These sales generated a 27% gross margin. While fungicide sales in Europe were strong, lower disease pressure in both South America and Australia resulted in a lower level of sales from this product segment.

The company's seed technologies segment includes sales of seeds and seed treatment chemistry. Segment sales in the first half were up by 35% to Aus $54 million. Underlying EBIT was down by 25% to Aus $3.3 million. Seed technology sales generated an average margin of 49%, lower than the 54% recorded in 2013.

Regional sales

Australia / New Zealand

Sales in Australian and New Zealand were up by 5.6% to Aus $249 million in the first half of FY 2014, representing 23% of total crop protection revenues. Underlying EBIT dropped by 13.6% to Aus$8.9 million.

A relatively dry finish to the 2013 winter cropping season limited demand for post emergent herbicides and fungicide applications in cereal crops. This was followed by a second consecutive year of extremely hot and dry conditions in the major summer cropping regions, with exceptionally low weed, insect and fungal disease pressure occurring in those regions. High channel inventories and very low product demand generated additional pressure on margins. Lower volumes also negatively impacted overhead recoveries in the company’s manufacturing plants. The company is undertaking a reorganisation of its Australian business, including the phased closure of two production facilities.

Asia

Asian crop protection sales achieved a 13.6% increase to Aus $71.2 million in the first half of FY 2014, accounting for 7% of total crop protection revenues. Underlying EBIT was  up by 24% to Aus $9.3 million.

A number of regional markets generated improved sales, including Indonesia where Nufarm has a very strong position. New offices established in South Korea and Vietnam also helped drive increased business in those markets.

North America

North American crop protection sales increased by some 6% to Aus $181 million, contributing to 16% of total revenues. On a local currency basis, sales were up strongly in Canada, but were down by some 12% in the US. Underlying EBIT was a loss of $6.9 million compared to a loss of Aus $0.3 million in 2013. A very severe winter in the US resulted in lower demand for herbicide applications in the cropping segment and has also dampened demand for a number of products in the turf and specialty market. Cotton acreage was also down on the previous period, but is expected to lift again in the coming season. Volume sales of glyphosate were down, resulting in lower overhead recoveries in the Chicago manufacturing plant. In Canada, Nufarm continued to build market presence and customer support, despite dry conditions in some areas impacting demand.

South America

Sales in South American increased by 52% to Aus $413 million, making up 38% of total revenues. Underlying EBIT boosted by 71.9% to Aus$60 million. Seasonal conditions in the major markets of Brazil and Argentina were largely average for most of the period, with some dry weather developing in some regions in January. Chile experienced severe frosts which negatively impacted the important horticulture segment. Nufarm Brazil sales were up by more than 66% on a local currency basis. Significant drivers of the first half performance were higher than normal insect pressure in the large soybean crop, and strong sales of the company’s differentiated glyphosate product, ‘Crucial’. The expansion of Nufarm’s Brazilian sales force enabled the company to achieve improved market penetration. The business in Argentina also performed strongly, with sales up by 43% on a local currency basis. Several new product launches supported the growth of the business.

Europe

European sales were up 11% to Aus $170.3 million, representing 16% of total sales. In local currency, Spain and a number of the smaller European markets improved their first half sales performance, while the larger businesses in the UK, France and Germany were down on a local currency basis. Underlying EBIT was decreased by 86.7% to Aus$1.5 million.

Outlook

Nufarm anticipated that business conditions in Australia will remain challenged. While much-needed rainfall would drive increased applications of product, channel inventories are estimated to be high and pricing pressure is expected to continue for the balance of the year.

North America has experienced a very severe winter and early second half demand patterns are below normal while the industry awaits the warmer spring conditions. Nufarm has a growing product portfolio in both the US and Canada, is well placed to take advantage of opportunities, and is expecting a strong second half performance when the season gets underway.

In Europe, the company is also well placed to capitalize on second half opportunities, however a lower full year contribution from the manufacturing plants, is expected to result in a segment EBIT result similar to the previous year.