Nufarm crop protection sales up 8% in H1 2013

Nufarm's crop protection business sales, which accounts for 96% of group revenues, rose by 7.6% to $ 894.0 million for the 6 months to 31 January, 2013.The company's seed technologies business sales rose by 27.0% to $ 40.0 million.

Herbicide sales were $588 million (2012 1H: $581m) and generated an average gross margin of 25% (2012 1H: 25%).

Glyphosate pricing remained very competitive in most markets, however strong demand and the successful introduction of a new high load glyphosate formulation lifted margins in Brazil.

Sales and margins remained depressed in Australia, impacted by very hot and dry climatic conditions and consequent low demand. Nufarm’s phenoxy herbicide portfolio performed strongly, while sales of herbicides directed at the pasture segment in Brazil were down due to dryer than normal weather conditions.

Insecticide sales were strongly up on the first half of the previous year ($113 million v $84 million). These sales generated an average gross margin of 31%, down on the 38% recorded in 2012. Margin was down due to higher sales of lower margin products and increased competition in some segments.

Insect pressure in South America was high, helping to offset very low demand for insecticide products in Australia.

First half fungicide sales were $107 million, an increase of 22% on the previous period.Average gross margin was 29% (2012 1H: 30%).

The increased sales outcome reflects positive demand for a range of Nufarm fungicide products in Brazil and improved sales opportunities in the US and Europe.

Nufarm’s sales result in H1 2013 ($ million)
Six months ended 31 January	2013	2012	change%
Crop Protection	894.0	831.0	+7.6
Seed Technologies	40.0	31.5	+27.0
Underlying EBITDA	82.8	68.2	+21.5
Underlying EBIT	47.3	37.8	+25.1
Underlying NPAT	10.6	23.9	-55.7
Total	934.0	862.5	+8.3

Regional sales

Australia / New Zealand

The Australian and New Zealand businesses generated $236 million in segment sales, down 22% on the $304 million recorded in the first half of 2012. This represented 26% of total crop protection revenues in the first half period. Underlying EBIT was well down on the previous period at $10.3 million versus $41.8 million.

Australia experienced unseasonably dry and hot conditions for most of the first half period, particularly in the northern summer cropping regions. With low levels of moisture and unusually low pest and disease pressure, demand for crop protection products was consequently very weak and increased competition for fewer sales opportunities also impacted on pricing and margins.

The first half period typically generates relatively high value product sales in Australia and the loss of those sales had a significant impact on margins and EBIT in the period.New Zealand sales were ahead of the previous period and the business performed solidly.

Asia

Asian crop protection sales were $63 million (7% of total crop protection revenues), compared to $65 million in the previous period. Underlying EBIT was slightly down at $7.5 million, versus $9.0 million.

A significant fall in the price for palm oil resulted in lower demand for crop inputs in the important plantation segment in Indonesia, which is Nufarm's largest regional market in Asia. Glyphosate margins also continued to come under pressure.

North America

North American crop protection sales increased by 18% to $170 million and this represented 19% of total crop protection revenues. Underlying EBIT improved from a loss of $3.6 million in the first half of 2012 to a loss of $0.3 million.

An extended fall/autumn selling period provided increased opportunities for Nufarm's portfolio of herbicides in the ‘burndown’ segment ahead of winter crop plantings. Strong support from distribution customers helped drive higher sales into the US turf and ornamental market while the business also performed strongly in the forestry segment.

Nufarm completed the acquisition of US based Cleary Chemical Corporation in January 2013. Cleary Chemical Corporation is a marketer of fungicides, insecticides and plant growth regulators to the turf and ornamental horticulture industries and the acquisition will strengthen Nufarm's product offering in those segments. Acquisition consideration totaled approximately US$12.5 million, including working capital adjustments.

A new manufacturing facility and regional head office was also commissioned at Alsip in Chicago. The facility will specialise in the production of insecticide and fungicide products and custom seed treatment applications.

Sales in Canada were also up on the previous period. Nufarm benefited from more favourable conditions in the wheat and soy segments and from a broader product portfolio.

South America

South American crop protection sales increased by 52% to $272 million (31% of total first half crop protection revenues). Underlying EBIT was also up strongly at $34.9 million versus $10.3 million in the previous period.

Despite dryer than normal conditions in the North East of Brazil, which reduced the requirement for pasture products, demand for crop protection inputs was generally strong,driven by high crop prices and large plantings of key crops. Insect pressure was high, particularly in soy, corn and cotton crops, providing positive opportunities for Nufarm's insecticide products. The introduction of a new high load glyphosate formulation helped generate stronger margins. In local currency, Brazilian sales were up by 97%.

The business also performed strongly in Argentina, with sales up 32% in local currency. Seasonal conditions were mixed, however the introduction of several new products helped drive an improved profit outcome.

Europe

European sales were $154 million, up 10% on 2012 first half sales of $139 million. Europe accounted for 17% of crop protection sales for the group. Underlying EBIT improved to $11.3 million, compared to a first half loss of $2.3 million in the prior year.

The European business experienced mixed climatic conditions, with wetter than normal weather disrupting planting activity in some markets including the UK and France. Central European markets, including Germany, experienced more favourable conditions.

Nufarm's cereal herbicides portfolio performed strongly and the company secured increased sales in oil seed rape and the non crop segment in France, where Nufarm has expanded its product offerings.

Strong demand for phenoxy herbicides in Nufarm's global markets outside of Australia resulted in high production levels in the European based manufacturing facilities. In some markets, earlier than normal demand for those products saw a re-phasing of manufacturing activity from the second half of the financial year into the first half with higher than expected overhead recoveries booked in the period.

Nufarm’s agrochemical sales by region in H1 2013 ($ million)
Six months ended 31 January	2013	2012	change%
Australia & New Zealand	235.8	303.9	-22.4
Asia	62.7	64.6	-2.9
Europe	153.6	139.2	10.4
North America	170.3	144.2	+18.1
South America	272.1	179.4	+51.7
Total	894.5	831.3	+7.6

Outlook

Nufarm's earnings are weighted to the second half of the financial year, which coincides with the major selling periods in most of the company’s major geographic markets. The exception is South America, where the majority of business is undertaken in the first half.

In markets outside of Australia, the company remains confident that it will generate an improved performance for the full year on the basis that at least average seasonal conditions are experienced in those regions. In the key markets of North and South America and Europe, the company is on track to generate strong revenue and EBIT growth. Nufarm's seed technologies segment is also expected to generate revenue and EBIT growth over the full year period, despite bearing higher costs than in the previous year.

Conditions in Australia remain extremely challenging, with relatively low demand and associated sales activity continuing into the first two months of the second half period.

Several fallow spray applications have been lost and there is now higher than normal inventory in the distribution channel. Widespread rains will be required in southern NSW,Victoria, South Australia and parts of the West Australian wheat belt over the next four to six weeks to drive sales opportunities, but margins are expected to remain under pressure.

Given the considerable uncertainty around the outlook in Australia for the balance of the year and an anticipated decline in Australian earnings, the company is now forecasting to generate an underlying EBIT below that of the previous year at a group level and within a range of $180m-$200m. As was the case at the half year, the underlying net profit after tax will be impacted by foreign exchange losses – assumed to be in line with losses recorded at the half - and higher interest costs and is also forecast to be below that of the previous year and within a range of $80m - $95m.