Nufarm crop protection sales up 4% in FY 2013

Date:10-15-2013

Nufarm's crop protection business accounted for 94% of group revenues, and sales increased by 4.1% to Aus$2,145.6 million in the fiscal year 2013 ended July 31.These sales generated an average gross margin of 26%, slightly lower than the 27% gross margin recorded in 2012 and reflecting higher sales of lower value products in some markets and margin pressure associated with the weaker Australian conditions.

Nufarm’s sales result in FY 2013 (Aus$ million)
Year ended 31 July	2013	2012	change%
Crop Protection	2,145.6	2,060.6	4.1%
Seed Technologies	131.7	121.0	8.9%
Underlying EBITDA	260.8	267.8	-2.6%
Underlying EBIT	186.8	206.0	-9.3%
Underlying NPAT	83.2	115.4	-27.9%
Total	2,277.3	2,181.6	4.4%

The seed technologies sales rose by 8.9% to of Aus$131.7 million in the fiscal year 2013 and contributing a higher average gross margin of 55% compared to 53% of FY 2012.

Herbicide sales were Aus$1.48 billion, slightly up on the previous year, with the average gross margin down slightly at 25%. Very dry conditions and lower demand in both Australia and in the pasture segment in Brazil, where Nufarm has a significant position, impacted both volumes and pricing in those markets.

While glyphosate volumes were in line with the previous year, sales were higher and represented 26% of total crop protection revenues. This reflected higher input costs and higher selling prices for glyphosate products. Margins improved slightly, driven by the successful launch of a differentiated formulation in Brazil. Phenoxy herbicide sales were down with demand in key markets adversely impacted by seasonal factors. Sales of several other herbicides increased, including dicamba and bromoxynil.

Nufarm’s insecticide portfolio generated a 17% increase in sales to Aus$215 million, but a lower value product mix saw margins decline in comparison to the 2012 financial period (32% versus 35%).

Insect pressure in Brazil’s major crops generated strong demand for chlorpyrifos and Nufarm’s sales of this chemistry were nearly double that of the previous year. Increased competition in the imidacloprid segment resulted in pricing pressure in some markets and new regulatory restrictions in some crop segments in Europe also impacted sales, which were down compared to the prior year.

Some higher value insecticide products were not required in Australia due to unusually low insect pressure in summer crops.

Fungicide sales were up slightly to Aus$219 million, with average margins in line with the previous year.

New product launches and relatively high disease incidence at times of the year in Brazil and Europe helped offset the very dry conditions, and subsequent low demand for fungicide products, in Australia.

While sales of plant growth regulators (PGRs) were in line with the previous year, margins improved.

Demand in the cotton segment was down, but Nufarm’s expanded portfolio in the cereals market in Europe and additional sales of PGRs in distribution arrangements with Sumitomo Chemical helped drive an improved performance.

The company's seed technologies business, which includes the global Nuseed business and Nufarm's seed treatment applications, grew sales by 9% to Aus$131.7 million and generated an average gross margin of 55%, which was an improvement on the previous year (53%). Underlying EBIT was up 6% to Aus$32.4 million.

Regional sales

Nufarm’s agrochemical sales by region in FY 2013 (Aus$ million)
Year ended 31 July	2013	2012	change%
Australia & New Zealand	604.4	701.0	-13.8%
Asia	125.2	125.6	-0.3%
Europe	468.3	431.1	8.6%
North America	516.3	470.2	9.8%
South America	431.4	332.6	29.7%
Total	2,145.6	2,060.6	4.1%

Australia / New Zealand

The Australian and New Zealand businesses generated sales of Aus$604.4 million, 13.8% down on segment sales in the previous year (Aus$701.0 million). This represented 28% of total crop protection revenues (2012: 34%). Underlying EBIT was well down on the previous year at Aus$35.4 million (2012: Aus$106.0 million), reflecting very difficult conditions in the Australian market.

Unusually dry weather conditions persisted in most Australian cropping regions from early in the financial year until the last quarter of the financial period. These conditions resulted in the need for very little summer weed control and exceptionally low levels of insect and fungal disease pressure.

Sales of relatively higher value products into summer crops were significantly down on normal levels. It remained dry through the pre-plant period ahead of the major winter crop, resulting in low levels of demand for fallow and pre-emergent herbicide applications. While rains in May and June helped drive demand for post-emergent herbicides, lost opportunities over the balance of the year had a very negative impact on the business.

Crop protection sales in Australia were down some 17% on the previous year and with additional competition for fewer sales opportunities, margins were also negatively impacted. Lower production volumes also impacted the efficiency of the Australian manufacturing plants.

Australia is Nufarm’s largest country market and represents a substantial fixed cost investment which supports their clear market leadership position. While a return to more normal seasonal conditions is expected to see a strong earnings recovery in Australia, an extensive review of the business has been undertaken to identify areas for improvement.

Substantial work was also completed to prepare the Australian business for changes to distribution arrangements involving the BASF portfolio (which cease in March of 2014), and a transition to new branding for the company’s glyphosate portfolio (effective August 2013).

The New Zealand business generated slightly higher sales, despite dry summer and autumn conditions which reduced demand for herbicides. Insect pressure was above average. The manufacturing division, which produces insecticide and fungicide products for Nufarm businesses in other parts of the world, performed strongly.

Asia

Asian crop protection sales were Aus$125.2 million, in line with the previous year (Aus$125.6 million) and again representing 6% of total crop protection revenues. Underlying EBIT was Aus$19.6 million, up from Aus$16.7 million in 2012.

The business performed solidly despite lower demand for crop protection products in the plantation segment due to a lower palm oil commodity price. This is a major segment for Nufarm in Indonesia and Malaysia.

Nufarm opened a new office in South Korea to support increased sales into that market and launched several products that will help secure growth in target crop segments including rice and vegetables.


North America

North American crop protection sales increased by 10% to Aus$516.3 million. Measured in local currency, the increase in US sales was approximately 2%, with Canadian sales up 26% on the previous year. The region generated 24% of total crop protection revenues (2012: 23%). Underlying EBIT was up by more than 26%, increasing to Aus$42.2 million (2012: Aus$33.3 million).

A late winter in the US reduced opportunities in the burndown (pre-plant) segment, with the large soy and corn crops being planted later than usual and over a more concentrated period. Cotton plantings were down resulting in lower demand for Nufarm’s portolio of plant growth regulators in that segment. Sales of phenoxy herbicides were strong and the US ag business was able to increase total sales despite some challenging market conditions.

The business also performed strongly in the industrial vegetative management segment with both increased sales and stronger margins. The company completed the acquisition of Cleary Chemical Corporation midway through the period, which has strengthened Nufarm’s fungicide and insecticide portfolio in the high value turf and ornamental market, reinforcing Nufarm’s top three position in that segment.

A new manufacturing facility was commissioned at Alsip (Chicago), specialising in the formulation of insecticides, fungicides and custom seed treatment applications.

The strong Canadian result was supported by growth in the western cereals and pulse markets, and increased sales into the horticulture segment. Several new products launched during the year had outstanding success.

South America

South American crop protection sales increased by almost 30% to Aus$431.4 million (2012: Aus$332.6million). Underlying EBIT was Aus$40.6 million, a substantial improvement on the previous yea (Aus$17.5million). Regional sales comprised 20% of total crop protection revenues, up from 16% in the priorperiod.

Seasonal conditions in Brazil and Argentina were generally average, albeit some dry weather impacted sales in the important pasture segment in Brazil. Dry weather in Colombia and Chile also impacted demand in the last quarter of the year.

Market conditions in Brazil were favourable, with increased plantings and an expansion in the use of crop protection inputs. In local currency, sales in Brazil were R$686 million, up almost 41% on the previous year. Brazilian EBIT more than doubled, in local currency, to R$67.8 million, from R$29.8 million in 2012.

Nufarm strengthened its position in each of its target segments and continued to diversify its product offering with several new product introductions during the year. A new high load glyphosate formulation, ‘Crucial’, was very successful, resulting in both increased volumes and margins in the glyphosate segment. An expansion of the sales force provided reach into additional regions.

The business in Argentina also performed very strongly, with sales up by some 34% in local currency and a significant improvement in profitability, driven by higher sales of differentiated products at improved margins.

Europe

European sales were up by more than 8% to Aus$468.3 million (2012: Aus$431.1 million). This represented 22% of total crop protection revenues (2012: 21%). Underlying EBIT improved strongly to Aus$57.2 million from Aus$43.2 million in the previous year.

Seasonal conditions in Europe were mixed, with a relatively cold and wet autumn and a long winter negatively impacting selling opportunities in a number of markets. The UK experienced difficult climatic conditions, with total industry sales estimated to be down by up to 20% in that market.

Fungicide demand was strong in some markets and Nufarm’s more diversified portfolio enabled the company to take advantage of those conditions. Growth in Europe was also driven by the successful introduction of new products and strong sales of phenoxy herbicides.

Nufarm’s business in Central/Eastern Europe grew strongly. Sales in Germany, Spain and Portugal were also higher than in the previous year.

The company strengthened its position in the non-crop home and garden market in France, despite unhelpful climatic conditions during the high demand season. Nufarm is now the market leader in this segment and has expanded both its product range and distribution network.

The European manufacturing units performed very strongly, with increased volumes of phenoxy herbicides produced to meet strong demand in global markets. Overhead recoveries in these manufacturing facilities made an important contribution to the regional result.

The European management structure was changed during the year, with the appointment of a single head of Europe in place of the previous multi-regional structure. This is resulting in additional focus and efficiencies across the business.

Outlook

With average seasonal conditions in Nufarm’s major markets, the company expects to generate an improved underlying EBIT result in the 2014 financial year.

Despite increased competition, the company is forecasting a strong improvement in its Australian results, given a return to more normal seasonal conditions and demand patterns. It is anticipated, however, that excess inventory in the channel resulting from last year’s poor season may place pressure on margins in some segments.

Several regulatory-based product withdrawals in Europe will result in the loss of sales that contributed some Aus$4 million in EBIT in financial year 2013. Nufarm’s European business is, however,well positioned to capitalize on growth opportunities, driven by a number of new products scheduled to be launched, and increased market penetration in existing segments.

The company’s North American business is also expecting to generate sales and earnings growth in the current year.

Given the strong recent growth in Nufarm’s Brazil business, further investments will be made to both consolidate this growth and build a stronger platform to secure additional revenue and earnings expansion in this fast growing market. Sales activity in Brazil has been very strong in the initial months of the financial year.

The Asian business is forecast to be slightly down, with additional pricing pressure anticipated in the glyphosate segment. Expansion into new crop segments such as rice and vegetables is expected to drive growth in Asia over the longer term.

The company’s seed technologies business is expected to achieve an improved result in financial year 2014, with expanded penetration in a number of geographies and the benefit of a number of new varieties and downstream products being brought to market.