Laverton North, Victoria,
Australia
March 27, 2008
Nufarm Limited generated a tax paid operating profit of
$35.4 million for the six months ending January 31, 2008. This
compares with a net operating profit of $7.5 million (from
continuing operations) in the first half of the previous year.
After accounting for non-operating items (2008 1H: Net loss of
$30.8m; 2007 1H: Net gain of $3.9m), the headline after tax
profit was $4.6 million (2007 1H: $15.9 million).
Group sales were $990 million, up by 71% from $580 million. The
first half sales of Nufarm’s Brazilian operations (Agripec) were
consolidated for the first time after that business was fully
acquired by the company in May 2007. If Agripec sales had been
consolidated in the first half of the 2007 financial year, 2008
first half sales increased by 31%.
37% of first half revenues were generated in Australasia; 19% in
Europe; 19% in North America; and 25% in South America.
Operating earnings before interest and tax (EBIT) was $82.3
million, a substantial increase on the $28.4 million recorded in
the first six months of the previous year.
All of Nufarm’s regional crop protection businesses recorded
stronger results on both a sales and operating EBIT basis (as
disclosed in segment reporting note 7 in the half year
accounts). Of particular note was the significantly improved
result from the Australian operations and the higher earnings
contribution from the fully owned Brazilian business.
Earnings per share were (1.6) cents, compared to 9.3 cents for
the six months to January 31, 2007. Excluding the impact of
non-operating items, earnings per share were 16.4 cents,
compared to 8.1 cents for the previous six months.
The Nufarm Board has approved a fully franked interim dividend
of 12 cents – up from 11 cents last year – to be paid on May 2,
2008 to all holders of ordinary shares in the company as of
April 11, 2008.
The increasing global diversification of the group will, in
future, impact on the availability of franking credits. At this
time it is estimated that the final dividend in respect of the
2008 financial year can be fully franked. The Board will review
its dividend policy at the relevant time when considering the
capacity to frank dividends.
Gearing (net debt to shareholders’ funds) increased from 70%
(January 31, 2007) to 95% at the end of January, 2008. This
reflected the additional debt associated with the acquisition of
the balance of Agripec (completed in August, 2007), together
with the consolidation impact of operating debt within the
Agripec business. The gearing level at financial year end is
forecast to be in a range of 50% - 55%. Net working capital
increased from $731.4 million to $870.5 million.
Excluding working capital associated with Agripec ($217.8
million), there was a $78.7 million working capital reduction
across the balance of the group. Excluding the additional debt
associated with the Agripec acquisition, net debt fell by $46
million as a result of the reduction in working capital.
Review of operations
Australasia
Australian sales were up by some 60% on the badly drought
affected first half of 2007. After a slow first quarter,
widespread rains in Queensland and New South Wales during
December and January saw demand for crop protection products
increase sharply as growers sought to take advantage of both
summer cropping conditions and crop prices that were markedly
better than in the previous year. A change in rainfall patterns
across Eastern States helped boost confidence in the Australian
agriculture sector and this helped drive strong and relatively
early demand for a range of key Nufarm products. Glyphosate
sales, in particular, were very strong – a trend that was
repeated in most regional markets around the world – as it
became apparent that global demand for glyphosate is running
ahead of current manufacturing capacity. While Nufarm
experienced substantial increases in its glyphosate-related
costs, these were able to be recovered through stronger pricing.
New Zealand sales were slightly ahead of budget for the half
year and 20% up on the previous year. Asian sales were also up
strongly on the previous year with the Indonesian business
showing good growth and both Malaysia and Japan posting stronger
profit performances. On a segment reporting basis, Australasian
sales were $365 million (2007 1H: $237 million), with segment
profit increasing to $49.2 million from $22.5 million in the
previous corresponding period (pcp).
North America
North American regional sales were up by 34% with the company’s
USA business again generating very strong growth in both sales
and profit. The US market for agricultural inputs has seen
significant expansion and growth in value over the past 18
months. The corn, soybean and wheat segments – in which Nufarm
products have good positions – have seen continued growth, with
the business also able to capitalise on a broader product
portfolio and subsequent opportunities in a range of other crop
segments. Market confidence resulted in some early purchasing
from US distribution, particularly glyphosate and phenoxy
herbicides. As the season progresses, the extent of that early
buying activity will be able to be fully determined. Canada also
saw significant optimism at grower and distributor levels due to
the buoyancy in cereal grain and canola commodity markets.
Nufarm Canada introduced several new products during the first
half of the year as a result of commercial
collaborations with both Syngenta and Dow AgroSciences.
South America
Segment revenues in South America were $250.9 million in the
first half of the year. This is the first reporting period in
which the Brazilian/Agripec sales have been consolidated,
following the acquisition of the balance of that business in May
of 2007. The segment profit contribution was $48.4 million.
Unlike Nufarm’s other regional markets, South America produces
its strongest sales and profit contribution in the company’s
first six months of the financial year. Agripec generated record
net sales in local currency of 344 million reais for the August
to January period (2007 first half net sales: 288 million
reais). Industry data indicates the Brazilian crop protection
market grew strongly in the 2007 calendar year, with total sales
up by some 35% to US$5.3 billion. Agripec sales increased by
almost 40% over the same period. The growth in the Brazilian
market indicates a strong recovery from credit related impacts
over the previous two years and has been driven by rising prices
for most agricultural commodities. Increased plantings of sugar
cane, corn, soybean and cotton resulted in additional demand for
crop protection products. Increased Agripec sales of herbicides
into the corn segment; herbicides and fungicides into soybeans;
and insecticides and herbicides into cotton combined to produce
the overall record sales result. Agripec generated a first half
operating EBIT of $47 million. The equity accounted contribution
in the first half of 2007 – when Nufarm owned 49.9% of the
business – was $13.7 million.
First half sales in Argentina increased by almost 15%, with
excellent growth in profit margins reflecting an expanded
product range and enhanced distribution relationships.
Europe
European sales increased by some 13%. While reported segment
profit was down on the previous half, the 2007 interim profit
included the non-operating gain associated with the sale of a
facility in Spain. Excluding that impact, the European profit
contribution improved on an operating basis. Strong growth in
cereal fungicide and herbicide sales in France; an expansion of
cereal acreage in Italy; and increased demand for glyphosate in
all markets were key contributors to the improved result.
Despite a continuation of drought conditions in parts of Spain,
the Nufarm business grew sales and market share. Sales in
Germany were up by more than 15% and the company continues to
build strongly on its presence in Eastern Europe, with results
in Romania, Poland and the Ukraine benefiting from additional
product registrations. Nufarm’s European based manufacturing
plants operated at full capacity to meet anticipated demand in
the second-half based major selling season.
Non operating items
The net impact of non operating items at January 31 was a loss
of $30.8 million. This compares with a net gain of $3.9 million
in the previous year. An after tax loss of $22.6 million
associated with a barter trade contract in Brazil was the major
non-operating item. This contract has been closed out and no
related additional potential liabilities will result. There was
also a net non-cash foreign exchange loss of $7.6 million
relating to the company’s Step-up Securities (NSS). The foreign
exchange exposure on the funding utilisation from the NSS has
been hedged over the term of the securities and will guarantee a
cash gain of $19.6 million on maturity in the 2012 financial
year.
Subsequent events
On March 5, 2008, Nufarm announced that it had acquired AH Marks
Holdings Limited, a UK based manufacturer and supplier of
phenoxy herbicides. The total purchase price for AH Marks was
₤74.6 million, consisting of cash consideration of ₤46.5 million
with ₤28.1 million in assumed debt. AH Marks is expected to
contribute just over $1 million in net profit in Nufarm’s
current financial year, increasing next financial year to some
$13.4 million as anticipated synergies are achieved.
This acquisition will expand Nufarm’s production capacity;
enhance the company’s product development opportunities;
strengthen the global regulatory position on phenoxy herbicides;
and extend important supply relationships with other major
companies. The company also announced that it proposed to
acquire certain assets of Etigra LLC, a US based supplier of
crop protection products currently focused on the turf and
specialty segments. Nufarm intends to acquire certain assets and
business from Etigra for US$69 million, with completion expected
within the next month. The proposed acquisition is forecast to
generate approximately $4 million in additional net profit after
tax in Nufarm's current financial year, increasing to
approximately $11.3 million in its first full year of ownership.
A capital raising, involving the placement of new shares to
institutional investors, was undertaken on March 5 and raised
$200 million. The placement price per share was $15.10. The
placement proceeds will be used primarily to fund the
acquisitions of AH Marks and the Etigra business. A Share
Purchase Plan (SPP) has also been made available to retail
shareholders of Nufarm who are each being offered the
opportunity to purchase shares at the placement price up to a
total value of $5,000. The SPP is proposed to be capped at $25
million in total proceeds.
Outlook
The outlook for the remainder of Nufarm’s 2008 financial year is
positive, with global agricultural markets showing strong demand
for crop protection products as the company’s Australian, North
American and European businesses approach the major sales
months. Crop plantings in all markets are expected to be very
strong, driven by soaring global demand for grains and other
agricultural commodities and near record crop prices. As always,
climatic conditions will determine to what extent growers can
take advantage of these very positive conditions. Given adequate
rains over the next few months, Australia is poised to show a
very strong recovery from recent drought affected seasons with
forecasts for a large winter crop planting. Nufarm’s leadership
position in Australia makes it ideally placed to capitalise on
the anticipated increase in demand, with its core product
positions in glyphosate and phenoxy herbicides expected to drive
an excellent full year result. While some first half sales in
the US represent early purchasing patterns, Nufarm is also in an
excellent position in that market to capitalise on its product
positions in the second half. The continued introduction of
important new products is opening up additional sales
opportunities in the US. Additional product introductions in
most European markets will also help those businesses post
strong results for the full year.
Following the announcement of the AH Marks and Etigra
acquisition, the company has upgraded its full year net
operating profit guidance to $150 million (previously $145
million). This guidance will be kept under review over coming
months as the impact of seasonal and related business conditions
become more apparent in key markets around the world. |
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