Little wonder that shareholders in Nufarm okayed a tie up with Sumitomo of Japan yesterday.
They had just heard the company issue its 3rd earnings downgrade in the past nine months.
In fact there are no earnings for the first half: losses now seem to be the order of the day.
The shares reacted adversely to that news, losing 8% at one stage after the meeting in Melbourne and the statement.
They closed at $9.47, down more than 2.8%.
The greenlight given to Sumitomo taking a 20% stake in Nufarm at $14 a share was a no brainer.
That’s quite a vote of confidence in the company’s future.
The third profit warning vindicated the move by Sinochem, to cut and then walk away from its offer for Nufarm in December after more than six months of talks after it took a close look at the books and how the company was travelling.
Nufarm rebuffed Sinochem’s lowered offer and turned instead to Sumitomo’s plan.
Nufarm again blamed global demand for its key weed killer, glyphosate.
It’s still much weaker than expected, with prices dropping to less than half last year’s level as demand continues to be hit by farmers cutting back on usage to save money, and weak farm credit from banks in many markets.
Brazil, a key market, was again weak in the first half to the end of January.
Brazilian farmers have cut consumption, in many cases because local banks have cut credit.
Nufarm said that as a result of this slump it will incur a loss of about $40 million for the first half, even after the big write-down on its glyphosate inventory in the second half of last year.
The company expects a stronger second half to push the full year headline profit to $80 million to $100 million.
"The outlook for the second half of the financial year provides grounds for confidence that acceptable profits can be generated in this period," managing director Doug Rathbone, who owns 11% of the group, told shareholders.
"Our detailed results for the six months to the end of January will be released on March 30.
"Those results (which are still to be finalised and are subject to audit review) will reflect the fact that some of the negative impacts that contributed to such a disappointing full year result last year have extended into the first half of the current year," Mr Rathbone said at the meeting.
He said the operating profit would be between $110 million and $130 million, well below analysts’ forecasts for around $165 million.
"Shareholders will recall that the company wrote down the value of glyphosate inventory at the end of last financial year.
"We did so with an expectation that pricing had reached its low point in most markets and that the company could clear remaining inventory without incurring further losses on those sales.
"The continued pressure on pricing has largely been driven by intense competition from suppliers who held much higher than average product inventory levels at the end of last season.
"As we have previously disclosed, at the end of July last year Nufarm held glyphosate inventories in the US that equated to some six months of sales.
"Faced with the option of either standing out of the market in the hope that prices would begin to recover – and potentially losing long term market access – or clearing those inventories so that we could reduce our cost position on subsequent sales and maintain market share, we have opted to suffer a further short-term loss by electing to maintain our market positions by selling at the lower market prices," Mr Rathbone said.
