Shares in agricultural products group Nufarm (NUF) joined the downgrading club yesterday with a surprise negative update at the annual meeting sending the shares down 6% at one stage.
Nufarm shares touched a low of $7.96, down 6%, before clambering back in the afternoon to close off 2.8% at $8.25.
NUF 1Y – Nufarm facing profit slide
Nufarm CEO Greg Hunt told yesterday’s annual meeting that for a combination of reasons including dry weather, foreign exchange losses (the strength of the US dollar in some markets), weak demand and tough trading conditions in others such as Australia and Brazil (which is now in the midst of a deep recession).
“At the half year we expect the underlying profit after tax to be lower than the prior year,” Mr Hunt told the meeting.
“Year to date, we have incurred exchange losses of $10 million, mainly due to the extreme volatility of the currencies in South America and the high cost of hedging those exposures.
"First half interest expense will be slightly above last year, caused by higher interest rates in Brazil and the net translation impact of foreign currency denominated interest.
“The first six months of the year always sees a build in working capital, given the timing of major seasons in our global markets.
"I expect working capital levels at the half to be slightly above the prior year but the average net working capital to sales percentage to be below that of last year. So our working capital will grow at the half but at less than the rate of sales growth.
"Our first six months result is typically dominated by contributions from Australia and Brazil, which are both experiencing challenging market conditions.
"Despite this, we are confident that underlying EBIT at the half will be in line with or ahead of the prior year. This will leave us well placed to deliver underlying EBIT growth for the full year.
"The cost savings and performance improvement program announced earlier this year, together with the previously announced Australian and New Zealand manufacturing restructure, will deliver a net benefit of $116 million in underlying EBIT by the end of the 2018 financial year,” Mr hUnt told the meeting.
Nufarm’s downgrade doesn’t appear to be as great a shock as those delivered this week by Dick Smith and Spotless.
