Shares in crop-protection company Nufarm dipped 0.9% yesterday after it joined the downgrade club – with the cause the gathering big dry in Australia and cold weather in parts of Europe and North America.
Ahead of the federal budget,Nufarm downgraded its full-year profit forecast on Tuesday in response to what it said were “challenging climatic” conditions in Australia, New Zealand, Europe and North America.
Investors though took the news in their stride and the shares ended at $8.82.
The company said it now expects underlying earnings before interest and tax (EBIT) for the 12 months to July 31 of about $317.4 million, or up 5% on last year.
That’s slightly down on the previous guidance for a lift in EBIT of 5% to 10%.
The downgrade came with farmers across Australia increasingly concerned about their winter crops with parts of the Eastern States recorded the driest April on record.
"In Australia, we have seen a continuation of the dry conditions in April, with many parts of the country recording their driest April on record. Whilst it is not too late for the major cereal growing areas, there has been no break on the eastern seaboard,” Nufarm said in yesterday’s update.
"This has limited pre‐plant spray opportunities, with the emphasis switching to the smaller post‐emergent spray opportunity. The dry conditions have also reduced canola plantings, with many canola seed orders being cancelled in the last two weeks.
"The extended winter in both Europe and North America has delayed grower demand for our products. In the USA, the turf and ornamental business has been impacted with little to no treatments applied during the April month. The delayed start to the season places strain on the supply chain and may increase logistics costs, particularly in the USA.
"The European Commission member states’ decision on April 27 to restrict the use of neonicotinoids to indoor uses may also impact earnings. While the use restrictions do not come into effect until after the end of the financial year, there may be some adverse impact on sales in the current year.
"The majority of Nufarm’s sales fall into the second half, and Nufarm Managing Director and CEO Greg Hunt said that whilst the challenging climatic conditions have impacted the group’s sales in major regions during the key pre‐plant period, the underlying business remains strong and is better positioned to withstand adverse seasonal conditions due to the transformation program the company has undertaken over the past three years. “We will continue to manage the things that we can control, and remain confident we will deliver growth more than the global crop protection market”, he said in yesterday’s update.
Nufarm said the delayed season will also have an impact on the phasing of net working capital, and will result in a higher level of net working capital at July 31 as compared to the previous year. "However, the expectation is for the average net working capital to sales to remain well controlled in the 37 to 38% range,” the company added.
