Europe has become the latest trouble spot for local agricultural chemicals and seed company Nufarm a year after the company got rid of its previous problem businesses in South America to major shareholder, Sumitomo Chemical.
Nufarm yesterday revealed plans for about $215 million of non-cash impairments relating to its European operations when it reports full-year results later this month.
The company also revealed in a statement to the ASX that it is expecting to report full-year EBITDA (earnings before interest, tax, depreciation and amortisation) for the year ending July 31 in the range of $290 million to $300 million.
This is down from last year’s underlying EBITDA figure of $420 million. The fall will be because of the weak first-half performance, thanks mostly to the impact of the drought in Australia, the emerging worries in Europe, and the sale of the South American operations.
There was no mention of dividends.
Nufarm told the ASX before the market opened on Wednesday that the write-down included $190 million of impairments of intangible assets and a derecognition of tax assets of about $25 million.
“We believe the European business has reached an earnings trough in financial year 2020, however, it is appropriate to take this step to revise the carrying value of the assets,” Nufarm CEO Greg Hunt said in Wednesday’s statement.
“We have a comprehensive improvement program underway in Europe to grow revenues, reduce our cost to serve and lift margins. We expect this program, combined with an anticipated easing in raw material costs and improved weather conditions would be the major drivers of improved profitability in the European business in the financial year 2021,” he said.
Mr. Hunt said the company had seen positive momentum in the second half of the year, but annual earnings would be down on last year because of lower overall earnings in the first half, reduced European earnings, and the sale of its South American business.
A bright spot for Nufarm has been an improvement in Australia in recent months.
Drought-breaking rains hitting eastern Australia have lifted farmer confidence and spending.
Nufarm says the improved seasonal conditions have generated strong demand for its agricultural chemicals.
“This has more than doubled second-half underlying EBITDA for the ANZ business compared to the prior year and provides a much stronger outlook for the summer cropping season,“ Nufarm said yesterday.
Nufarm also said it expects to report foreign exchange losses for the full year of “approximately $33 million of which approximately $9 million relates to discontinued operations.”
“The loss is due to pandemic related currency volatility causing rapid depreciation of currencies in some markets in which Nufarm operates, particularly in Eastern Europe and Mexico. Nufarm is reviewing options to more effectively manage this currency exposure during FY21,” the company said in yesterday’s statement.
Nufarm shares rose 2.5% to $4.02.
