Another market update, another sell off yesterday in the shares of Nufarm; it’s becoming a one way story for the agricultural chemicals group.
Earnings, sales and prospects all downgraded in recent months; in yesterday’s market update the company raised its net debt estimate by 38%, knocking nearly 10% off the shares in early trading and giving its suffering shareholders another rude awakening.
But there was some good news: Nufarm reaffirmed it expected its net operating profit for the year to July 31, 2010, would be between $55 million and $65 million, in line with a massive profit warning it gave in July.
The surprise was in these comments on the company’s debt.
"Net debt at July 31 will be approximately $620 million, which is higher than the estimate provided on July 14 (approximately $450 million).
"The higher debt is attributable to increased working capital levels at July 31 mainly due to higher than anticipated receivables.
"July sales were largely in line with company expectations but the collection of cash associated with those sales – and the majority of sales made in June – will not occur until after the end of the financial year."
The company will release its 2010 earnings and annual accounts on September 22.
Sumitomo of Japan has a 20% stake purchased in a tender offer at $14 a share.
The shares closed down 6.7% at $3.59 yesterday after hitting a low of $3.48.
Shareholders paid $5.75 a share for new stock in a $250 million raising in April, so there are some unhappy holders around.
The problem for the company is that sales of its key product, the weedkiller glyphosate, have slumped as they have for other producers as farmers around the world have cut back on its use because of financial problems and a lack of credit.
On top of that there have been a lot of generic versions of the weedkiller introduced into the market to undercut branded names (such as Monsantos’ Roundup).
The fall in profits and cash flow and rise in debt has forced Nufarm to start renegotiating its loans.
"The higher than anticipated debt level at July 31 places the company in minor breach of its covenant relating to gearing levels (net debt to EBITDA). That breach will also be covered by the waivers now being put in place," the company said yesterday.
It said yesterday several of its lenders had already provided waivers on covenant breaches and the remainder of its banking group had set out terms of a waiver this week.
"That proposal has been reviewed by Nufarm and the company believes the terms can be met," the company said in yesterday’s statement.
It said chairman Don McGauchie also said it was conducting a strategic review of the business, assisted by Deloitte and Gresham Advisory Partners.
The review, covering aspects such as budgeting, information systems and management reporting, is expected to be concluded by the end of this year.
"Nufarm has commenced discussions with its financiers aimed at transitioning to a revised banking structure that will more closely meet the needs of the business and should result in other efficiency benefits. It is proposed to have the new structure in place before the end of the calendar year," the company said.
