Farm chemicals company, Nufarm has posted a 40% fall in interim net profit to $12 million despite a 7% increase in revenue for the half.
A combination of drought in Brazil and especially South Argentina and the cost of a big first half acquisition took a bite out of earnings for the half year to January.
And while directors expect more transaction costs in the second half, they are confident of an improved underlying performance. Perhaps that’s why the company will pay a steady dividend of 5 cents a share.
Revenue rose 7.4% to $1.46 billion helped by sales growth in North America, Europe, Asia and in the company’s seeds business.
But underlying earnings before interest and tax fell almost 12% to $75 million, in the six months to January 31, in line with its revised December guidance.
Nufarm says earnings were impacted by production interruptions from the planned upgrade of the company’s Laverton manufacturing plant in Victoria and challenging operating conditions in its key Brazilian markets were there has been drought in some southern areas 9and a bad drought across most of Argentina).
The company last year bought a European portfolio of crop protection products for $691 million and acquired a suite of European herbicide for cereal crops from US-based FMC Corporation for about $US85 million ($A119 million).
Nufarm said yesterday one-off transaction costs of $4.9 million were incurred in relation to the European acquisitions and forecast further costs of up to $20 million relating to the completion of transactions to be booked in the current half.
CEO Greg Hunt said the company has continued to progress its growth strategy in the first six months following the acquisition of two product portfolios and Australian regulatory approval of its proprietary Omega-3 canola.
“We are nearing the end of the heavy lifting in terms of cost-out, business change and transformation investment and we are confident we will deliver the $116 million in performance improvement that we promised the market by the end of the financial year," Mr Hunt said.
North America crop protection sales grew by 28% thanks to demand from commodity products, while European sales rose 15% and sales in Asia were up a touch. Revenues were generally in line with the prior period in Australia and New Zealand, but were lower in Latin America, Nufarm said on Wednesday.
Looking to the current half the company says it expects a positive performance in Australia, North America and Europe, driven by revenue growth and cost savings benefits, but warned the Latin America business will be challenged by ongoing difficult market conditions in Brazil and Argentina.
It forecast underlying earnings growth of between 5% and 10% for the 2018 financial year but those transaction costs of around $25 million will make a dent in statutory earnings.
Fonterra shares bounced more than 5% yesterday to $8.71.
