Drought Drags Nufarm Into The Red

The 2017-18 Nufarm result explains why the company has rushed out a surprise rights issue.

The company revealed a statutory net loss after tax of $15.6 million for the 12 months to July 31 which includes $114 million in material items, made up of an impairment charge and tax asset write-off for the Australian business of $91.5 million and business acquisition costs of $22.2 million.

The loss compares to a statutory profit after tax of $114.5 million for the 2016-17 financial year.

Underlying net profit after tax was $98.4 million, down 28% on the $135.8 million reported in the prior period.

Underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) eased 1% to $385.7 million and underlying earnings before interest and tax (EBIT) fell 12% to $265.1 million.

On a constant currency basis, underlying EBITDA was in line with last year and underlying EBIT decreased by 10%, according to yesterday’s release.

Group revenues rose 6% to $3.31 billion (from 201’s $3.11 billion).

Directors said the underlying result was impacted by the very dry Australian autumn conditions and continued drought into winter in the eastern and southern states.

“Whilst this impact was largely offset by the underlying EBITDA contribution from the European acquisitions, the increased amortisation related to the acquisitions reduced the contribution at the underlying EBIT level. Good earnings growth was delivered in the North American and Latin American businesses,” directors said.

Average net working capital to sales rose to 40.3% (2017: 36.8%), driven by higher inventories in Australia and higher receivables in Europe.

Net debt at July 31, 2018, was $1.374 billion, up on the $680 million at 31 July 2017. The rights issue will trim that and cut working capital.

“The year-end net debt was impacted by the funding for the European acquisitions of $335 million and the higher year-end net working capital balance (up by $287 million). Average net debt over the 12-month period was $1,085 million, higher than the $886 million average in 2017,“ directors said.

Final dividend was cut to 6 cents a share from 8 cents in 2017, making full-year dividend 11 cents a share down from 13 cents previously.

Directors said in their outlook that; “The combination of revenue growth, partial recovery in the Australian business and the full year impact of the European acquisitions is expected to result in earnings growth in 2019. This is despite an expectation that soft commodity prices will remain low and market conditions will remain competitive. Underlying EBITDA is expected to be in the $500 million to $530 million range for the 2019 financial year.”

“Given the ongoing drought-related impacts in Australia and some planned maintenance-related plant shutdowns in Europe, first half underlying EBITDA is expected to be similar to that generated in the first half of FY18. At an underlying EBIT level, earnings are likely to be below the FY18 first half, as the increased amortization associated with the European acquisitions will more than offset the first half earnings contribution from those portfolios, which are weighted to the second half of the year,” Nufarm said.

The shares were halted to allow the first part of the $303 million entitlement issue to happen.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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