Nufarm flags lower earnings, writedowns

Chemicals company Nufarm has unveiled a $215m writedown of its European assets and warned of lower full-year earnings.

Nufarm operations in Melbourne. Picture: Yuri Kouzmin

Listed crop protection company Nufarm has unveiled a $215m writedown of its European assets amid an “earnings trough” and “elevated” input costs.

The company expects full-year underlying earnings to be $290m to $300m, versus $420m last year. Stripping out the sale of its South American business in April, earnings will fall to $230m to $240m.

It comes two months after Nufarm announced the closure of one of its three factories in Australia, saving $15m a year, and the limiting of operations at its plant in Austria.

Chief executive Greg Hunt said although the company had delivered earnings momentum in the second half amid drought breaking rains in Australia, a weaker result in Europe weighed on the result, sparking the writedown.

“We believe the European business has reached an earnings trough in the 2020 financial year, however it is appropriate to take this step to revise the carrying value of the assets,” he said.

“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 2021 financial year.”

Mr Hunt said sharp coronavirus-fuelled currency swings would also wipe $33m of earnings.

“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 the 2021 financial year.”

But he remained upbeat about the rest of the business.

“We have delivered positive momentum across most regions in the second half of the financial year, however earnings for the full year will be down on last year, primarily due to the divestment of the South American businesses, lower earnings in the first half and reduced earnings in Europe,” Mr Hunt said.

“Drought-breaking rains on the east coast of Australia in late January and good follow-up

rainfall has provided welcome relief for farmers and generated strong demand for crop protection products.

“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.”

In July, Mr Hunt announced the closure and sale of Nufarm’s Raymond Road site in Laverton in Melbourne, which produces insecticides and fungicides, and the scaling back on its operation in Linz, Austria.

The closure of the Raymond Road site will take about 18 months and result in about 56 redundancies over that time.

Nufarm has been under pressure to maintain producing at scale in Australia in the wake of cheaper imports.

Mr Hunt said while the company’s MCPA synthesis and herbicide formulation operations remained competitive, “gaps have emerged in the competitive position of our 2,4-D synthesis and insecticide and fungicide formulation”.