Nufarm shrivels to $456m loss as it battles cheap imports China

Crop protection company Nufarm has swung to a $456m loss and says its dividend remains suspended.

Managing director and CEO Greg Hunt. Picture: Yuri Kouzmin

Crop protection company Nufarm swung to a loss of almost half a billion dollars, with chief executive Greg Hunt branding the result “disappointing” and blaming it on a trifecta of challenges.

Poor performance across its northern hemisphere divisions, adverse weather and the coronavirus outbreak sent Nufarm crashing to a full-year loss of $456m, down from a $38m profit in 2009.

It also faced tough competition from cheaper Chinese imports, triggering the closure of three of its Australian factories and the loss of 56 jobs.

The result, which came a day before former Bunnings chief executive John Gillam will succeed Donald McGauchie as the company’s chairman, prompted Mr Hunt to reiterate its dividend suspension.

The company has had a challenging year, which saw its share price plummet from a high of $6.76 last October to a low of $3.85 earlier this month after it announced a $215m writedown of its European assets.

Full-year earnings before interest, tax, depreciation and amortisation from continuing operations sank to $236m from $300m. Revenue, however, firmed 6.5 per cent to $2.85bn.

“Our earnings performance in 2020 was disappointing,” Mr Hunt said.

“The agricultural markets in which we operate across the globe endured mixed seasonal conditions, industry-related supply issues and, of course, the tragedy and disruption of COVID-19.

“While good momentum was generated in most regions in the second half of the year, weaker earnings from the North American business in the first half and a decline in European and seed technologies earnings resulted in underlying EBITDA from continuing operations declining by 21 per cent.”

But Mr Hunt was upbeat about the company’s outlook and said the $1.19bn sale of its South American business in April had delivered “upfront value for shareholders” and “refocused” the company to regions with higher margins and stronger cash flow.

“The sale proceeds strengthened our financial position to allow us to better manage inherent industry volatility.”

Mr Hunt said earnings had begun to rebound in the second half of the year across its Australian/New Zealand, North America and Asian operations but the company remained focus on “driving improved performance” in its European business.

As well as closing three of its Australian factories, it will also curtail operations at its plant in Linz, Austria.

“Over the past few years, higher raw material and manufacturing costs and increased competition have eroded earnings in the base product portfolio in this region.

“While our recent investment in new product portfolios has helped offset this trend, we recognised a pre-tax impairment to the carrying value of the European assets of $188m in the reporting period.

“We have a comprehensive program underway in Europe to grow revenues, reduce costs 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 FY21 and beyond.”

Moody’s analyst Maadhavi Barber said Nufarm’s leverage remained above Moody’s rating tolerance threshold of 4.75 times, which she said was “largely reflecting weak EBITDA, despite debt reduction initiatives”.

“However, Moody’s views Nufarm’s debt reduction initiatives as supportive of the rating, as the company’s earnings are vulnerable to weather variability, product commoditisation and commodity price fluctuations,” Ms Barber said.

“The company also maintains good liquidity, with $687m of cash and cash equivalents and $648m of undrawn facilities as at July 31.”