NUFARM'S new chief financial officer, Paul Binfield, could well be lucky enough to be joining one of the country's worst performing agricultural stocks at a turning point in its recent dismal history.
Either way, he will need to take a long hard look at the assets on its balance sheet located in South America, writes The Australian Financial Review .
Binfield joins Nufarm from Wesfarmers, where he has been finance director at Coles Liquor and Hotels. Before that he was chief financial officer at Mayne Group.
He joins the company in the midst of a $900 million refinancing that chief executive Doug Rathbone says is going well. The core of the refinancing, which must be completed by December, is the securitisation of about $300 million of the company's $850 million in receivables.
Binfield will be under pressure from the market to revisit the valuation of about $800 million in intangibles on the Nufarm balance sheet, in particular the $278 million in intangible assets in Brazil.
Nufarm went into Brazil in September 2004 with the purchase of a 49.9 per cent stake in a private company called Agripec for $US120 million. Within two years of its purchase, the earnings had slumped from $25 million to about $6 million.
Despite that fall in earnings, Nufarm agreed to buy the remaining half of the business from its owner, Beto Studart, in 2007 for $210 million. The company had difficulty explaining at short notice yesterday why the purchase price doubled when the earnings fell to a fifth of the previous level.
Nufarm learned some hard lessons when it went into Brazil. Although it is one of the world's largest markets for crop protection products, about $US5 billion in annual sales is to farmers who have extended payment terms, including terms of 300 days.
Many international companies have discovered how difficult it is to recover such receivables, including Nufarm. Its 2006 financial results were hit hard by the inability to collect money owed to the company.
It is strange that Nufarm paid so much for the remainder of a business that was not performing. But its major shareholder, Sumitomo, has since signed deals with the Brazilian arm to distribute its products in that country.
When the glysophate market collapsed in 2009, Brazil was hit as hard as other parts of the world. But over the past two years, when Nufarm's Brazil business recorded accumulated losses of $55 million, the balance sheet value of the business remained virtually unchanged. It was $294 million in the 2010 annual report.
Nufarm assumes the Brazilian business will return to trading profitability this year and report significant growth in profit over the next five years.
