Farm chemical maker, Nufarm, has slumped into the red, recording a $15.6 million full-year loss after writing off $91.5 million in drought-related costs and expenses linked to its $810m buying spree in Europe last year.
While revenue growth in key markets grew, lifting overall sales by 6.3 per cent to $3.31b, Australian sales were scorched by the eastern states drought, sliding almost 10pc to $590.1m.
Later than normal selling seasons, particularly in the USA and Brazil, also put pressure on working capital and debt.
Share offer confirmed
Nufarm has used the bad news as an opportunity to promote its second capital raising in less than a year, inviting shareholders to pay more than $300m in a pro rata entitlement offer for 52m shares to raise fresh equity to “de-risk” the company’s balance sheet.
Nufarm’s net debt at the end of July had blown out to $1.3b, compared to $680m a year earlier, largely because of the local drought and delayed sales in Europe and the Americas.
It is appropriate we take measures to de-risk the balance sheet in the short term.
- Greg Hunt, Nufarm
However, growth prospects in major overseas markets remained strong and Nufarm expected to continue to build share, despite competitive market conditions.
Managing director, Greg Hunt, said Nufarm’s growth strategy was delivering positive outcomes.
“Our revenue and margin growth in recent years has been achieved against a backdrop of extremely competitive market conditions in a global industry that has seen very little growth over that period,” he said.
“This is firm validation our strategy of focusing on core crops and key geographies – a deeper rather than broader approach – is driving outcomes that continue to fundamentally strengthen Nufarm’s business and future growth prospects.”
In fact ,the business was planning manufacturing capacity expansions as well as considering several strategically valuable product acquisition opportunities and did not want to ignore those growth opportunities.
The $303m equity capital raising offer to shareholders would strengthen the company’s balance sheet and allow it pursue further value-adding acquisitions as they became available.
De-risking the books
“While we remain confident working capital and debt will unwind and return to targeted levels, it is appropriate we take measures to de-risk the balance sheet in the short term,” Mr Hunt said.
“It is also important Nufarm retains a capacity to continue to grow its business and take advantage of new opportunities that add long term value.”
“Funds raised via this offer will ensure that’s the case.”
Institutional and retail shareholders will be able to buy three new Nufarm shares for every 19 they already hold at $5.85 each – an 11.9pc discount to dividend-adjusted market price of $6.642 on September 24.
The offer to Institutional investors closes on September 27 and retail investors will have until October 10 to put in a bid.
Meanwhile Nufarm will pay a six cents a share final dividend, down from eight cents a year ago, bringing the total dividend for 2017-18 to 11c/share (13c in 2017-18).
Nufarm is forecasting earnings before interest tax depreciation and amortisation (EBITDA) of $500m to $530m in 2018-19 financial year based on key revenue growth in North and Latin America; a solid full year of European acquisition earnings, and a partial earnings recovery in Australian seasonal conditions.
Sales rise overseas
Last financial year delivered increased sales in all Nufarm’s offshore market bases, including New Zealand where pasture and horticulture markets recorded growth.
In Asia sales grew a modest 3pc to $170.7m but underlying EBITDA fell 11pc to $25m, with high margin sales in Japan down 18pc because of increased generic product competition.
Sales growth was also achieved in China, where Nufarm has a new marketing joint venture with Fuhua Group, Indonesia, Malaysia and Sri Lanka.
North American sales grew 10pc to $833.7m, with Nufarm enjoying growing market share in Canada, the row crop segment and turf and horticulture categories and a lift in EBITDA to almost $100m.
The company is extending its US manufacturing capacity with a new plant to be built in Mississippi by mid next year to help enable sales growth in south eastern USA and reduce freight costs,
Latin American crop protection sales increased 8pc to $885.2m, although EBITDA only grew 2pc to $97m as sales returns were eroded by weaker exchange rates against the Australian dollar.
European sales jumped 19pc to $642m with underlying EBITDA up 24pc to $150m, with the company’s new European portfolio acquisitions contributing $69m in sales and promised to perform strongly to deliver on targets for 2019.
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