Bid deal boosts Nufarm
THE sale of Nufarm’s South American business for $1.18 billion has more than offset a fullyear result blighted by drought, with investors sending the agchem supplier’s stock surging on the deal with its Japanese backer.
The Aussie firm said yesterday’s deal with Sumitomo would allow Nufarm to reset, and refocus on growing its European, Nuseed and North American businesses, while helping it shore-up a balance sheet that was once again weighed down by the extreme dry in Australia.
The deal is targeted for completion by first half of FY20. Shares in the company spiked by 55 per cent to as high as $6.94 at yesterday’s open, and were still 26.4 per cent higher at $5.64 by close.
Nufarm’s climb came despite a full-year result again blighted by drought, with weather and supply issues limiting it to a $38 million profit from an impairment-driven $16 million loss a year ago.
The drought had led the company to cut its earnings guidance last month as severe weather continues to threaten grain production across the east coast.
As part of the South America deal, Nufarm and Sumitomo will enter into a twoyear supply agreement under which Nufarm will provide procurement services and continued supply of certain products to the crop-protection and seed-treatment operations in Brazil, Argentina, Colombia and Chile.
The ASX-listed company has been confirmed as the preferred commercialisation partner for Sumitomo’s proprietary fungicides Pavecto and Indiflin in Germany, Poland and the UK.
“Our commercial relationship with Sumitomo provides access to an attractive portfolio of proprietary products and will continue to be an important contributor to our growth,” Nufarm managing director and chief executive Greg Hunt said.
Nufarm will also purchase the $97.5 million preference shares issued to Sumitomo last month, which will be bought at the completion of the South American transaction.
The deal is expected to reduce group financing costs by between $60 million and $70 million.
It is subject to Nufarm shareholder approval as well as competition approval by the relevant South American regulatory bodies.
Strong earnings in North America and Asia and seed technologies offset a flat FY19 result in Latin America and a weaker performance in Australia and NZ, with the company forced to book $51 million in material items including the unprecedented temporary closure of manufacturing lines in Australia, and the cost of integrating FMC Corporation and Century in Europe.
Revenue for the 12 months to July 31 increased by 14 per cent to $3.76 billion. FONTERRA says that milk production in Australia dropped 8.4 per cent in July compared with the same period last year, while the Kiwi diary giant’s milk collection from the region plunged 25.5 per cent in August.
High farm input costs, challenging seasonal conditions and increased competition in Australia have hurt its milk supply, the co-operative said.
In New Zealand — where Fonterra sources most of its milk — production rose in August, amid slightly higher rainfall and better pasture cover.
New Zealand milk production was up 0.8 per cent from a year ago, while collection grew 1.1 per cent, the dairy company said.
The company’s exports to China grew 14 per cent in July, driven by increased demand for products such as skim milk, cream, condensed milk and yoghurt.
Last week, in a highly anticipated turnaround plan, Fonterra called a halt to its ambitious and ill-fated overseas expansion and pledged to turn its focus back home, after a record annual loss.
Fonterra has been strongly criticised by the 10,000-plus farmers who make up its cooperative as its foray into countries like China and value-added consumer products hurt its profits in recent times.
AAP