A seven per cent rise in revenue growth has not been quite enough to stop crop chemical maker Nufarm’s half-year profit slipping to $12 million for the six months to January 31.
The drop from $20m statutory after-tax profit in the same period last year was largely due to one-off costs of almost $6m relating to recent chemical business acquisitions in Europe.
Drought and stiff chemical market competition in South America didn’t help the result, either.
However, despite ongoing South American seasonal challenges and another $20m in looming acquisition expenses in coming months, Nufarm tips good earnings growth for the full year.
It is enjoying good sales momentum in most of its major markets, particularly the US and Canada.
Sales benefits are also set to flow from its recent $690m purchase of Chinese-owned Adama’s off-patent Century product range in Europe and US-based FMC Corporation’s European portfolio broadleaf control line-up for cereals, bought for $118m.
We are nearing the end of the heavy lifting in terms of cost-out, business change and transformation investment
Nufarm also expects more savings from ongoing business improvement initiatives across the company.
It forecasts underlying earnings growth of between 5pc and 10pc for 2017-18.
Although farm chemical sales were relatively static across the overall industry in the period, the Melbourne-based international manufacturer’s total earnings rose 7.4pc to $1.5 billion (up from $1.46b in 2017).
Nufarm enjoyed strong first-half sales growth in North America, Europe, Asia and in the company’s seeds business, while Australia and New Zealand were firm.
North American sales grew 28pc to $372m on the same time last year, and European sales increased 15pc to $173m.
In Latin America, however, sales were down 3pc despite Nufarm’s Brazilian market share improving in an “average” year.
Volume growth was offset by pricing pressures as Brazilian chemical sellers resisted pressure to pass on increased key ingredient costs, while in Argentina sales slipped 6pc.
Dry climatic conditions reduced pre-season glyphosate demand and use of crop protection products on soybeans and corn.
Back at home, production interruptions, due to the planned upgrade of its Laverton (Melbourne) manufacturing plant, also hurt first-half earnings.
Underlying earnings before interest and tax dropped 12pc to $75m.
Nufarm managing director, Greg Hunt, said the acquisition of the two product portfolios would significantly strengthen Nufarm’s European operations, and the company was buoyed by Australian regulatory approval of its new Omega-3 canola.
“We are nearing the end of the heavy lifting in terms of cost-out, business change and transformation investment and we are confident we will deliver the $116 million in performance improvement we promised by the end of this financial year,” he said.
“Nufarm has continued to invest in the future of the company, driving efficiencies through new technology; upgrading and improving manufacturing plants; continuing the development of our ground-breaking Omega-3 canola; and growing our portfolio through the new European acquisitions.”
Recently completed European product acquisitions were being integrated into the business, with recruitment of new marketing and sales resources and sourcing arrangements for the new products being established.
“These product portfolios strengthen the company’s position in our core crops and key markets in Europe, and provide additional scale that will make Nufarm more relevant to our customers,” Mr Hunt said.
He expected positive second half performance in Australia, North America and Europe, courtesy of revenue growth and cost savings benefits.
An optimistic outlook for the Australian canola season, combined with new seed product launches and higher seed treatment sales, should deliver solid earnings growth for the seed technologies segment.
The Latin America business was, however, likely to continue to be challenged by more difficult market conditions in Brazil and dry conditions in Argentina, with earnings tipped to be flat.
Nufarm will pay an unfranked interim dividend of five cents a share.