Nufarm Slips On Mixed Outlook

  • Dec 06, 2018 AEDT
  • Team Kalkine
Nufarm Slips On Mixed Outlook

Nufarm Limited (ASX: NUF) is a manufacturer and supplier for a whole range of agricultural chemicals which are used by farmers to protect their crops from damage caused by weeds, pests, and disease. The company has worldwide operations.

In a recent release, the company’s Chairman and MD have addressed the shareholders at the AGM. The Chairman, Mr. Donald Mcgauchie said that the company has in the past year experienced the benefits of geographical diversity. However, the company’s performance has been impacted by the drought conditions predominantly in the regions of eastern Australia and the central & northern Europe. 

Due to these drought conditions, Nufarm’s performance was severely impacted & thus the Australian business was way below when compared to the previous year. This impact on the company’s major Australian business had a spill over effect on the Group profit outcome as a whole. The company had also recorded a book loss in its income statement due to the impairment of assets in Australia which led to the group’s NPAT into losses. The chairman stated that going forth he expects a recovery in the Australia business but still a good rainfall would be very much needed to aid the cropping activity at large.

Although the drought conditions led to a subpar performance, however, the measures were taken by the companies in the recent years to optimize their production activity and costs have had the effect of offsetting the impact of the above-mentioned conditions. Steering through these challenging environments, the company is still outperforming the global industry in terms of revenue growth. Due to the abovementioned challenging environment, the company has emerged as a more improved and efficient business.

The company’s MD stated that the FY18 revenue came in at $3.3 Bn. Underlying EBITDA was $386 Mn, which came flat over the previous years. The underlying Net Profit after tax was $98 Mn. The company is targeting to mellow down the net working capital to sales ratio to the target range of 35-37% which is above 40% at present. The higher working capital ratio was a result of the Lying inventory at the warehouses due to poor sales witnessed. This led to a rise in debt levels in the company so as to carry on the operations in a smooth manner. In the medium, to long-term, the company has a target Debt to EBITDA ratio of 2:1.

The MD also stated about the outlook for the current Fiscal stating that they anticipate a recovery in the earnings of the Australia business. While the drought-affected eastern region is expected to produce 40% below the 20 years average production, at the same time the western region is anticipated to have a much better crop productivity which would be about 20% above that average.

Meanwhile, the share price of the company has fallen by 32.82 percent in the past six months as on 5 December 2018. Company’s shares traded at $6.095, down by 1.375 percent with a market capitalization of circa $2.35 billion as on 6 December 2018 (AEST 3:30 PM).


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