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Nufarm lifts profit hopes - bucking industry trend

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Shares in Nufarm rallied after the Australian group raised its half-year earnings forecast - bucking the trend of worsening profits forecasts which has marked the agrichemicals sector.

The company, flagging a "strong performance" in January, said that it had, helped by a restructuring campaign, overcome "challenging market conditions" in the key markets of Australia and Brazil.

Still, the company is still suffering amid foreign exchange volatility, and the high cost of hedging its South American currency exposure.

Rising profits

Nufarm now expects its operating profit to rise by 8-13%, over the six months to January 31, compared with a previous forecast of an unchanged performance,

The upgrade contrasts with reduced guidance that many rivals, such as Syngenta and Platform Specialty Products, have issued in recent months, as weak crop prices have curtailed farmers' profitability, and their willingness to spend on inputs such as sprays, as well as fertilizer and machinery.

Goldman Sachs raised its price target for Nufarm shares on the news, up to Aus$7.30 from Aus$6.94, maintaining a neutral rating.

Nufarm will release its half-year result on March 23.

Tough markets

"Nufarm's results for the first six months are typically dominated by contributions from Australia and Brazil, which both experienced challenging market conditions during that period," the company said.

"Despite this, Nufarm has delivered margin expansion and operating profit growth."

Nufarm cited its strong January performance, as well as a focus on higher margin products.

Restructuring returns

Nufarm's chief executive Greg Hunt said that a company-wide restructuring programme would deliver at least Aus$20 million in savings this financial year, as well as an increase in underlying operating profit.

"We set out this program 18 months ago. The first part of the review was the manufacturing footprint, the next phase was the review of the product portfolio," Mr Hunt said.

"We are delivering on what we said we would do, we are reducing our cost base, improving our margins and improving the efficiency of working capital."

Mr Hunt expected to the programme to deliver a Aus$116m worth of savings by 2018.

But Nufarm's restructuring drive will also result in costs of $115m-$125m for the six months to January 31.

Currency losses

And while Ebit will be higher, half-year underlying profit is still expected to plunge Aus$15m, or 56.6%, compared with 2015.

This is the result of foreign currency and hedging losses.

"The significant volatility in exchange rates has continued to put pressure on Nufarm's foreign currency exposures," the company said.

"Over the half year, the company incurred net foreign exchange losses and hedging costs of $18m, mainly due to the extreme volatility of the currencies in South America and the high cost of hedging those exposures."

Nufarm shares in Sydney closed up 4.7% at Aus$7.17.

By Agrimoney.com

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