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PSP cuts profits hopes, again, as agrichemicals downturn bites

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Shares in Platform Specialty Products plunged 10% after it cut its profits forecast for this year for a second time, citing weak agrichemical markets, in which it unveiled a change in sales strategy in an effort to bolster margins.

The oil-to-animal health chemicals group, which owns the Agriphar and Arysta crop spray businesses, cut to $550m-570m its forecasts for earnings before interest, tax, depreciation and amortisation (ebitda) for 2015.

The downgrade, which follows a cut in the forecast in August to $620m-650m from $660m-680m, reflected in part the broader effect of a stronger dollar, which cuts the value in dollar terms of foreign takings, besides making dollar-denominated assets less affordable to buyers in other currencies.

However, the Florida-based company, founded by serial dealmaker Martin Franklin, also highlighted the "particular" setback to agricultural companies from a "challenging" world economic environment.

Discounts ditched

"Even though the general niche nature of our agricultural business insulates us from the broader trends in row crops, 2015 has been a difficult year for our agricultural business," said Daniel Leever, the Platform Specialty Products chief executive.

He cited factors including, besides dollar strength, "the high product inventories due to low specialty chemicals consumption", undermined by the impact of drought and "low levels" of pest infestation in reducing the need for crop sprays.

The group revealed it was acting to boost its performance in agrichemicals by limiting "pre-season" product sales, which are often made at a discount – a move which would come at a cost of $40m in ebitda this year, included in the downgrade, but boost future prospects.

"Platform believes that this approach will significantly improve its long-term business quality," the company said, in a statement which came minutes before seed and agrichemicals giant Monsanto unveiled a cost-cutting programme to boost its growth prospects.

"Much of the revenue that will be foregone in 2015 will be realised starting in 2016, and at enhanced margins."

Mr Leever said: "Our belief in a strong future for our agricultural solutions business in 2016 and beyond has not been diminished by the difficult environment this year."

Leverage impact

The group, which in February finalised its $3.5bn purchase of Arysta LifeScience, also said that the reduced earnings hopes meant its net debt would be above its target of 4.5 times ebitda after the completion of its latest acquisitions, of UK-based Alent and assets purchased from OM Group.

The leverage ratio now looks like reaching 5.6-5.8 times ebitda, although the group said it intended to bring gearing back to the target range through profits growth and free cash flow generation.

Mr Franklin also signalled a company moratorium on deals for now.

"Acquisitions will be a secondary priority while we execute on these important integrations," he said.

Shares in Platform Specialty Products closed down 10.3% at $12.94, returning to within $1 of a two-year low set last week.


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