Nufarm has announced the sale of its South American business to Sumitomo for $1.18 billion as it seeks to shore-up a balance sheet once again weighed down by drought.
The agricultural chemical supplier said the deal with the Japanese conglomerate – targeted for completion by first half of FY20 – will allow Nufarm to focus on growing its European, Nuseed and North American businesses, as well as the ongoing transformation of its Australian operations.
Nufarm and Sumitomo will also enter into a two-year supply agreement under which Nufarm will provide procurement services and continued supply of certain products to the South American businesses, which include 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.
“Today’s agreement extends the term of our existing relationship and provides new opportunities to build on our expanding product portfolio in Europe”.
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 – which is expected to reduce group financing costs by between $60 million and $70 million – is subject to Nufarm shareholder approval as well as competition approval by the relevant South American regulatory bodies.
Nufarm also announced on Monday it had swung to a full-year profit of $38 million from an impairment-driven $16 million loss a year ago, though drought once again weighed on the balance sheet.
Strong earnings in North America, seed technologies and Asia offset a flat result in Latin America and a weaker performance in Australia and New Zealand, with the company forced to book $51 million in material items including the unprecedented temporary closure of manufacturing lines in Australia.
Revenue for the 12 months to July 31 increased by 14 per cent to $3.76 billion, while underlying core earnings met August’s revised guidance of $420 million.
Mr Hunt said it had been a difficult year for the global agricultural industry.
“While earnings are up, external headwinds constrained performance,” Mr Hunt said.
“We’ve largely addressed the significant inventory overhang from drought conditions in Australia and made good progress in re-setting the cost base to make this a more resilient business while maintaining upside exposure to improved weather conditions.”
Nufarm flagged earnings for the first half of 2020 to be in line with the prior year, though tight supply conditions for some ingredients sourced from China are set to continue.
Continued drought conditions in Australia are expected to impact the east coast for the summer cropping season, though business improvements in the country are expected to save $10 million to $15 million in earnings.
“The business is well positioned to benefit further from improved weather conditions if they occur,” Nufarm said.
Nufarm had already announced it would be suspending its dividends for FY19 as it seeks to reduce debt.
Shares in the company were worth $4.46 before trade on Monday, having lost 25.17 per cent of their value so far in 2019.
The company’s stock is less than half the value of the near decade-high $10.03 hit in April 2017.
DROUGHT KEEPS A LID ON NUFARM PROFIT
* Revenue up 14pct to $3.76bn
* Net profit $38m vs $16m loss a year ago
* Final dividend suspended vs 8.0 cents a year ago