Nufarm Limited (ASX: NUF) released its 2019 financial year (FY19) report this morning and announced the sale of its South American business.
About Nufarm
Nufarm is one of the world’s leading developers and manufacturers of seed and crop protection solutions, helping farmers fight disease, weeds and pests to increase crop yields.
With the company’s origins dating back over 100 years, Nufarm has built a global crop protection business with operations in North and South America, Europe, New Zealand and Asia.
The 5 Key Points From Nufarm’s Report
- Revenue increased 14% to $3,758 million year over year
- Underlying gross profit rose by 7% despite a decline in the gross profit margin from 29.1% to 27.5%
- Underlying EBIT fell 6% to $249 million
- Underlying NPAT fell 9% to $89 million but reported NPAT was $38 million, up from a net loss of $16 million in FY18
- Nufarm South America will be sold to Sumitomo Chemical Company Limited for $1,188 million
The video below explains the difference between underlying and statutory profit.
Drought Impacting Results, Nufarm
Strong sales growth in Europe and North America was offset by weaker growth in Asia and disappointing results in Australia and New Zealand as a result of the ongoing drought.
Nufarm reported that aggressive industry pricing impacted Australian margins and inventories were reduced by $100 million following manufacturing line closures.
Overall, margins were also impacted by increased competition in Latin America, as well as cost and pricing pressures in Europe and North America.
As a result of these pressures, Nufarm will not pay a final dividend in FY19.
South America Sale
Nufarm South America will be sold to Sumitomo for $1,188 million, representing a multiple of around 10 times FY19 underlying EBITDA. Along with the sale, there is a new two-year supply agreement and transitional services agreement which will see Nufarm supply procurement services and certain products.
Completion of the transaction is expected to be in 1H20, and the agreement is unanimously recommended by the Board of Nufarm.
Is It Time To Buy Nufarm Shares?
Nufarm was able to increase revenue and show a profit despite the tough conditions, which I think is positive. However, the ongoing drought will likely continue to put pressure on sales and margins in Australia, and pricing pressures in overseas markets could also limit growth.
For now, I’d rather invest in one of the businesses in the free report below.
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Disclosure: At the time of writing, Max does not have a financial interest in any of the companies mentioned.
