The Nufarm Limited (ASX: NUF) share price flopped 20% lower today on the back of their half-year results for the period ending 31 January 2019.
Nufarm is a seeds and crop protection company that develops and manufactures solutions for weeds and pests.
Key Results
Nufarm reported disappointing results today, as follows:
- Revenue up 8% to $1.58 billion
- Underlying EBITDA down 2% to $121 million
- Underlying net loss after tax of $11.5 million (prior period $10.7 million profit)
- Statutory net loss after tax of $13.6 million (prior period $12 million profit)
- Interim dividend temporarily suspended.
The Elephant On The Balance Sheet…. $1.58 Billion Net Debt!
Nufarm’s net debt rose from $981 million in the prior period to $1.58 billion as at 31 January. The increase was attributed to the European acquisitions, which also includes the $296 million equity raised in October 2018, along with higher working capital requirements.
However, the gearing ratio was 41.4% with Nufarm hinting it was only expected short-term stating, “management remains comfortable that the balance sheet can accommodate near-term leverage pressure as working capital unwinds over coming months”.
Commentary
While sales were strong, the company said, “the Australian business was negatively impacted by continuing dry conditions”. The decline in EBITDA in the Australia/New Zealand, Europe and Asia markets was largely offset “with EBITDA growth in North America, Latin America and the Seed Technologies segments”.
Management Outlook
Nufarm stated its sales and earnings are heavily weighted in the second six month of the financial year end when the major copping seasons occur. However, despite this, it cited the dry weather and slow start in Europe when guiding for an EBITDA range of $440-470 million for FY19.
Rask Perspective
While on paper a company which develops seed and crop protection products is different from a commodity producer like Fortescue Metals Group (ASX: FMG) or BHP Group (ASX: BHP), it has low margins and sales seem to subject to weather conditions all around the world. It’s also outside of my circle of competence. Therefore, is not a stock I am looking to add to my portfolio.
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At the time of writing, Andrew does not have a financial interest in any of the companies mentioned.
