Debt-laden agri-chemical manufacturer Nufarm has booked a slump in operating profit, with by one-off costs of $A67.6 million ($NZ88.5 million) helping drag its after-tax profit of $A58.6 million down to a loss of $A24 million.
The large profit downturn, from an almost $A80 million profit last year to the $A24 million loss for the year to July, was on the back of a sales downturn and a Brazilian tax writeoff.
Shares in Nufarm on the Australian stock exchange were down almost 4% at $A3.95 yesterday after the announcement.
Nufarm revenue fell almost 20% from $A2.6 billion to $A2.1 billion, while operating earnings fell from $A216 million to $A127 million during the year.
The one-off costs included $A30 million, in part because of losses on glyphosate (a herbicide spray first named Roundup), and $A37.5 million in Brazilian tax writeoffs.
Without the one-off charges, after-tax profit would have been $A58.6 million and within Nufarm's guidance range of $A55 million to $A65 million.
Craigs Investment Partners broker Chris Timms described the result as "low quality", with operating earnings $A14 million below Craigs' forecast.
"We expect Nufarm to remain in breach of the earnings before interests, tax, depreciation and amortisation interest cover debt covenant, and very close to the leverage covenant during the 2011 financial year," he said.
While the company had this week gained a further debt covenant waiver, concerns remained over ongoing pricing and margin pressures, the need for debt covenants, the forthcoming strategic review and governance concerns, Mr Timms said.
He expected banks to apply "significant pressure" to finalising banking arrangements in December, with interest expenses to be about $A10 million higher.
Forsyth Barr broker Suzanne Kinnaird said the result reflected difficult trading conditions in the global glyphosate sector, with both an extremely competitive pricing environment and the negative impact of climatic conditions in various markets around the world.
"The glyphosate segment will continue to be very competitive and Nufarm expects to generate margins on glyphosate sales that will be below the average margins achieved in the balance of the business," she said.
The glyphosate-related writedowns and other "one-off" costs associated with the market volatility and inventory issues of 2010 were not expected to recur, she said.
A return to more average seasonal conditions in key markets would see an increase in demand, prompt a more favourable pricing environment in a number of market segments, plus the addition of several new products would also improve overall margins in Brazil, she said.
"These factors and initiatives provide strong confidence that the group will generate an improved profit outcome for the 2011 financial year," Ms Kinnaird said.
Nufarm's share price has fallen more than 60% this year and its own estimate of its net debt has risen from $A450 million to $A620 million.
