Agricultural company Nufarm’s growth in South America has boosted its half year profit, but drought is hampering its local operations.
Agricultural chemicals and seeds supplier Nufarm has more than doubled its half year profit but says the drought hit Australian market remains challenging.
Two years of hot, dry weather had affected product demand and margins in the local market, managing director Doug Rathbone said.
“It is anticipated that business conditions in Australia will remain challenged,” he said on Wednesday.
Much needed rainfall would drive increased demand for products, but inventory is estimated to be high and pricing pressure is expected to continue for the remainder of the fiscal year, Mr Rathbone said.
Nufarm recently announced plans to cut 105 jobs as part of a cost cutting restructure of its Australian business.
Two manufacturing plants at Welshpool in Perth and Lytton in Brisbane are to be closed, along with six out of seven of its regional service centres.
Mr Rathbone said the company had moved to improve the performance of, and returns from, its Australian business.
Nufarm made a net profit of $18.8 million in the six months to January 31, up from $8.4 million in the same period a year earlier, mainly as a result of strong growth from the company’s South American business, and tax credits.
Growth in its South American operations, especially Brazil, more than offset the impact of drought in Australia, and lower earnings from North America and Europe.
Mr Rathbone said the results showed that the company’s strategy of entering more overseas markets was working.
Nufarm was growing its market share in Brazil, the single largest agricultural chemicals market in the world, more than five times the size of the Australian market, he said.
Nufarm’s balance sheet would be a key focus over the second half of the fiscal year, Mr Rathbone said, with the company forecasting a reduction in net working capital and net debt.
Nufarm’s net debt at January 31 was $1.02 billion, up from $743 million a year earlier.
Net working capital was also higher at $1.33 billion, up from $1.03 billion.
Nufarm was very confident of generating increased underlying earnings for the full year, Mr Rathbone said.
Nufarm shares were down 17 cents, or 4.1 per cent, at $3.96 at 1510 AEDT.