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Nufarm Slumps Most in 16 Years in Sydney Trading After Profit Forecast Cut
Nufarm Ltd., Australia’s largest supplier of farm chemicals, slumped the most in 16 years in Sydney after the company cut its full-year profit forecast and said it won’t meet one of its loan conditions.
The shares fell 28 percent to A$3.75 at the 4:10 p.m. Sydney time close on the Australian stock exchange. That’s the biggest drop since Nov. 19, 1993. They were halted yesterday. Standard & Poor’s Ratings Services cut its credit rating on the Melbourne-based company’s long-term debt by two notches to junk.
Nufarm reduced its forecast range for net operating profit after adverse weather in Australia, Europe and North America reduced demand for crop protection products amid pressure on prices, Managing Director Doug Rathbone said yesterday. The reduction was the fifth consecutive downgrade by the company over the past 18 months, Credit Suisse Group AG said in a report.
“Management and operating credibility are significantly impaired in our view,” Sydney-based Credit Suisse analysts Rohan Gallagher and Andrew Peros said today in a report. The bank cut its recommendation on the company to “underperform” from “neutral.”
Net operating profit is forecast at A$55 million ($49 million) to A$65 million for the 12 months ending July 31, the company said yesterday in a statement. That compared with its March forecast of A$110 million to A$130 million. Net debt was estimated to be A$450 million at fiscal year-end, compared with the A$350 million previously expected, it said.
Interest Covenant
The company will not achieve its interest cover covenant “by a small margin” on July 31 and had started talks with lenders to seek a temporary adjustment to the ratio, Nufarm said today in a statement. It remained in compliance with covenants for net debt to equity and net debt to earnings before interest, tax, depreciation and amortization, it said.
A covenant is a legally binding agreement in which the borrower agrees to certain stipulations over the life of an issue or loan.
Standard & Poor’s today lowered its rating on Nufarm to BB from BBB- with a negative outlook, citing the deterioration of the company’s business profile. “The company’s liquidity continues to be exposed to a significant refinancing challenge as the group rolls over its seasonal debt facilities,” Standard & Poor’s credit analyst Richard Creed said in the statement.
Nufarm, 20 percent owned by Sumitomo Chemical Co., in March posted a first-half loss of A$40 million amid lower prices and less favorable cropping weather. The company said then it expected a recovery in earnings during its second half.
“Our previous guidance assumed at least average seasonal conditions in major markets and it is unusual to have those conditions turn against us to the extent that they have,” Rathbone said in a statement yesterday.
Crop Prices
In North America and Europe, sales were reduced by long, cold winter conditions, while economic pressures and lower crop prices significantly affected sales in France, the company said.
In Australia, the cropping season started strongly in the eastern states while in Western Australia a late start to planting had pushed back demand for herbicides and insecticides, it said. Pricing increases on products had been “well below” assumptions, it said.
The size of the earnings forecast downgrade was “far greater than we and the market had expected,” Royal Bank of Scotland Group Plc analysts Belinda Moore and Todd Scott wrote in a report. The bank cut its recommendation on Nufarm to “sell” from “hold.”
The company in December rejected a A$2.6 billion bid from Sinochem Corp. after China’s largest chemicals trader dropped the offer price to A$12 a share from A$13 a share in September.
Nufarm was a “complicated company operating in a challenging environment,” Sinochem said in a Chinese-language statement on Dec. 1, when the companies advised they would miss a Dec. 3 deadline to complete an initial deal.
To contact the reporter on this story: Wendy Pugh in Melbourne wpugh@bloomberg.net.
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