Nufarm’s new challenge | My Machinery
CASE Agriculture
Nufarm’s new challenge

Nufarm will ramp up development of key crop protection products to compete directly with German chemical giant BASF, which has terminated a decade-long distribution deal that will strip the Melbourne-based company of significant sales revenue. Nufarm shares plunged as it revealed BASF, the world’s largest chemical company, would terminate its Australian distribution arrangement and become a direct competitor to Nufarm when a decade-long contract expires in 2014. BASF is Nufarm’s biggest customer in Australia. The shares closed yesterday down 9 per cent. Nufarm has also warned investors that extreme heat over summer was hurting its Australian sales. Yet the company maintained its guidance for first-half earnings before interest and tax at 15 per cent higher than a year ago as better conditions in South America and Europe offset sluggish Australian sales. Its shares had gained 40 per cent in the past 12 months as a turnaround strategy aimed at more profitable sales of fungicides, insecticides and seeds gained traction with investors. “[The share price fall] is a significant overreaction for a trading update that says Nufarm is on track to meet first-half earnings guidance,” WilsonHTM analyst James Ferrier said. “Perhaps it is serving as a reminder to the market that weather can and will influence Nufarm’s earnings from period to period. “If Nufarm has sold less product in Australia versus a year ago, then it follows that Elders, Ruralco and Landmark will be experiencing soft conditions for ag [agricultural] chemical sales,” Mr Ferrier said. “It’s hard to judge these companies month to month. The run rate for Elders and Ruralco will probably be below the previous period but it depends on how the rest of the year shapes up. It could rain tomorrow and they could end up shooting the lights out for fiscal 2013.” Nufarm corporate affairs director Robert Reis said BASF’s departure did not come as a shock to the company and it was confident it could minimise the sales impact through the release of new products. BASF products account for between 5 per cent and 10 per cent of its Australian revenue but less than 3 per cent globally. Mr Reis said Nufarm’s new products could recapture about 50 per cent of the lost sales. BASF crop protection division global president Marcus Heldt said its decision to set up a rival Australian operation to Nufarm was part of broader plans to more than double sales in the Asia-Pacific region to €1 billion by 2020.

Share this:

CASE Agriculture