2nd April 2002
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Supplementary statement on Monsanto deal; guidance on Nufarm’s current trading
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Nufarm Limited and Monsanto Company announced on February 12, 2002, that the companies have signed a Memorandum of Understanding relating to the granting to Nufarm of exclusive rights (Australia/New Zealand) to Monsanto’s ‘Roundup’ herbicide range. Nufarm has also agreed to purchase Monsanto’s selective chemistry products.
The proposed agreement is now being reviewed by the Australian Competition and Consumer Commission (ACCC). The companies hope to finalise the agreement within the next two months.
Annual ‘Roundup’ sales in Australia/New Zealand total in excess of $100 million.
The proposed agreement with Monsanto involves an earnings distribution structure on glyphosate sales which will see profit on those sales distributed between the two companies.
Certain costs relating to the management and support of the ‘Roundup’/ glyphosate business can be reduced and Nufarm is currently working with Monsanto to develop plans to implement improved efficiencies.
The proposed agreement also gives Nufarm access to new ‘Roundup’ formulations developed by Monsanto on a global basis and which look to provide productivity benefits to Australian/New Zealand farmers.
Assuming the deal is completed, Nufarm does not expect any material positive earnings impact in the current financial year (end July 2002), as the major selling season for glyphosate will have passed. The company is, however, forecasting gains of some $3 million in net profit contribution from year 2003 onwards.
The proposed agreement represents a significant return on investment for Nufarm, given there are no ‘upfront’ fees involved in securing the rights to ‘Roundup’.
A separate component of the deal involves the acquisition by Nufarm of Monsanto’s selective chemistry portfolio. These products are targeted at niche markets and involve annual sales in excess of $10 million. Nufarm will aim to achieve net margins in excess of 15% on these products.
Following a full management review which concluded last week, Nufarm today reiterated its current full year forecast of ‘double digit’ growth in its operating profit ($51.1m in 2001).
The company said full year profit growth will come predominantly from its crop protection operations which, in the current year, are forecast to comprise some 80% of the group’s total revenues (2001 – 70%). The crop protection business is extremely seasonal in terms of earnings, with the key selling periods in both the southern and northern hemispheres falling in Nufarm’s second half.
Current indicators are that there will be a marked improvement in the full year results from the Australian crop protection business and solid growth in the company’s European and North American crop protection businesses.
A key objective of management going into the 2002 financial year was to achieve improved earnings from the Australian business, and considerable improvement is already apparent.
The increased earnings from the crop protection business will help compensate for lower than budgeted results anticipated in several of the industrial chemicals businesses.
United States based Lobeco Products Inc., which sells chemical intermediates, will experience lower sales and earnings in those sectors affected by the economic downturn in the U.S. and, in particular, the automotive industry.
International caustic soda prices have also declined and this will result in reduced earnings from the company’s Western Australian chlor alkali plants.
The trends in the company’s remaining industrial, fine and performance chemicals businesses are favourable.
The very heavy weighting towards second half turnover and earnings is increasing as a result of continued expansion of the crop protection business and the divestment of parts of the less seasonal industrial chemicals division. In addition, the company has a fixed cost burden which is equally accounted for on a monthly basis.
For these reasons the first half profit generation continues to decrease as a proportion of the full year and, in the current 2002 period, is expected to comprise approximately 10% of the full year result.
Nufarm will report its interim result to January 31, 2002, on March 27.
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Further information:
Robert Reis
Corporate Affairs
Phone (61 3) 9282 1177
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