Australian agricultural chemical company Nufarm has announced that it will sell its South American business to a Japan’s
Sumitomo for $1.18 billion.
The deal, which is expected to be completed in the first half of FY20, will allow Nufarm to reduce debts and focus on growing its European and North American businesses.
Nufarm and Sumitomo will enter into a two-year supply agreement in which Nufarm will provide procurement services and continued supply of certain products to the crop protection and seed treatment operations in Brazil, Argentina, Colombia and Chile.
“Our commercial relationship with Sumitomo provides access to an attractive portfolio of proprietary products and will continue to be an important contributor to our growth,” Nufarm managing director and chief executive Greg Hunt said.
“Today’s agreement extends the term of our existing relationship and provides new opportunities to build on our expanding product portfolio in Europe.”
Nufarm reported full year revenue of $3.758 billion. The deal which is subject to shareholder approval and competition approval by South American regulatory bodies, is expected to reduce group financing costs by between $60 million and $70 million.
Australia’s ongoing drought has caused significant disruption to the business which reported a $16 million loss a year ago.
Revenue for the 12 months to July 31 increased by 14 per cent to $3.76 billion, while underlying core earnings met August’s revised guidance of $420 million.
“While earnings are up, external headwinds constrained performance,” Hunt said.
“We’ve largely addressed the significant inventory overhang from drought conditions in Australia and made good progress in re-setting the cost base to make this a more resilient business while maintaining upside exposure to improved weather conditions.”
Nufarm said earnings for the first half of 2020 will be in line with the prior year.