Nufarm curtails manufacturing operations
18:40 PM | July 13, 2020 | Robert Birkett
Nufarm is to end manufacturing of insecticides and fungicides at its Australian Laverton site and restrict the manufacturing of herbicides at its facility in Linz, Austria. The company expects the combined moves to deliver an annual improvement to EBITDA of up to A$15 million ($10.4 million), once fully implemented.
Managing director and CEO Greg Hunt says that the moves are part of its strategy to improve returns. "The analysis of our manufacturing footprint is well advanced. It shows that our MCPA [herbicide] synthesis and formulation operations remain competitive; however, gaps have emerged in the competitive position of our 2,4-D [herbicide] synthesis and insecticide and fungicide formulation." He says that the moves are calculated to strike "the right balance between optimizing sourcing cost and retaining flexibility within our global supply chain."
One-off cash costs relating to the restructuring of some A$25 million will be partially offset by proceeds from the sale of the Raymond Road, Laverton, property. Proceeds from the eventual sale have not been incorporated in the estimate of cash costs, Nufarm notes. Other noncash costs related to the restructuring are expected to be approximately A$25 million.
Insecticide and fungicide manufacture at the Laverton site will be phased out with the site prepared for closure and sale over the next 18 months. The company expects EBITDA improvement from the move of some A$5 million per year.
Regional general manager, Australia and New Zealand, Peter O’Keeffe says that the changes would allow the company to support customers with competitive offers, while generating improved returns. O'Keefe says that although customers value the reliability of "local production," the company's analysis shows that "this is what we need to do" in order to provide a competitive offer for insecticides and fungicides, and generate sustainable returns. He adds that there would be no impact on Australian herbicide manufacture and formulation.
2,4-D at Linz
Nufarm will cease synthesis of the herbicide 2,4-D at its Linz site in 2021. The company anticipates a A$10 million boost to annual EBITDA once the changes are fully implemented. Formulation of other products manufactured at the site will continue. Europe regional general manager, Hildo Brilleman, comments, "We have more financially viable sources of supply available within our global supply chain. Today’s decision is one of many steps we are taking towards improving returns from our European business."
The performance improvement program is continuing across each of Nufarm’s regions and the corporate center, seeking improvement of “every aspect” of its business. A further update of the program will be issued with its results for year to end July.