The Nufarm Limited (ASX: NUF) share price is charging higher in morning trade.
At the time of writing the agricultural chemical company's shares are up 4% to $4.07.
What did Nufarm announce?
This morning Nufarm announced a non-cash asset impairment and revealed its unaudited FY 2020 earnings estimate.
According to the release, the company expects to recognise non-cash, impairment charges in relation to its European assets of approximately $215 million in FY 2020.
This comprises a pre-tax impairment of intangible assets of approximately $190 million and a derecognition of tax assets of approximately $25 million.
Management advised that the assessment of the carrying value takes into account recent operating performance and a moderated outlook of future earnings. The latter is based on an expectation of continuing margin pressure in its base product portfolio due to higher manufacturing costs and increased competition.
And while there are early indications that raw material costs for products in the portfolios Nufarm acquired in 2018 are easing, it notes that input costs for a small number of products are expected to remain elevated in the medium term. This has also been reflected in the carrying value assessment.
While this is disappointing, Nufarm's CEO, Greg Hunt, appears confident it is onwards and upwards from here for the European business.
He commented: "We believe the European business has reached an earnings trough in FY20, however it is appropriate to take this step to revise the carrying value of the assets. We have a comprehensive improvement program underway in Europe to grow revenues, reduce our cost to serve and lift margins."
"We expect this program, combined with an anticipated easing in raw material costs and improved weather conditions would be the major drivers of improved profitability in the European business in FY21," he concluded.
FY 2020 earnings estimates.
Based on its preliminary and unaudited accounts, Nufarm expects underlying group earnings before interest, tax, depreciation and amortisation (EBITDA) to be in the range of $290 million to $300 million in FY 2020.
Though, following the sale of the South American businesses, underlying EBITDA from continuing operations is expected to be in the range of $230 million to $240 million. This compares to EBITDA of $420 million in FY 2019.
Mr Hunt commented: "We have delivered positive momentum across most regions in the second half of the financial year, however earnings for the full year will be down on last year, primarily due to the divestment of the South American businesses, lower earnings in the first half and reduced earnings in Europe."
