How Did Nufarm’s $16M Inventory Adjustment Shape Its Half-Year Earnings?

Context of the Earnings Announcement

Nufarm Limited (ASX: NUF), a key player in the agrochemicals and specialty ingredients sector, recently responded to an ASX Aware Letter concerning its half-year financial results for the period ending 31 March 2025. The company’s earnings announcement, released on 21 May 2025, showed that its underlying EBITDA, a critical performance metric, was within 10% of analyst consensus following a significant inventory valuation adjustment.

Inventory Valuation Adjustment and Market Expectations

Central to the ASX’s inquiry was a $16 million downward adjustment to the carrying value of Nufarm’s omega 3 inventories. This adjustment was endorsed by the audit and risk committee on 16 May 2025, just days before the results announcement. The valuation change was driven by several post-balance sheet events, including new tariffs announced by the US administration, an increased anchovy quota by the Peruvian government signaling potential oversupply, and falling spot prices for omega 3 products.

Despite this adjustment, Nufarm maintained that its earnings, particularly revenue and EBITDA, remained materially in line with market expectations. The company did not issue formal earnings guidance for the half-year but relied on consensus analyst forecasts derived from eight sell-side analysts to gauge market sentiment. Nufarm’s management and board concluded that the adjustment did not reach a material threshold that would have necessitated earlier disclosure under ASX Listing Rules.

Market Reaction and Broader Financial Considerations

The day of the earnings release saw a sharp decline in Nufarm’s share price, dropping from $4.02 to a low of $2.79 before closing at $2.81. The company attributed this volatility to multiple factors beyond the earnings figures themselves. These included ongoing downward pressure on fish oil prices, which impact the omega 3 segment, elevated net debt and leverage ratios compared to the prior year, and the announcement of a strategic review of its Seed Technologies business.

Importantly, Nufarm highlighted its strong liquidity position, with significant undrawn credit facilities and covenant-lite financing arrangements. The company also outlined plans to reduce net debt through recalibrating the omega 3 expansion, improving working capital, cutting capital expenditures, and achieving $50 million in annualised cost savings by the end of fiscal 2025.

Compliance and Disclosure Assurance

In its detailed response to the ASX, Nufarm confirmed full compliance with Listing Rule 3.1 and its continuous disclosure obligations. The company’s General Counsel and Company Secretary, Kate Hall, affirmed that all responses were authorised by the board or delegated officers. Nufarm’s approach underscores the delicate balance companies must maintain between timely market disclosure and the evolving nature of financial estimates, especially when adjustments arise close to reporting deadlines.