05 March 2008
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Company Announcement
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Nufarm announces UK and US acquisitions
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Consolidates global leadership in phenoxy herbicides and drives growth in high value US turf and specialty market
Equity raising to fund acquisitions
Acquisitions forecast to be approx. 5% EPS accretive in FY09
Interim results preview: Operating NPAT $35.4m, substantial growth on pcp
FY08 NPAT (pre acquisitions): Approx $145m – strongly reaffirmed
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Nufarm Limited announced today that it has acquired AH Marks Holdings Limited (effective immediately), based in Wyke, England and has reached agreement to acquire the business of Etigra LLC, based in Cary, USA.
Total purchase price for the two acquisitions will be $236 million, consisting of cash consideration of $175 million, together with $61 million in assumed AH Marks debt. The two businesses are expected to contribute approximately $5 million in additional net profit in the current Nufarm financial year and an estimated $24.7 million in additional net profit in the 2009 financial year.
Nufarm will today fund the cash component of the purchase price with a placement of new shares to institutional investors via a bookbuild process to raise $200 million. Eligible Australian and New Zealand shareholders will also be invited to participate in a Share Purchase Plan.
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AH Marks Holdings Limited ('AH Marks')
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AH Marks is a privately-owned manufacturer and supplier of crop protection and industrial chemicals, with the majority of revenues generated from technical and intermediate sales to other companies. It is a major producer of phenoxy herbicides and a leading global supplier of intermediates into propionic and selective grass herbicides.
The company is based at Wyke, near Bradford in Northern England, with 2007 annual revenues of approximately ₤62 million, 75% of which are export sales.
The total purchase price for AH Marks is ₤74.6 million, consisting of cash consideration of ₤46.5 million with ₤28.1 million in assumed debt. AH Marks is expected to contribute just over $1 million in net profit in Nufarm’s current financial year, increasing next financial year to some $13.4 million as anticipated synergies are achieved.
Nufarm's Managing Director, Doug Rathbone, said the acquisition will strengthen Nufarm's global leadership in phenoxy herbicides.
"The addition of the AH Marks business expands our production capacity; enhances our product development opportunities; strengthens our global regulatory position; extends our supply relationships with other major companies; and provides additional brands for our portfolio of phenoxy herbicides."
Phenoxy herbicides represent a global market in excess of US$550 million, making them one of the largest herbicide product segments. Used for broadleaf weed control in cereal crops, pasture and a range of non-crop and turf applications, there has been strong growth in the segment in recent years.
"Nufarm has been operating at full production capacity for a number of our leading phenoxy products and we are seeing increased opportunities associated with the use of these products in GM crops and glyphosate resistance management programs," Mr Rathbone said.
"AH Marks has important phenoxy herbicide supply positions with a number of global crop protection companies, including a major supply contract with Nufarm. Its intermediates position in an important category of selective grass herbicides presents new opportunities in another valuable herbicide segment.
"AH Marks has suffered from a lack of presence at the branded distribution level and its integration into Nufarm's much broader geographic platform will add significantly to the value that can be extracted from its manufacturing and product positions.
"Nufarm plans to increase production at the Wyke manufacturing facility and support a number of new product development programs," Mr Rathbone said.
Nufarm has acquired 100% of the shares in AH Marks Holdings Limited, effective from today.
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Etigra LLC ('Etigra')
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Etigra is a privately-owned supplier of crop protection products, specialising in the US turf and specialty markets.
This proposed acquisition will strengthen Nufarm’s existing position in the turf and specialty segment by providing additional products and a complementary distribution platform.
Based in North Carolina, Etigra generated 2007 annual revenues of US$34 million. Nufarm intends to acquire certain assets and business from Etigra for US$69 million, with completion expected by the end of March. A letter of intent has been executed, with all commercial matters agreed. Final legal documentation has not yet been completed, but Nufarm does not anticipate any substantive impediments to the completion of this purchase.
The proposed acquisition is forecast to generate approximately $4 million in additional net profit after tax in Nufarm's current financial year, increasing to approximately $11.3 million in its first full year of ownership.
Nufarm's Managing Director, Doug Rathbone, said Etigra is an excellent business and a great fit for Nufarm’s US growth objectives.
"The US turf and specialty segment represents a market of some US$1.9 billion for the products we supply, making it similar in size to the total crop protection market in Australia.
"Etigra will bring a portfolio of more than 50 products; excellent distribution relationships; and a team of very experienced and capable people. It has established a strong reputation for high quality products and very high standards of service.
"A number of Etigra’s product registrations will enable us to secure additional positions in important crop segments, including the cotton market. Some 60% of Etigra revenues are based on sales of fungicides and insecticides, complementing Nufarm’s predominantly herbicide portfolio."
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Funding
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The acquisitions will be funded via a placement today of new shares to institutional investors in a bookbuild process to raise $200 million. The proceeds will be used to fund the cash consideration associated with the acquisitions, with the balance of $25 million to be used for working capital.
Nufarm will also offer eligible Australian and New Zealand shareholders the opportunity to subscribe for up to $5,000 worth of shares each through a Share Purchase Plan ('SPP'), without incurring brokerage or stamp duty. Proceeds to be raised from the SPP will be capped at $25 million and will be utilised as general working capital. Further details of the SPP will be announced following the institutional placement.
The acquisitions of AH Marks and Etigra are expected to be approximately 5% accretive to Nufarm’s FY09 earnings per share ('EPS'), after adjusting for shares expected to be issued under the institutional placement. Nufarm's forecast gearing ratio (net debt to equity) at July 31, 2008 – post the acquisitions and the capital raising – is expected to be between 50% and 55% (previous guidance 57%).
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Partial sell-down by Mr Doug Rathbone
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Nufarm also announced today that Managing Director, Doug Rathbone, will sell down 4 million shares in a secondary offering to be run in parallel to the institutional placement.
This represents approximately 13.5% of Mr Rathbone’s total shareholding in Nufarm and he will remain the company’s largest shareholder with a relevant interest in approximately 25.9 million shares, representing an estimated 14% of issued capital, following the sell-down and capital raising.
Mr Rathbone said proceeds from the sale of the shares will be used to fund further expansion of his family’s wine business, specifically the development of a new warehouse and bottling line facility currently under construction in Port Melbourne.
"The proceeds from the sale of these shares satisfies all of my current requirements and I have no plans to sell additional shares."
Some 846,443 shares – representing less than 3% of Mr Rathbone’s total current holdings – are funded via a margin loan (involving an average historical purchase price of less than $3 per share) and will be included in the sell-down. Post the sell-down, Mr Rathbone will have no Nufarm shares subject to margin lending arrangements.
"I believe there are tremendous opportunities for Nufarm to achieve further profitable growth over the next three to five years and I look forward to contributing to the ongoing success of the company – in my role as CEO – over that period."
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Interim results preview and trading update
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Nufarm will release its full interim results for the six months to January 31, 2008 on March 27. In a preview of those results, the company said today that it will report a substantial increase in both revenues and earnings. In previewing these results, Nufarm notes that they are subject to final audit review.
Sales for the six months to end January 2008 were $990 million, up from just under $600 million in the previous period (Note: 2007 interim results did not include Agripec/Brazil sales as that business was previously equity accounted) . Earnings before interest and tax (EBIT), on an operating basis, were $83.3 million, a substantial increase on the previous year’s first half operating EBIT of $24.1 million.
Net profit after tax, on an operating basis, was $35.4 million, compared with $6.6 million the previous year.
This excludes the impact of non-operating items, including the previously disclosed $22.6 million net loss associated with barter trading liabilities in Brazil and a net non-cash foreign exchange loss of $7.6 million relating to the company’s Step-up Securities (NSS). The foreign exchange exposure on the funding utilisation from the NSS has been hedged over the term of the securities and will guarantee a cash gain of $19.6 million on maturity.
The reported net profit after tax, including the impact of non-operating items, is $4.6 million, compared to $11.4 million at January 31, 2007.
The operating results are a substantial improvement on the 2007 interim result and reflect stronger sales and EBIT contributions from most of the company's major markets.
Australia, after a slow and drought-affected August to November period, recorded very strong December and January sales, driven by a positive change in seasonal conditions in NSW and Queensland and increasingly positive sentiment in much of the agriculture sector.
North America also generated a stronger first half, with earlier buying patterns again reflecting positive planting intentions for the approaching spring cropping season.
Nufarm's Brazilian business generated record first half sales and an operating EBIT of some $47 million, up from $38.2 million in the first half of the previous year (on the basis of 100% ownership, not the 49.9% equity accounted result included in pcp). The business generated record net sales for the period of R$346 million (2007 first half net sales: R$288 million).
The European businesses also contributed stronger EBIT results, with improved performances in Germany, the UK, France and most other regional markets.
Business conditions remain very positive as the company approaches the key selling periods in Australia, North America and Europe. High soft commodity prices will encourage large crop plantings if seasonal conditions allow and Nufarm is well positioned to capitalise with a growing product portfolio and strong distribution relationships across its global markets.
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Full year guidance
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The company is very confident of achieving its forecast full year net profit target of approximately $145 million. The AH Marks and Etigra acquisitions will contribute some $5 million in additional net profit this financial year, resulting in adjusted guidance of approximately $150 million.
The company's profitability remains heavily weighted to the second half – particularly the April to June period - and full year profit guidance will again be reviewed when it becomes clearer how the business has performed during this important period.
Mr Rathbone said global growth drivers in agriculture remain very strong and the longer term outlook for Nufarm is extremely positive.
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Further information:
Robert Reis
Corporate Affairs
(61 3) 9282 1177 |
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