Bad, good, and perhaps more bad news for Nufarm shareholders from yesterday’s AGM in Melbourne.
A day after it became apparent the proposed $13 a share offer from a China suitor was in trouble, shareholders received more news; in fact it was more like confession time from the chairman and CEO.
First half profit will be down, things will hopefully get better in the second half and Nufarm also says it won’t accept a lower offer from its Chinese suitor and its board will consider alternate proposals after the takeover deadline lapsed without a deal.
The speeches to the meeting by chairman, Kerry Hoggard and CEO Doug Rathbone contained enough detail for outsiders to understand why Sinochem developed cold feet about the $13 a share price and wanted to offer less.
In short the 2009 financial year experienced by Nufarm was full of red flags, many of the problems encountered by the company were self-inflicted, and have had an impact on its financial strength.
It would seem therefore that Sinochem smells a bargain with Nufarm financially weakened and wants to snatch control for less than it was prepared to pay before the due diligence started from late September, when the proposed bid was revealed.
And the Nufarm board won’t allow that to happen.
The Chairman explained the change from the Chinese group:
“The board has agreed to an extension on the basis that if Sinochem confirms its intention to proceed, it does so at the previously agreed indicative price of $13 per share,” Mr Hoggard told the AGM.
"Sinochem has raised what it has described as a number of issues with Nufarm arising from its due diligence. To the extent that we can, Nufarm will work with Sinochem to provide further information and clarification on some of those matters.
"I would like to make clear, however, that your Board has reviewed the company’s position with respect to those issues and does not consider that they impact the Board’s previous view of the appropriate value required to secure Board support for a takeover offer.
"The Board has agreed to an extension on the basis that if Sinochem confirms its intention to proceed, it does so at the previously agreed indicative price of $13 per share.
"If there are any material developments between now and December 23, a further statement will be made."
Nufarm shares rose more than 3% to $10.85 yesterday after the 6.5% fall on Wednesday.
Sinochem signed an initial accord to buy Nufarm on September 28.
Sinochem’s planned offer is the second time a Chinese state-owned company has tried to buy Nufarm.
China National Chemical Corp, backed by two US buyout funds, ended talks to buy Nufarm in late 2007.
But while the board was defiant, it was also in a mood for apologies and confessions
So 2010 profitability is going to be hard to forecast as the agricultural chemicals maker continues to face difficult market conditions.
But first half earnings are going to be lower than a year ago, partly because the 2008-09 first half was spectacularly high.
The company told shareholders the 2009 result – a 42% drop to $79.88 million – was a ‘‘poor quality performance’’, reflecting the very adverse affect of ‘‘some misjudgments’’.
(Whose, it wasn’t made clear.)
Chairman Kerry Hoggard said the group’s first half profit would be ‘‘significantly down on the previous year, however in line with our internal projections. But Nufarm currently expects full year operating profit to ‘‘show meaningful’’ growth.
"Both cash flow and balance sheet strength will improve," Mr Hoggard told the company’s annual meeting in Melbourne.
CEO Doug Rathbone told the meeting:
"Our forecast group result for the six months ending in January 2010 is below that for the same period of last year.
"It should be remembered that last year’s first half result benefited from an unusual sales mix of higher margin products in an environment that was quite different from current conditions.
"Our firm perspective is, however, that – following last year’s second half challenges – we are now on a curve that reflects improving business conditions and we remain very confident that net operating profit for the full year will show a considerable improvement on 2009.
"As always, the extent of that improvement will be dependent on the usual factors impacting the key selling period in the second half of the year.
"These include climatic conditions and the competitive environment."
Mr Hoggard explained what went wrong in the 2008-09 year this way:
"It would be inappropriate to address this meeting and make excuses for that performance as quite simply there were a combination of market changes and – with the benefit of hindsight – some misjudgments which had a very adverse impact on the result.
"It is however, important that shareholders understand the major reasons for the 2009 performance.
"To a very large extent the critical aspects involved trading in the Glyphosate market.
"This is the Company’s largest individual product and represents between 35% and 40% of our total international sales.
"In the second half of the 2008 financial year Glyp
