Nufarm is looking to raise $303 million from shareholders after its debt doubled in the latest financial year thanks to the cost of acquisitions and ballooning working capital needs because of the worsening drought in eastern Australia.
The company, which also revealed weaker than expected annual results yesterday, said it will undertake a fully underwritten pro-rata entitlement offer to shareholders of three new shares for every 19 held at a price of $5.85, against the closing price on Monday of $6.64. That’s a discount of 11.9%.
The company said the offer was being undertaken to help ensure Nufarm remains in a strong position to manage short-term balance sheet risk, and to support the company’s growth strategy.
The company’s 2017-18 results, also released yesterday show the rising pressures on the company’s finances and why the rights issue is happening.
NUF’s average net working capital to sales ratio jumped up to 40.3% (2017: 36.8%), “driven by higher inventories in Australia and higher receivables in Europe”, according to directors.
And the company said net debt at 31 July 2018 was $1.374 billion – more than double the $680 million at the end of July 2017.
“The year-end net debt was impacted by the funding for the European acquisitions of $335 million and the higher year-end net working capital balance (up by $287 million). Average net debt over the 12-month period was $1,085 million, higher than the $886 million average in 2017,” directors said.
Given that background its no wonder Nufarm CEO Greg Hunt said the capital raising is a prudent measure given current elevated levels of debt and some uncertainty relating to market conditions in the immediate future.
“A combination of severe drought conditions in Australia and later than normal selling seasons in other major markets resulted in higher levels of working capital and debt at the end of our 2018 financial year (July 31). While we remain confident that this will unwind and return to targeted levels, it is appropriate that we take measures to de-risk the balance sheet in the short term.
“It is important that Nufarm retains the capacity to continue to grow its business and take advantage of new opportunities that add long-term value. Funds raised via this Offer will ensure that’s the case.”
Mr. Hunt said Nufarm has achieved strong levels of revenue growth in major global markets in recent years and this is a testament to the company’s successful execution of a focused strategy.
“Our decision to focus on those markets and crop segments where we can be most successful in helping drive market share gains, margin expansion and stronger engagement with our customer base.”
He said the company is also investing in initiatives that will support future profitable growth.
“We are planning manufacturing capacity expansions in both North and South America, and we are assessing several small but strategically valuable product acquisition opportunities that arise due to industry consolidation-related divestments. It is important that we are not excluded from those opportunities.”
Shares to be issued will not be entitled to the 2017-18 final dividend of 6 cents a share.
