Nufarm - Morgans

Chemicals - Others│Australia│Equity research│March 21, 2018

Nufarm Now positioned for growth

ADD (no change) Current price: Target price: Previous target: Up/downside: Reuters: Bloomberg: Market cap:

A$8.71 A$10.15 A$10.15 16.5% NUF.AX NUF AU US$2,199m A$2,853m US$8.13m A$10.53m 327.6m 81.6%

Average daily turnover: Current shares o/s Free float:

Price Close

Relative to S&P/ASX 200 (RHS) 112.0

10.10

106.2

9.60

100.3

9.10

94.5

8.60

88.7

8.10

82.8

7.60 10 8 6 4 2

77.0

Vol m

10.60

Mar-17

Jun-17

Sep-17

Dec-17

Source: Bloomberg

Price performance Absolute (%) Relative (%)

1M 6.1 6.2

3M -0.5 1.6

Belinda MOORE T (61) 7 3334 4532 E [email protected] Kurt GELSOMINO T (617) 3334 4858 E [email protected]

12M -7.1 -9.9

■ In line with guidance, NUF reported a weak 1H18 result due to a plant shutdown in Australia and challenging operating conditions in Latin America. However we note that NUF’s earnings are materially seasonally skewed to the second half and full year guidance for earnings growth (pre-acquisitions) hasn’t changed.

■

Our FY18 forecasts have fallen due to the timing of the European acquisitions. Importantly there is no change to our FY19 forecasts which is the first full year of these acquisitions. We expect solid earnings growth over the forecast period. Longer term, NUF’s omega-3 canola program could be a game changer.

■ NUF offers solid earnings growth and is trading on an attractive valuation (FY19F PE of 12.7x). We maintain an Add rating and A$10.15 price target.

Weak 1H18, although in line with guidance NUF’s 1H18 underlying EBIT fell 11.8% to A$75.0m, which was at the mid-point of guidance and in line with our forecast. The decline in earnings was largely due to its scheduled plant shutdown in Laverton, Australia (A$7.6m impact) and a challenging operating environment in Latin America. While group earnings fell, sales increased 7.4% or 9.9% in constant currency terms as NUF won market share in Australia, North America and Latin America. The highlights of the result were the material improvement in Seed Technologies (EBIT of A$4.5m vs. A$0.2m loss in 1H17) and strong earnings growth in North America (despite cycling a solid pcp). The balance sheet was boosted by the A$437m equity raising (net debt decreased A$312m to A$544m). However, with the acquisitions now completed, NUF’s gearing will rise.

FY18 guidance of 5-10% underlying EBIT growth Subject to normal seasonal conditions, FY18 underlying EBIT guidance is A$317.4332.5m, up 5-10% on the pcp. NUF’s earnings are highly skewed to the 2H, in line with Australia’s winter crop and the northern hemisphere’s key cropping period. Guidance includes a modest contribution (A$0-5m of EBIT) from recent European acquisitions and at least A$15m of benefits from its Performance Improvement Program. NUF expects an improved 2H18 from Australia, North America, Europe and Seed Technologies.

We revise FY18 however there is no change to FY19 and FY20 We have lowered our FY18 EBIT forecast by 7.2% to A$325.0m, which is up 7.5% on the pcp and at the mid-point of NUF’s guidance range. Our revision largely reflects the slight delay in completion of the European acquisitions, which has seen NUF miss the key selling period. Our FY19/20 forecasts remain largely unchanged. We forecast solid earnings growth over the forecast period due to the Performance Improvement Program, European acquisitions, new products and market share gains.

FY19 positive investment thesis remains intact – Add maintained NUF's weak 1H18 result was well guided to and importantly a stronger 2H18 is expected. More importantly, with the acquisitions now completed, we believe the market should start to appreciate NUF’s attractive medium-term growth profile and undemanding valuation. NUF is trading on an FY19F PE (pre-amortisation) of only 12.7x which is a material discount to domestic chemical companies on 16.0x. Financial Summary Revenue (A$m) Operating EBITDA (A$m) Net Profit (A$m) Normalised EPS (A$) Normalised EPS Growth FD Normalised P/E (x) DPS (A$) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing P/BV (x) ROE % Change In Normalised EPS Estimates Normalised EPS/consensus EPS (x)

Jul-16A 2,791 371.7 27.5 0.37 (7.1%) 23.80 0.11 1.26% 8.60 2.14 40.3% 1.50 6.1%

Jul-17A 3,111 390.0 114.5 0.47 27.1% 18.72 0.13 1.49% 8.37 2.03 42.4% 1.46 7.9%

Jul-18F 3,405 445.0 144.5 0.48 3.7% 18.05 0.14 1.61% 9.06 NA 51.1% 1.25 7.9% (10.9%) 1.01

Jul-19F 3,813 567.7 235.7 0.68 41.6% 12.75 0.17 1.95% 7.38 29.03 46.0% 1.22 10.0% 0.0% 1.11

Jul-20F 4,009 600.1 257.9 0.75 9.5% 11.64 0.19 2.18% 6.89 19.30 39.6% 1.13 10.1% 0.5% 1.10

SOURCE: MORGANS, COMPANY REPORTS

IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP

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Chemicals - Others│Australia│Equity research│March 21, 2018

1H18 result was in line with recent guidance NUF’s 1H18 result was weak but largely in line with expectations. It is important to highlight that the 1H is not an overly material period for the group and 1H18 performance is not indicative of the full year. Underlying EBIT (down 11.8% to A$75.0m) was at the mid-point of guidance and in line with our forecast. The result was weaker than we expected at the underlying NPAT level due to higher than expected interest expense (FX loss) and tax rate (44.9% vs. our forecast of 30%). NUF’s fall in EBIT was largely due to its scheduled plant shutdown in Laverton, Australia (A$7.6m impact) and a challenging operating environment in Latin America. Europe also delivered a weaker than expected result as its industrial business experienced unplanned manufacturing interruptions and there were adverse FX headwinds. EBIT was also impacted by materially higher D&A expense (+10% on the pcp). The material improvement in the Seed Technologies business unit was the highlight of the result, delivering a solid 1H18 profit compared to its usual 1H seasonal loss. North America also recorded strong earnings growth as it cycled a solid pcp and incurred A$4m of increased logistics costs post the hurricane. NUF’s performance in this market validated the company’s strategy of deepening its customer relationships to leverage sales of higher-margin products. While earnings fell, sales increased 7.4% or 9.9% in constant currency terms as NUF won market share in Australia, North America and Latin America. Management said that NUF’s sales growth compares to a market place where there was little to no growth. The balance sheet benefited from the recent equity raising (A$437m of net proceeds) without funding the acquisitions at 31 January year end. With the European acquisitions now completed, NUF’s net debt positon will increase at year end. Figure 1: 1H18 result summary (A$m) 1H16A 1187.6

2H16A 1603.6

FY16A 2791.2

1H17A 1360.1

2H17A 1751.0

FY17A 3111.1

1H18A 1460.1

1H18 vs 1H17 7.4%

EBITDA D&A

112.3 41.1

259.4 44.0

371.7 85.0

128.7 43.7

261.3 44.0

390.0 87.7

123.2 48.2

-4.3% 10.4%

EBIT Australia & New Zealand Asia Europe North America Latin America Seed Technologies Corporate costs Total EBIT Seasonality

14.6 9.4 7.1 7.4 57.7 -4.4 -20.7 71.2 25%

32.4 13.4 65.9 51.9 42.6 33.1 -23.8 215.5 75%

47.0 22.8 73.0 59.3 100.4 28.7 -44.5 286.7

13.3 14.5 8.8 17.7 55.8 -0.2 -24.9 85.0 28%

38.4 9.9 77.0 52.6 33.6 36.6 -30.7 217.3 72%

51.6 24.4 85.8 70.3 89.4 36.4 -55.7 302.3

6.5 14.9 2.5 22.4 52.7 4.5 -28.6 75.0 23%

-51.1% 2.9% -71.8% 26.7% -5.6% 2444.8% 14.7% -11.8%

EBIT margin

6.0%

13.4%

10.3%

6.2%

12.4%

9.7%

5.1%

-17.9%

57.0 14.2 2.3 0.0 11.9

81.0 134.5 37.5 0.0 97.1

138.0 148.7 39.8 0.0 108.9

52.5 32.5 12.5 -0.2 19.8

54.5 162.8 46.4 -0.4 116.1

107.0 195.3 58.9 -0.6 135.8

56.3 18.6 8.4 0.4 10.7

7.3% -42.7% -33.0% 290.5% -46.0%

-247.4 927.0 63.3% 1.2

384.7

137.4 625.4 40.3% 2.1

-149.0 856.4 55.8% 1.6

204.5

55.4 680.3 42.4% 2.8

-199.1 544.0 26.9% 1.3

-A$50.1m -36.5% -51.8% -17.8%

Sales

Net Interest NPBT Tax Minorities Operating NPAT Operating Cashflow Net Debt Net Debt/Equity EBIT interest cover

2.7

4.0

SOURCES: MORGANS, COMPANY REPORTS

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Chemicals - Others│Australia│Equity research│March 21, 2018

Result summary: 

Operating profit fell 46% to A$10.7m, which was well below our forecast of A$16.1m. The difference reflected materially higher than expected interest and tax. The effective tax rate was 44.9% compared to 38.4% the pcp and was impacted by country mix. The FY18 effective tax rate is expected to be approximately 30%.



The Board declared an interim dividend of 5.0cps (unfranked) which was in line with the pcp and our above forecast of 4.0cps. We view the Board’s decision to maintain the dividend positively and believe it highlights its confidence in the full year outlook. The DRP will be in place for the interim dividend.



Sales rose 7.4% to A$1.46bn and were 9.9% higher in constant currency. Revenue growth was a credible outcome given NUF said there was little to no growth in the overall industry.



Gross profit margin fell 83bps to 28.2%. Management said the ANZ plant shutdown accounted for approximately 50bps of the margin contraction, while the tough Brazil market and adverse currency explained the remainder of the fall.



Operating EBIT fell 11.8% to A$75.0m. This was in line with guidance for operating EBIT of A$70-80m and our forecast of A$75.0m. The EBIT margin fell to 5.1% compared to 6.2% the pcp.



Net interest rose to A$56.3m (vs. A$52.5m the pcp) and was higher than our forecast of A$51.5m. Higher FX losses (A$14.3m vs. A$6.2m in 1H17) explained the increase in interest costs, despite lower underlying interest expense.



Cashflow comments: In line with seasonal trends, NUF reported an operating cash outflow of A$199.1m compared to an outflow of A$149.0m in the pcp. The increased outflow reflected higher material items of A$9.4m and greater tax paid (A$19.5m vs A$7.7m). Positive operating cashflow will be reported in 2H18 as stocks are sold. Capex and product development expenditure increased to A$90.6m from A$63.0m in the pcp.



Balance sheet: Net debt fell to A$544m vs A$856m the pcp. Excluding the equity raising, net debt rose A$125m due to higher net working capital (higher receivables and inventories). Average net working capital to sales rose to 37.8% compared to 37.1% the pcp.

Business unit performance North America and Seed Technologies were the highlights of the result. Growth in Asia was also a solid outcome considering NUF was cycling a strong comp. Europe was weaker than expected but earnings are highly skewed to the 2H (~90% of full year earnings). The fall in ANZ was well guided to and largely reflected the impact of the plant shutdown. Operating conditions remain challenging in Latin America and are likely to be down for the full year. Australia and New Zealand (ANZ) 1H18 result – Sales fell 1.9% and were impacted by soft conditions in spring fungicide and summer herbicide markets (total market down in 2H of CY17). NUF continued to focus on regaining volume and market share. It said pricing remained very competitive. Dry conditions were experienced for the summer crop in northern NSW and southern QLD. Operating EBIT fell 51.1% to A$6.5m but was ahead of our forecast of A$5.8m. As flagged at its AGM, ANZ earnings fell due to the nearly eight week plant shutdown at Laverton (A$7.6m impact). In the absence of the plant shutdown, underlying EBIT would have increased 6.0%. The EBIT margin decreased to 2.2% from 4.3%. Outlook – NUF has slightly softened its outlook for ANZ in FY18. It now expects earnings will be broadly in line with the pcp compared to its previous guidance 3

Chemicals - Others│Australia│Equity research│March 21, 2018

for modest growth. Nonetheless, guidance still implies strong 2H18 growth of ~18% on 2H17. The company will continue to focus on volume and market share recovery. It expects to generate long-term productivity improvements from the plant shutdown and these should start to flow through in the 2H18. NUF said its 2H18 2,4-D production is expected to be 34% ahead of the 1H18 and 12% ahead of the 2H17. The merger of the Nufarm and Crop Care marketing arms (1 August 2017) was bedded down during 1H18 and will generate efficiencies and improve its customer experience going forward. NUF’s sales are highly skewed to the second half, in line with the key winter cropping period. NUF said good summer rains in Western Australia and recent rains in Queensland and NSW has provided an optimistic outlook for the winter cropping season. However, rainfall between ANZAC Day and the Queen’s Birthday is still critical. We forecast FY18 EBIT to remain flat on the pcp at A$51.6m. Assuming average seasonal conditions, NUF should produce decent earnings growth in FY19 from a reversal of the plant shutdown alone. Asia 1H18 result – Sales rose 1.0% and benefited from growth in Indonesia and new product launches as NUF diversified its sales base across crops. However glyphosate sales in Japan were down due to increased competition. Operating EBIT rose 2.9% to A$14.9m and was in line with our forecast of A$14.8m. The EBIT margin rose to 15.6% from 15.4%. Outlook – NUF’s outlook for Asia was also weaker than expected, although we recognise this is a materially smaller business unit. Due to a competitive glyphosate market in Japan impacting 2H18 performance, management expects FY18 EBIT will be down slightly on the pcp. We forecast FY18 EBIT to fall 4.0% to A$23.5m. North America 1H18 result – Sales rose 27.7% and operating EBIT was A$22.4m, up 26.7% on the pcp. The company’s performance in North America was one of the highlights of the result and exceeded our forecast of A$19.2m. We highlight NUF was cycling a strong pcp. Strong sales of commodity products into the broadacre segment facilitated sales of additional, higher-margin products in its portfolio. In our view, the company’s result in North America validates its strategy to deepen its customer relationships. The turf and specialty segment (high margin work) sales were in line with the prior year despite the negative impact of the hurricanes in Florida. This saw the company incur about A$4m of additional logistics costs. The EBIT margin was flat at 6.0%. Outlook – NUF said the 2H18 outlook for North America is positive, in USD terms. The company believes the business is well positioned to build on its momentum and support from its channel partners to improve its margin mix through the introduction of new products. Again, North American sales are heavily skewed to the second half, in line with the spring planting season. We forecast 19.6% EBIT growth to A$84.0m in FY18. Latin America 1H18 result – Sales fell 3.4% and operating EBIT was down 5.6% to A$52.7m. This was largely in line with our forecast of A$53.3m. The EBIT margin fell to 11.7% from 11.9%. Earnings were impacted by competitive pricing in Brazil (total market down 7% in CY17), while Argentina was impacted by climatic conditions (reducing volumes) and competitive pricing and not being able to pass on higher glyphosate prices. NUF won market share in the 1H18 with its volumes up about 5% for the period. The weaker Peso impacted Argentina earnings on translation to AUD. Outlook – Conditions will be challenging in 2H18. NUF said the delayed Brazil soybean season has impacted the 2H Safrinha corn plantings and dry conditions in Argentina has reduced soybean plantings. Despite these headwinds, management expects 2H18 earnings will be broadly flat on 2H17 as a partial benefit of the prior year’s restructuring activities in Argentina is realised. 2H18 guidance implies the full year result will be slightly down on the pcp and is a 4

Chemicals - Others│Australia│Equity research│March 21, 2018

revision to management’s previous expectations of earnings growth. Importantly, channel inventories are now coming back to more normal levels and industry price rises are being implemented. We forecast FY18 EBIT of A$86.3m, down 3.5%. Europe 1H18 result - Sales rose 14.7% but operating EBIT was down 71.8% to A$2.5m. This was materially below our forecast of A$8.8m. NUF attributed the decline in earnings to manufacturing interruptions, weak industrial sales to third parties and currency impacts on sales into the Americas (stronger Euro and Pound). We note European earnings are highly skewed to the 2H (historically 90% of full year earnings). Outlook – NUF expects Europe will deliver growth in 2H18 (vs. 2H17) and as a consequence, full year earnings will also improve. Management said growth will come from continued focus on higher margin products and the benefit of the manufacturing efficiency programs. In addition, NUF has recently completed the acquisition of both the Century Portfolio and the herbicide portfolio from FMC. Combined these acquisitions are expected to add A$280m to sales, A$112.5m to EBITDA (mid-point of guidance) and A$55-60m of EBIT in FY19. Given NUF has missed the key selling period under its ownership, only a modest EBIT contribution is expected in FY18 (between A$0-5m). We assume that the European acquisitions add A$3.0m to 2H18 EBIT followed by an additional A$55.5m of EBIT in FY19. We forecast 6.0% EBIT growth to A$91.0m in FY18. The A$37m investment in the harmonisation of its back office processes and systems will deliver benefits over the 2H18 and FY19. Seed Technologies 1H18 result – Sales increased 35.8% and underlying EBIT improved to a profit of A$4.5m compared to a loss of A$0.2m in the pcp. This was materially ahead of our forecast for a loss of A$1.0m and was the highlight of the result. The strong result reflected a combination of higher seed treatment sales across ANZ, Latin America and North America and strong 1H18 seed sales in Latin America. Outlook – Seed Technologies is expected to deliver another solid year of sales and earnings growth. NUF said the outlook for the Australian canola season is positive following good moisture in Western Australia and attractive canola pricing (relative to wheat). New seed product launches will also help. We forecast 22.4% EBIT growth to A$44.5m in FY18. Nuseed’s omega-3 canola program is expected to be EBIT positive in FY21 (after the program has sufficiently scaled). It is a canola seed that will produce long-chain Omega-3 oils, similar to those found in fish oil. NUF believes that it is well positioned to be first to market with a land-based, sustainable, long-chain omega-3 solution. In 2H18, NUF will move forward with field tests with potential customers and scale up the pre-commercial activity ahead of a planned commercial launch in the US next year (assuming US regulatory approval). It recently received regulatory approval for commercial cultivation and use in food and feed in Australia. NUF said that the Australian approval facilitates the submission of other regulatory applications in priority markets that recognise Australia as a reference country. Capex spend on omega-3 in FY18 is expected to be A$25m, falling to A$16m in FY19 and then about A$5m from FY20 onwards. Corporate Costs 1H18 result – increased 14.9% to A$28.6m due to one-off expenses relating to strategic projects. These additional costs aren’t expected to be repeated in the 2H18. This was ahead of our forecast of A$26.0m. Outlook – We forecast FY18 corporate costs to remain largely flat on the pcp at A$55.9m.

5

Chemicals - Others│Australia│Equity research│March 21, 2018

Outlook FY18 guidance – NUF’s earnings are highly skewed to the 2H of the financial year, in line with Australia’s winter crop and the northern hemisphere’s key cropping period. Seed Technology sales are also seasonally skewed to the 2H. Subject to normal seasonal conditions, NUF has provided FY18 underlying EBIT guidance of A$317.4-332.5m, up 5-10% on the pcp. We note guidance includes a modest contribution from its recent acquisitions and at least A$15m of additional benefits from its Performance Improvement Program. NUF expects improved 2H18 performance from Australia, North America, Europe and Seed Technologies. In addition, NUF provided the following guidance around key metrics: 

The FY18 effective tax rate is expected to normalise to approximately 30% for the full year. Going forward, management said the reduction in the US corporate tax rate is expected to reduce the group’s effective tax rate by 1% to 29%.



FY18 and FY19 capex guidance was higher than expected at A$180m and A$140m due to increased IT and Omega 3 investment. From FY20 onwards, capex is expected to fall to A$120m.



Full year net interest expense (includes FX losses of A$20-25m) is expected to be A$115-125m.



Full year average net working capital to sales ratio is expected to be about 37%. Despite sales growth, NUF expects its actual net working capital position at year end of be broadly in line with the pcp.

Performance Improvement Program – NUF remains on track to deliver A$116m of net benefits by the end of FY18 (A$101m of cumulative benefits were achieved at the end of FY17). Most of the targeted A$15m of savings are expected to be achieved in the 2H18.

Forecast implications Our new FY18 operating EBIT forecast is at the mid-point of NUF’s guidance or A$325.0m, up 7.5% on the pcp. Backing out the Business Improvement Program benefits of A$15m and the European acquisitions of A$3.0m, this implies 1.5% organic growth. The fall in our FY18 forecasts reflects a lower than expected contribution from the European acquisitions. Importantly, this is just a timing issue and the changes to FY19 and FY20 are immaterial. We forecast solid earnings growth over the forecast period due to the Performance Improvement Program, European acquisitions, new products and market share gains. Figure 2: Morgans forecast changes (A$m)

EBITDA EBIT NPAT - pre hybrid distribution EPS - post-hybrid and pre-amortisation (cps) EPS - post hybrid distribution (cps) DPS (cps)

FY18 Old 464.5 350.1 163.0 54.2 49.2 15.0

FY18 New 445.0 325.0 144.1 48.3 43.3 14.0

FY19 Old 562.1 411.3 198.3 68.3 56.8 17.0

% chg -4.2% -7.2% -11.6% -10.9% -12.2% -6.7%

FY19 New 567.7 407.7 197.9 68.3 56.8 17.0

% chg 1.0% -0.9% -0.2% 0.0% 0.0% 0.0%

FY20 Old 592.5 437.8 219.4 74.5 63.0 19.0

FY20 New 600.1 435.1 220.1 74.8 63.4 19.0

% chg 1.3% -0.6% 0.3% 0.5% 0.6% 0.0%

SOURCES: MORGANS, COMPANY REPORTS

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Chemicals - Others│Australia│Equity research│March 21, 2018

Valuation Given our blended valuation is based on NUF’s FY19 earnings outlook. Given our forecast changes have been immaterial, our valuation remains unchanged at A$10.15. With the DCF component, we apply a WACC of 10%. Figure 3: Blended valuation Method PE pre-amort. (15x FY19F) EV/EBITDA (8x FY19F) DCF Valuation (A$)

Valuation 10.25 9.77 10.43

Weighting 33% 33% 33%

3.42 3.26 3.48 10.15

SOURCES: MORGANS, COMPANY REPORTS

Investment view NUF's weak 1H18 result was well guided to and importantly a stronger 2H18 is expected. Our positive investment thesis has always been based on attractive FY19 multiples (first full year of the EU acquisitions). NUF is trading on an FY19F PE (pre-amortisation) of only 12.7x compared to domestic chemical companies on 16.0x. Its acquisition of two high-margin European product portfolios will strengthen its growth profile and earnings quality and we believe, should gradually narrow its valuation discount to peers. Given its attractive growth profile and undemanding valuation, NUF remains our key pick for exposure to the Ag and Chemicals sector. We maintain an Add recommendation and price target of A$10.15. Downside risks The usual acquisition-related risks include paying too much, failing to successfully integrate the business and revenue/synergy forecasts not materialising as expected. Other risks to the business are poor seasonal conditions, pricing pressure, increased competition, product re-registration risks, breaches of non-compete agreements and reliance on third-party distribution and supply arrangements.

Compco analysis The compco below demonstrates NUF’s undemanding valuation in FY19 (first full year of the acquisitions) and attractive growth profile, particularly against the domestic chemical companies. Figure 4: Compco Company International Chemcial Comps DowDuPont Inc. Bayer AG BASF SE Monsanto Company FMC Corporation Sumitomo Chemical Co., Ltd. UPL Limited Platform Specialty Products Corp. Nufarm Limited Average Median Domestic Chemical Comps Orica Limited Incitec Pivot Limited Duluxgroup Limited Nufarm Limited Average Median

Mkt Cap

PE (x) FY+1 FY+2

EV/EBITDA (x) FY+1 FY+2

EPS Growth FY+1 FY+2

EBITDA margin FY+1 FY+2

Div Yield FY+1 FY+2

ROE FY+1

FY+2

Net Debt/EBITDA (x) FY+1 FY+2

200,779.5 124,331.8 123,731.6 67,836.7 13,986.9 12,419.9 7,243.5 3,936.0 2,853.4

16.0x 13.5x 13.0x 20.9x 14.7x 7.4x 17.8x 10.9x 18.1x 14.7x 14.7x

13.5x 12.2x 12.3x 19.0x 13.1x 7.8x 15.1x 9.3x 12.7x 12.8x 12.7x

9.3x 8.7x 7.3x 12.8x 10.6x 5.1x 11.3x 8.8x 9.4x 9.3x 9.3x

8.0x 7.8x 6.8x 11.7x 9.4x 5.0x 9.6x 7.9x 7.4x 8.2x 7.9x

21.8% 86.5% 0.7% 3.1% 101.3% 58.3% 11.4% 26.8% 3.7% 34.8% 21.8%

18.5% 11.2% 6.0% 9.7% 11.8% -4.5% 17.6% 17.5% 41.6% 14.4% 11.8%

22.2% 27.0% 19.1% 29.4% 27.1% 14.2% 19.7% 22.4% 13.1% 21.6% 22.2%

23.8% 28.5% 19.1% 30.2% 27.7% 14.0% 20.2% 23.7% 14.9% 22.4% 23.7%

2.5% 3.0% 3.8% 1.9% 1.0% 3.3% 1.1% 0.0% 1.6% 2.0% 1.9%

2.6% 3.2% 4.0% 2.0% 1.0% 3.4% 1.2% 0.0% 2.0% 2.2% 2.0%

10.3% 15.8% 16.2% 32.4% 19.0% 14.5% 22.5% 9.7% 7.3% 16.4% 15.8%

11.6% 16.2% 15.9% 30.6% 17.8% 12.7% 21.9% 10.0% 9.5% 16.2% 15.9%

0.9x 0.6x 1.2x 1.2x 1.8x 1.9x 1.0x 5.3x 2.5x 1.8x 1.2x

0.6x 0.4x 1.0x 0.9x 1.3x 1.8x 0.7x 4.8x 1.9x 1.5x 1.0x

6,980.8 6,271.6 2,977.8 2,853.4

19.6x 16.8x 20.0x 18.1x 18.6x 18.9x

16.5x 15.6x 19.1x 12.7x 16.0x 16.1x

9.5x 8.8x 12.6x 9.4x 10.1x 9.4x

8.2x 8.3x 11.9x 7.4x 9.0x 8.3x

-8.3% 17.6% 5.8% 3.7% 4.7% 4.8%

18.8% 7.5% 4.6% 41.6% 18.1% 13.2%

17.2% 24.4% 14.3% 13.1% 17.2% 15.7%

18.7% 24.4% 14.5% 14.9% 18.1% 16.8%

2.7% 3.1% 3.6% 1.6% 2.7% 2.9%

3.1% 3.4% 3.8% 2.0% 3.1% 3.3%

11.9% 7.7% 34.4% 7.3% 15.3% 9.8%

13.2% 7.9% 34.7% 9.5% 16.3% 11.4%

1.6x 1.8x 1.4x 2.5x 1.8x 1.7x

1.3x 1.5x 1.3x 1.9x 1.5x 1.4x

SOURCES: MORGANS, COMPANY REPORTS

7

Chemicals - Others│Australia│Equity research│March 21, 2018

Figure 5: NUF financial summary (A$m) 1H16A

2H16A

FY16A

1H17A

2H17A

FY17A

1H18A

2H18F

FY18F

FY19F

FY20F

231.6 176.7 251.0 415.0 71.6 41.7 1187.6

322.4 373.6 402.9 325.7 77.0 101.9 1603.6

554.0 550.4 653.9 740.7 148.6 143.6 2791.2

306.3 150.9 291.1 466.9 94.3 50.6 1360.1

347.9 388.9 469.9 354.9 71.3 118.0 1751.0

654.2 539.8 761.1 821.8 165.6 168.6 3111.1

300.5 173.1 371.7 450.9 95.3 68.7 1460.1

379.9 463.9 541.5 350.4 72.0 137.0 1944.7

680.4 637.0 913.3 801.3 167.3 205.7 3404.9

714.4 866.3 986.3 833.3 175.7 236.5 3812.5

743.0 899.2 1045.5 866.7 182.7 272.0 4009.0

112.3

259.4

371.7

128.7

261.3

390.0

123.2

321.8

445.0

567.7

600.1

41.1

44.0

85.0

43.7

44.0

87.7

48.2

71.8

120.0

160.0

165.0

EBIT Australia & New Zealand Europe North America Latin America Asia Seed Technologies Corporate Costs Total

14.6 7.1 7.4 57.7 9.4 -4.4 -20.7 71.2

32.4 65.9 51.9 42.6 13.4 33.1 -23.8 215.5

47.0 73.0 59.3 100.4 22.8 28.7 -44.5 286.7

13.3 8.8 17.7 55.8 14.5 -0.2 -24.9 85.0

38.4 77.0 52.6 33.6 9.9 36.6 -30.7 217.3

51.6 85.8 70.3 89.4 24.4 36.4 -55.7 302.3

6.5 2.5 22.4 52.7 14.9 4.5 -28.6 75.0

45.1 88.5 61.6 33.6 8.5 40.0 -27.3 250.0

51.6 91.0 84.0 86.3 23.5 44.5 -55.9 325.0

58.2 149.6 92.7 89.3 25.0 51.4 -58.7 407.7

61.7 157.2 99.6 92.9 26.1 59.2 -61.6 435.1

EBIT margin: Australia & New Zealand Europe North America Latin America Asia Seed Technologies Total EBIT margin

6.3% 4.0% 3.0% 13.9% 13.1% -10.4% 6.0%

10.0% 17.6% 12.9% 13.1% 17.4% 32.4% 13.4%

8.5% 13.3% 9.1% 13.6% 15.4% 20.0% 10.3%

4.3% 5.9% 6.1% 12.0% 15.4% -0.4% 6.2%

11.0% 19.8% 11.2% 9.5% 13.9% 31.0% 12.4%

7.9% 15.9% 9.2% 10.9% 14.7% 21.6% 9.7%

2.2% 1.4% 6.0% 11.7% 15.7% 6.6% 5.1%

11.9% 19.1% 11.4% 9.6% 11.8% 29.2% 12.9%

7.6% 14.3% 9.2% 10.8% 14.0% 21.7% 9.5%

8.2% 17.3% 9.4% 10.7% 14.2% 21.7% 10.7%

8.3% 17.5% 9.5% 10.7% 14.3% 21.7% 10.9%

-57.0 14.2 -2.3 0.0

-81.0 134.5 -37.5 0.0

-138.0 148.7 -39.8 0.0

-52.5 32.5 -12.5 -0.2

-54.5 162.8 -46.4 -0.4

-107.0 195.3 -58.9 -0.6

-56.3 18.6 -8.4 0.4

-63.7 186.3 -53.1 0.2

-120.0 205.0 -61.5 0.6

-130.0 277.7 -80.5 0.8

-126.5 308.6 -89.5 1.0

11.9 -55.2% 11.9 -102.9 -91.0

97.1 7.1% 97.1 21.5 118.5

108.9 -7.0% 108.9 -81.4 27.5

19.8 66.6% 19.8 0.3 20.0

116.1 19.6% 116.1 0.0 116.1

135.8 24.7% 135.8 0.3 114.5

10.7 -46.0% 10.7 1.3 12.0

133.4 14.9% 133.4 -16.3 117.1

144.1 6.1% 148.6 -15.0 129.1

197.9 37.4% 224.9 0.0 197.9

220.1 11.2% 247.0 0.0 220.1

-5.7 -96.7 -96.7 -36.3 4.5

-5.7 112.9 112.9 36.6 31.5

-11.4 97.6 97.6 36.6 40.9

-5.9 14.2 14.2 5.3 7.4

-5.4 110.6 110.6 33.4 35.0

-11.3 124.5 124.5 46.5 50.8

-5.4 6.5 6.5 2.2 3.6

-5.4 126.7 41.7 41.0 43.2

-10.9 133.2 48.3 43.3 46.8

-10.9 187.1 68.3 56.8 60.1

-10.9 209.2 74.8 63.4 66.7

29.8% 122.8% 1334.9% -11.2% 9.8% 16.8% 4.1% 12.3%

-22.0% 7.6% 35.0% 266.0% 40.3% -10.8% -8.3% 24.2%

-11.0% 13.3% 52.3% 30.9% 25.9% -9.8% -2.9% 21.0%

-9.0% 23.8% 138.1% -3.3% 54.5% 95.5% 20.6% 19.3%

18.4% 16.9% 1.4% -21.3% -26.2% 10.6% 29.0% 0.8%

9.9% 17.5% 18.5% -10.9% 7.0% 26.7% 25.1% 5.4%

-51.1% -71.8% 26.7% -5.6% 2.9% 2444.8% 14.7% -11.8%

17.6% 14.9% 17.2% 0.0% -14.1% 9.3% -11.2% 15.1%

0.0% 6.0% 19.6% -3.5% -4.0% 22.4% 0.4% 7.5%

12.8% 64.5% 10.3% 3.5% 6.6% 15.5% 5.0% 25.5%

5.9% 5.0% 7.5% 4.0% 4.5% 15.0% 5.0% 6.7%

20% 10% 10% 81% 13% -6% -29% 100%

15% 31% 24% 20% 6% 15% -11% 100%

16% 25% 21% 35% 8% 10% -16% 100%

16% 10% 21% 66% 17% 0% -29% 100%

18% 35% 24% 15% 5% 17% -14% 100%

17% 28% 23% 30% 8% 12% -18% 100%

9% 3% 30% 70% 20% 6% -38% 100%

18% 35% 25% 13% 3% 16% -11% 100%

16% 28% 26% 27% 7% 14% -17% 100%

14% 37% 23% 22% 6% 13% -14% 100%

14% 36% 23% 21% 6% 14% -14% 100%

Revenue Australia & New Zealand Europe North America Latin America Asia Seed Technologies Total EBITDA D&A

Net Interest NPBT Tax Minorities NPAT (pre exceptionals) NPAT growth Net profit (pre amortisation, post hybrid) Significant items (post tax) NPAT (reported) Hybrid distribution NPAT (post hybrid, pre excep) EPS (pre-amortisation, post hybrid) EPS (pre except, post hybrid) EPS (pre except, pre hybrid) EBIT growth Australia & New Zealand Europe North America Latin America Asia Seed Technologies Corporate Costs Total EBIT growth % of EBIT Australasia Europe North America Latin America Asia Seed Technologies Corporate Costs Total

SOURCE: MORGANS RESEARCH, COMPANY

8

Chemicals - Others│Australia│Equity research│March 21, 2018

Figure 6: Cashflow and balance sheet (A$m) Cashflow Statement Operating Cashflow EBITDA Change in Working Capital Interest received Interest paid Income tax paid Dividends received/Other items Net Operating cashflow

FY12A

FY13A

FY14A

FY15A

FY16A

FY17A

FY18F

FY19F

FY20F

267.8 -32.4 7.9 -48.8 -28.1 0.2 166.5

260.8 -92.6 5.5 -50.0 -14.3 -46.6 62.8

281.4 100.1 5.1 -68.9 -45.0 -4.5 268.1

317.1 39.7 7.4 -73.2 -43.1 -19.4 228.5

371.7 -70.0 15.7 -106.6 -22.3 -51.2 137.4

390.0 -208.8 8.6 -98.0 -19.9 -16.5 55.4

445.0 -99.7 2.9 -100.4 -61.5 -30.0 156.3

567.7 -133.4 1.3 -111.3 -80.5 -5.0 238.8

600.1 -130.1 2.5 -108.9 -89.5 -5.0 269.0

Cashflows from investing activities Capex Disposals Acquisitions Divestments and Other Net cashflow from investing activities

-81.9 5.5 -53.9 0.0 -130.3

-96.1 13.7 -30.7 0.0 -113.1

-104.1 2.8 0.0 0.0 -101.4

-110.9 6.8 0.0 0.0 -104.1

-142.0 0.0 0.0 3.8 -138.2

-151.2 50.5 0.0 0.0 -100.8

-180.0 5.7 -778.0 0.0 -952.3

-140.0 0.0 0.0 0.0 -140.0

-120.0 0.0 0.0 0.0 -120.0

Cashflows from financing activities Proceeds from issues of shares and other equity Proceeds from borrowings Repayment of borrowings Dividends paid (net of DRP) Hybrid distribution Other financing items Net cashflow from financing activities Net increase (decrease) in cash held

0.0 832.5 -863.4 -7.6 -19.1 -27.0 -84.6 -48.4

0.0 1244.2 -1094.3 -14.7 -19.3 -16.6 99.3 48.9

0.0 911.0 -1047.4 -18.4 -16.9 -6.6 -178.3 -11.5

0.0 1071.2 -1023.6 -20.9 -16.7 -1.5 8.5 132.9

0.0 1091.8 -1138.2 -24.9 -15.5 -2.9 -89.6 -90.5

0.0 1193.9 -1153.4 -29.9 -15.4 -0.7 -5.5 -50.8

436.9 271.0 0.0 -43.1 -10.9 -8.0 645.9 -150.0

0.0 0.0 0.0 -56.0 -10.9 -8.0 -74.8 24.0

0.0 0.0 -50.0 -62.7 -10.9 -8.0 -131.6 17.4

FY12A

FY13A

FY14A

FY15A

FY16A

FY17A

FY18F

FY19F

FY20F

191.3 730.5 515.3 37.7 1474.7

265.0 758.5 802.8 33.9 1860.2

241.6 724.6 632.9 30.4 1629.5

391.4 732.4 753.7 39.3 1916.8

281.4 820.0 685.8 72.7 1859.9

235.1 1027.5 763.0 25.6 2051.3

85.1 1148.6 851.2 30.0 2115.0

109.1 1299.4 934.1 30.0 2372.6

126.5 1405.0 1002.3 30.0 2563.8

Non-current assets Receivables Investments Inventories Property, plant & equipment Intangibles Other - deferred tax assets Total non-current assets

41.1 10.3 0.0 370.8 722.7 181.6 1326.5

36.2 6.6 0.0 402.7 865.8 200.2 1511.5

67.5 8.3 0.0 371.1 859.5 235.7 1542.0

73.1 11.0 0.0 369.9 952.5 250.9 1657.4

121.7 1.6 0.0 352.9 873.0 252.1 1601.2

110.7 0.7 0.0 350.5 891.4 240.2 1593.6

110.7 0.7 0.0 450.5 1708.6 260.0 2530.5

110.7 0.7 0.0 590.5 1708.6 260.0 2670.5

110.7 0.7 0.0 710.5 1708.6 260.0 2790.5

Total assets

Balance Sheet Current assets Cash & deposits Receivables Inventories Other Total current assets

2801.3

3371.7

3171.4

3574.2

3461.1

3644.9

4645.5

5043.1

5354.3

Current liabilities Creditors Borrowings Provisions Other Total current liabilities

475.0 292.3 24.9 14.8 807.1

550.3 316.4 23.1 16.7 906.4

515.9 318.9 35.1 20.6 890.6

671.5 381.7 52.7 5.9 1111.8

699.4 364.8 39.0 6.5 1109.8

826.4 437.4 34.4 17.6 1315.8

936.0 708.4 34.4 23.1 1701.9

1036.2 708.4 34.4 23.1 1802.2

1079.9 658.4 34.4 23.1 1795.9

Non-current liabilities Creditors Borrowings Deferred tax liabilities Other Total non-current liabilities

10.2 366.8 95.8 44.5 517.4

48.9 581.7 119.7 50.2 800.5

42.3 436.1 124.6 69.2 672.1

22.7 556.4 151.8 94.6 825.6

16.9 542.0 141.3 100.8 801.1

12.8 478.0 137.6 97.7 726.2

12.8 478.0 100.0 199.1 789.9

12.8 478.0 100.0 309.4 900.2

12.8 478.0 100.0 417.7 1008.5

Total liabilities

1324.5

1706.9

1562.7

1937.4

1910.9

2042.0

2491.8

2702.4

2804.4

Net assets

1476.8

1664.7

1608.7

1636.8

1550.2

1602.9

2153.7

2340.7

2550.0

Shareholders equity Share capital Reserves Retained profits Shareholders equity attributable Hybrid Minority interest Total shareholders equity

1059.5 -326.9 496.7 1229.3 246.9 0.6 1476.8

1064.0 -198.7 547.3 1412.6 246.9 5.2 1664.7

1068.9 -248.6 536.2 1356.5 246.9 5.2 1608.7

1074.1 -213.1 524.1 1385.1 246.9 4.8 1636.8

1080.8 -276.1 494.1 1298.7 246.9 4.6 1550.2

1090.2 -301.7 563.1 1351.6 246.9 4.4 1602.9

1527.1 -301.7 681.4 1906.7 246.9 0.0 2153.7

1527.1 -301.7 868.4 2093.8 246.9 0.0 2340.7

1527.1 -301.7 1077.7 2303.0 246.9 0.0 2550.0

Net debt Net debt/equity Net debt to EBITDA EBIT/net interest ROE ROFE

467.8 31.7% 1.7 5.6 7.8% 12.1%

633.1 38.0% 2.4 2.6 5.0% 9.1%

513.4 31.9% 1.8 2.3 5.4% 10.7%

546.7 33.4% 1.7 3.1 7.2% 12.2%

625.4 40.3% 1.7 2.1 7.0% 14.9%

680.3 42.4% 1.7 2.8 8.5% 14.8%

1101.3 51.1% 2.5 2.7 6.7% 10.8%

1077.3 46.0% 1.9 3.1 8.5% 12.9%

1009.9 39.6% 1.7 3.4 8.6% 13.1%

SOURCE: MORGANS RESEARCH, COMPANY

9

Chemicals - Others│Australia│Equity research│March 21, 2018

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