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11. -- POLL --
What issue does Nutreco have?
a) Falling market share
b) Operational cost are surging
c) Uncompensated capital intensity
d) Research and development productivity
12. Venture Capital and IPO
• 1887 Origin Twijnstra agri trading
• 1975 BP Nutrition agri and aqua
• 1994 Nutreco MBO with Baring Capital
Partners and Cinven
• USD 425 million
• Extreme leverage and consolidation
• Independence and sense of purpose
• 1997
IPO exit net income € 90.0 M
13. Share price evolution
Nutreco Nutreco
Interim stock
lowers profit announces
dividend
forecast due weak 1H
valued at 1
to very low and expects
for 81
salmon to recover
shares
prices 2H
Nutreco
announces
exceptionally
good
2000 results Half-year
results
in line with
lower
expectations
Jan-01 Apr-01 Jul-01 Nov-01 Jan-02 Apr-02 Jul-02
Source : Bloomberg 12 December 2002
15. Nutreco - Portfolio Analysis
Aquaculture business combines high growth and high
margins. However margins in the farming business are under
pressure due to declining salmon prices.
16. Nutreco - Portfolio Analysis
Compound feed combines low growth and poor
margins (bulk business). Premixes can be seen as
the company’s cash cow.
17. Nutreco - Portfolio Analysis
Vertically integrated activities do not have higher margins than
premixes or fish feed
18. Nutreco - Portfolio Analysis
Nutreco is wordwide the number one in Aquaculture and
Premixes and has strong regional positons in Compound Feed
19. Value chain
Nutreco
Fish breeding Fish farming Fish processing Retailers
Consumer
Poultry and pork Poultry and pork Poultry and pork Food service Nutreco has opted
breeding farming processing industry for a vertically
integrated approach
Compound Farmer purchases and is also active in
feed and feed from Nutreco breeding, fish
Premixes
from poultry, farming and
pork and processing
fish Nutreco activities
Provimi
Fish breeding Fish farming Fish processing Retailers
Consumer Provimi has opted
Poultry, pork and Poultry, pork and Poultry, pork and Food service for a non-integrated
ruminants breeding ruminants breeding ruminants breeding industry approach (no risk or
Compound
exposure from
feed, Farmer purchases animals)
Premixes feed from Provimi
and
Specialities
from poultry,
pork, Provimi activities
ruminants
and fish
Pet food
20. Strategic change
• A reduction of the exposure to salmon farming
would
- Reduce volatility of results
- Increase pricing power
- Improve return on capital employed as average
margins and capital turnover improve
• This would like to give significant benefits in
terms of shareholder value and a lower
Weighted Average Cost of Capital
21. Rebalancing for Growth
• Rebalancing
- Invested capital in feed from 1/3 to 2/3
- Focus on high margin fish feed and premix
• Growth
- Expansion of higher growth emerging
markets
- Acquisitions to accelerate transition
23. Reduce salmon farming
• Market dynamics in fish farming in Europe
(especially Norway) require a structural solution
to overcapacity
• Mover needed as dominant player unlikely to
move due to
- high leverage and/or
- government involvement
• Consolidator needs to be largest player and
accepted in Norwegian environment
24. -- POLL --
What method do you recommend to
reduce exposure to salmon farming?
a) Sell the operation by way of public auction
b) Sell the operation by way of trade sale to a
competitor
c) Split Nutreco two entities salmon farming and
the rest
d) Set up a joint venture
25. Reduce salmon farming
• Largest operator and Norwegian identity:
- A joint venture with a Norwegian player
• Exit at current salmon price unacceptable
- Delayed exit with a clear time table
26. Joint venture
Process Nutreco identifies strategic partners, and initiates discussions to form a
combination. JV will be structured to combine activities and capital structures of
Nutreco and the selected partner.
Pro’s Cons
• Business combination will result in • Number of sizeable partners is limited
superior market positions and • Financial position of some of the
enhanced leverage on larger potential partners is weak
customers • Integration of new structure in Nutreco:
• Enables Nutreco to benefit from feed supply and production
upside potential in salmon farming agreements have to be renegotiated
• Critical mass can be achieved • Potential anti-trust issues?
enabling stock market exit over • Potential lack of management control?
time
If the right partner can be identified, a well-structured JV seems to offer the
best opportunity for Nutreco’s salmon farming business going forward
27. Equity carve out: pro’s & con’s
Pros Cons
• Ability of subsidiary to • Must be viable new issue
operate as independent market for subsidiary
public company • Size of subsidiary
• Places shares in the hands • Existing investors may not
of long term investor base be given opportunity to
• Ability to sell partial stake participate in upward
• Proceeds potential of the shares
• Structure well understood
by investors
28. -- POLL --
What is the main drawback of a carve
out (compared to a spin off) for Nutreco?
a) Exisiting investors may not benefit from
upward potential
b) Loss of market share
c) Lack of proceeds for Nutreco
d) Structuring cost
29. Marine Harvest JV
• 13/09/2004 JV with Stolt Sea Farm: with
22% market share global
market leader
• 29/04/2005 Unanimous shareholder
approval
• 23/11/2005 Publication time table for IPO in
2006
• March 2006
John Fredriksen ($ 11 billion net
worth) buys for € 881 million
30. Use of proceeds: acquisition rationale
Scale: Business mix:
•Scope for margin enhancement through •Expansion into premium products
synergies of scale •Reduced exposure to negative price
•product placing with speciality and retail fluctuation in livestock
chains
Geographic location: Investor perception:
•Increased exposure to growing emerging •Enhanced stability and growth potential
markets leveraging future growth •Margin expansion through synergies
Mainly due to inflated price expectations, Nutreco
decided not to acquire Provimi
31. Four parties to convince
• Provimi • Provimi minority
management: post shareholders: 5%
acquisition governance trading in Paris. Hold-
out mentality requires
high bid
• CVC/ PAI: Keen to exit
• Nutreco
after four years. Will
shareholders:
want a bid price to
concerns over
ensure IRR of at least
overpaying for the
25%
acquisition
33. Return cash to shareholders
Pro’s Con’s
• Many investors (including activists) • Limited opportunities for growth,
take “Cash is King” view reducing medium & long term value
• Immediately EPS enhancing in • Limited availability of funds for
2006 significant acquisition growth going
forward
• Facilitates Nutreco in optimising
capital structure • Company becomes a possible
target for consolidators
• Easier option than outright
acquisition (transaction risk • Little enticement for shareholders
element) to remain on board once cash has
been returned
34. Marine Harvest JV
• As soon as possible an (initial) payment of cash (within 2 weeks)
• No reason to wait
Timing • A significant cash return will satisfy (activist) shareholders on the short term
• An early payment of cash will give a signal to Provimi and CVC, Nutreco is looking in to other options to utilise its
excess cash position
• Even in case of a large acquisition (Provimi) the current balance sheet structure allows to return €400m of cash at this
Amount point of time
• Amount of €400m is in line with book profit from MH trade sale of €350m
Share buyback (€65m)
• Positive impact on earnings per share
• Maximum amount of share buyback (at current share price) is €65m as 10% of shares outstanding is reached
Method
• Nutreco should cancel the shares as soon as possible to allow for further buybacks
Special dividend (€335m)
• Special dividend for the balance of €335m in order to ensure cash is returned rapidly after announcement
Returning a significant amount of cash will satisfy shareholders
and give powerful signal to Provimi
35. First tranche cash return
2006 2007
Tranche I
Mid June 2006
Tranche II
• Amount to be returned:
€400m
October 2006
• Method:
Tranche III
- share buyback €65m • Amount to be returned:
€300m
April 2007
- special dividend €335m • Methods:
- capital remittance €300m • Amount to be returned:
€200m
or • Method:
- special dividend €300m - special dividend €200m
Returning cash to shareholders in 3 tranches will allow
flexibility for Nutreco to implement its Rebalancing for
Growth strategy
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