Nufarm - Macquarie Bank | Bank with Macquarie | Macquarie · 2Q17 Merger of equal between DOW and DuPont 76,971 64,856 8.6x EV/EBITDA (LTM) EU approval by 4 April 2017 End of CY17

Please refer to page 12 for important disclosures and analyst certification, or on our website

www.macquarie.com/research/disclosures.

AUSTRALIA

NUF AU Outperform

Price (at 05:30, 13 Mar 2017 GMT) A$9.16

Valuation A$ 9.71 - DCF (WACC 7.9%, beta 1.3, ERP 4.5%, RFR 3.3%, TGR 1.5%)

12-month target A$ 9.50

12-month TSR % +5.5

Volatility Index Low/Medium

GICS sector Materials

Market cap A$m 2,444

30-day avg turnover A$m 5.6

Number shares on issue m 266.8

Investment fundamentals Year end 31 Jul 2016A 2017E 2018E 2019E

Revenue m 2,790.9 2,900.0 3,007.8 3,119.5 EBIT m 286.7 320.0 345.6 366.8 Reported profit m 27.5 144.4 172.5 189.2 Adjusted profit m 97.6 133.1 161.1 177.8 Gross cashflow m 193.9 240.3 271.9 291.3 CFPS ¢ 73.0 90.4 102.3 109.6

CFPS growth % -2.0 23.8 13.2 7.1 PGCFPS x 12.6 10.1 9.0 8.4 PGCFPS rel x 1.07 0.99 0.96 0.98 EPS adj ¢ 36.7 50.1 60.6 66.9 EPS adj growth % -7.3 36.4 21.0 10.4 PER adj x 25.0 18.3 15.1 13.7 PER rel x 1.20 1.04 1.01 1.05 Total DPS ¢ 11.0 15.0 18.2 20.1 Total div yield % 1.2 1.6 2.0 2.2 Franking % 0 0 0 0 ROA % 8.2 9.1 9.5 9.8 ROE % 6.1 8.3 9.5 9.7 EV/EBITDA x 8.2 7.4 6.9 6.5

Net debt/equity % 40.3 35.6 30.0 24.2

P/BV x 1.6 1.5 1.4 1.3

NUF AU vs Small Ordinaries, & rec history

Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, March 2017

(all figures in AUD unless noted)

13 March 2017 Macquarie Securities (Australia) Limited

Nufarm Looking for chemistry Event Over the next 6-9 months, we think NUF is well placed to take part in the

industry consolidation as an acquirer. We explore potential opportunities in

the global agricultural chemical industry. We transfer coverage to Pelen Ji

from John Purtell.

Impact Ag Chem heating up. With five out of the six major global ag chem players in

merger talks, potential asset divestments provide NUF with M&A

opportunities. We outline in our scenario analysis that at 8x trailing EBITDA, a

$500m transaction would be 6% accretive to NUF’s EPS in Year 1. On an

EBIT basis, we project NUF to achieve 13-14% ROFE in Year 4, which is

below the 16% ROFE target set for the $116m cost-out initiatives, but above

its pre-tax average cost of capital of 11%. The potential acquisition should

enable NUF to broaden its portfolio and deepen exposure in existing regions.

These scenarios are underpinned by a 50:50 debt to equity assumption given

NUF is already at 2.45x average leverage in FY16 (y/e leverage was 1.7x).

Regionally, we think Europe and North America are likely to be of key

interest to NUF. Given the company is already overweight herbicide (63% of

its FY16 revenue), insecticide and fungicide would appeal to the company

more from an M&A, angle in our view. For example, regional overlaps from

potential merger of ChemChina/Syngenta could see asset divestment in

Central Europe, an area that NUF flagged as a growth area last year.

While the pending mega deals are being transacted at large multiples, we

think NUF is more likely to participate at around 8-9x EBITDA given the

size and timing expectations of these deals and also the fact that NUF is

trading on similar multiples. NUF is taking a disciplined approach and there is

unlikely to be a significant number of buyers given the larger agchem

companies are locked up in M&A.

NUF is reporting its 1H17 result on 22 March and we expect management

to re-iterate its growth expectation for FY17. We forecast 1H17 adj NPAT

of $11.8m, up materially from $6m in 1H16 largely underpinned by increased

contributions from North America and Europe. ANZ and LatAm on the other

hand have had their challenges (pricing pressure in the former and ongoing

volatilities in the latter) but we expect ANZ to still deliver full-year growth and

Brazil to stabilise to finish the year broadly flat on pcp. Working capital

reduction will once again be a focus in this result and we anticipate

average WC/sales to be slightly lower than 1H16’s 40.8%.

Earnings and target price revision No change.

Price catalyst 12-month price target: A$9.50 based on a DCF methodology.

Catalyst: 1H17 result on 22 Mar. Acquisitions in the global ag chem space

Action and recommendation Outperform with $9.50 TP. Strategically, NUF’s purchase of non-core assets

divested by the major players may enable NUF to broaden its portfolio

and/or enhance its existing regional exposures. Outside of potential

acquisition opportunities, NUF also continues to offer good growth via internal

deliverables with $20m of strategic benefits planned for FY17 and other

initiatives under way (better engagement with customers/channel partner, mix

optimisation, launch of new products etc).These underpin our 22% EPS

CAGR for FY16-19E.

http://www.macquarie.com/research/disclosures

Macquarie Wealth Management Nufarm

13 March 2017 2

Opportunities amid global consolidation

Last year, NUF highlighted its strategic focus on core geographies North America, Europe, ANZ

and LatAm, of which we think the former two are of particular interest to NUF from an M&A

perspective. NUF’s key product exposures are in Pasture, T&O, Soybean, TNVV, Corn and

Cereal, and it continues to look for opportunities to broaden its portfolio. We think North America

and Europe fungicide and insecticide are more likely M&A candidates for NUF and we

expect less interest in herbicide given NUF’s already large existing exposure.

Fig 1 NUF’s exposure by region Fig 2 NUF’s exposure by product

Source: NUF presentation, Macquarie Research, March 2017 Source: NUF presentation, Macquarie Research, March 2017

The global ag chem space is in consolidation mode with five out of the six major players in merger

talks. Two out of the three deals could close as soon as 2Q17 as highlighted by our US Chemical

analysts Cooley May and Torey Shepardson in their recent pieces Syngenta – Moving towards

closure and Cracking Chemicals. As shown in table below, the three pending mega deals in the

global ag chem space are being transacted at 9-20x EV/EBITDA (trailing). We note, however,

these are large-scale business mergers and in most cases involve R&D entities and patented

products which tend to trade at a premium to generic product producers like NUF.

In addition, the targeted sales may not attract a lot of buyers given the potential size of these

divestments (we estimate $1-3bn in total) and with five out of the six major agchem players locked

up in M&A. NUF is currently trading at 8x FY17E EV/EBITDA (9x FY16) which makes it logical for

us to assume 8-9x for any potential acquisitions. DOW/Du Pont is being proposed at 8.6x which is

evidence that similar assets could transact around that range.

Fig 3 Key information for the pending large scale transactions

Expected close Target Acquirer Implied EV

(US$ m) Implied Equity Value

(US$ m) Multiples Next key date

2Q17 Syngenta Chem China 45,860 43,299 16.5x EV/EBITDA (LTM) EU approval by 12 April 2017

2Q17 Merger of equal between DOW and DuPont 76,971 64,856 8.6x EV/EBITDA (LTM) EU approval by 4 April 2017

End of CY17 Monsanto Bayer 63,403 56,039 20.4x EV/EBITDA (LTM) Will file for EU approval in 2Q

Source: Syn/ChemChina presentations, DOW/DuPont presentation, Bayer/Monsanto presentation, Factset, Macquarie Research, March 2017

Acquisition scenario analysis for NUF

While the same geographies and/or product exposures could generate better cost synergies for

NUF, we think the benefit from potential acquisition to NUF is likely to be more top line-driven

(broadening portfolio effect via access to new products etc). We have assumed 1% cost synergy

and 5% sales growth in our base case.

Australia/NZ20%

North America23%

Latin America27%

Europe20%

Seed Tech5%

Asia5%

Herbicide63%

Insecticide10%

Fungicide11%

Other11%

Seed Tech5%


13 March 2017 3

The table below shows the different levels of Year 1 EPS accretion based on various trailing

EV/EBITDA multiples and sales growth assumptions. This assumes a $500m EV acquisition which

utilises 50% debt and 50% equity in our base case. Hence a $500m acquisition at 8x trailing

EBITDA and sales growth of 5% would yield 6% EPS accretion in Year 1. At 9x, this accretion

reduces to 3%. At >10x trailing EBITDA, the transaction would become EPS neutral.

Fig 4 EPS accretion (%) in Year 1

Sales growth 3% 4% 5% 6% 7%

7.0 8% 9% 9% 9% 9% 7.5 7% 7% 7% 7% 8% 8.0 5% 6% 6% 6% 6% Trailing EBITDA (x) 8.5 4% 4% 5% 5% 5% 9.0 3% 3% 3% 4% 4% 9.5 2% 2% 2% 3% 3% 10.0 1% 1% 1% 2% 2%


NUF had average leverage of 2.45x Net debt / EBITDA during FY16 (year-end leverage was 1.7x)

and the company historically had a gearing target of below 2x. Hence we think 50% debt and 50%

equity is a more reasonable assumption, in order to keep leverage within a reasonable band. We

currently forecast year end leverage of 1.4x for FY17 and 1.2x for FY18. A potential acquisition of

$500m could take leverage to 1.7x and 1.5x, which are still acceptable for NUF.

NUF had interest cover (EBITDA over underlying net interest ex FX) of 3.9x for FY16. We

currently forecast interest cover to improve to 4.6x in FY17 and 5.2x in FY18. If we were to

assume a $500m acquisition that is 100% internally funded through balance sheet, then the

interest cover ratios would not look favourable at 4.0x in FY17 and 4.4x in FY18.

Fig 5 EPS accretion (%) in Year 1

Trailing EBITDA (x) 7.0 7.5 8.0 8.5 9.0

200 4% 3% 2% 2% 1% 300 6% 5% 4% 3% 2% 400 7% 6% 5% 4% 3% Size ($m) 500 9% 7% 6% 5% 3% 600 10% 9% 7% 5% 4% 700 12% 10% 8% 6% 5% 800 13% 11% 9% 7% 5%


Clearly the size of the deal would influence extent of EPS accretion as outlined in the table above.

A $500m acquisition at 8x EBITDA would generate 6% accretion in year 1. On the other hand,

an $800m acquisition would take this to 9%.

Fig 6 EBIT return (%) in Year 4

Sales growth 3% 4% 5% 6% 7%

7.0 14% 14% 15% 15% 16% 7.5 13% 13% 14% 14% 15% 8.0 12% 13% 13% 13% 14% Trailing EBITDA (x) 8.5 11% 12% 12% 13% 13% 9.0 11% 11% 12% 12% 12% 9.5 10% 11% 11% 11% 12% 10.0 10% 10% 10% 11% 11%


The above table shows the ROFE (Year 4) sensitised around EBITDA multiples and sales growth

assumptions over the period. At 7.5-8x EBITDA and 5-6% sales growth, we estimate Year 1 and 2

ROFE of 11% and 12%, respectively, increasing to 13-14% in Year 4, which is below NUF’s

ROFE target of 16% set for the $116m internal cost-out strategic initiatives but above pre-tax

group average cost of capital of 11%.


13 March 2017 4

At higher multiples of 9-10x, it is more difficult to achieve NUF’s return targets. Assuming 5-6%

sales growth, 9-10x EBITDA would only generate 10-12% ROFE in year 4.

A consolidating industry

The global agricultural chemical industry is going through a consolidation phase. The leading six

players (Syngenta, Bayer, BASF, DOW, Monsanto, and Dupont) in the global crop protection

industry account for ~70% of the market. With the exception of BASF, all remaining five are

engaged in M&A transactions.

Fig 7 Global Crop Protection Market Shares 2015 Fig 8 Global Seed Market Shares 2015

Source: Company presentations, Macquarie Research, March 2017 Source: Company presentations, Macquarie Research, March 2017

There are three large-scale pending merger transactions as outlined in Fig 3. We see likely asset

divestment as providing a source of potential acquisition(s) for NUF. While regulatory approvals

could take several months to come through (see below for next key dates), it is not inconceivable

that potential asset divestments could take as short as 3-6 months post approvals to close. On

that basis, we think there’s potential for NUF to make acquisitions in the next 6-9 months.

Dow/Du Pont

It’s clear from the charts below that the potential DOW/Du Pont merger could further increase

Dow/DuPont’s already large exposures in Herbicide and Insecticide and less so in Fungicide. We

note NUF is relatively Herbicide heavy with 63% of revenue from this product. In comparison,

Insecticide is not a big part of NUF’s portfolio being only 10% of its revenue. Hence, it makes more

strategic sense for NUF to be looking for M&A opportunities in Fungicide and Insecticides.

Fig 9 DOW/Du Pont combined capabilities Fig 10 DOW/Du Pont combined market position

Source: Company data, Macquarie Research, March 2017 Source: Company data, Macquarie Research, March 2017

Syngenta18%

Bayer16%

BASF11%

Dow 9%

Monsanto8%

Sumitomo6%

Adama5%

DuPont5%

NuFarm5%

Winfield4%

FMC4%

UPL3%

Platform Ag3%

All Others3%

Monsanto23%

DuPont15%

Syngenta6%WinField

5%Vilmorin

4%Dow3%

Bayer3%

KWS3%

Sakata1%

All Others37%


13 March 2017 5

ChemChina/Syngenta

Fig 11 Syngenta’s regional exposure Fig 12 Syngenta’s product exposures


The European Commission (EC) in its 2011 review of ChemChina’s proposed joint control of

Makhteshim Agan (now ADAMA), has detailed the % market share of ChemChina/ADAMA and

other major players (including Syngenta) by country in Europe, as shown in table below.

Notwithstanding changes in the last 5-6 years, we make the following observations:

Bulgaria and Ireland both would stand out with a 60-70% market share if the two entities were

to be combined.

Czech Republic, Hungary, France, Germany and Spain would have a 45-55% combined

share if the two entities merge.

Fig 13 Market share of pre-emergence selective broad spectrum herbicides for ChemChina and Syngenta

Targeted type of ag product Country

Market share - ChemChina (via ADAMA) Market share - Syngenta

Combined market share - maximum

Maize Czech Republic [0-5]% [30-40]% 45% Hungary [0-5]% [30-40]% 45% Poland [0-5]% [20-30]% 35% Romania [0-5]% [10-20]% 25%

Potato Bulgaria [20-30]% [30-40]% 70% Finland [10-20]% [10-20]% 40% France [5-10]% [20-30]% 50% Germany [0-5]% [40-50]% 55% Ireland [40-50]% [10-20]% 70% Spain [20-30]% [10-20]% 50%

Vegetables Finland [10-20]% [10-20]% 40% Ireland [10-20]% [30-40]% 60% Spain [5-10]% [0-5]% 15%

Sunflower Hungary [0-5]% [10-20]% 25% Romania [5-10]% [5-10]% 20%

Source: EC 2011, Macquarie Research, March 2017

Of these regions, we note that NUF is currently in Germany, France, Spain, and Hungary. NUF

has also pointed out in a past investor day presentation that Central Europe (Germany, France

and Poland etc) provides a number of growth opportunities. In Central Europe, NUF is largely

exposed to Corn, Cereals, Pasture, Potato and tomato, Pome Fruit and Vine.

Europe, Africa, Middle East

31%

North America27%

Latin America27%

Asia Pacific15%

Herbicide38%

Fungicide33%

Insecticide17%

Seedcare10%

Other2%


13 March 2017 6

Fig 14 NUF’s core geographies and crop exposures

Source: NUF Investor Presentation April 2016, Macquarie Research, March 2017

In US/Canada, NUF has pointed out in its April investor presentation that Corn, Soybeans and

Wheat could require 205mt in additional supplies in order to meet demand for key staple grains in

2010-50.

Fig 15 US/Canada, Brazil/Argentina/Paraguay, EU and Other Pacific Rim have been highlighted as potential growth regions for NUF

Source: NUF investor presentation April 2016, Macquarie Research, March 2017

Bayer/Monsanto

We observe that Bayer’s proposed acquisition of Monsanto could take their combined exposure in

North America to 83% and Europe to 42%. NUF currently has 23% of its revenue from North

America and 20% from Europe. We think Northern America and Europe are more likely to be

of interest to NUF vs ANZ (mature market) and LatAm (volatile market) given potential overlaps

in these two regions from the mega deals.


13 March 2017 7

Fig 16 Bayer’s exposures Fig 17 Monsanto’s exposures


Divisional analysis

Fig 18 NUF divisional forecasts

EBIT- pre SI (A$m) 2013a 2014a 2015a 1H16a 2H16a 2016a 1H17e 2H17e 2017e

Australia & New Zealand 35.4 33.9 52.7 14.6 32.4 47.0 15.0 42.3 57.3 % ch. -67% -4% 56% 30% -22% -11% 3% 31% 22% Asia 19.6 19.5 18.1 9.4 13.4 22.8 9.7 14.3 24.0 % ch. 17% -1% -7% 10% 40% 26% 3% 6% 5% Europe 57.2 56.4 64.4 7.1 65.9 73.0 10.6 70.0 80.6 % ch. 32% -1% 14% 123% 8% 13% 49% 6% 10% North America 42.2 20.6 38.9 7.4 51.9 59.3 10.5 62.0 72.5 % ch. 26% -51% 89% 1335% 35% 52% 41% 20% 22% South America 40.6 71.6 76.7 57.7 42.6 100.4 61.1 40.1 101.1 % ch. 132% 76% 7% -11% 266% 31% 6% -6% 1% Sub-total Crop protection 194.9 202.1 250.9 96.3 206.2 302.5 106.9 228.7 335.6 Seed technologies 32.4 37.2 31.8 -4.4 33.1 28.7 -2.1 31.1 29.0 % ch. 6% 15% -14% -17% -11% -10% -52% -6% 1% Corporate and other -40.6 -38.6 -45.9 -20.7 -23.8 -44.5 -24.7 -19.8 -44.5

Group EBIT 186.8 200.6 236.9 71.2 215.5 286.7 80.1 240.0 320.0 % ch -9% 7% 18% 12% 24% 21% 12% 11% 12%

Source: Company data, Macquarie Research, March 2017

As a recap, NUF reported FY16 adjusted NPAT (pre-SPS distributions) of A$109m, which

compares with our forecast of $115m ($117m in the pcp). However, we believe the result is ahead

of consensus estimates of around $101m (FactSet). Full-year DPS of 11cps compares with our

10cps estimate. Post SPS distribution, NPAT was A$97m (vs our A$103m estimate and A$105m

in the pcp).

FY17 outlook and divisional outlook

Latin America. In FY16, NUF adopted a conservative approach to sales growth in LatAm given

volatile conditions with cost-out benefit partly offsetting FX impacts. We expect this trend to

continue and we anticipate Lat Am growth to be muted in FY17 while management focuses on

maintaining share and optimising margins. We forecast FY17 EBIT of $101m, +1% on pcp.

ANZ EBIT of A$47m compares with A$53m in the pcp and our A$59m forecast. For FY17, we

forecast EBIT of $57m, up 22% YoY with a good season and hence strong volume growth

offsetting pricing pressures.

Asia EBIT was A$23m vs A$18m in the pcp and our $20m forecast. We expect Asia to grow

modestly in FY17 by 5% to EBIT of $24m.

Europe. We expect EBIT to lift by 10% to $81m on better pricing discipline and focus on higher

margin products.

North America EBIT was A$59m, up from A$39m in the pcp and our $47m forecast. We

anticipate a strong year in FY17 (+22% in EBIT) driven by expectations of a good season in the

US, better customer/channel partner engagement and implementation of Salesforce.com.


13 March 2017 8

Seeds EBIT of A$29m compares with A$32m in the pcp and our A$32m forecast. We expect

Seeds division to hold its earnings steady with EBIT forecast of $29m for FY17.

Cost-out on track. Net incremental cost savings achieved were A$60m, which compares to a

target of at least $20m. The company maintained its overall program target of net savings totalling

at least $116m by FY18. We expect a further cost-out realisation of $20m in FY17 and FY18,

respectively.

Outlook - earnings growth expected in FY17 driven by a combination of additional cost-saving

benefits, margin expansion and revenue growth in a number of the company’s businesses.

Generally positive outlook comments for each of the divisions. We forecast EBIT of $320m for

FY17, +12% on pcp.


13 March 2017 9

Valuations

Fig 19 NUF trading at or below global peers in FY17 and FY18

PER EV/EBITDA EV/EBIT Company YE 2016 2017 2018 2016 2017 2018 2016 2017 2018

Nufarm Jul 25.0 18.3 15.1 9.3 8.3 7.8 12.1 10.8 10.0 Incitec Pivot Sep 22.2 22.1 17.1 12.5 10.7 9.1 44.9 15.3 13.2

Australian ag average 23.6 20.2 16.1 10.9 9.5 8.4 28.5 13.0 11.6 Monsanto Aug 25.1 24.2 21.0 15.6 13.9 12.6 19.5 17.2 15.1 FMC Dec 21.3 17.7 16.5 14.6 11.7 10.6 17.3 13.9 12.5 Du Pont Dec 24.1 22.1 20.8 13.7 11.6 11.0 17.9 15.8 14.5 Bayer Dec 14.5 13.7 12.9 9.7 8.8 8.1 14.4 12.3 11.0 BASF Dec 18.9 16.7 15.5 9.4 8.5 8.0 15.5 13.3 12.4 Syngenta Dec 26.5 23.8 22.3 16.6 14.6 13.4 21.7 18.6 16.7

Global peers avg (ex Monsanto) 21.7 19.7 18.2 13.3 11.5 10.6 17.7 15.2 13.7 Premium/(discount) domestic 6% -9% -6% -15% -12% -8% -58% -17% -14% Premium/(discount) global 15% -7% -17% -30% -28% -27% -32% -29% -27%


At 18x FY17E, NUF is trading at a 7% discount to global peers and a 17% discount on an FY18E

basis. Global peers are in general patented agchem participants vs NUF, which is a generic

agchem company (all things equal, this means NUF should trade at a discount but size and

relative EPS growth outlook are also relevant considerations). On an EV/EBITDA basis, NUF is

trading at larger discounts of 28% and 27% on FY17E and FY18E earnings, respectively.

Our target price of $9.50 is based on a DCF valuation. Key assumptions are 1.25x beta, 3.25%

risk free rate, 1.5% terminal growth rate and 7.9% WACC.

Fig 20 At 18x PE, NUF has broken out of its long-term average PE of 13x…

Fig 21 …and has traded slightly ahead of its long-term PE rel of 0.96x

Source: FactSet, Macquarie Research, March 2017 Source: FactSet, Macquarie Research, March 2017

2

4

6

8

10

12

14

16

18

20

22

Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17

NUF NTM PE

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17

NUF NTM PER


13 March 2017 10

Nufarm Limited FY13(a) FY14(a) 1H15(a) 2H15(a) FY15(a) 1H16(a) 2H16(a) FY16(a) 1H17(e) 2H17(e) FY17(e) FY18(e)

Sales Revenue 2,277.3 2,622.7 1,183.7 1,553.4 2,737.2 1,187.6 1,603.4 2,791.2 1,244.9 1,655.2 2,900.0 3,007.8

Growth 4% 15% 4% 5% 4% 0% 3% 2% 5% 3% 4% 4%

EBITDA 260.8 281.4 102.4 214.6 317.1 112.3 259.4 371.7 129.6 286.3 415.9 445.2

Margin 11.5% 10.7% 8.7% 13.8% 11.6% 9% 16% 13% 10% 17% 14% 15%

- Depreciation 41.6 45.7 25.0 20.2 45.3 27.1 14.6 41.7 20.8 17.6 38.4 38.8 - Amortisation 32.4 35.1 14.0 20.9 34.9 14.0 29.4 43.4 28.7 28.7 57.5 60.8 EBIT 186.8 200.6 63.4 173.5 236.9 71.2 215.5 286.7 80.1 240.0 320.0 345.6

Margin 8.2% 7.6% 5.4% 11.2% 8.7% 6% 13% 10.3% 6.4% 14.5% 11.0% 11.5%

- Net Interest Expense 70.7 88.0 25.6 49.6 75.2 57.1 80.9 138.0 55.6 62.4 118.1 104.5

Pre-tax Profit 116.1 112.6 37.8 123.9 161.7 14.2 134.5 148.7 24.4 177.5 202.0 241.1

- Tax Expense 32.1 26.2 11.4 33.4 44.8 2.3 37.5 39.8 7.0 50.6 57.6 68.7

Tax Rate (Ord) 27.7% 23.2% 30.1% 27.0% 27.7% 16.4% 27.9% 26.8% 28.5% 28.5% 28.5% 28.5% Net Profit 84.0 86.5 26.4 90.5 116.9 11.8 97.0 108.9 17.5 126.9 144.4 172.4 + Significant Items After-Tax -2.2 -48.7 -3.3 -70.5 -73.8 -102.9 21.5 -81.4 0.0 0.0 0.0 0.0 - Minority Interests 0.8 0.0 -0.1 -0.1 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Reported NPAT 81.0 37.7 23.2 20.1 43.2 -91.0 118.6 27.5 17.5 127.0 144.4 172.5

NPAT Pre Significant Items 83.2 86.4 26.5 90.6 117.1 11.9 97.1 108.9 17.5 127.0 144.4 172.5

NSS Distribution After-Tax 14.0 12.4 6.1 6.1 12.3 5.7 5.7 11.4 5.7 5.7 11.4 11.4 Adjusted NPAT 69.2 74.0 20.4 84.4 104.8 6.2 91.4 97.6 11.8 121.3 133.1 161.1

Gross Cashflow 157.2 167.2 65.5 131.8 197.3 52.9 141.0 194.0 67.0 173.3 240.3 272.0 EPS (adj) 26.4 28.0 7.7 31.9 39.6 2.3 34.4 36.7 4.4 45.6 50.1 60.6 EPS Growth -32% 6% 63% 37% 41% -70% 8% -7% 91% 33% 36% 21%

CFPS 60.0 63.2 24.8 49.8 74.5 19.9 53.1 73.0 25.2 65.2 90.4 102.3

DPS 8.0 8.0 4.0 6.0 10.0 4.0 7.0 11.0 5.0 10.0 15.0 18.2

Franking 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

EFPOWA 262.1 264.6 264.5 264.8 264.7 265.4 265.8 265.8 265.8 265.8 265.8 265.8

Segment Contributions Australia & New Zealand 35.4 33.9 11.2 41.5 52.7 14.6 32.4 47.0 15.0 42.3 57.3 61.9

Asia 19.6 19.5 8.6 9.6 18.1 9.4 13.4 22.8 9.7 14.3 24.0 26.4

North America 42.2 20.6 0.5 38.4 38.9 7.4 51.9 59.3 10.5 62.0 72.5 75.9 Europe 57.2 56.4 3.2 61.2 64.4 7.1 65.9 73.0 10.6 70.0 80.6 85.4 South America 40.6 71.6 65.0 11.7 76.7 57.7 42.6 100.4 61.1 40.1 101.1 109.4 Seed technologies 32.4 37.2 -5.2 37.1 31.8 -4.4 33.1 28.7 -2.1 31.1 29.0 31.0

Corporate expenses -40.6 -38.6 -19.9 -26.0 -45.9 -20.7 -23.8 -44.5 -24.7 -19.8 -44.5 -44.5 Total EBIT 186.8 200.6 63.4 173.5 236.9 71.2 215.5 286.7 80.1 240.0 320.0 345.6

Cashflow Analysis EBITDA 260.8 281.4 102.4 214.6 317.1 112.3 259.4 371.7 129.6 286.3 415.9 445.2

ch. In Working Capital -240.2 169.0 -323.3 350.7 27.4 -221.3 229.6 8.2 -267.9 221.6 -46.3 -31.8

Net Interest Paid -44.5 -63.9 -28.5 -37.3 -65.8 -36.4 -54.5 -90.9 -55.6 -62.4 -118.1 -104.5

Tax Paid -14.3 -45.0 -27.2 -16.0 -43.1 -6.5 -100.1 -106.6 -7.0 -50.6 -57.6 -68.7 Other 101.1 -73.4 63.3 -70.4 -7.1 -95.4 50.4 -45.0 -7.5 -7.5 -15.0 0.0 Total Operating Cashflow 62.8 268.1 -213.1 441.6 228.5 -247.4 384.7 137.4 -208.4 387.4 178.9 240.1

Capex -44.2 -44.5 -24.1 -22.5 -46.7 -30.2 -29.0 -59.2 -20.5 -20.1 -40.6 -42.1

Product Development Expenditure -51.9 -59.7 -26.1 -38.2 -64.3 -36.6 -46.2 -82.8 -30.1 -52.6 -82.7 -82.7

PPE Sale Proceeds 1.0 0.7 1.8 5.0 6.8 0.4 0.7 1.1 30.0 0.0 30.0 0.0

Acquisitions/Divestments -18.1 2.1 0.0 0.0 0.0 2.7 0.0 2.7 0.0 0.0 0.0 0.0

Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Investing Cashflow -113.1 -101.4 -48.4 -55.7 -104.1 -63.7 -74.5 -138.2 -20.6 -72.6 -93.3 -124.8

Proceeds from Equity Issues 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Borrowings Movement 149.8 -136.4 314.8 -267.1 47.7 238.5 -284.9 -46.4 260.0 -280.0 -20.0 -20.0

Dividends Paid -14.7 -18.4 -10.9 -10.1 -20.9 -15.2 -9.8 -24.9 -18.6 -13.3 -31.9 -41.3

Distributions to NSS Holders -19.3 -16.9 -8.3 -8.4 -16.7 -7.8 -7.7 -15.5 -7.8 -7.7 -15.5 -15.5

Other -16.6 -6.6 -1.0 -0.5 -1.5 -1.8 -1.1 -2.9 0.0 0.0 0.0 0.0 Total Financing Cashflow 99.3 -178.3 294.6 -286.1 8.5 213.8 -303.5 -89.6 233.6 -301.0 -67.4 -76.8

Adjustments 24.8 -11.8 16.6 -1.1 15.6 -9.1 -9.1 -18.2 0.0 0.0 0.0 0.0 Net Cash Movement 73.7 -23.3 49.7 98.8 148.5 -106.4 -2.3 -108.7 4.6 13.7 18.3 38.6

Balance Sheet Cash 265.0 241.6 292.6 391.4 391.4 283.7 281.4 281.4 286.0 299.8 299.8 338.4

Current Receivables 758.5 724.6 1,012.1 732.4 732.4 971.6 820.0 820.0 1,020.8 846.5 846.5 878.1 Inventories 802.8 632.9 883.6 753.7 753.7 880.2 685.8 685.8 908.8 728.3 728.3 755.5 Property, Plant & Equipment 402.7 371.1 388.4 369.9 369.9 373.6 352.9 352.9 322.6 325.1 325.1 328.4

Investments 6.2 7.8 8.5 10.6 10.6 9.7 1.1 1.1 1.1 1.1 1.1 1.1

Intangibles 865.8 859.5 939.5 952.5 952.5 880.1 873.0 873.0 874.4 898.2 898.2 920.1

Other Assets 270.7 334.1 369.4 363.8 363.8 378.0 446.9 446.9 454.4 461.9 461.9 461.9 Total Assets 3,371.7 3,171.4 3,894.0 3,574.2 3,574.2 3,777.0 3,461.1 3,461.1 3,868.1 3,560.8 3,560.8 3,683.4

Current Payables 550.3 515.9 730.4 671.5 671.5 815.9 699.4 699.4 855.2 722.0 722.0 749.0 S/T Debt 316.4 318.9 372.3 380.4 380.4 315.5 364.8 364.8 364.8 364.8 364.8 364.8 L/T Debt 581.7 436.1 808.7 556.4 556.4 895.2 542.0 542.0 802.0 522.0 522.0 502.0

Other Liabilities 258.5 291.8 313.5 329.1 329.1 286.1 304.6 304.6 304.6 304.6 304.6 304.6 Net Assets 1,664.7 1,608.7 1,669.2 1,636.8 1,636.8 1,464.2 1,550.2 1,550.2 1,541.3 1,647.3 1,647.3 1,762.9

Shareholders’ equity 1,064.0 1,068.9 1,073.3 1,074.1 1,074.1 1,079.9 1,080.8 1,080.8 1,080.8 1,080.8 1,080.8 1,080.8

Nufarm Step-Up Securities 246.9 246.9 246.9 246.9 246.9 246.9 246.9 246.9 246.9 246.9 246.9 246.9

Retained earnings 547.3 536.2 520.8 524.1 524.1 414.7 494.1 494.1 485.2 591.1 591.1 706.8 Total Equity 1,664.7 1,608.7 1,669.2 1,636.8 1,636.8 1,464.2 1,550.2 1,550.2 1,541.3 1,647.3 1,647.3 1,762.9

Net debt 633.1 513.4 889.6 546.7 546.7 927.0 625.4 625.4 880.9 587.1 587.1 528.5 Net debt/equity 38.0% 31.9% 53.3% 33.4% 33.4% 63.3% 40.3% 40.3% 57.1% 35.6% 35.6% 30.0% ND:ND+E 27.6% 24.2% 34.8% 25.0% 25.0% 38.8% 28.7% 28.7% 36.4% 26.3% 26.3% 23.1%

Net debt to EBITDA 2.4 1.8 1.7 1.7 1.4 1.2

Int Cover (x EBITDA) 3.7 3.2 4.0 4.3 4.2 2.0 3.2 2.7 2.3 4.6 3.5 4.3

Int Cover (x EBIT) 2.6 2.3 2.5 3.5 3.1 1.2 2.7 2.1 1.4 3.8 2.7 3.3

RoE (%) 10.6% 10.6% 3.2% 11.0% 14.4% 1.5% 12.9% 13.7% 2.3% 15.9% 18.1% 20.2%

RoA (%) 6.1% 6.1% 3.6% 9.3% 7.0% 3.9% 11.9% 8.2% 4.4% 12.9% 9.1% 9.5%

Source: Company data, Macquarie Research, March 2017


13 March 2017 11

Macquarie Quant View

The quant model currently holds a reasonably positive view on Nufarm. The

strongest style exposure is Growth, indicating this stock has good historic

and/or forecast growth. Growth metrics focus on both top and bottom line

items. The weakest style exposure is Valuations, indicating this stock is

over-priced in the market relative to its peers.

Displays where the

company’s ranked based on

the fundamental consensus

Price Target and

Macquarie’s Quantitative

Alpha model.

Two rankings: Local market

(Australia & NZ) and Global

sector (Materials)

564/1545 Global rank in

Materials

% of BUY recommendations 56% (5/9)

Number of Price Target downgrades 0

Number of Price Target upgrades 0

Macquarie Alpha Model ranking Factors driving the Alpha Model

A list of comparable companies and their Macquarie Alpha model score

(higher is better).

For the comparable firms this chart shows the key underlying styles and their

contribution to the current overall Alpha score.

Macquarie Earnings Sentiment Indicator Drivers of Stock Return

The Macquarie Sentiment Indicator is an enhanced earnings revisions

signal that favours analysts who have more timely and higher conviction

revisions. Current score shown below.

Breakdown of 1 year total return (local currency) into returns from dividends, changes

in forward earnings estimates and the resulting change in earnings multiple.

What drove this Company in the last 5 years How it looks on the Alpha model

Which factor score has had the greatest correlation with the company’s

returns over the last 5 years.

A more granular view of the underlying style scores that drive the alpha (higher is

better) and the percentile rank relative to the sector and market.

Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group ([email protected])

Fu

nd

am

en

tals

Quant

Local market rank Global sector rank

Attractive

0.3

0.3

0.3

0.4

0.5

0.6

1.2

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0

Syngenta

Bayer

FMC

UPL

Nufarm

Monsanto

BASF

-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%

Syngenta

Bayer

FMC

UPL

Nufarm

Monsanto

BASF

Valuations Growth Profitability Earnings

Momentum

Price

Momentum

Quality

-0.2

-0.2

1.2

0.0

-0.5

-0.4

0.3

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0

Syngenta

Bayer

FMC

UPL

Nufarm

Monsanto

BASF

-90% -40% 10% 60%

Syngenta

Bayer

FMC

UPL

Nufarm

Monsanto

BASF

Dividend Return Multiple Return Earnings Outlook 1Yr Total Return

-23%

-19%

-18%

-18%

25%

27%

29%

30%

-40% -20% 0% 20% 40%

⇐ Negatives Positives ⇒

DPS Growth FY1

Sales Growth FY1

Working Capital Inc.

Change in PPE FY0

EV/EBITDA LTM

Sales to EV NTM

EV/EBITDA (NTM)

Sales to EV FY0

0 1

Technicals & TradingRisk

LiquidityCapital & Funding

QualityPrice Momentum

Earnings MomentumProfitability

Growth

ValuationAlpha Model Score

0.87-0.05

-1.18 0.03

0.06 0.42

-0.29-0.25 0.44

-0.29 0.54

0 1

Normalized

Score

0 50 100

Percentile relative

to sector(/1545)

0 50 100

Percentile relative

to market(/422)


13 March 2017 12

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie – South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA

Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 31 December 2016

AU/NZ Asia RSA USA CA EUR Outperform 57.53% 50.72% 45.57% 42.28% 60.58% 52.79% (for global coverage by Macquarie, 8.71% of stocks followed are investment banking clients)

Neutral 33.90% 33.97% 43.04% 50.11% 37.23% 35.62% (for global coverage by Macquarie, 8.05% of stocks followed are investment banking clients)

Underperform 8.56% 15.30% 11.39% 7.61% 2.19% 11.59% (for global coverage by Macquarie, 4.63% of stocks followed are investment banking clients)

NUF AU vs Small Ordinaries, & rec history

(all figures in AUD currency unless noted)

Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.


12-month target price methodology

NUF AU: A$9.50 based on a DCF methodology

Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.

Date Stock Code (BBG code) Recommendation Target Price 21-Sep-2016 NUF AU Outperform A$9.50 23-Mar-2016 NUF AU Outperform A$8.95 23-Feb-2016 NUF AU Outperform A$8.80 03-Dec-2015 NUF AU Outperform A$8.90 23-Sep-2015 NUF AU Outperform A$8.30 08-Jul-2015 NUF AU Outperform A$8.05 25-Mar-2015 NUF AU Neutral A$7.15 04-Feb-2015 NUF AU Neutral A$5.85 23-Sep-2014 NUF AU Outperform A$5.35 21-Jul-2014 NUF AU Outperform A$5.05 26-Mar-2014 NUF AU Outperform A$4.50

Target price risk disclosures: NUF AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures.

Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group’s Investment Banking activities.


13 March 2017 13

General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN 58 002 832 126, AFSL 238947, a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities Limited ABN 41 002 574 923 AFSL 237504 ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited (“MENZ”) an NZX Firm. Macquarie Private Wealth’s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN 46 008 583 542, AFSL No. 237502) (“MBL”) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Apart from Macquarie Bank Limited ABN 46 008 583 542 (MBL), any MGL subsidiary noted in this research, , is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary’s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group‘s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures © Macquarie Group

This publication was disseminated on 13 March 2017 at 09:23 UTC.

Documents

Nufarm - Macquarie Bank | Bank with Macquarie | Macquarie · 2Q17 Merger of equal between DOW and DuPont 76,971 64,856 8.6x EV/EBITDA (LTM) EU approval by 4 April 2017 End of CY17