Speakers: Knut Nesse, CEO Nutreco Gosse Boon, CFO Nutreco Jurgen Pullens, Director Investor Relations Nutreco

Transcription

1 Event: Nutreco Analyst Conference Call Date: CET, 20 October 2014 Speakers: Knut Nesse, CEO Nutreco Gosse Boon, CFO Nutreco Jurgen Pullens, Director Investor Relations Nutreco Call Duration: 00:37:36

2 Monday, 20 October 2014 OPERATOR: Ladies and gentlemen, welcome to the Nutreco analyst call. For the first part of this call, let me remind you that all participants are in listenonly mode and afterwards there will be a question and answer session. I would now like to hand over to Mr Knut Nesse, CEO of Nutreco, Mr Gosse Boon, CFO of Nutreco, and Mr Jurgen Pullens, Director Investor Relations of Nutreco. Gentlemen, please begin. JURGEN PULLENS: Good afternoon, ladies and gentlemen. To those of you in the room, those of you attending the conference call and everybody listening via our audio webcast, welcome to this analyst presentation. Audio recordings of this analyst presentation will also be available on the Nutreco website after the conference. Mr Knut Nesse, CEO, will start with the presentation of the offer by SHV, followed by an update of our third quarter results. After the presentation, Knut and Gosse Boon, CFO, will take questions, and please use the microphone here in the room. In order to give the people from the conference call a fair chance to ask their questions, we will switch during the session between the conference room and conference call. We would like to keep this conference to a maximum of one hour, so we please ask you to keep your questions brief.

3 Thank you very much, Jurgen. Ladies and gentlemen, good afternoon and very much welcome to this conference call, the analyst conference. This morning we have breaking news from Nutreco so I think it will be useful to briefly walk you through this offer which is on the table before we start the Q and A. So, basically what I m going to do is first to explain about the offer and after that Gosse Boon will walk you through the third quarter trading update. First, the SHV offer for Nutreco. As you have seen in the press this morning, this is an intended cash offer by SHV of 40 per share. It represents an attractive premium of 42% to the previous close of Friday, 17 October. This is fully supported and unanimously recommended by both the Supervisory Board and the Executive Board, and also it is important to highlight SHV supports Nutreco s growth strategy going forward. The intended offer is in the best interests of shareholders and all other stakeholders. About the transaction details, first about the high level finance parameters. The total cash offer consisting of 40 per share, representing a 42% premium over Nutreco s closing price on 17 October, and it is a 34% premium over Nutreco s average closing price for the last three months. This offer values 100% of the ordinary shares, based on outstanding shares as of 20 October, at 2,685 million. The agreed acceptance threshold is at least 95% of outstanding ordinary shares. In terms of the means of financing, SHV has the cash available for high deal certainty.

4 More about the transaction details, the non-financial ones. SHV supports the execution of Nutreco s business strategy, including planned capital expenditure and mergers and acquisitions. We have agreed that we are going to maintain head office and key support functions in the Netherlands. Also Nutreco will retain corporate identity, values and culture. Also SHV will respect existing employee rights. Nutreco will also retain representation of independent members of the Supervisory Board. What I can inform you about the process to date is that in September 2014, more precisely exactly four weeks ago, this Monday exactly four weeks ago, Nutreco received a letter of interest from SHV. From our side, a transaction committee was formed, consisting of the Executive Board, the CEO and the CFO, and also three members of the Supervisory Board, being the Chairman of the Supervisory Board, the Chairman of the Audit Committee and one other Supervisory Board member. During those four weeks, very constructive discussions with SHV, leading to today s announcement. So, once again I can underline we have unanimous decision-making by the two boards. Both have carefully assessed the intended offer and in line with their fiduciary duties, strategic options and the interests of all stakeholders. Leonardo & Company and ING Corporate Finance have issued fairness opinions. We believe this is truly in the best interests of all stakeholders. The transaction provides a shareholder premium of 42% since the last closing price. SHV is also going to support our long-term growth

5 strategy, enabling Nutreco to expand. Also a commitment to continue developing opportunities and solutions for customers on items such as feed efficiency, livestock and preventive animal health. SHV also endorses the three core elements of Nutreco s success, which is about strategy execution and innovation and competence of its people. Some few words about SHV. As you know, SHV is a privately-held family company which aims to maintain its strong position in a number of operational activities and also selected investment activities. SHV invests for the long term. It expands and develops business and provides customers with excellent products and services which add value. Actually, the holding of the company and the portfolio assets has been more than 30, 40 years, so they are really long-term focused. The company was founded back here in the Netherlands in 1896 as a result of the merger between a number of large coal trading companies. Today SHV is present in 50 countries on all continents and employs about 47,000 people. In particular they have a very strong presence in Latin America, in particular in Brazil, and the same for Asia where they are also very sizeable in China. So they have a strong presence in emerging markets, so that is kind of in their comfort zone. The fit between Nutreco and SHV. SHV values us for our reputation as a responsible employer, dedication to customers and animal health, and also a strong relationship with both raw material suppliers as well as farmers. The combination of a long-term investment approach and a record of supporting international growth make SHV the best

6 possible partner for the next phase of our development. Nutreco and SHV share the same values, with focus on people. Also SHV consider Nutreco as a great opportunity to further broaden its presence within the food and agriculture industry. So it is a kind of strategic diversification within the investment portfolio of SHV. Nutreco going forward. The current Executive Board is committed to taking Nutreco to the next phase under this new ownership and also a continuation of existing commitments to clients and suppliers. SHV believe in the long-term potential of our industry and will assist us to enhance our various positions for long-term sustainable growth. In a nutshell, if you look at what is most important for Nutreco, that is our mission, Feeding the Future, that will stay the same also after a change of ownership and also our strategy and strategy execution will be the same. Just to be a bit personal, for those reasons and based on indication, I have given my 100% commitment to remain as the CEO for the coming years. Nutreco is a listed company since If we obtain our share price of 40 per share, we have then delivered a TSR of 770%, which I think is a remarkable performance. Timetable and next steps. This morning that was the breaking news, the announcement of the intended offer. What is going to happen next, and that will take place during the fourth quarter, will be the launch of the offer through publication of the offer memorandum. After publication of the offer memorandum, there will be an EGM, extraordinary general meeting, of shareholders, which will be somewhere into next year, and also the end of acceptance period,

7 which will be eight to ten weeks after the publication of the offer memorandum, is expected to end also somewhere during the first quarter. So that, ladies and gentlemen, brings me very much to my end and I would like to hand over to Gosse Boon, the CFO of Nutreco, for a heads-up on the Q3 trading update which was also issued this morning. So, please, Gosse. GOSSE BOON: Ladies and gentlemen, good afternoon. I will discuss with you briefly the third quarter trading update. First, the development of revenue. Q3 2013, revenue was close to 1.5 billion. We see volume growth of minus 1%, which was all driven by Fish Feed and specifically salmonid. The price effect was minus 1%. That was driven by our Compound Feed & Meat business in Iberia and reflected lower input prices. Acquisitions: we talked quite a bit about Egypt and we talked about Ecuador but on a like for like basis, year on year, that is now all in the numbers. Finally, currency: a minus 2.2% impact and that is the Norwegian krone and the Canadian dollar. With that, our Q revenue lands at 1,429 million. A few highlights. In Animal Nutrition we are pleased to report an organic volume growth of 3.2%. That is up on our guidance and also compares favourably with recent quarters. Sales were up in the mature markets, that is Europe and Canada, but also in the growth geographies, particularly Brazil, and we continue to do well in young animal feeds. In Fish Feed, lower revenue and that is related to

8 significantly lower salmonid feed sales to Marine Harvest in Norway, but the non-salmonid part of our business, which now is 41% of our total volume, did well with an organic volume growth of 5.4%. Also in Compound Feed & Meat Iberia we report volume growth of 3.3% and we continue to make excellent progress in substituting the volume that we have lost from Mercadona. We lost about 28% but we were happy to report last time that we substituted 50% of that and by now we are at the substitution rate of 75%. The share buy-back programme that we announced a couple of months ago of 100 million was terminated as per the end of last Friday and we bought back a value of in total close to 50 million. Finally, the outlook: no change. We expect full year EBITA before exceptional items to be at least equal to last year, and last year that EBITA was million. With that, I would like to summarise, starting with the SHV offer. We believe the intended offer for 40 cash per share is a fair price. It represents a premium over the share price of last Friday of 42%. If you look at multiples - and I will come back to that in a minute - then the EBITDA multiple is 9.6. Also we believe that with Nutreco staying intact, that our values are staying intact and our strategic direction, I think SHV is a good future owner. Therefore, we believe that from a financial point of view and non-financial point of view this is a robust offer and therefore the Supervisory Board and the Executive Board unanimously support the offer and will recommend it to shareholders.

9 Finally, SHV has the cash available to close this transaction which leads to additional deal certainty. Strategy. You can have different owners but what stays is the strategy and it remains higher value added nutritional solutions, premium feed specialities and fish feed, the growth geographies, Latin America, Russia, Asia, Africa, and of course the importance of sustainability. We have already walked you through the Q3 trading update and finally what remains is Feeding the Future and the challenge that we face to feed sustainably 9 billion people in With that I would like to move to some financials before we open up for Q and A. The first is the calculation of the market capitalisation, which is close to Є2.7 billion, and that is of course multiplying the net number of shares, so that is the gross number of 70.2 million, adjusted for treasury stock as of 20 October, that leads to 67.1 million shares, and with 40 a share that is a capitalisation of 2.7 billion. What we believe is important is the multiple that has been paid but also the implied multiple for the Animal Nutrition and Fish Feed businesses. These are financials per mid If we recalculate the capitalisation per mid-2014 we come to close to 2.8 billion. We add to that the interest bearing debt net of cash; that is 405 million and you can find that in our half year reporting to you. That leads to an enterprise value of close to 3.2 billion. If you compare that with our LTM EBITDA, so that is the first half 2014 and second half 2013, of 331 million, you get to an enterprise value to EBITDA multiple of 9.6. We think that in and of itself that is a good multiple but we discussed with you also the

10 divestment process of our business in Spain, Compound Feed & Meat Iberia. You remember the process that we stopped because we were unable to extract a right value for our shareholders. At the time the analyst community estimated the value of the business between 250 million and 350 million. So if I take the midpoint, 300 million, then I come to an enterprise value of 2.5 billion. If I use the same financial debt, that brings me to an enterprise value of about 2.9 billion. If I then adjust the LTM EBITDA with about 62 million that is the EBITDA of our Spanish business, then I come to an implied multiple for the Animal Nutrition and Fish Feed businesses of So one turn more, 9.6 for the totality and adjusted for our Spanish business, I come to about That can be compared with the Provimi transaction where the multiple was 9.3, and you remember Provimi went to Cargill, or more recently the EWOS fish feed business in Norway was acquired by Bain and Altor and also there the multiple was about 9.3. Also from that perspective we believe this is a fair valuation. With that, I would like to move to questions and answers. Thank you very much. Thank you very much, Gosse. Let s open up for questions. I think we will go for three questions here in the room and then we switch to the conference call afterwards. So, who will go first? Patrick, please. PATRICK ROQUAS: Patrick Roquas from Rabobank. Have you considered other potential buyers that might have been willing to pay an even better price than

11 this offer today? For example, you were mentioning about Provimi. I remember that not so long ago Nutreco was also trying to get its hands on Provimi because of the good strategic fit. So with regards to your question about the process, the situation is that as a matter of fact SHV, they reached out to us on that figure and since then we have conducted our internal process in line with our fiduciary duties. We believe we have entered a process which is a fair outcome, a fair price with an attractive premium, also the implied multiples. So that is why we are, as the two boards, recommending this offer price, so that has been the process. Do you have a question over there? GERARD RIJK: Gerard Rijk, SNS Securities. I have the impression that you have not really answered the question from Patrick, because he asked whether you had thought yourself about new -- about potential other combinations which could add more value to your business, but your answer is only about the process with SHV. If you could give some more insight -- Yes. We can elaborate a little bit. Of course, as part of our fiduciary duties of the two Boards, and also supported by our two financial advisors, we have been running a different number of scenarios and it is our opinion that the offer we have on the table -- we did not reach out proactively to others. We did not do that because SHV as a matter

12 of fact contacted us and we didn t see any reason for us to initiate a kind of auction-like process. That was not in our interests. So basically what we have been doing, supported by our financial advisors, is evaluate the different scenarios and alternatives and our conclusion is that this is a fair price with an attractive premium. Also the implied multiples, which Gosse just explained, is attractive and clearly above the traded industry multiples over the last years. The references Gosse made was for competitive processes like the Provimi one and the EWOS one. So that is the background for how we came to our solid conclusion. GERARD RIJK: Concerning your argument that you have in your sheets, I do not see anything where SHV is really adding value to your business or adding any certainty to your business. I think all the points that you mentioned were already what you were doing on your own which could have been giving, let s say, growth stock for investors if they were investing in stock. What has been really added to you? We appreciate that point of view. Of course, we could have continued executing our strategy as a stock listed company, for sure we could, and we have been successful over the years as a listed company and we have appreciated long-term support from our shareholders, but as a matter of fact the situation is that SHV reached out to us and by doing that we needed to take a stance on that. We always promise our shareholders when we have meetings with them that if someone is

13 approaching you with an attractive offer what are you going to do? We have always answered the question that we are going to run a professional process and that is, in my view, what we have been doing. In addition, we have conducted all of our fiduciary duties in a good way. So the package which is now on the table is a good one; it is a balanced one between the financial and the non-financial. So I think that is very much where we came from. You can comment a little bit on that, Gosse. GOSSE BOON: I agree with you. It is the combination of two. Very practically SHV brings what is today a very compelling offer price which we consider fair and which we support. Also operationally I think the values of SHV are very similar to ours, with an emphasis on people and sustainability. And also operationally they have strong presence in, for example, South America and Asia. Those are geographies where we seek to grow and I think there we can leverage throughout SHV, with Nutreco, part of their portfolio. We have another question and then we will turn to the conference call afterwards. ERWIN DUT: Erwin Dut, Kempen. How open are you for alternative offers for the company?

14 Our position there is very simple. We do not want to speculate on that. What is on the table today is a concrete offer from SHV and that is what we took a stance on. We are recommending this offer because we think it is a fair price, a good attractive one, and I don t want to speculate on all kinds of other scenarios. ERWIN DUT: I am not talking about a scenario. I m not saying there would be a bid out there or what the price would be, but I am trying to understand what the mix is between financial considerations and non-financial considerations. I can see the package here from a financial perspective. I am trying to understand how important the non-financial aspect of the deal is. If somebody else comes in with a 45 bid with a bit of a deteriorated package on the non-financial side - maybe it is out of Holland or something else - I am trying to understand how important, how much of a deal-breaker that would be. I am not trying to speculate on prices or a good offer or whatever but trying to understand how important the non-financial aspect of the deal is. But I don t want to go that way. I don t want to start to speculate in, let s say, things which are not concrete today. As a general remark, we are very well aware of our fiduciary duties and whenever we are in contact with someone, in line with what you are saying, of course we know what kind of responsibility we have, but I don t want to speculate at this point.

15 Then I would like to open up for two questions from the conference call. OPERATOR: Ladies and gentlemen, please press 01 on your telephone keypad if you wish to ask a question. 01 on your telephone keypad if you wish to ask a question. And there are no questions. As a reminder, ladies and gentlemen, you can still press 01 on your telephone keypad if you wish to ask a question. Then I would like to continue here. So we can have one question here and then there. MAARTEN BAKKER: You mentioned as a price estimated for the Spanish business of 250 million to 350 million, in that range estimated. Was it also the price that you had in mind that was not met when looking for a buyer? GOSSE BOON: That one, I think we discussed extensively that process and why we pulled out of it. So what I just did to calculate an implied multiple, I thought I d demonstrate that I carefully looked at your reports. In those reports you came up with 250 to 350 so I took that mid-point to calculate this important implied multiple of That s what I did. FERNAND DE BOER: Fernand de Boer, Petercam. I have a couple of questions. You mentioned it is an offer for the entire company, so also including the Spanish business. Is there any kind of agreement how long at least

16 they will stay with you? Taking out some part of the business, I m not sure if that is fair because you could maybe do the same for Provimi where you say you also had bids which are worth less than other parts. So in that respect is it fair to say, Okay, I m just trading out the business which I couldn t sell for six times EDITDA, then what is left is ten times or slightly more than that? I am not sure if that is a fair question. So that is what -- When it comes to the first part of your question, SHV is acquiring Nutreco as a whole and when it comes to the non-financials in general, when it comes to the strategy and structure of the company, there is a lock-in or there is a time horizon of three years for that one. That is the general answer for a number of -- well, not a number, all the nonfinancials, put it that way. Gosse, maybe you will comment on the valuation question. GOSSE BOON: You make a fair remark. These comparisons are never perfect. You can also say this offer which we consider fair is 9.6 and the 9.6 compares favourably with the 9.3 for Provimi and for EWOS. You can also make that comparison, but here in this room we know that there is a part of the business, Compound Feed & Meat Iberia, which has a lower valuation and that is what I wanted to point out. PATRICK ROQUAS: Turning to the page where you kind of discuss the competing offer, you talk about the more beneficial offer in one of the paragraphs. Does

17 that rule out anything that touches the independence of Nutreco? In that light, is it then fair that you have kind of hooked yourself to SHV in terms of -- in case a more beneficial offer is done and SHV matches a better price that you may not terminate the conditional offer or the conditional agreement? So it is a kind of twofold question. Can you please repeat it? PATRICK ROQUAS: You talked about the possibility of a more beneficial offer. Does that rule out anything that touches the independence of Nutreco, so for example integration with a company that you once tried to get your hands on. If so, if a more beneficial offer is done also in terms of the financials, is it then fair that you have kind of hooked yourself on to SHV in terms of that conditional agreement may not be terminated by yourself? The first part of your question... we are struggling a little bit with your second part, but I believe I understand your first part at least. Of course, we have a complete package and we have defined a number of the deal aspects there, including a collar. Of course, if you have a very competitive offer which is higher, which is also less attractive in other parts, I already made reference that we will conduct our fiduciary duty. We will act as a responsible board within reason. So, of course we will look at any incoming bids and evaluate them in a professional way, if I can put it that way, but that is how far I want to go in this kind

18 of speculation because as a matter of fact for the time being what we have on the table is the offer from SHV. GERARD RIJK: Gerard Rijk, SNS Securities. A few questions. You talked about SHV is important for your next phase of development. Can you explain what exactly the next phase of development is planned to be? The second question is about - and I completely agree here with Fernand - taking out something and then giving it a value which was given by analysts about 300 million, because that was also a negative for the company, such low prices. Concerning EWOS, you were also comparing the EWOS multiples with Nutreco, but can you really think that EWOS had the same quality as the Skretting business, as the one Skretting company, a one country company and with one client? So it s a completely different company. My last question is about the impact on your package, on your own package, CEO and CFO. What is the consequence of this change of control on your own package? Is there a commitment for three or five years? Is there a special bonus for you for this takeover? So three questions. I will start with the first one. With regards to the next phase of development of Nutreco, we believe SHV can support us very much when it comes to people development. They have very strong people development programmes in place. They are very solid. They have been in place for many, many years. We started our new venture a bit more revitalised on HR a year ago, and we think they

19 have in particular good solid programmes in emerging markets. We think that we can learn from them there and they can add value to us, also given their strong presence in emerging markets. So we are kind of enthusiastic about that one. Generally, we believe there are pros and cons between being a public company and a private company and you can have a debate about that one, but it can be also attractive to execute the strategy in the private sector, given some of the dynamics in the market. That is not a qualifier as such. It could have been done in a public setting as well, but you can have some discussions around those things, put it that way. I m not sure whether I should start a debate about the quality between EWOS and Skretting. I don t think that is fair. GERARD RIJK: You used that as a comparison, so that is why I asked. Yes, but we used a few examples here. We can use other examples. The point we were trying to make is that the multiples here seem to be favourable compared with other companies. Don t read too much into it. We are not comparing with one or two companies but you can find a number of traded companies over the last five years, and I still think that you stick to 9.6 or you try to make it more, as we tried to illustrate here, I think you will find that the multiple is an attractive one. That is the point we are trying to make and then you will do the final judgement.

20 GERARD RIJK: Which are the other examples, except for Skretting(?) and Provimi and (Overspeaking) There are several traded companies in the last five years. I don t have them in front of me but we are willing to supply that information. Of course, we looked into that as part of our evaluation. We can come back to that. With regards to our package, everything is disclosed in the latest annual report, and as part of the remuneration of the CEO and the CFO there is a share programme. I have been a member of the Executive Board now for five and a half years. I have had part of my remuneration in shares and, like the two of us, we have some vested shares we haven t sold and we have some unvested shares. The vested shares we will, of course, tender as well. We have made our commitment on that one, that those will be tendered and also regulated under this new Dutch law, the claw-back which came in on 1 July this year. And the unvested shares, well, that is a bit early days because that will need to be finally executed on the change in control and within current regulations it will be up to the Supervisory Board to finally make a decision about vesting of the unvested shares, which is disclosed in the latest annual report. And that is basically about that. We haven t discussed anything with regards to SHV on future packages. There is only one general reference that management will be contracted at market-based packages or conditions. That is the only thing, because at this point in time we haven t had those kind of

21 talks. That will happen after the change in control. I think that is the full disclosure on remuneration to your question. GERARD RIJK: So you don t get any bonus or any payment for doing this deal from SHV? Nothing from SHV, no. There is a completion bonus for our key staff which are working quite a lot and that is of the magnitude of three to six months of base salary, and the Executive Board is part of that arrangement, but that is installed by the current Supervisory Board. There is nothing installed by SHV. I can -- GERARD RIJK: That instalment that is new, it is new related to this deal for six months? Yes. That s correct. That was offered by the Supervisory Board at the very end of the process. GERARD RIJK: And that s it? Not anything more than that? That s it. GERARD RIJK: Okay, thank you.

22 Any other questions? One over there, then we test the conference call again afterwards. FERNAND DE BOER: Fernand de Boer, Petercam. One question: you also mentioned the supported financing. You also supported -- mentioned SHV in financing for future M&A. Does it mean that you are quite close to looking at bigger acquisitions? No, you shouldn t read anything in that. That s a generic statement. We have discussed a number of aspects when we made this complete package. One of them is that they still should be supporting in executing our M&A strategy for the future, like we have been doing in the past, and they probably expect us to do at least what we have been doing in the past. So there is nothing else to read in that one, so it s more a generic statement. Any questions from the conference call? OPERATOR: Ladies and gentlemen, as a reminder, please press 01 on your telephone keypad if you wish to ask a question. 01 if you wish to ask a question. And there are no questions from the callers. Then we should go back here. Is there any final questions here? There are no final questions. Thank you very much for the meeting and I think I will just close the meeting. Thank you very much.

23 OPERATOR: Ladies and gentlemen, thank you very much. This concludes today s conference call. Thank you very much for attending. You may now disconnect your lines.