The Dutch feed giant announced its intention to divest of the operations last week (6 February), citing the division as non-core business.
“I’m guessing (Nutreco) is going to sell the feed facilities and meat business as one entity rather than sell it off piecemeal,” said ABN AMRO’s Maarten Bakker, encouraging the view, he said, that a large global commodities firm may throw its hat into the ring to acquire them.
Equally, though, a private equity group could make a move on the Spanish and Portuguese operations, said Bakker, who added that the Spanish division is “well run and the market leader there. It is a low margin business but offers a good return on capital.”
“It’s a very solid business,” said Gosse Boon; Nutreco’s Chief Financial Officer (CFO), speaking at a conference call after the announcement of full-year results last Thursday.
In 2013, revenues for the Dutch feed group’s Spanish and Portuguese operations were around €1.4 billion (bn): They had an operating profit of €40 million (mn) and 3,500 employees.
“My impression, based on the body language of management, is that they are quite confident of a sale – it would seem there is good interest from a range of potential buyers out there,” said Bakker.
And the ABN AMRO analyst told FeedNavigator.com that divestment of the businesses has to take place within the next 12 months, once the company classifies them as ‘discontinued operations’.
Focus on premix, fish and specialities
The Dutch giant acquired the Spanish and Portuguese operations from Cargill in 2009 but they had been under review since July last year.
They were always an “odd fit” in the Nutreco portfolio, said Bakker, who argues that the Netherlands-headquartered firm bought up such assets in a bid to have full control over the value chain.
But it soon became apparent, he said, that such a strategy resulted in a capital drain and also serious volatility in earnings given those sectors’ heavy reliance on commodities.
Nutreco was already making noise about its goal to focus on premix, feed specialties and fish feed as far back as 2011. And in line with that revised approach, it sold its compound feed activities in the Benelux in March 2012.
Growth by acquisition, but at a slower pace
Nutreco said due to the intended divestment, market developments in Norway and limited availability in sizeable acquisitions it has amended its financial guidance, with it now targeting a rise in EBITA margin to 5.5 to 6.5%, average organic sales volume growth in animal nutrition of 3% and in fish feed of 5%.
One of the reasons for the 2016 financial target downgrade is the lack of large scale value-creative animal nutrition and fish feed companies for sale, explained Mark Woldberg, senior communication manager at the Dutch group.
"We will continue to grow the business through acquisition, but not at the pace as foreseen in 2011. We expect to realize one or two acquisitions per year.
"We are focusing on companies in the emerging markets of Asia, Latin America, Russia and Africa. Last year we acquired shrimp feed producer Gisis in Ecuador and Hendrix Misr in Egypt," he told FeedNavigator.com.
Nutreco reported full-year results last week adjusted for the planned divestment.
Full-year earnings before interest, taxes and amortisation (EBITA) from continuing operations and before exceptional items fell 4.3% to €215m and revenue rose 1.2% to €3.87bn.
The results had been hit by developments such as high commodity prices affecting Nutreco’s customers, lower results in the fish feed business – particularly in Norway and China – and negative foreign currency, said the Dutch firm’s chief executive officer (CEO) Knut Nesse.