Nufarm : S&P Upgrade Nufarm to BB credit rating and Stable Outlook

For personal use only

	Nufarm Limited
	ACN 091 323 312
23 November 2021	103-105 Pipe Road
	Laverton North VIC 3026
	Australia
	[phone]
ASX Release - Company Announcement	nufarm.com

S&P upgrade Nufarm to BB credit rating and Stable Outlook

Nufarm Limited (ASX: NUF) advises that S&P Global Ratings (S&P) has upgraded Nufarm's credit rating to BB and revised the outlook to stable.

In the report, S&P noted

'Nufarm Ltd's continued improvement in its working capital management and strong trading performance across all operating regions, particularly Europe, have strengthened the group's credit metrics…. We view the introduction of the group's capital management framework,

which prioritizes balance sheet strength and free cash flow ahead of shareholders returns as credit positive. We expect improved free operating cash flow generation and Nufarm's capital management framework to support sustainably reduced leverage over the forecast period.

Nufarm's CEO and Managing Director, Greg Hunt said:

"Nufarm welcomes the decision by S&P to upgrade its grade credit rating and revise the outlook to stable which recognises our focus on working capital management, improved trading performance in all regions and the introduction of the revised capital management framework."

A copy of the S&P Global Ratings report is attached.

	-- end --
Authorised for lodgement by:	Investor and media contact:
Fiona Smith	Rachel Scully
Company Secretary	[e-mail]
	[phone]

onlyResearch Update:

Nufarm Upgraded To 'BB' On New Capital

Management Framework And Strengthened Balance

Sheet; Outlook Stable

useNovember 23, 2021

Rating Action Overview

PRIMARY CREDIT ANALYST

personal- Nufarm Ltd.'s continued improvement in its working capital management and strong trading performance across all operating regions, particularly Europe, have strengthened the group's

credit metrics. The global maker of crop protection products had an S&P adjusted debt-to-EBITDA ratio of 2.3x for the year ended Sept. 30, 2021, below our upward trigger of 3.5x.

- We view the introduction of the group's new capital management framework, which prioritizes balance sheet strength and free cash flow ahead of shareholder returns, as credit positive. We expect improved free operating cash flow generation and Nufarm's capital management framework to support sustainably reduced leverage over the forecast period.

- On Nov. 23, 2021, S&P Global Ratings raised its long-term issuer credit rating on Nufarm to 'BB' from 'BB-'. At the same time, we raised the long-term issue ratings on Nufarm's A$490 million senior secured bank facility to 'BBB-' from 'BB+' (recovery rating of '1'), its US$475 million senior unsecured notes to 'BB-' from 'B+' (recovery rating of '5'), and its subordinated NSS hybrid notes to 'B+' from 'B' (recovery rating of '6').

- The stable outlook reflects our expectation that Nufarm's deleveraged balance sheet, revised capital management framework, and improved working capital management should help to counter the inherent cyclically in the group's earnings and cash flow and allow adjusted debt to EBITDA to be sustained below 3.5x.

ForRating Action Rationale

The upgrade reflects our view that Nufarm will sustain leverage in line with our expectations of the 'BB' rating. We expect near-termtailwinds associated with product demand, price increases and volume growth across each operating region to offset supply chain disruptions and volatility in active ingredient pricing. We expect earnings growth in the Seed Technologies business to continue, underpinned by positive trends in oilseed, aquaculture, and renewable fuel markets. The

Aldrin Ang, CFA

Melbourne

+ 61396312006

aldrin.ang

@spglobal.com

SECONDARY CONTACT

Paul R Draffin

Melbourne

+ 61 3 9631 2122

paul.draffin

@spglobal.com

www.spglobal.com/ratingsdirect

November 23, 2021 1

Research Update: Nufarm Upgraded To 'BB' On New Capital Management Framework And Strengthened Balance Sheet; Outlook Stable

group's adjusted debt reduced in fiscal 2021 because of improved working capital management and increased cash flow generation. We expect Nufarm's strengthened balance sheet to withstand some earnings volatility and potential working capital outflows in fiscal 2022, such that leverage will be sustained below 3.5x.

onlyImplementation of Nufarm's new capital management framework shows management's commitment to prioritizing creditor interests. Under the capital management framework, growth capital expenditure (capex) must be considered and core statutory leverage must be within or below the group's 1.5x-2xtarget range before dividends can be paid. The alignment of the dividend policy with free cash flow should ensure that only surplus free cash flow (after growth capex) is paid out to shareholders. In our view, this framework should prevent the payment of debt-fundeddividends, strengthen the group's capital structure, and enhance its capacity to accommodate inherent earnings and cash flow volatility in its businesses.

useImproved European margins and earnings signal that recovery is on track and the region is xpected to remain a key contributor to the group. The combination of improved conversion co ts, product mix and the successful execution of the performance improvement program has re tored profitability in the European business. Nufarm has identified some regulatory headwinds relating to the phasing-outof products when product registrations come off patent in fiscal 2022. We view the impact as minimal and transitory and anticipate the acquired Century and Surf product range and new product development will offset the losses and maintain profitability in the

European operations.

personalNufarm's continuing focus on working capital management should support cash flow generation and balance sheet strength over our forecast period. Nufarm's net working capital

improvement in 2021 was attributed primarily to improved debtor collections, increased customer prepayments and a normalization of high inventory levels in Europe, underpinned by strong demand. While we expect some unwinding of these working capital flows in 2022, we expect the gr up's ongoing focus on working capital management, supported by the sale the of the South American operations, to support improved working capital investment. The group aims to maintain its average net working capital to sales ratio at about 35%-40%.

A trengthened balance sheet should allow Nufarm to weather changes in climatic conditions and earnings volatility. Nufarm operates in an industry that is susceptible to variable climatic conditions and associated earnings volatility. Credit metrics were stretched in prior years due to cyclically depressed earnings and a leveraged capital structure. Although the sale of the South American business has reduced the scale and diversity of the group's operations, we do not consider that it has materially affected the quality of the group's earnings, and the associated reduction in net debt helped reset the group's balance sheet. We expect Nufarm's current capital structure and financial policy framework to provide sufficient headroom at the current rating to

Forwithstand earnings volatility as climatic conditions change.

We expect Nufarm to sustain meaningful positive free operating cash flow over the forecast period. The group's strong operating performance and improved working capital management delivered A$280 million of free operating cash flow in fiscal 2021, well ahead of our prior expectations. While some of these strong operating tailwinds in 2021 may abate in the next 12-18months, we expect the group's cash flow generation to remain positive. Nufarm's market share gains in key crop protection markets, execution of its commercialization objectives across its Seed Technologies business and improving working capital management should support continued

www.spglobal.com/ratingsdirect

November 23, 2021 2

Research Update: Nufarm Upgraded To 'BB' On New Capital Management Framework And Strengthened Balance Sheet; Outlook Stable

positive operating cash flow. This should allow it to fund targeted growth investment opportunities over the forecast period.

Outlook

onlyThe stable outlook reflects our expectation that Nufarm's strengthened balance sheet, prudent capital management framework, and improved working capital management will maintain adjusted debt to EBITDA below 3.5x over the next two years.

D wnside scenario

We could lower the rating if we expect Nufarm to sustain its adjusted debt-to-EBITDA above 3.5x. Downward rating pressure could also occur if the company sustains negative free operating cash

useflow or detracts from its new capital management framework such that shareholder returns are prioritized ahead of creditors.

Downward rating pressure could also arise from a material erosion of the group's competitive po ition across its key markets.

Upside scenario

personalA though less likely, we could raise the rating if we expect Nufarm to sustain its adjusted debt-to-EBITDA ratio below 2.5x and positive cash flow from operations to debt at more than 35%.

We view upward rating pressure caused by a strengthening of Nufarm's business risk profile as u likely; this would depend on a fundamental improvement in the scale, diversity, and stability of the group's earnings and cash flow.

C mpany Description

Nufarm, with its subsidiaries, manufactures and sells crop protection products in Australia, New Zealand, Asia, Europe, North America, and other countries. It operates through two segments--crop protection and seed technologies. The company offers herbicides, insecticides, fungicides, and plant growth regulators to protect crops from damage caused by weeds, pests, and diseases. It also provides seeds and seed treatment products, and has a croplands equipment business.

Our Base-Case Scenario

ForAssumptions

- Forecast GDP growth in Australia of 4.2% in calendar 2021, 3.3% in calendar 2022 and 2.8% in 2023; growth of 5.7% in calendar 2021, 4.1% in 2022 and 2.5% in 2023 in the U.S.; and growth of 5.1% in calendar 2021, 4.5% in 2022 and 2.2% in 2023 in the eurozone;

- Favorable agricultural and trading conditions across key regions;

- EBITDA margin normalization in fiscal years 2022 and 2023 supported by reversion of longer-term weather patterns in Asia Pacific and the phasing-out of some products in Europe;

www.spglobal.com/ratingsdirect

November 23, 2021 3

Research Update: Nufarm Upgraded To 'BB' On New Capital Management Framework And Strengthened Balance Sheet; Outlook Stable

- Increased capex associated with carry-over of capex from fiscal 2021 (as COVID restrictions ease) and targeted investments in growth opportunities;

- Resumption of ordinary dividend payments in line with Nufarm's new capital management framework; and

- Some working capital benefit unwind in fiscal 2022 and modest working capital outflows from fiscal 2023.

	Key Metrics
only	2020a	2021a	2022e	2023f
	Year-end Sept. 30
	Revenues (A$m)	2,847.40	3,215.70	3,250-3,300	3,300-3,350
	EBITDA margin (%)	5.20%	9.10%	7.0%-8.0%	6.0%-8.0%
	Debt (A$m)	714	665	700-800	700-800
	Debt-to-EBITDA ratio (x)	4.8x	2.3x	2.5x-3.5x	2.5x-3.5x
	CFO-to-Debt (%)	-29.6	38.3	5-15	20-30
	a--Actual.e--Estimate.f--Forecast. *Nufarm's financial year end has been amended to September from 2021.
use
	Liquidity
personal
	Nufarm's liquidity remains adequate, in our view. Over the coming 12 months, we expect sources
	of funds to exceed uses by more than 1.2x. We also anticipate that Nufarm would maintain
	positive sources over uses, even if forecast EBITDA were to decline by 15%.

We believe Nufarm can absorb high-impact,low-probability events with minimal refinancing. This is based on the group's strengthened balance sheet following the sale of its South American operations, generally prudent financial risk management, and generally satisfactory standing in credit markets.

We consider Nufarm to have the following sources and uses of liquidity available over the next 12 months, as of September 30, 2021:

Principal Liquidity Sources

- Cash balance of about A$724 million;

- Cash funds from operations of about A$236 million; and - About A$420 million of committed undrawn facilities.

ForPrincipal Liquidity Uses

- Debt maturities of about A$237 million;

- Working capital outflows (non-seasonal and intra-year) of about A$500 million; - Capex of between A$190 million; and

- Dividend payments subject to the group's capital management framework.

www.spglobal.com/ratingsdirect

November 23, 2021 4