How Doug Rathbone upset Nufarm investors VIEWPOINT By TERRY HALL - BusinessDay.co.nz OPINION: Let's hope Aussie investors have short memories and don't remember that Nufarm, in which many of them have lost substantial sums of money, used to be New Zealand Farmers Fertiliser and Fernz. While business headlines here have been full of the Christchurch earthquake and the problems of South Canterbury Finance and Allan Hubbard, who dominated it for decades, one of the big stories across the Tasman has been the worsening problems of former high-flier Nufarm and its long- serving chief executive, Doug Rathbone. Its difficulties have coincided with the ill health of Kerry Hoggard, who stepped down as chairman in July. He is widely regarded as the driving force of Nufarm's spectacular growth during his 53 years with the company. However, he may be better remembered here for facing a Securities Commission inquiry in 2000 for insider trading Fletcher Challenge shares. He stepped down as FCL chairman soon after. Nufarm, once regarded as a core stock in every Australian portfolio, has seen its share price slump from A$17 (NZ$21) since 2008 to about A$3.50. It is expected that its plummeting share price will force it out of the S&P/ASX Top 100 index. Among its headaches, Nufarm has a nasty debt problem. This blew out by a massive A$170m to A$620m in the fortnight to its balance date of July 31, triggering a second breach of its debt covenants. The stock is held by many Kiwi shareholders, who may have been among those who invested a further A$250m into the company at A$5.75 a share in a cash issue just five months ago. Australian shareholders, according to Bloomberg, are expected to launch a class action against the company for alleged misleading conduct relating to its failure to meet profit forecasts. Law firms Slater & Gordon and Maurice Blackburn have confirmed they are close to completing an investigation into the company after being approached by disgruntled shareholders about a potential damages claim worth tens of millions of dollars. Maurice Blackburn claims that Nufarm's second-half forecast was "so bullish as to be misleading". Mr Rathbone, 64, a chemical engineer, says he won't resign. He joined the company 32 years ago when it was called New Zealand Farmers Fertiliser; it became Fernz in 1985 due to its widening interest in chemicals. The Fernz name was dropped - presumably to get rid of the NZ part of the name - when its head office was transferred to Melbourne in 1999. In Mr Rathbone's time, turnover has grown from NZ$20m in 1982 to about A$20 billion. He has grown wealthy in the process, with an estimated worth of A$600m in 2008 and a salary of A$2.2m a year. However, it is his share trading that has upset shareholders. As investors poured money into a series of cash issues (one last year raised A$300m at A$11.25 a share), he has been selling down. He has reduced his stake in the company from 11 per cent to 6 per cent, and the Australian Financial Review says it will soon drop to 4 per cent as he raises further cash to support his winery business. All this fun and games would bemuse long-departed Kiwi farmers who raised a remarkable 269,925 (millions in today's money) at the height of World War I in 1916 to establish NZ Farmers Fertiliser. Some descendants of the original Kiwi farmers may still have shares. The attraction, according to a contemporary article in New Zealand Truth, which then published lengthy business analytical pieces, was to give farmers "who up to then had been swindled by dishonest dealers, a co-operative approach to buying manure and fertilisers". A later Truth article in 1921 questioned why NZFF directors still hadn't spent [PndStlg]200,000 of the money they had raised. The company took on a new lease of life in the 1970s under Mr Hoggard's influence as it took over a string of other fertiliser, chemical and medical companies, including Kempthorne Prosser in 1979. It sold its New Zealand fertiliser operations in 1999, about the time it moved to Australia to concentrate on producing crop-protection chemicals. Back then, the company wouldn't have known that in 2010, financial returns from weedkillers, including its Roundup, would have slumped, while the world wants fertiliser - as shown by BHP's Billiton's US$40b (NZ$55.5b) hostile bid for Canada's giant Potash Corporation of Saskatchewan. At the heart of Nufarm's problems has been a global oversupply from China of cheap generic glyphosate, a key ingredient in its products. This has been compounded by poor global growing seasons: the need is seen for more fertiliser, rather than crop protection. Confronted with these problems, Nufarm directors have been accused of consistently talking up prospects for a rebound in its markets, of poor disclosure and of a surprise series of failures to meet profit forecasts. It has announced five profit downgrades in 18 months. The AFR says that while the company was expressing optimism, global giant Monsanto had warned its shareholders about a steady deterioration in glyphosate and cut its own earnings forecasts. Small shareholders aren't the only ones out of pocket and unhappy: Japan's Sumitomo Chemical Company paid A$14 a share for a 20 per cent holding earlier this year. That beat a A$13 offer from China's Sinochem.
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