FLASH NOTE

22 December 2014

TESSENDERLO
Shifting into higher gear
CHEMICALS

CURRENT PRICE

20.25

ACCUMULATE

BELGIUM

TARGET PRICE

22.50

REINITIATING

Performance over

1M

3M

12M

Absolute
-6%
-9% 11%
Rel. BEL20
-8% -11%
-4%
12m Hi/Lo
23.75/18.00
Bloomberg
TESB BB
Reuters
TESB.BR
Market Cap
858m
Next corporate event
Results FY14: 11 March 2015
www.tessenderlo.com

FY/e 31.12
Sales ( m)
REBITDA ( m)
Net earnings ( m)
Diluted adj. EPS ()
Dividend ()
P/E
EV/REBITDA
Free cash flow yield
Dividend yield
Source: KBC Securities

2013

2014E

2015E

2016E

1,790.1
116.6
-64.0
0.05
0.00
394.50
10.63
-1.7%
0.0%

1,419.6
136.1
45.1
1.80
0.00
11.23
9.16
5.1%
0.0%

1,441.6
147.5
43.9
1.13
0.00
17.99
8.18
3.5%
0.0%

1,507.5
167.3
64.1
1.48
0.00
13.72
6.96
4.9%
0.0%

Following the recently-completed capital increase, we reinitiate coverage today with an Accumulate rating
and 22.5 target price. The capital increase significantly strengthened Tessenderlos balance sheet and
allows the company to become more ambitious with regards to growing its business. We believe
management is betting on the right horse by focussing most capex/M&A initiatives on its Agro business,
while we also like the much tighter focus on cost efficiency across the group which we believe has not yet
delivered its full potential.

CAPITAL INCREASE ALLOWS FOR MORE AMBITIOUS GROWTH IN AGRO

Renewed growth ambitions focus on Agro after the completed capital increase. The relatively high

leverage prior to the capital increase somewhat hampered Tessenderlo in developing new growth initiatives.
With the capital increase now completed, Tessenderlo has much more headroom, and the company shed some
new light in its prospectus on the pipeline of new growth projects, revealing plans to acquire a crop protection
products portfolio and to build an ATS fertilizer plant in Europe. We remind that the company had already
announced in recent quarters the planned construction of an additional US ATS plant and a calcium chloride
plant in Belgium, which should also allow SOP production to increase again. We suspect Agro is the rightful
focus of most of the growth projects and we appreciate that the risk profile of some of the initiatives is lowered
by LT raw materials sourcing and/or marketing agreements.
Strong operational efficiency drive. Tessenderlo has in recent quarters significantly improved the groups

cost profile. Although management has not given an overall figure of realized or targeted savings on the group
level, corporate costs alone were said in the 1H conference call to have been reduced by an impressive 1112m (or 35-40%), and plenty of other initiatives are underway in the various divisions.
Valuation. Given the different growth and earnings dynamics of the various divisions, we mainly value

Tessenderlo by a Sum-of-the-Parts model. Fair value derived is 22.5 per share. Note that at this stage we
have not included any value for the tax loss carry forwards ( 398.8m end 2013), which seems conservative.
ANALYSTS
Wim Hoste

Financial Analyst - Brussels

+32 2 429 37 13

wim.hoste@kbcsecurities.be

THIS DOCUMENT IS NOT PRODUCED BY KBC SECURITIES USA, INC.

kbcsecurities.com

Refer to important disclosures, disclaimers and analyst certifications at the end of the body of this research.

FLASH NOTE

22 December 2014

COMPANY DESCRIPTION AND BUSINESS UPDATE

Founded in 1919, Tessenderlo Group is a diversified chemicals company. The group has undergone a thorough
transformation in recent years, involving a series of divestments of activities which the former management team
believed to be either too cyclical or commoditized or in which they judged Tessenderlos competitive position to be
relatively weak. Divestments include PVC/chloralkali, the UK esters & aromas business, the window profile
activities, the Chinese Organic chloride derivatives business and Pharma Ingredients. Today the portolfio is
segmented in three key divisions: Agro, Bio-valorization and Industrial Solutions.
SALES BY DIVISION*

Source: Tessenderlo

REBITDA BY DIVISION*

*9M14

Source: Tessenderlo

*9M14

Agro
Agro is active in the production and marketing of crop nutrients/fertilizers & crop protection products such as
herbicides and fungicides.
Tessenderlos crop nutrients are mainly sulphur-chemistry based. Sulphur is the fourth plant nutrient besides
nitrogen, potash and phosphate and is mostly blended with nitrogen fertilizers. Tessenderlos key products are
ammonium thiosulfate (ATS, sold under brand name Thio-Sul), potassium thiosulfate (sold under brand name
KTS) and sulphate of potash (SOP).
The Thio-Sul and KTS business of Tessenderlos Kerley subsidiary is mainly active in North America, where it
is the leading player of sulphur-based thiosulfate fertilizers, well ahead of competitors like Martin Midstream
Partners and Poole Chemical. Tessenderlo Kerley currently operates six owned production sites, a 50/50 joint
venture with Philips in two production sites and also has some tolling agreements. Furthermore, Tessenderlo
Kerley has an extensive logistics network including storage facilities, railcars and trucks. What makes Tessenderlo
Kerleys business model difficult to copy is the high degree of upstream integration. Tessenderlo has a number of
very long-term contracts with refineries to extract sulphur from the naptha streams. Tessenderlo gets paid for the
sulphur extraction service it provides and/or gets the extracted sulphur at a very competitive price.
Tessenderlo Kerley has been the main growth driver in the past, and Tessenderlo has just constructed new KTS
storage capacity at Hanford, US. The company commented in the conference call organized at the occasion of the
capital increase that it is currently running at full capacity for both ATS (ammonia thiosulfate) and KTS (potassium
thiosulfate). We remind that Tessenderlo had, prior to the capital increase, already announced two capacity
expansions: a new KTS production facility in Hanford, US (scheduled to be operational in the course of 2015) and
a new ATS production facility in East-Dubuque, US (scheduled to be operational in 2H16).

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FLASH NOTE

22 December 2014

TESSENDERLO KERLEY FOOTPRINT

We welcome these investments, which will increase

capacity in closer proximity to the end market. The
new East Dubuque facility, for example, will be
located in Illinois, which is in the heart of the US corn
industry (Midwest and Great Lakes Area supply over
>80% of US corn). The new plant will allow savings
on logistics costs (rail costs have risen sharply in
recent years) while ammonia supply is secured
through a contract with Rentech as the ATS site will
be on-site with Rentech. This plant positions
Tessenderlo well for future market growth.

Source: Tessenderlo

Note that today only approximately half of US corn is produced with ATS blended into the UAN fertilizer, leaving
further penetration potential. There is one new ATS plant being built by a competitor, but we still believe
Tessenderlo is very well positioned in this market, being not only the largest player but also having good vertical
integration.
Apart from these announced investments, we remind that Tessenderlo also revealed in the prospectus issued at
the occasion of the capital increase that it is contemplating the construction of an ATS plant in Europe. At the
conference call that accompanied the capital increase, management said that they are trying to partner either with
an oil refinery (in order to secure sulphur supply) or an ammonia producer (in order to secure ammonia).
Tessenderlo also sees growth prospects in Europe, where growing awareness about acid rain has led to e.g. lower
sulphur emissions by cars/factories and hence also to sulphur depletion of soil. We remind that sulphur is one of
the four essential plant nutrients.
Besides the ATS/KTS business, Tessenderlo is also a large producer of Sulfate of Potash (SOP), behind market
leader K&S. SOP is mainly suitable in dry areas (hence the advantage of the soluble version on which Tessenderlo is
placing much emphasis) and for high added-value crops such as flowers, vegetables and fruit. SOP helps to make
the plant more resistant to drought, frost and diseases while it also improves the yield.
Since the closure of a smaller production facility in Loos, France, Tessenderlos SOP production is focused on its
Ham site. This plant has a capacity of 580kt, we believe, but current production is estimated to be well below that
number. The reason for that is that the closure of the Ham animal feed phosphates plant at end-2013 (due to the
expiry of an environmental permit) means Tessenderlo now has an issue with hydrochloric acid, a by-product of
sulphates production. Until end-2013, that hydrochloric acid was used in the phosphates production process, and
previously partly also for the internal production of VCM. In order to solve part of this issue (how much is
undisclosed), Tessenderlo will construct a calcium chloride plant in Ham, Belgium, which should be operational in
the third quarter of 2015. Tessenderlo has teamed up with TETRA Chemicals Europe, which will market the
calcium chloride, which is used in the Oil & gas industry as well as in ice and dust control on roads and in
refrigeration plants.
Unlike most of the large fertilizer producers, Tessenderlo is not integrated upstream in SOP, which we view as a
disadvantage. Profitability of the SOP business is currently believed to be excellent however, as the break-up of
the Russian-Belarusian BPC cartel has led to much lower raw materials prices, whereas production issues at
Tessenderlo and some peers including Great Salt Lake Minerals & K&S have led to a tight market and higher
selling prices for SOP. Visibility on how long these benign market conditions may last is limited, but the recent
flooding of the large Solikamsk-2 mine from Uralkali will in our opinion lead to further raw materials price increases
for Tessenderlos SOP business in 2015.

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FLASH NOTE

22 December 2014

Furthermore, Tessenderlo Kerley has over time diversified into non-fertilizer agriculture products through its
NovaSource crop protection business. In this field, NovaSource has mainly grown through selective acquisitions,
such as:
Surround from BASF. Acquired in 2007, sales of less than $ 10m at the time of acquisition.
Sinbar and Zobar herbicides from DuPont. Acquisition price not disclosed. Annual sales of products acquired

was less than $ 10m at the time of acquisition (2007).

Linuron (Lorox, Linex) from DuPont. Acquisition price not disclosed, acquired business represented less

than $ 20m at the time of acquisition (2009).

Purshade from Purfresh.
Carbaryl from Bayer Cropscience. Acquired in 2012 and adding an estimated $ 19m revenue annually at the
time of acquisition.
The acquisition strategy has been to acquire crop protection products serving niche markets from large multinationals
that no longer consider these products as core given their small size and established position (i.e. limited growth). By
acquiring these products at reasonable prices, optimizing its small sales rep network and continuing to invest in the
regulatory reviews, Tessenderlo Kerley has established a relatively small but nevertheless quite profitable crop
protection business. Today the company is active in soil fumigants, niche pesticides and some other plant health
products. Note that most of the crop protection business is produced under tolling contracts whereby Tessenderlo
does not manufacture the product but only holds the licenses and registration data.
As mentioned in the prospectus, Tessenderlo intends to acquire (in 4Q14 or 1Q15) a portfolio of crop protection
products, including herbicide products. In the conference call held at the time of the capital increase, the CFO
declined to comment on potential synergies or pricing (besides the general answer to a question that the Board
would not accept acquisitions at EV/EBITDA multiples of 10x). Synergies would include the elimination of dual
costs (such as marketing and registration) as well as leveraging on distribution. All in all Novasource is considered
by management to be a fairly stable business, growing over time by extensions of the portfolio (by acquisitions) or
by expanding registration of existing products in new geographies.
All in all, the excellent SOP market conditions so far this year and the growth of the Kerley business (partly on the
back of easy comparables) have led to good earnings growth in 9M14. Out of caution we have assumed that
profitability margins will contract somewhat in 2015, on the back of rising raw materials pricing for SOP and what
we expect to be a gradual ramp-up in supply in the SOP market after this years technical issues.
AGRO
m

FY12

1H13

3Q13

4Q13

2H13

FY13

1H14

3Q14

3Q

4Q14E 2H14E FY14E FY15E FY16E

change
Revenue

508.4

307.8

102.7

85.8

188.5

496.4

296.7

121.0

18%

89.6

210.6

507.3

537.7

575.3

REBITDA

60.9

41.2

10.8

8.2

19

60.1

61.1

23.1

114%

11.6

34.7

95.8

90.3

93.8

margin

12.0% 13.4% 10.5%

9.6%

10.1% 12.1% 20.6% 19.1%

13.0% 16.5% 18.9% 16.8% 16.3%

Source: Tessenderlo, KBC Securities forecasts

Bio-valorisation
Bio-valorisation combines the animal by-products processing business of Akiolis and the gelatine production.
Through its Akiolis subsidiary, Tessenderlo is the second largest renderer in France, behind Saria and ahead of
Verdannet Monnard. The group collects and treats natural derivatives such as animal by-products (bones,
intestines, blood) and other organic by-products such as used cooking oils and bakery products. These are either
incinerated for their energetic content or converted into proteins and fats for use in downstream applications such
as gelatine, pet food, soaps, detergents, methyl esters for biofuels, fertilizers. Currently, the French rendering
market is very competitive and Tessenderlo does not expect a visible improvement in results in the near term.
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22 December 2014

The second part of this division relates to the production of gelatine. Gelatin is a purified protein that is produced by the
hydrolysis of collagen, which is a major component of the bones and skin of cattle and pigs. As such, gelatin is also one of
the downstream markets of Akiolis. Gelatin is used in a number of applications, including Edible (dairy, meat

processing, confectionary, soft drinks, beer, etc), pharmaceutical (soft and hard capsules, haemostatic sponges),
photographic (X-ray film, colour films, photo paper) and Hydrolysed (taste enhancer, salt reducer, flocculating
agent) applications.
In gelatine, the company has production facilities in Europe, Asia, North and Latin America. Tessenderlo is the
worlds third largest gelatine producer, but far behind market leaders Darling and Gelita, which we believe each
have a global market share in the 20-25% range (vs approximately half that for Tessenderlo). Smaller players,
which are mostly regional, include ao Nitta Gelatin and Weishardt.
Gelatine demand has recently been under pressure in China after a couple of food scandals. In Latin America
there has been a shortage of raw materials due to lower slaughtering numbers. Raw material prices in the region
have increased and could not be passed through. As mentioned in the prospectus, one of Tessenderlos two
Chinese gelatine plants might be expropriated by the government. Negotiations about compensation with the
government have begun, but it is too early to have visibility on the outcome. The revenue and REBITDA
contribution of that Chinese plant is said to be not material.
Tessenderlo does not intend to make acquisitions or large expansions in the Bio-valorisation division. Instead, the
focus is on improving profitability through operational and commercial improvement programs, cost reductions and
some investments in process innovation and product valorisation.

When discussing the current business trends in gelatine and Akiolis, it is important to note that Tessenderlo does
not offer a breakdown of results for these two parts of the Bio-valorisation division. However, the table below
clearly shows both the lower gelatine results and the intense competition in the French animal by-products
treatment industry. We assume that cost initiatives will lead to some slight margin improvement in 2015, even
though they are expected to stay well below 2012 levels.
BIO-VALORISATION
FY12

1H13

3Q13

4Q13

2H13

FY13

1H14

3Q14

3Q

524

268.6

123

123

246

514.6

241.3

117.3

-4.6%
-86.1%

4Q14E 2H14E FY14E FY15E FY16E

change
Revenue
REBITDA
margin

60.7

22.5

3.6

-3

0.6

23

7.6

0.5

11.6%

8.4%

2.9%

-2.4%

0.2%

4.5%

3.1%

0.4%

121.3

238.6

479.9

484.7

492.0

-0.3

0.2

7.8

19.4

29.5

-0.2%

0.1%

1.6%

4.0%

6.0%

Source: Tessenderlo, KBC Securities forecasts

Industrial solutions
Industrial Solutions comprises a range of activities, including the production and sale of plastic pipe systems, water
treatment chemicals and mining applications. The largest business in this division is the plastic pipes business. We
estimate Tessenderlo is Europes sixth largest producer, with an estimated market share of 7%, well behind
Mexichem (15%) and Aliaxis (13%), but closer to Wienerberger, Uponor and Georg Fischer Piping. A key
differentiating factor in the pipes operations is that Tessenderlo has a higher degree of downstream integration
than most of its competitors, with 69 own distribution centres across Europe. Furthermore, the company also
provides broad technical support/advice to its customers. Note that some rivals like Mexichem and Wienerberger
also have distribution activities.
In its Water treatment business, Tessenderlo supplies coagulants (which make impurities bundle together, thus
making them sink) and other chemicals to treat waste water or clean drinking water. The main product is ferric
chloride. Tessenderlo is a leading player in France and Belgium and also has a significant market position in the
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FLASH NOTE

22 December 2014

UK and the Netherlands.

In mining, Tessenderlo recently commissioned a new thiosulfates production facility at Barrick Golds Goldstrike
facility in Nevada (US). During the November conference call, we learnt that it is a bit too early to judge the growth
potential of this business as it is unsure whether Barrick might want to replicate the technology at some of its other
mines. Also it is not sure that all mines are suitable for retrofitting with the CATS leaching technology.
As the table below shows, profit margins have grown well in recent quarters, helped to a significant extent by cost
management, we believe. We expect some further margin growth on the back of cost efficiencies, the ramp up of
the gold leaching plant, and a gradual improvement of the European building market.
INDUSTRIAL SOLUTIONS
FY12

1H13

3Q13

4Q13

2H13

FY13

1H14

3Q14

3Q

4Q14E 2H14E FY14E FY15E FY16E

change
Revenue

405.6

201.5

101.3

94.4

195.7

397.3

206.5

98.5

-2.8%

94.3

192.8

399.3

419.2

440.2

REBITDA

24.4

9.2

4.5

4.5

9.0

18.2

17.1

7.0

55.6%

6.9

13.9

31.0

37.7

44.0

margin

6.0%

4.6%

4.4%

4.8%

4.6%

4.6%

8.3%

7.1%

7.3%

7.2%

7.8%

9.0%

10.0%

Source: Tessenderlo, KBC Securities forecasts

OUTLOOK OVERVIEW
P&L OVERVIEW
3Q13

4Q13

2H13

Sales

1029.0 415.0

1H13

346.1

761.1 1790.1 775.7

338.7

-18%

305.2

643.9 1419.6 1441.6 1507.5

Agro

307.8

102.7

85.8

188.5

496.4

296.7

121.0

18%

89.6

210.6

507.3

537.7

575.3

Bio Valorization

268.6

123.0

123.0

246.0

514.6

241.3

117.3

-5%

121.3

238.6

479.9

484.7

492.0

Industrial Solutions

201.5

101.3

94.4

195.7

397.3

206.5

98.5

-3%

94.3

192.8

399.3

419.2

440.2

Other

251.0

88.0

42.9

130.9

381.9

31.2

1.8

-98%

0.2

2.0

33.2

0.0

0.0

REBITDA

81.7

25.7

9.2

34.9

116.6

87.1

30.7

19%

18.4

49.1

136.1

147.5

167.3

Agro

41.2

10.8

8.2

19.0

60.1

61.1

23.1

114%

11.6

34.7

95.8

90.3

93.8

Bio Valorization

22.5

3.6

-3.0

0.6

23.0

7.6

0.5

-86%

-0.3

0.2

7.8

19.4

29.5

Industrial Solutions

9.2

4.5

4.5

9.0

18.2

17.1

7.0

56%

6.9

13.9

31.0

37.7

44.0

Other

8.9

6.7

-0.4

6.3

15.2

1.2

0.2

-97%

0.0

0.2

1.4

0.0

0.0

REBITDA margin

7.9%

6.2%

2.7%

4.6%

6.0%

7.6%

Agro

13.4% 10.5% 9.6% 10.1% 12.1% 20.6% 19.1%

13.0% 16.5% 18.9% 16.8% 16.3%

Bio Valorization

8.4%

2.9%

-2.4%

0.2%

4.5%

3.1%

0.4%

-0.2%

0.1%

1.6%

4.0%

Industrial Solutions

4.6%

4.4%

4.8%

4.6%

4.6%

8.3%

7.1%

7.3%

7.2%

7.8%

9.0% 10.0%

Other

3.5%

7.6%

-0.9%

4.8%

4.0%

3.8% 11.1%

REBIT

43.9

8.2

-6.3

1.9

45.8

54.7

12.8

REBIT margin

4.3%

2.0%

-1.8%

0.2%

2.6%

7.1%

3.8%

non recurring items

-49.0

-11.0

-4.4

-15.4

-64.4

-2.2

-8.5

-23%

EBIT

-5.1

-2.8

-10.7

-13.5

-18.7

52.6

4.2

Net finance costs

-14.6

-6.0

-6.6

-12.6

-27.3

-10.8

8.7

2.7

0.9

0.6

1.5

4.2

1.6

Profit before taxation

-17.0

-8.0

-16.6

-24.6

-41.8

Taxation

-18.1

-4.2

-1.0

-5.2

Net result

-35.1

-12.2

-17.7

-29.9

-35

-11.9

-17

-28.9

Associates

Net result, group share

FY13 1H14A 3Q14 change 4q14e 2H14E FY14E FY15E FY16E

6.5% 11.2% 9.1%

9.6% 10.2% 11.1%

6.0%

4.2%

1.7

14.6

69.3

77.8

95.6

0.5%

2.3%

4.9%

5.4%

6.3%

-3.5

-12.0

-14.2

-5.0

0.0

NM

-1.8

2.6

55.1

72.8

95.6

NM

-7.4

1.3

-9.5

-7.0

-5.0

1.3

44%

1.1

2.4

4.0

5.0

5.1

43.3

14.3

NM

-8.0

6.3

49.6

70.8

95.7

-23.4

-15.7

11.6

NM

-0.4

11.2

-4.5

-26.9

-31.6

-65.1

27.7

25.8

NM

-8.3

17.5

45.1

43.9

64.1

-64

27.8

26.2

NM

-8.7

17.5

45.1

43.9

64.1

56%

Source: Tessenderlo, KBC Securities forecasts

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FLASH NOTE

22 December 2014

We remind that Tessenderlo guided at the time of the 3Q trading update for a slightly higher 4Q REBITDA (y/y).
Management reconfirmed this guidance in the end-of-November conference call. We forecast a 4Q14 REBITDA of
18.4m, up from 9m in 4Q13.

BALANCE SHEET UPDATE AFTER CAPITAL INCREASE AND USE OF FUNDS

Tessenderlos net debt at end-3Q14 landed at 210.3m. Notional net debt, which includes factoring, landed at
297.2m at the end of 3Q14. This debt level compares to a group REBITDA over the past twelve months (4Q13 +
9M14) of 126.9m. Hence the net debt/REBITDA ratio at end-September was 1.66x. The notional net
debt/REBITDA (including factoring to net debt) was 2.34x.
In terms of maturity, 85.2m net financial debt qualified as current at the end of September, while non-current
financial debt was 176.1m. Cash & equivalents were 51.0m. The key financing lines are the 150m bond
maturing in October 2015 and the 400m syndicated loan facility that matures in April 2016.
The company stated at the time of the 3Q14 results release (before the launch of the capital increase) that it
expected net financial debt to be slightly below the level at end-2013 ( 258.9m).
We remind that gross proceeds of the capital increase are 174.8m (10.59m shares x 16.5 price per share). Net
proceeds should be about 172.7m. The pro forma net debt after the capital increase would be an estimated
37.6m (based on end-3Q net debt + net proceeds of the capital increase). Pro forma notional net debt would be
124.5m. With FY14 REBITDA estimated at 136.1m that corresponds to a Net debt/REBITDA ratio of 0.3 or a
notional net debt/REBITDA of 0.9x.
Whereas Tessenderlo had relatively high leverage, based on the notional net debt/EBITDA multiple prior to the
capital increase of 2.34x, the balance sheet after the capital increase looks pretty strong. We believe Tessenderlo
now has the firepower to embark on a series of new growth initiatives. In this respect the prospectus related to the
Capital Increase highlighted two new intended growth projects:
1.

2.

Firstly, Tessenderlo intends to acquire a crop production portfolio, which would further complement and
enlarge the existing crop protection business Novasource. The prospectus did not offer any insight in to
the size of the acquisition and only stated that the timing is expected to be either 4Q14 or 1Q15.
Secondly, Tessenderlo is contemplating the construction of a new Thio-Sul production facility in Europe,
possibly along with logistics and distribution facilities. We understood from the conference call that such
an investment would preferably occur in a cooperation agreement with raw materials producer which
would secure competitive supply for one of Thio-Suls key raw materials.

These projects come on top of three other recent growth investments that were already publicly announced but
which are not yet contributing to top & bottom lines:
3.

Tessenderlo intends to construct a new Thio-Sul (ATS) production unit in East-Dubuque (US). The
advantage of this plant is that it is located in the middle of the US Corn Belt, which will significantly reduce
transportation costs. The Midwest and the Great Lakes Area supply over 80% of total US corn production.
Note that Tessenderlo has teamed up with Rentech Nitrogen Partners, which will supply ammonia.

4.

Tessenderlo is currently constructing a KTS production facility in Hanford (US) which is expected to be
commissioned in the course of 2015.

5.

Tessenderlo intends to build a calcium chloride plant in Belgium. The new plant, scheduled to become
operational in 3Q15, provides Tessenderlo for another outlet of the Hydrochloric Acid that comes out as a
by-product out of the SOP (Sulphate of Potash)-plant.
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All in all, Tessenderlo has hinted that out of the net proceeds of the capital increase of about 172.7m, about
three quarters (or about 130m) will be spent on the above-mentioned growth projects as well as operational
investments, investments linked to compliance with new regulation and certain historical non-recurring cash-outs.
About one quarter (or 43m) was said to be targeted for strengthening the balance sheet. The table below gives
an overview of our estimates on the various uses of the capital increase funds.
Note that the above-mentioned investments and cash-outs will occur gradually in the coming years, which explains
why the balance sheet should remain very strong in the coming years.
USE OF FUNDS FROM THE CAPITAL INCREASE
Project

Completed by

estimated Capex ( m)*

Growth investments

75

KTS production facility in Hanford (US)

in the course of 2015

15

ATS production facility in East-Dubuque (US)

2H16

20

Calcium Chloride plant in Ham (Belgium)

3Q15

Intended acquisition of crop protection portfolio

4Q14/1Q15

12

contemplated ATS production facility in Europe

NA

20

Operational investments & investments linked to compliance

52

with new regulation

Electrolysis conversion to membrane in Loos (France)

2017

48

other programs

NA

Historical non-recurring cash outs

NA

Strengthening of Balance sheet

43

Source: KBC Securities estimates

SHAREHOLDER STRUCTURE
At the time of the announcement of the launch of the Capital Increase (26 November), Verbrugge NV and
Symphony Mills NV, which are affiliated entities, held respectively 27.517% and 1.016% of Tessenderlo, which
means a combined stake of 28.76%.
Verbrugge NV and Symphony Mills had made a commitment to Tessenderlo that they would, subject to certain
conditions, exercise all of their respective Preferential rights to subscribe to new shares.
As per a transparency declaration posted on the website of the FSMA, Verbrugge NV bought 71,877 additional
shares (0.23%) on 27 November. Along with additional rights purchased during the Rights Subscription Period and
some scrips purchased in the Scrip Private Placement, Verbrugge NV and Symphony Mills NV announced that
following the capital increase they now hold respectively 30.2% and 1.5% of the Issuers capital. Note that
pursuant to Article 52, 1, 5 of the Takeover Royal Decree, a passing of the 30% shareholding threshold by
acquiring or exercising Preferential Rights in the Rights Subscription Period and/or acquiring Scrips in the Scrips
Private Placement, does not give rise to a mandatory public takeover bid. As per the Takeover Royal Decree, any
subsequent acquisition will not trigger a mandatory public takeover either.

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22 December 2014

VALUATION
DCF Model
Our DCF model integrates a WACC of 7.4% and a LT FCF growth of 1.5%. The fair value derived is 22.7
DCF-MODEL
OCF

CAPEX

WCR

FOCF

Disc. FOCF

2015E

122

-85

38

35

2016E

136

-85

-5

46

40

2017E

147

-80

-5

62

50

2018E

151

-78

-5

68

51

2019E

158

-80

-5

73

51

2020E

165

-81

-5

79

51

2021E

169

-83

-4

82

50

2022E

173

-84

-3

85

48

Residual value (LT growth = 1.5%)

949

Total value

1325

Net debt

-133

Minorities

-3

Pension & other provisions

-212

Financial assets

Deferred tax

-24

Value of equity

959

Value per share

22.7

Source: KBC Securities forecasts

SUM-OF-THE-PARTS MODEL
SUM-OF-THE-PARTS MODEL
Division

EBITDA15E

multiple

EV

Comment

Agro

90.3

9.5

858

Crown jewel of the group and key growth driver

Biovalorization

19.4

10.0

194

Multiple fairly high but takes into account current low

Industrial Solutions

37.7

7.0

264

In line with M&A multiples in industry in past years

Total

147.5

8.9

1,316

profitability

Net debt

-133

Notional net debt estimate end 2014

Minorities

-3

estimate end 2014

-212

estimate end 2014

Pension & other provisions

Financial assets

estimate end 2014

Deferred tax

-24

estimate end 2014

Equity value

950

Equity value per share

22.5

Source: KBC Securities

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22 December 2014

FINANCIAL DATA
Income statement ( m)

2012

2013

2014E

2015E

2016E

2,129.6
420.0
-162.5
-186.8
-197.9

1,790.1
359.3
-18.7
-45.9
-64.0

1,419.6
283.9
55.1
45.6
45.1

1,441.6
288.3
72.8
65.8
43.9

1,507.5
301.5
95.6
90.6
64.1

EBITDA
REBITDA
REBITA

161.1
161.1
75.9

116.6
116.6
45.8

121.9
136.1
69.3

142.5
147.5
77.8

167.3
167.3
95.6

Balance sheet ( m)

2012

2013

2014E

2015E

2016E

Intangible assets
Tangible assets
Financial assets
Net other assets & liabilities
Net working capital
Net debt
Provisions
Minorities
Equity

97.2
471.8
26.2
39.0
242.2
314.0
178.4
4.5
379.5

87.0
436.7
28.3
-11.9
174.9
258.8
216.3
3.3
236.6

87.0
454.9
25.3
-14.4
159.9
42.7
212.3
3.3
454.4

87.0
470.3
25.3
-13.9
158.1
12.8
212.3
3.3
498.3

87.0
483.6
25.3
-12.4
165.3
-29.2
212.3
3.3
562.4

936.0
1,288.2

805.8
1,089.9

820.5
1,241.2

824.5
1,138.3

846.6
1,182.0

2012

2013

2014E

2015E

2016E

29.8
-117.9
-88.1

88.1
-99.2
-11.1

128.4
-85.0
43.4

114.9
-85.0
29.9

127.1
-85.0
42.1

Acquisitions / disposals
Dividend payments
Shares issues
New borrowings / reimbursements
Other
CHANGE IN CASH & EQUIVALENTS

-13.4
-19.8
0.8
91.0
29.3
-0.2

0.0
-22.2
1.2
-37.6
83.9
14.2

0.0
0.0
172.7
-5.0
0.0
211.1

0.0
0.0
0.0
-150.0
0.0
-120.1

0.0
0.0
0.0
-30.0
0.0
12.1

Performance criteria

2012

2013

2014E

2015E

2016E

0.2%
19.7%
7.6%
3.6%
-7.6%
81.8%
1.95
6.63
-20.8%
-40.4%
-11.8%

-15.9%
20.1%
6.5%
2.6%
-1.0%
107.9%
2.22
4.29
0.0%
-20.8%
-1.5%

-20.7%
20.0%
9.6%
4.9%
3.9%
9.3%
0.35
12.83
0.0%
13.0%
4.7%

1.6%
20.0%
10.2%
5.4%
5.1%
2.6%
0.09
20.35
0.0%
9.2%
6.2%

4.6%
20.0%
11.1%
6.3%
6.3%
-5.2%
-0.17
33.46
0.0%
12.1%
8.0%

Sales
Gross profit
EBIT
Pre-tax earnings
Net earnings

Capital employed
TOTAL ASSETS

Cash flow statement ( m)

Cash flow from operations
Net capital expenditure
Free cash-flow

Sales growth
Gross margin
REBITDA margin
REBITA margin
EBIT margin
Net debt / Equity + Minorities
Net debt / EBITDA
EBITDA / net interest
Pay-out ratio
= Return on Equity (avg)
Return on Capital Employed

Per share data ()

2012

2013

2014E

2015E

2016E

30,925,934

32,437,535

32,871,257

43,463,522

43,463,522

Basic EPS
Diluted EPS
Diluted, adjusted EPS

-6.42
-6.40
0.95

-2.01
-1.97
0.05

1.42
1.37
1.80

1.04
1.01
1.13

1.51
1.48
1.48

Net book value / share

Free cash flow / share
Dividend ()

12.88
-2.86
1.33

7.45
-0.35
0.00

10.72
1.37
0.00

11.76
0.70
0.00

13.27
0.99
0.00

weighted average # shares, diluted

Valuation data

2012

2013

2014E

2015E

2016E

Reference share price ()

Reference market capitalisation
Enterprise value ( m)

22.59
665.8
1,224.2

20.68
656.9
1,239.8

20.25
857.8
1,246.0

20.25
857.8
1,206.2

20.25
857.8
1,164.1

P/E
EV/sales
EV/EBITDA
EV/Capital employed
P/ NBV
Free cash flow yield
Dividend yield
Source: KBC Securities

23.7
0.6
7.6
1.3
1.8
-13.2%
5.9%

394.5
0.7
10.6
1.5
2.8
-1.7%
0.0%

11.2
18.0
13.7
0.9
0.8
0.8
10.2
8.5
7.0
1.5
1.5
1.4
1.9
1.7
1.5
5.1%
3.5%
4.9%
0.0%
0.0%
0.0%
*Historic valuation data are based on historic prices

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10

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22 December 2014

DISCLOSURE & DISCLAIMER SECTION

The company disclosures can also be consulted on our website http://www.kbcsecurities.be/disclosures.
KBC Securities uses an absolute rating system including terms such as Buy, Accumulate, Hold, Reduce and Sell (see definitions below).
Definition
BUY

Expected total return (including dividends) of 10% or more over a 6-month period

ACCUMULATE

Expected total return (including dividends) between 0% and 15% over a 6-month period

HOLD

Expected total return (including dividends) between -5% and 5% over a 6-month period

REDUCE

Expected total return (including dividends) between 15% and 0% over a 6-month period

SELL

Expected total return (including dividends) of -10% or worse over a 6-month period

Due to external factors and in exceptional cases, KBC Securities allows the use of ratings such as Accept the Offer, Black Out, No Recommendation or
Suspended.
Our analysts assign one of those ratings based on their investment outlook and valuation for the concerned stock. The valuation can be based on different
methodologies such as DCF (discounted cash flow), absolute multiples, peer group multiples, sum-of-parts or NAV (Net Asset Value). The valuation is
reflected in a 6-month target price. Occasionally, the expected total return may fall outside of these ranges because of price movement and/or volatility.
Such deviations will be permitted but will be closely monitored. Investors should carefully read the definitions of all ratings used in each research report. In
addition, since the report contains more complete information concerning the analysts view, investors should carefully read the entire report and not infer
its contents from the rating alone. KBC Securities may disclose the drafts of its reports to the issuers before their dissemination for the purpose of verifying
the accuracy of factual statements, except when the draft includes a rating or a target price. In case the draft has been amended following this disclosure,
such amendments will be indicated in the concerned report.

Stock rating

% of covered universe

% of covered universe with investment banking relationship during last year

BUY

22.90%

0.00%

ACCUMULATE

35.60%

0.00%

HOLD

38.10%

0.00%

REDUCE

1.70%

0.00%

SELL

1.70%

0.00%

Tessenderlo is a mainly European midcap chemicals group with three divisions: Chemicals, Specialties and Converting.
The price target for Tessenderlo is based on following parameters: Discounted Cash Flow (DCF), Absolute Multiples, Peer Group Multiples
The risks which may impede the achievement of our price target are: Raw materials and energy price volatility, currency effects, industry capacity additions
disrupting market equilibriums, stricter environmental legislations, cartel investigations
Any reference made to a DCF valuation for Tessenderlo is based on the following parameters: a forecast period from 2014 until 2022, a perpetual growth
rate of 1.5% and a calculated WACC of 7.4%.

Below is an overview of the stock ratings and target price history in the last 12 months for the stock described in this report.

Date

Rating

2014-12-22

Accumulate

Target price

2014-09-18

Suspended

2014-08-27

Hold

24.00

2014-04-30

Hold

21.00

22.50
-

KBC Securities will provide periodic updates on companies/industries based on company-specific developments or announcements, market conditions or
any other publicly available information.

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11

FLASH NOTE

22 December 2014

CONTACT DETAILS
ANALYST TEAM
Analyst

Contact

Coverage

Wouter Vanderhaeghen (Head of Research)

+32 2 429 37 30

Shipping & Industrials

Jan De Kerpel

+32 2 429 84 67

Biotech & Pharma

Ruben Devos

+32 2 429 58 43

Telco & Media

Matthias De Wit

+32 2 429 37 17

Financials

Yves Franco

+32 2 429 45 04

Holdings & Staffing

Dieter Furniere

+32 2 429 18 96

Engineering, Transport & Utilities

Wim Hoste

+32 2 429 37 13

Chemicals & Breweries

Guy Sips

+32 2 429 30 02

Small & Midcaps Benelux

Koen Overlaet-Michiels

+32 2 429 37 21

Real Estate

Alan Vandenberghe

+32 2 429 18 06

Credit Research

Dirk Verbiesen

+32 2 429 39 41

Oil Services & Construction

Pascale Weber

+32 2 429 37 32

Retail & Food Producers

EQUITY SALES TEAM

Sales

Contact

Sebastien Fuki (Head of Sales)

+32 2 417 53 43

Stefaan De Lathouwer

+32 2 417 44 68

Xavier Gossaert

+32 2 417 53 68

Margo Joris

+32 2 417 25 66

Kris Kippers

+32 2 417 28 08

Augustin Lanne

+32 2 417 51 45

Tim Leemans

+32 2 417 32 28

Marco Miserez

+32 2 417 36 81

Sales (US)
Hubert Dubrule (Head of US Sales)

+1 212 845 22 74

Sebastiaan Pol

+1 212 845 20 52

Sofie Van Gijsel

+1 212 541 06 48

Sales Trading
Isabel Sebreghts

+32 2 417 63 63

Tim Leemans

+32 2 417 32 28

Marco Miserez

+32 2 417 36 81

Loc De Smet

+32 2 417 36 99

BOND SALES TEAM

Sales

Contact

Alexander Lehmann (Head of Sales)

+32 2 417 46 25

Maurizio Bartolo

+32 2 417 48 02

Bert Beckx

+32 2 417 31 57

Toon Boyen

+32 2 417 25 65

Valentin Checa

+32 2 417 25 40

Alban Kerdranvat

+32 2 417 25 45

Bart Mathijssen

+32 2 417 57 12

Koen Princen

+32 2 417 44 65

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12

FLASH NOTE

22 December 2014
The company disclosures can be consulted on our website http://www.kbcsecurities.com/disclosures.

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expressed in this publication reflect his or her personal views about the subject companies and securities, and (ii) he or she receives compensation that is based upon
various factors, including his or her employers total revenues, a portion of which are generated by his or her employers investment banking activities, but not in
exchange for expressing the specific recommendation(s) in this report.

This publication has been prepared by KBC Securities NV which is regulated by FSMA (Financial Services and Markets Authority) and by NBB (National Bank of
Belgium) or one of its European subsidiaries (together "KBC Securities"). This publication is provided for informational purposes only and is not intended to be an offer,
or the solicitation of any offer, to buy or sell the securities referred to herein. This document is not produced by KBC Securities USA, Inc. No part of this publication may
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The information herein has been obtained from, and any opinions herein are based upon, sources believed reliable, but neither KBC Securities nor its affiliates
represent that it is accurate or complete, and it should not be relied upon as such. All opinions, forecasts, and estimates herein reflect our judgement on the date of this
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