nzx ipo masterclass - mondo visione · nzx ipo masterclass the scales listing story 1 25 march 2015...

NZX IPO MASTERCLASS The Scales Listing Story

1

25 March 2015

Presentation Team

© Copyright NZX Ltd. 2015 2

Tim Tubman, Partner

Rachel Dunne, Partner Jennifer Martin,

Director

David Watt, Director

Chris Simcock, Analyst Matthew Maher,

Director

Andy Borland, MD

Steve Kennelly, CFO

Agenda

•  Introduction to Scales

•  Why Scales chose to IPO

•  IPO process and key decisions

•  IPO outcome

•  Life after listing

•  Post-IPO capital raising options

•  Capital raising landscape in 2015

•  Key differences in NZX’s markets

•  Q&A


Introduction to Scales

•  We touch 57% of New Zealand’s merchandise trade

•  We operate three divisions: - Horticulture - Storage & Logistics - Food Ingredients


Scales is a diversified agribusiness group currently operating in 3 divisions

Note: Scales’ exposure to primary industry sectors is not directly proportionate to the percentage of New Zealand exports presented above.

Source: Statistics New Zealand

Scales’ Exposure to Primary Industry Sectors

30%Dairy

Scales’ coverage

12%Meat

5%Horticulture

2%Fish

8%Wood

43%Other Percentage of

New Zealand Exports

Horticulture


We operate New Zealand’s largest integrated apple business 1,000+ Ha. planted orchard

420m+ apples picked

4m boxes packed

Outside Growers

130+ CUSTOMERS 40+ COUNTRIES

NZ$Ms FY2013 FY2014

Revenue 174.2 158.8 EBITDA 26.2 23.9

Storage & Logistics


We operate New Zealand’s largest independent coldstore network

+…

702,300 m3

Refrigerated Warehouse

Space

~500,000 pallets loaded in every

year

Under construction

Storage & Logistics


Complementary bulk liquid storage and freight logistics operations

57 tanks 22,200 MT capacity

>17,000 TEUs Sea and Air

Freight logistics

NZ$Ms FY2013 FY2014

Coldstores 11.8 10.2

Bulk Liquids 1.2 1.3

Freight Logistics 0.8 0.8

Total EBITDA 13.8 12.3

Food Ingredients


We process and sell 16,400 MT of petfood ingredients and 4.6m litres of apple and kiwifruit juice concentrate

16,400 MT Petfood Ingredients sold 4.6m Litres Juice Concentrate

•  Apple •  Organic •  Kiwfruit

NZ$Ms FY2013 FY2014

Petfood 3.6 4.6

Share of Juice Business 1.1 1.0

Total EBITDA 4.7 5.6

Why we chose to IPO •  Liquidity and price transparency for shareholders: -  405 shareholders pre-listing – some for decades

-  Improved price transparency and liquidity

•  Re-orientation of shareholder register to reflect improvements in performance

-  Gain a balance of institutional and retail shareholders

•  Reduce debt: -  Pre-IPO term debt $60m (was $105m in December 2010 – 3.5x EBITDA).

-  Currently $30m <1x EBITDA.

-  Resilient balance sheet enables us to: Pursue organic and acquisitive growth options

•  Improved profile:

-  Improve confidence of our suppliers and customers

-  Ability to attract & retain talent and reward appropriately through share schemes


What we wish we had known before getting started

•  We didn’t appreciate the amount, type, and intensity of work involved

-  Nailing down Scales “strategy and investment story”.

-  Well developed financial models were more important than we realised:

▪  Pre-listing – necessary to generate well-supported and robust financial forecasts as well as to explain the story behind movements in performance. A key component to due diligence, valuation, and investor appetite.

▪  Offer stage – necessary to respond to investor and analyst questions.

▪  Post-listing – continue to use financial models both from a strategic and investor communications perspective.

-  Scales’ multiple divisions / businesses added significant complexity.

-  Considerable time requirement in addition to ‘day-job’:

▪  Roadshows and investor presentations

▪  Offer documents, due diligence committees, verification processes…


We wish we had attended an NZX IPO Masterclass!

Pre-IPO Phase


Scales’ preparation started about 12 months prior to listing

Getting started

•  Is the company ready for public investors?

•  Management buy-in required (especially MD and CFO) – significant time commitment to balance with the usual commitments

•  Understand the IPO process, time and cost

•  Develop detailed financial model

•  Appoint trusted advisors

•  Develop IPO timetable – what is the optimal timing for listing – seasonality, balance date?

•  Upgrade company website and corporate brand profile

Review board composition and

management structure

•  Important that the Board has cross section of relevant legal, accounting, marketing and public markets experience

•  Ideally Board should be in place at the start of the due diligence process for the IPO

•  Scales established a 6 member board with a diverse set of skills

Define the equity ‘story’ and strategy

•  What is the rationale for listing?

•  Clearly define business strategy – for Scales this meant consolidating Scales’ trading businesses into a single operation and separating out the investments division (property assets and Turners & Growers shares)

•  Determine target capital structure

Offer Preparation 1 Establish Due Diligence Committee -  Superintends due diligence exercise (Legal, Financial, Tax and Insurance DD reports produced) -  Reviews offer document and prospective financial information

2 Prepare Prospective Financial Information -  Robust financial models to forecast financial information (Profit & Loss, Balance Sheet, Cash Flows) ▪  Often explained in terms of value ‘drivers’ with reference to actual historic performance

-  Key assumptions should be explained to and reviewed by the DDC -  Investigating Accountant Report

3 Establish document working group -  Responsible for drafting the offer documents and delivering to DDC for review

4 NZX and FMA review -  NZX will review document and give feedback. Also needs to give approval before offer proceeds (24 hour timeframe) -  FMA will not review as a right, have to justify pre-offer engagement

5 Verify Offer Documents -  Every statement must be reasonable and supportable -  Big exercise that is best managed by a single dedicated person -  Collate source material to verify statements as you prepare the offer documents


Generating price tension through the marketing process


… a targeted and effective campaign to maximise demand

Institutional demand Retail demand Pricing tension

Institutional roadshow 1-2 weeks in NZ and offshore following

Analyst pre-marketing

Site visit Enable key institutional clients to get a

feel for the business

Analyst pre-marketing 1-2 weeks in NZ and offshore

Define Investment case and undertake Early Look Roadshow

Public relations / advertising Ongoing communications with key media

Retail roadshow Key advisor briefings throughout NZ

Retail analyst briefing Education briefings by Research Analyst

Key Influencer Broker targeting Inform senior advisors along the way

Sales force briefing Education briefings to private wealth

research

Define Investment case and undertake Early Look Roadshow

•  What went well / factors that helped our success:

-  Due diligence identified no material issues (legal, commercial, tax and accounting)

-  The depth of and capability of management team

-  Growth outlook for key divisions, especially the Mr Apple story:

▪  Best in New Zealand and the World

▪  Use of technology to drive improved yields

▪  Developing brand in emerging offshore markets

▪  Good growth prospects

-  Good spread of incoming shareholders

▪  50/50 institutional / retail

▪  Strong support from NZ, Australian and HK institutions


•  Challenges:

-  Crowded IPO market:

▪  Hirepool

▪  Investor fatigue

-  Rise in external risks (Middle East / Ukraine)

-  Price at bottom end of range

-  Doing the road-shows:

▪  Pre-deal

▪  Post-deal

▪  Institution vs public

-  Costs - $4m (excluding brokerage paid by shareholders on their sell down)

-  Post-IPO price performance:

▪  Share price below offer notwithstanding performance > PFI

IPO Outcome We successfully raised $149m and welcomed approximately 2,000 new investors onto our share register

Post Offer


Deliver on IPO prospectus forecasts and continue to develop growth story

Continuous, half-year and full-year disclosure

obligations

Ongoing engagement with the investment community:

•  Report half-yearly •  Results roadshow •  One-on-one meetings with institutional investors •  Retail broker briefings

•  Company pro-actively engages with the market •  Responds to investor enquiries

•  Continuous disclosure •  Insider trading •  Substantial security holder notices •  Takeovers Code •  Related party transactions

•  Analyst community continues to publish on the company and distribute research reports to retail and institutional investors

Implement an investor relations programme

Regulatory compliance

Analyst research

Life After Listing

•  Communications and investor relations: -  Half-year / full-year and continuous disclosure requirements. Timeframes tighter than prior to listing

and can be challenging. Good systems are necessary for time critical and accurate information.

-  Supporting presentations, conference calls, and media releases all represent new work streams that are vetted by multiple parties. Achieving this has both a cost and time component.

-  Regular analyst and institutional queries, investor site visits.

•  Additional requirements: -  Regulatory requirements (FMA, NZX).

-  Governance requirements (Corporate Charter, Code of Ethics, Board Committees, Auditor Independence Policy etc).

-  Report disclosure – striking the balance between remaining communicative and protecting sensitive information.

•  Work closely with the listing team for continuity and efficiency.


Operating in a listed environment means continually raising the bar by investing in our people, systems, communications, and investor relations

Post IPO Capital Raising Options

•  Post-listing capital raising options significantly more flexible and less costly •  Same class offer exclusions - listed issuers able to issue securities of the same class as

already listed securities with minimal documentation - Have to have been quoted for 3 months before offer (with trading not suspended for

more than 5 days) - Must give “cleansing notice” to NZX, be in compliance with continuous disclosure and

financial reporting obligations and set out any information that would be captured by continuous disclosure but which has not been disclosed because of a relevant exclusion

- Able to offer securities on a term sheet


FMCA Disclosure

•  Disclosure documentation will be in prescribed Product Disclosure Statement format and an online register entry - Key focus on disclosing only business-specific material risks, meaning that risk analysis

will have to be robust and comprehensive - PDS will contain limited financial information

•  Page and word limits will force issuers to think carefully about necessary inclusions

•  Advertising regime significantly liberalised - Pre-offer advertising permitted as long as prescribed text included (under old regime

could only say what statute allowed you to say) - Post-registration advertising has the added requirement of not being materially

inconsistent with PDS or register entry - All advertising must comply with fair dealing requirements


New regime means that new IPOs won’t look like those of the past

The Capital Raising Landscape in 2015


Current market conditions remain conducive to issuance

New Zealand market 12 month forward PE multiple

The New Zealand market PE multiple (currently 20.5x) has fallen

slightly in recent weeks from historic highs, but remains well

above its 10 year average

10x

12x

14x

16x

18x

20x

22x

Jan-95 Jan-00 Jan-05 Jan-10 Jan-15

10-yr avg 20.5x

15.3x

Source: First NZ Capital Research

•  Following two record years for the NZX which saw 19 new companies listing and raising nearly $6b of capital, the 2015 IPO pipeline appears solid, with a number of companies across a range of industries currently considering listing

•  With trading multiples at historically elevated levels, the public markets are competing effectively to attract high quality listings

Two distinct and targeted markets ensure ‘best fit’

Market Cap Range: $50m + $10m - $100m

Disclosure Regime: Continuous disclosure Prescribed disclosure

Independent Directors: Minimum of 2 for up to 7 directors Minimum of 2 for up to 7 directors

Audit: 1 Year historic and ongoing independent audit required

1 Year historic and ongoing independent audit required

Spread Requirements: Min 500 Shareholders 25% Free float

Min 50 shareholders 25% free float

Research: Traditional broker sponsored research

Independent Research provider appointed by NZX for all NXT companies

Market makers: No formal market maker appointments

Market maker appointed by NZX providing minimum liquidity levels


… aligns the benefits of listing to the needs of different types of companies

Appendix One: The IPO team – roles and responsibilities •  Lead Managers / Investment Bankers -  Project management, including advice in relation to offer structure, valuation, corporate governance, timetable, preparation of

offer documentation and participation in roadshows

-  Offer management – bookbuild, pricing and allocation process, can include underwriting / firm allocations

•  Legal Adviser -  Manager the offer document preparation and verification, lead the regulatory engagement and due diligence process

-  Ensure compliance of all marketing materials with FMA and NZX requirements

•  Accounting / Tax Advisers -  Undertake finance and tax due diligence, prepare auditor’s report

-  Review historical and prospective financial information for disclosure in the offer document, potentially provide IAR for inclusion in prospectus

•  Company -  Company involvement largely led by the CEO/MD, CFO and Directors who are members of the DDC

-  Participate in ‘working group’ to oversee offer preparation, participate in DDC meetings and approve the offer documentation

-  Prepare historical financial statements and projections for review by the Accounts and Lead Manager(s)

-  Management roadshows to investors

•  Other Key Advisers -  Independent financial consultants – assist the company to prepare financial forecasts, drafting of offer documents, verification

and due diligence

-  PR adviser

-  Offer logistics – share registry, designer, printers etc
