Seed company in cash crunch, predicts profitability by next year

Friday, Aug. 13, 1999 | 11:29 a.m.

AgriBioTech Inc. says it will be profitable by its next fiscal year.

The Henderson-based forage and turfgrass seed company said today that it is reviewing an undisclosed number of long-term debt financing proposals from several companies to provide the capital it needs to carry out a revised business plan.

Today's announcement apparently encouraged investors, who pushed the stock price up to $4.19 this morning. It closed Thursday at $3.88, near its 52-week low of $3.68.

The new plan was developed over the past five months by the company's new leaders, who took over in March in a sweeping management change in the wake of shareholder complaints.

An analyst with U.S. Bancorp Piper Jaffray concurs that the revised plan should make ABT profitable by fiscal year 2000.

The company's management has told analysts that it has focused its efforts on financing and integration challenges associated with the company's growth from 1995 to 1999.

"We have made tremendous progress in these two critical areas," said Randy Ingram, executive vice president and chief financial officer. "We believe we now have attractive options for the needed financing tools to support ABT's long-term business plan."

The company hopes to finalize one of the financing options within two months.

Ingram said the new long-term debt financing will allow the company to replace the short-term debt that was used to acquire some of the companies ABT acquired.

The company's early strategy was to acquire and consolidate companies within an industry that had been fragmented. ABT succeeded in acquiring 34 companies, but had more difficulty integrating them into one unified company.

Ultimately, ABT plans to use the money saved in integrating the many companies to develop an industry-leading research and development team to develop new varieties of turfgrass and forage.

Using genetic engineering, ABT's managers have goals of developing types of grass that are more resistant to disease, less vulnerable to temperature extremes or more nutritious for livestock.

The company said it is on target to save $14 million a year in its integration efforts.

Doug Fisher, a spokesman for the company now led by chief executive officer Richard Budd, said ABT hasn't veered from the original philosophy of the company and its founder, Johnny Thomas.

"The basic fundamental vision of Johnny Thomas was brilliant and appropriate for the seed industry," Fisher said. "The idea is to assemble companies in the forage and turfgrass sector and integrate them, which is the same plan other seed sectors have taken."

Fisher said the company's primary philosophical change is in the speed at which new acquisitions are integrated. He also said the new management is taking a different financing approach.

George Dahlman, an analyst with U.S. Bancorp Piper Jaffray, said ABT found the integration of new companies to be more challenging than it expected. But he also believes the company is starting to realize some of the savings it had sought with the plan.

"It isn't easy bringing together competitors who had been rivals," Dahlman said. "It takes awhile for people to recognize that the other guys have some pretty good stuff as well. All the competitive energies that had been aimed at each other have to be redirected. They have to team up to beat the rest of the world and I think the company has been a little weak in getting that going."

Dahlman said while profitability in 2000 would be a challenge, he believes ABT is positioned for it.

"It's not going to be easy, but I think the worst of the integration problems is behind the company now," Dahlman said.

Fisher said within the past two months, the company also has had to focus on solving cash flow problems. He said the liquidity issue has resulted from delays in payments from customers.

The company reported that its receivables are about 2 1/2 times its payables. Also, since June 1, the company has reduced its reliance on its credit line from $100 million to $57 million.

Fisher said that despite the cash flow problems, there have been no unexpected layoffs or plant closures outside those that have occurred with the integration of the companies and that ABT has never contemplated bankruptcy.