Nufarm Limited

Thank you for standing by and welcome to the New Farm Limited 1H25 results call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr Greg Hunt, CEO. Please go ahead.

Thank you and good morning everyone. Welcome to New Farm's first half 25 results presentation. Joining me today are Brendan Ryan, New Farms CFO, Rico Christensen, Group Executive Crop Protection Technologies, and Brent Zacharias, Group Executive Seed Technologies. I'll just pause for a moment and draw your attention to the disclaimer on slide two, and in particular, the statement relating to forward-looking statements. Before I move to our first half result, I'd like to report to you on the review of seed technologies that we've announced today. As we have been discussing with you for some time, within seed technologies, there are significant opportunities for creating value across multiple seeds and tract platforms. Our hybrid canola, sorghum and sunflower seeds platforms have strong market positions and a track record of above market growth. They are delivering more than $200 million in revenue annually with high margins and strong cash generation. We have the leading canola position in Australia and are currently expanding in South America where we see strong growth potential. We have invested heavily in the commercialization of our portfolio of the world's first plant-based omega-3 and we've learned a lot about this technology over the past several years. The omega-3 platform is supported by favorable macro and industry trends, and with additional investment, we believe that it has a bright future over the longer term. Our bioenergy platform is led by Carinata and underpinned by a 10-year market development and commercial offtake agreement with BP that we signed in 2022. With demand for sustainable aviation fuel rising, due to mandates introduced in multiple regions, we see the opportunity to rapidly scale this platform. We also have a pipeline of new and emerging technologies, including Camelina in our Omega-3 platform, EnergyCane in our bioenergy platform, and biomass oil trade technology, which is an exciting development with potential use in bioenergy and FMCG markets. Its potential value is demonstrated by our recently announced research agreement with BP and Unilever. Over many years, we've invested a significant amount of capital to grow seed technologies, growing our hybrid seeds platform and taking Omega-3, Carinata and EnergyCane through the first stages of commercialisation. These platforms and our new and emerging technologies have significant value, however, require additional investment to reach their full potential. We believe that now is the right time to explore alternative structures to support and accelerate growth. We also believe that bringing in outside equity will provide the opportunity for the full value of these platforms to be realized sooner by current shareholders. Based on an initial outreach to potential investors, we are commencing a formal process to explore capital structure options for seed technologies. We will be exploring whole business and platform by platform approaches to maximize value. We have engaged UBS to assist with this review. At this stage, no options are being ruled in or out. There is no certainty that the process will lead to a transaction and we will provide and report back to you on the progress as appropriate. Turning now to the half where we reported underlying EBIT of $103 million, earnings per share before material items of $0.072 and finished the period with leverage of 4.5 times. We saw a strong recovery in profitability from crop protection with underlying EBIT from crop protection up 34% year on year. Our result was negatively impacted by Omega-3, which Brent will speak to in more detail later in the presentation. Outside of Omega-3, seeds performed solidly. We are accelerating the scale up of biofuels to this end We are planning a three times expansion in Carinata area planted in 2025 compared with 2024. We are also growing our hybrid seeds canola, sunflower and sorghum position in South America. At the 24 results, we announced actions to improve return on funds and I'm pleased to report that these actions are well advanced. We are acting to slow cost growth and are maintaining a target of $50 million in annualized run rate savings in overhead costs by the end of financial year 25. At the end of the first half 25, we've achieved a 22-day year-on-year reduction in inventory, and we are well on track for a 25-day year-on-year reduction in inventory by the end of 25. I'm also pleased to see that we are already seeing a noticeable improvement in profitability in our Europe crop protection business. In addition to the initiatives discussed at the full year 24 result announcements, actions are being undertaken to improve free cash flow. At this stage, we expect capital expenditure in financial year 26 to be around $200 million, which is a significant reduction on recent years. That figure includes seed technologies. While Brendan will speak about this topic later in the presentation, I'd like to take a few moments to speak about leverage. We finished the period with leverage of four and a half times. The increase in leverage since the full year reflects a normal seasonal working capital build as well as additional working capital associated with scaling our omega-3 platforms. Some of you will notice and rightly point out that our leverage has been increasing over the past several years. Over that period, we have been undertaking significant investment in our crop protection and seeds portfolios and reinvesting into our manufacturing operations. These investments have delivered improved resilience and performance improvements. We are now at a point where we have largely completed the required investment to strengthen our manufacturing resilience. We are recalibrating omega-3 expansion to balance the pace of commercialization with regulatory development and customer demand. In 2025, we plan to approximately halve the acres planted to omega-3 compared with 2024. And across the business, we have other actions underway to improve networking capital efficiency. As a result of these actions, we see a realistic path back to a lower level of leverage. Applying our capital management principles, which relate to leverage and free cash flow, there will be no interim dividend. Turning to achievements in the first half. During the half, we saw a strong recovery in crop protection which benefited from an improved cost of goods position. We grew volume in all regions. We had strong improvements in EBIT in APAC and Europe, despite some weather headwinds in Australia. In fact, in Europe, we nearly doubled EBIT compared with the prior year. We saw strong cash generation from North America, despite slower profit recovery. We achieved several important milestones in our crop protection product pipeline. We announced an agreement with Kinga Group for the development of a new proprietary non-selective herbicide for the Australian market. The active ingredient has shown promising results as a standalone knockdown herbicide and has the potential to be a very important tool for Australian farmers because it controls several key hard to control weeds. We had another solid performance from hybrid canola in Australia, despite drier weather reducing sales year on year. During the half, we grew our canola position in South America, a growing market in which we hold a significant market share and which now represents a meaningful part of our global canola volume. South America is an example of a market where we are able to gain synergy across product range and genetics from Australia. We completed a successful Carinata program in South America. We also obtained additional Carinata certifications and renewals, which filled GHG value credentials. Turning to the balance sheet, we achieved a material reduction in our average net working capital sales, which now sits within our target 35% to 40% range. The improvement was mainly driven by lower inventory in crop protection. We formed new agreements with Unilever and BP announced in late 2024 to progress the development of biomass oil, a world-leading innovation and a significant IP estate and research program targeting sustainable oil production for biofuels and FMC applications. And we have continued to make good progress with respect to the expansion of our Carinata program with BP. In Australia, we entered a collaboration with Hort Innovation on the development and launch of a precision application robotic sprayer manufactured by Kilter, which will have application in intensive, high-value crop markets. Turning to the performance of our segments in more detail, APAC revenues increased slightly on the prior year with good seasonal conditions across Asia and strong uptake of new products in Indonesia, offsetting dry conditions in Australia. Even increased 34% with a more stable pricing environment for active ingredients, driving margin normalisation and a strong profit recovery in Australian crop protection. We secured rights to develop a new broad spectrum non-selective herbicide that we are targeting for launching the Australian market before 2030. And as I said, this is a significant and exciting opportunity to address a very significant need for farmers who are dealing with the growing challenge of herbicide resistance. In North America, we reported EBIT down 10% year-on-year. North America has been slower to normalise than other regions. Pricing pressures, a delayed season and just-in-time buying negatively impacted the result and volumes. Cash generation was strong, driven by year-on-year inventory reductions. We finished the period with an improved cost of goods position and believe that we are well placed for year-on-year growth in the second half. We achieved a significant year-on-year reduction in networking capital sales driven by lower inventories. In relation to tariffs, this has been a volatile and very uncertain environment. Many of the products that we import from China are exempt from the reciprocal tariffs. For those that were subject to higher tariffs in the six-week period up until last week's announcement to reduce the reciprocal tariff level to 10%, we took the decision not to import, and this could have some impact on sales in the second half. In Europe, we reported EBIT of 43 million, nearly doubling on the prior year. We experienced a strong recovery in sales and profitability, and benefited from positive cropping conditions across the region. We have improved manufacturing reliability at WIKE, however experienced ongoing margin pressure. We achieved a significant year-on-year reduction in networking capital to sales driven by lower inventories. Turning to Sea Technologies, where we reported revenue of $249 million and underlying EBIT of 15.9 million. The decline in EBIT on the prior year was due to lower licensing revenues, lower margins in omega-3, and drier conditions in Australia. In hybrid seeds, we had solid performances from canola, sorghum, and sunflower, although Australian canola was impacted by recent dry conditions. Sorghum volume increased year-on-year, and sunflower was broadly in line with prior year. The fish oil market has seen a significant reduction in pricing over recent months, which has impacted sales and profitability for AquaTerra, leading to a negative 28 million write-down of omega-3 inventories in the half. In this environment, as I said earlier, we have reduced the production program for 2025 and are undertaking steps to reduce cost of goods. In Carinata, we concluded a successful crop year in South America with production in Argentina and Brazil. The 2024 South American grain harvest is in the process of being shipped to Europe for crush and sales via our partners. We achieved additional Carinata proof of sustainability certifications which build the GHG value of our Carinata. The production program for 2025 Carinata crop is in progress. and we expect to significantly increase production hectares and zones across South America. Before handing over to Brendan, I'd like to summarise our near-term priorities. We are clear on the actions needed to improve profitability, generate higher returns and de-lever the balance sheet. We are embedding a culture of continuous improvement with clear targets and enhanced governance to drive improvement efforts. We continue to accelerate actions towards improved return on funds and cash flow. We have made good progress on actions to realise the $50 million in annualised run rate savings by the end of 2025. We delivered a 22-day year-on-year reduction in inventory days at the half and are on track for a 25-day year-on-year reduction in inventory by the end of financial year 2025. With the completion of major works at our manufacturing plants, we are now moving to a lower capital expenditure envelope, which we expect to be around $200 billion in financial year 26. So we are through peak capex. We expect to update you on our review of seed technologies towards the end of calendar year 25, and I'll now hand you over to Brendan.

Thank you, Greg. Good morning, everyone. Revenue for the half increased 3% year-on-year. Underlying gross profit margin increased by 50 basis points year-on-year due to a solid recovery in crop protection, underpinned by stabilizing active ingredient prices. Gross margin for omega-3 declined year-on-year. Underlying EBITDA was $206 million, a decrease of 6% year-on-year. And underlying EBIT, $103 million, a decrease of 15%. year-on-year. Note that we are moving to using EBIT as our primary measure of operating profit. Statutory net profit after tax was $30 million. Year-on-year decline in statutory net profit was primarily due to omega-3 and portfolio expenditure. We are pleased with the progress in reducing average net working capital to sales, which is an important measure of our efficiency in using our balance sheet. Average networking capital to sales was 39.2%, driven by disciplined inventory reduction in crop protection. Improvements in crop protection were partly offset by an increase in omega-3 oil and grain inventory. Networking capital in seed technologies at the end of the half was approximately $75 million higher year-on-year. Overall, the results for average networking capital at 39.2% is a substantial improvement on the prior year. Underlying earnings per share before material items, 7.2 cents per share. Return on funds employed was 3.2%, compared to 3.6% to the prior year. Overall, relative to the prior year, a strong crop protection result on revenue, underlying EBITDA, and networking capital, offset by mega-trade reduced earnings and net working capital bills. At March 25, net debt was $1.362 billion, an increase of 12% on the prior year. The increase in net debt was due to lower profitability of capital expenditure program, the impact of omega-3 on net working capital and currency translation. Importantly, Funding headroom at the balance day was at $265 million, noting March is the peak brought down on seasonal funding. Our asset-backed lending facility is an important aspect of our liquidity management, which is secured against receivables and inventory, and flexes up and down to accommodate movement in these balances. Net leverage was 4.5 times underlying EBITDA, compared to 3.6 times in the prior year. Leverage was impacted by higher net debt and a lower rolling 12-month EBITDA. Excluding omega-3 and currency translation impacts, the leverage ratio would be approximately 3.8 times compared to the reported 4.5 times. I make this reference in the context of our response plan to deleveraging. There is a solar plan to reduce net debt and leverage. Using the charts here to represent the actions we are taking to do leveraging. On the debt aspect, we are reducing the scale of omega-3 program to balance the pace of commercialization with regulatory developments. We are continuing the focus and strong momentum on networking capital reduction, in particular on inventory management. In terms of capex, Significant investment has been made in our manufacturing plants and seed technologies growth platforms of Omega-3 and bioenergy over the past three years. We have now moved through peak capex. Financial year 26 target capital expenditure is circa $200 million. We will continue to have a seasonal build the half year and the significant unwind in the second half. Moving to the EBITDA aspect of leverage, we do not expect Omega-3 to have the same negative impact that it had on this result. Our cost savings program, 50 million run rate, is expected to mitigate cost growth. And we expect organic earnings growth supported by our portfolio of new product introductions. These actions are expected to improve free cash flow generation and reduce net debt. In terms of timing to net debt reduction, we expect financial year 25 net debt to be above financial year 24, largely due to current year omega-3 impacts. Financial year 26 largely benefits from the actions outlined above to have us operating within the target leverage range of 1.5 to 2 times underlying debt. The review of seed technologies could also provide a catalyst to materially deleverage. Plant protection revenue growth of 4% was supported by volume growth across all regions and a favorable shift in product mix, partly offset by softer pricing, reflecting the lower active ingredient prices year on year. Revenue from seed technologies decreased by 2.7% year on year. This line was mainly due to prior conditions in Australia negatively impacting canola revenue. Licensing revenue was also lower year on year. The charts on operating cash flow and net working capital illustrate the seasonal nature of the working capital, which peaks in the first half and significantly unwinds in the second half of the financial year. At the end of the first half, net working capital was $100 million below the prior year, reflecting a strong improvement in crop protection, partly upset by additional inventory on expansion of Omega-3. The half-year net operating cash flow movement was an outflow of $459 million. The primary reason for this cash outflow was a seasonal networking capital build, as we experience every half-year. Cash inflow in the second half of financial year 25 is expected to be consistent with the unwind of networking capital of previous years. In terms of the components of networking capital, I've already mentioned the significant improvement in inventory performance. Performance with respect to trade receivables continues to reflect strong discipline on commercial terms in a competitive trading environment and strong collections performance. Trade payables continued to normalize as business moved to more normal cadence of replenishment. These working capital improvements have resulted in a significant improvement in the average net working capital to sales at 39.2% from 47.1% in the prior year. At the FY24 briefing, we committed to a 25-day inventory reduction. At the end of the first half, we have reduced inventory days by 22 days, measured on a rolling 12-month basis. Discipline focus on the key levers of demand forecast accuracy, supply planning, supply chain agility, and inventory turnover is expected to enable the continued momentum in this area. We expect to achieve our target of a 25-day reduction in inventory days by the year end. This excludes any carryover of a migratory product that we may choose to hold in the second half. Capital expenditure for the six-month period was $148 million compared to $110 million for the prior period. The year-on-year increase is largely due to timing of spend. Capital expenditure for the full year is expected to be around $240 million. The increase above the $230 million expectation given at the full year is due to strategic investment opportunities that arose with Yield 10 Camelina acquisition and King of Groot herbicide agreement for the Australian market. These investments are captured within intangibles. Underlining capital spend was rationalised. However, the benefit of this is expected to be offset by currency translation from a weaker Australian dollar. Property plant and equipment investments focus on plant reliability and safety-critical programs, with substantial reinvestment into phenoxy manufacturing at WIKE. While there is some residual investment required in the second half, as Greg stated earlier in the presentation, we expect to reduce the rate of the investments in the future. I would now like to hand you over to Brent Zacharias, who will provide an update on Omega-3 canola platforms.