Origin Enterprises plc

Good morning and thank you for standing by. Welcome to the Origin Enterprises PLC Interim Results Call for 2023. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, you can please press star 1 and 1 again. Please note that today's conference is being recorded. I would now like to hand over the conference to Sean Coyle, CEO of Origin Enterprises PLC. Please go ahead, sir.

Thank you, Razia. So good morning, everybody, and welcome to the first half announcement for Origin Enterprises PLC. I'm joined this morning by TJ Kelly, our CFO, and Brendan Corcoran, our Head of Investor Relations. We're delighted to bring reasonably strong results to you this morning, characterized in particular by a standout performance from our Latin American operation. Since 2018, that business has continued to grow strongly in local currency terms. but the movement of the Brazilian REI relative to the Euro has always been a headwind for that business, and thankfully it's moved in the other direction in this current year. So the business delivered very significant revenue growth in the period, principally due to continued growth in commodity prices for both feed and fertilizer. That strong profit growth of €9.2 million largely down to significant growth in our Latin American operations in addition to some growth in our continental European operations and our Ireland UK businesses moving backwards. TJ will get into a number of the financial metrics later on so I won't dwell on those too much but generally speaking the business has performed well in the period with reasonably strong seed and crop protection volumes in the first half, excluding Ukraine, which was back quite significantly in the first half by about 66% in volume terms. That's set against a very tempered pre-season fertilizer demand as price volatility continues to be a challenge in the fertilizer market and higher prices has led to lower demand overall for fertilizer in the first half. Margin continued to improve through product mix, and we've been focusing on our own product range and also trending towards higher margin products where possible within our crop protection portfolio, particularly within Europe. And we continue to see capacity expansion across our businesses. Again, I'll touch on that a little bit later on. Generally speaking, the planting profile across all of our geographies has been very favourable. So ahead of the important second half of the season in the Northern Hemisphere, I'm glad to say that the planting profile in our key UK and Ireland markets is in good shape. Winter wheat at 1.8 billion hectares is broadly in line with previous years. The oilseed rape planted area at 400,000 hectares is roughly 10-11% up on the previous year, so a good crop in the ground, particularly in Ireland and UK, which as you know has tended to be a problematic area for us in any weather-challenged year. You can see there the individual growth rates across each of our geographies. Ireland-UK, as I said, is back. A mix of performances within the Ireland-UK portfolio, our agribusiness largely flat with seeds growing within the agribusiness by about 5% and growth in profitability in the seed portfolio, principally because of market share gain, we believe. Our feed business is relatively flat in the period, and then our amenity business has grown by north of 10%, but fertilizer is down significantly because of that lower level of demand and also lower margin year on year. The continental European business saw particularly strong growth in Poland and Romania, but our Ukrainian business did see a significant decline in volume and It's easy to forget, I suppose, the challenges that our business faces on the ground. We are still repatriating families out of Ukraine to our Romanian and Polish geographies and the intensification of fighting there means that there is still a significant amount of movement of people out of Ukraine into our other geographies and Thanks to the assistance of our teams in Poland and Romania, we continue to take care of anybody who is moving out of Ukraine. In relation to our strategic objectives, our investment and our M&A pipeline continues to see strong growth. In addition to the Keystone acquisition, which we completed last September in the first half, We have announced today our AgriGem acquisition, and between those two businesses, that should add in the order of about 3 million euros of EBITDA to the group on an annualized basis. The AgriGem business is a strong business within the ground maintenance sector within our immunity sector, and we anticipate growing market share in that market and seeing continued organic growth from the immunity business in future periods. We continue to make strong progress on our sustainability agenda. During the period, we received revised ratings from CDP and MSCI. MSCI rating go from triple B to A, so continued improvement in that front. And continued progress again in relation to targets for science-based targets for validation, which have been submitted to STBI and see reductions planned in our scope one through three emissions over the coming nine years. And finally, then, we continue to see growth from an organic perspective through the foundation of a new biological business in Brazil, First Ag Biotech, which we announced earlier on in the year, but that business will bring six products to market in the second half of the year, and we see further product development in future years in that business. And we continue to make strong progress against the strategic financial and ESG objectives that we outlined at our Capital Markets Day last May. So looking at individual businesses in turn, Ireland and UK, you can see in the bar charts across the top, has had a reasonable trading period pretty much in line with previous good years from an agronomic perspective. The big negative year there in the first half of 2020 was characterised by the bad weather performance in Ireland's UK, but you can see that the performance of the business is pretty much in line with where it has been in a normalised trading year. We continue to see strong growth in the amenity sector and the business grew by north of 10% in the period, and Keystone and the addition of Keystone adds to our business from an ecological perspective, and we continue to see more businesses added in that segment in future years. Our joint venture line has grown slightly. That's our John Thompson feed mill business in Northern Ireland, and some of the challenges in relation to fertilizer application and dry weather in the autumn last year led to an increased demand for feed, so that business saw a little bit of additional growth. in the first half. Within continental Europe, business grew quite strongly and in particular that has come about in Poland and Romania where we've seen, I suppose, some early season demand and demand brought forward perhaps from the second half into the first half. We're seeing increased planting areas and we're also seeing a higher margin mix amongst the product areas that we are Ukraine, as I mentioned, is not material in profit size but has reduced its balance sheet quite significantly over the course of the last 12 months as we have moved to selling on a cash only basis. Latin America saw the strongest growth across the group, a significant portion of that was I suppose the favorable movement of currency, approximately 3.2 million of the 7.5 million increase in operating profit in the period came about through favorable currency movement. But the general market characteristics in Brazil have been very strong through the period. And we see that continuing to be the trend as Europe continues to move itself towards a bigger sustainability agenda Essentially, Brazil is going to be the market that takes up a lot of the slack in terms of growing crops for consumption right around the globe. The capacity of Brazil to grow significant amounts of crops certainly is there. The cropping area is growing by 4.5% roughly this year, and the total production and yield there will increase quite sharply. Yield is increasing by roughly 20%. per hectare in the year. We are investing a significant amount, about 3 million euros, in increased capacity in production there to cope with growth and demand and we'll touch on that a little bit later on. So I'll hand over to TJ who will take you through some of the detail on the financials. Thank you, Sean.

I'll just focus on a few highlights on page 8. Operating profit up, as Sean said, in what is the seasonally quieter first half, up by €9.5 million on a reported basis, which can include that strong contribution underlying performance from LATAM, really reflecting the benefits of the counter-cyclical contribution from the Southern Hemisphere in our portfolio, in addition to an improved contribution from a continental Europe business on a constant currency basis. Operating profit grew €6.1 million, reflecting, again, that's just over €3 million of FX benefit. That, in turn, flows through to an adjusted EPS of 8.7 cents per share, up from 3.7.1 cents per share at the half year last year. Also, just to note, we are announcing an interim dividend of 3.15 cents. And just to note that in the 12-month period to the end of January 23, our cumulative returns to shareholders, including dividends paid and the share repurchase programs, are in the order of €66.5 million in that 12-month period. Finance costs, as you will note, increased year over year from €4.8 million to €8.6 million euro reflecting a combination of factors, one being higher interest costs in the jurisdictions we operate in, particularly sterling and particularly in Brazil. Plus, we have an underlying higher carrying value of working capital in that six-month period, really reflective of the inflationary impacts across the portfolio. As the value of fertiliser in particular drops, we'd expect to see some easing on working capital levels and therefore an easing on the interest cost in the second half, albeit higher interest rates are a feature that we will have to absorb out into the second half and beyond indeed. Looking then at working capital at the end of the period was 138.3 million. up from €59 million at the end of the prior period, again driven mainly by inflationary impacts, albeit we did have some targeted investments in our fourth green business to support the underlying growth in the profit delivery in the period. Last year, also just to note, we did have an exceptionally low level of working capital at the half year, really reflective of very strong cash sales. which is reflective of the market dynamics at the end of H1 last year. Looking then at net bank debt, while it's ahead of prior year, our bank debt at the end of January 23 was €130.9 million, comping with €53.7 million at the end of January 22. And that growth is really reflective, again, of commodity inflation across our working capital, The cumulative impact of share buybacks, which were just over €53 million, which, as I say, when combined with dividends, is €66.5 million in that 12-month period. Plus, we had some acquisition spend, primarily in the Keystone acquisition, reflected of €11.2 million. So, that said, we are very pleased with the net bank debt to covenant metric at just over one times, well within the banking covenant of €3.5 million. of two and a half times. And also, again, just to note that last year we did benefit from strong cash sales and we also had the one-off benefit last year, you may recall, of a cash inflow from the sale of one of our properties that was reflected in the half-year debt number. Moving then to revenue just briefly. Again, as Sean touched off, pricing is a significant feature of the revenue growth in H1. Volume's back. 4.6%, again, really driven by fertilizer and driven by the impact of higher pricing in the FERC portfolio, and also indeed reduced volumes in Ukraine reflected in that adverse volume number of 4.6%. Overall, FERC volumes, if we back out the CRF volumes in Fort Greene, which showed very strong growth in the half year, FERC across the rest of the portfolio was back about 7% in volume terms in the half year. Within that pricing growth piece then of just over 40%, as I said, inflation has been a key feature and it weights heavily towards fertilizer within the portfolio, which again weights heavily towards Q1 as we entered Q2 of the first half. The comps are getting a little bit more difficult as pricing was a feature of Q2 in FY22. And inflation has been a feature not just in fertilizer, but it's also been a feature across the crop protection and seed portfolios in all our markets. albeit it is in the relatively quieter part of the year, but we do see inflation being somewhat of a feature in crop protection into the second half of the year. Again, we have covered most of the points here, but again, maybe just to reference the operating profit, including JVs, our JV performance, again, up year and year, as Sean touched off, with lower fodder stocks, really, as a result of dry weather. and reduced fertilizer usage supported a solid feed volume performance in H1 of the year just past. And again, this is really just a graphical representation of the impact of currency and that 3.1 million euro is primarily reflective of an approximately 15% appreciation of the Brazil RAI in the half year, over half year FY22. From a cash flow perspective, again, the change in working capital in the underlying business really is reflective, as I said earlier, largely of inflationary impacts across the portfolio and some targeted investments that we have made, such as in Fort Greene in the first half of the year. There's also some timing pieces in that working capital flow, certain volumes of fertiliser, purchased and paid for a little bit earlier this year than in the comparative period last year, which is not unusual that you will get those type of timing impacts in cash and working capital. But I suppose the key piece for us as we look into the second half is that as inflation, we anticipate, and is indeed easing on fertilizers, that does take and alleviate some of the pressure on cash performance overall into the second half of the year. From a covenant perspective, then, as I touched off of our net back to Our net bank debt to EBITDA at just over one time has been well within the covenant of three and a half and comfortably within our own operating target leverage ratio of two and a half times equally. So with that, I'll hand it back to Sean.