Origin Enterprises plc

Good day and thank you for standing by. Welcome to the Origin Enterprises PLC Interim Results Call for 2024. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will 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, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Sean Coyle, CEO of Origin Enterprises PLC. Please go ahead.

Thank you very much, Sharon, and good morning, everyone. I'm joined by TJ Kelly, our CFO, and Brendan Corcoran, our Head of Investor Relations, this morning. We released results earlier on this morning obviously and although we have experienced a number of challenges particularly within our Agri UK business and general challenging weather conditions across UK and Ireland in particular, we are delighted to be bringing you what we consider a very robust set of results. It's notable that FY24 is reflective of the continued broadening of the group earnings base, which has made us a more resilient and more stable proposition than the last challenging year we had back in FY20. So we'll walk very quickly through the results. The normal safe harbor statement in relation to forward-looking guidance is included within the presentation. So the business delivered a very solid first half despite what was a challenging on-farm environment. This time last year, we were evidencing rising fertilizer prices, rather significant increases in grain prices over the previous 18 months. and a general environment on farm which was fairly robust and had been robust for the first half of FY23. The opposite is the case this year. We've had decreasing fertilizer and grain prices, and output prices generally have made farmers reticent to commit to purchases compared to this time last year, although we've probably settled back to what is a more normal trading environment. The Latin American business continued to show very strong underlying volume growth trajectory and our immunity environment and ecology business is also growing in the period. And we've added sure green post our full year results and post the first half ground tracks which broadens our product offering within the immunity business. But adverse conditions have certainly impacted the northern hemisphere planting activity and if you remember at our november update we talked about an overall area of about 1.4 million hectares of winter wheat planted we did see some further drilling after that date but the continued rainfall that we've had since then has restricted the overall winter wheat area to about that 1.4 million hectares so there's really been no advance in drilling or planted area since that point in time. TJ will talk through the specific numbers a little bit later on within the financial section, so I won't dwell too much on those. But generally speaking, we've been operating in an environment of downward moving price, which is always more challenging to manage than the upward moving prices that we have seen in the first half of last year. So just moving on to Ireland and the UK trading segment as I mentioned the overall volumes are back probably by about 20% in autumn winter cropping on last year with a large volume of that planted area expect to move into spring cropping weather permitting so that spring barley in particular needs to get drilled over the coming four to six weeks and it's hugely important that we get some dry weather windows over the next four to six weeks to get that spring barley into the ground. I've touched upon the output prices, commodity prices in general earlier on, so I won't dwell too much on those. And the overall strategy within our Ireland UK business continues to look at innovative products being brought to farm, continued promotion of sustainable agricultural practices and continuing to support the emerging nature economy and the legislative backdrop in that context is all leaning in that direction. And our feed business is also delivered in line with expectations. So again, generally speaking, the operating profit performance of our Ireland UK segment has done reasonably well, certainly less challenged than the first half of 2020. You can see in the bar charts on the center of that graph, a performance of a loss of 9 million in 2020, and we're running at a lower level than that with a loss of 3.1 in the first half of this year. Just touching specifically on the amenity environment and ecology segment within that, so that's obviously still reported within our Ireland and UK segment, and I think in all likelihood over time, We would break that out into a different operating segment at a reporting level, but for the time being, it still sits within our Ireland UK segment. That saw increased revenue and contribution over 2023. We mentioned the acquisition of ground tracks, which enhances the immunity landscape product range and complements our green tech business, the sure green business that we added. in September and the British hardwood trees offerings that we have within that portfolio. The overall environment and ecology businesses are performing in line with expectations, and we do have a strong M&A pipeline and organic growth opportunities within that business. So headcount, for example, in both Keystone and in Neo Environmental have probably gone up by about 20% since acquisition in both organizations. And that's simply fueling growth in both organizations and growth in the underlying performance of both businesses. We're announcing this morning that TJ will move out of the CFO role into a new role as the divisional MD of the Immunity, Environment and Ecology business from the 1st of August. And there's a process underway to recruit a successor and we're reasonably well advanced in that process. So continental Europe is also slightly back year on year. Obviously, it's a fairly seasonally quite time of the year, spring planting being the predominant crop within the continental European segment. And underlying volume is back about 6% on prior year, which had significant forward buying from farmers in the first half of 2023. Autumn winter planting in Poland is roughly in line with last year at about 5.6 million hectares. However, Romania is down on last year, principally because they experienced drought conditions over the summer last year. Subsequently, it's been quite wet there in the latter winter months and over the early part of this year, so it's very well set for planting over the course of the spring season. And I would say in general, the businesses are likely to produce a very similar outturn to the results produced in 2023 as a whole. We did announce the closure of our Ukrainian business last year and that ceased operations in September 2023. There are still a number of employees there just finalizing tax audits and various other requirements to liquidate the entity. But generally speaking, they will have a minimal impact on the full year outcome for 2024. Turning then to Latin America, our business in Brazil has traded very well again in the first half of the year. Profit is slightly back, but overall volumes grew very strongly, led in the first instance by controlled-release fertilizers, which grew by about that 30% year on year, but the biologicals business has grown fivefold from a very, very small initial base. So the business continuing to grow strongly. Fertilizer prices well back, obviously. We're seeing general fertilizer prices down by about 50% year on year, and clearly that impacts the level of revenue within the segment and also the profit opportunity within the segment in a falling fertilizer price market. And we've put some additional cost into this business unit as well. In order to drive the additional volumes, we've been adding some headcount in the sales organization to grow our contact points with customers, but also we've been adding some infrastructure, so distribution warehouses and other facilities to allow the expansion of the dry and liquid lines and the controlled release fertilizer lines that we had flagged in the summer of last year to take place. essentially removing some of the distribution capabilities from existing warehouses and warehousing capacity from the existing facilities to make room for the manufacturing capacity. So that's been happening in the first half of this year. We did conclude on the acquisition of the remaining 35% of Fort Greene that officially wasn't in our ownership over the course of the early part of this year. We've always consolidated 100% of Fork Green to the P&L because we had a put call arrangement which meant that ultimately there was no reversing out of the transaction. So it was displayed as deferred consideration on the balance sheet and we've always consolidated 100%. So there's no uplift in profit as a result of the move to 100% ownership of this business. So TJ, I'll hand over to you to talk about the financial performance.

Thanks, Sean, and good morning, everybody. Just on page 9 of the slide deck, just touching off some of the key highlights. As Sean said, we delivered a solid operating profit performance in H1 at €12.7 million. That compares to €20.3 million in H1-23, which was characterized by strong pricing inflation in that number, so it does represent a relatively strong comparative position. The reduction in operating profit really driven primarily by the reduced winter planting profile impacting northern hemisphere, which had a flow-through impact on volumes across crop protection and our fertilizer portfolios, together with the impact of further downward corrections in global feed and fertilizer raw material pricing. Finance costs at 8.8 million compared to 8.6 million in H1 2023. The increase in the finance charges in the period were primarily driven by higher interest rates across the markets that we operate in. Looking then at our net debt position, we came in at just under 2.1 times net debt to EBITDA. And net debt increased by approximately 85 million H1 versus H1 FY23. The primary drivers of the higher leverage in H1 were, as Sean mentioned, the put option payment related to us acquiring 100% ownership of Fort Greene, which was approximately €32 million. We also made payments of approximately 50% of the sanctioned amounts that were outstanding, which equated to a €34 million outflow in the period. And we also noticed that in H1, where we would typically see some prepaid cash inflows for a fertiliser business, particularly in the Ireland context, as typically our key customers would seek to secure volumes for the spring application period. The quantum of that prepaid business reduced significantly this year, really reflecting, I would say, cautiousness on behalf of buyers in the context of pricing markets that are still somewhat volatile. So that was reflected in a lower cash inflow inflow in in h1 and we also as we've outlined on the on the announcement uh we have had strong shareholder returns paid in the period to the end of january 24 with combined shareholder returns of 29 million euro in that rolling 12 month period which consists of dividends and share buybacks looking at the working capital and working capital increasing uh half year and half year again driven by the payment of 50% of the sanctions amounts that were due, plus the lower levels of prepaid business in the Irish fertilizer business. Just to note as well that the half-year working capital position at January 24 does still include approximately €35 million of trade payables to sanctioned parties, and those payments have been suspended, as we would have outlined previously, in accordance with international sanctions, and we continue to work with the various regulatory bodies, banking partners, et cetera, to determine if, when, and what the timing might be for those residual payments of approximately €35 million. Our share buyback program as of yesterday evening is approximately 27% complete. And just for context, when complete, we'll have bought back approximately €80 million of our stock. which is the total quantum of buybacks that we had committed to do within the scope of our FY22 to FY26 planning program that we outlined at the Capital Markets Day in May 22. Also pleased to announce today an interim dividend of 3.15 cent per share and that would be paid on the 21st of June to shareholders on the register at the end of May 2024. On page 10, underlying profit, as I mentioned, reduction is primarily a function of the challenging conditions that we experience, particularly in the Northern Hemisphere in the first half. And you can see there we've also highlighted the impact of acquisitions delivering about €1.6 million of profit in H124 over H123. From a covenant perspective then, We are comfortably within our covenants at the half year to just under 2.1 times and we have committed to debt facilities of €400 million that mature through to June 2026. Just briefly then in terms of overall progress against our capital markets day targets, we remain very much on track. These metrics are up to the end of FY23. So if you like, two years out of the five-year program, so 40% of time elapsed. And in that period have delivered 54% of our cumulative operating profit target and 66% of our free cash flow target. targets and obviously we'll be updating these metrics as we complete FY24 later this year. Moving on to page 14, within our core ag business, clearly there are a number of evolving teams at play that have been quite prominent over the last 36 months or so. and whether they be food security and our role in ensuring continuity of supplies on farm, whether it's digitization and our role in ensuring the appropriate tools being deployed in support of both our customers and our sales staff, or the continued evolution of the regulatory regimes around environmental services, we are well positioned to deal with all of these and address those macro themes as a source of continued competitive advantage in the markets in which we operate. And similarly on page 15, as we look to this concept of a farmer of the future, ensuring our customers are continually enabled through that concept in which we play the key role in providing both agronomic and product advice backed and supported by a comprehensive product portfolio range and supported by tailored digital solutions. These services then are further enhanced by our own team's ability to provide support around what is an increasingly complex environmental set of management schemes, particularly in the UK context. Looking then at our evolution in the amenity, environmental and ecology space, as Sean mentioned earlier, evidenced by the acquisition of ground tracks and the shore green businesses through H1, reflective of our continued ambition to further grow and build out our capabilities in the amenity, environmental and ecology portfolio. And indeed our ambition in the portfolio is to double our EBIT in that division, such that it is delivering approximately 30% of group operating profit by the end of FY26. And that growth we would see has been delivered through the UK market, but also we have ambition to explore new geographies in Western Europe and continue to assess what potential M&A targets may be available in those markets. So with that, I'll hand it back to Sean.