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.

Thanks, TJ. So we had set out at the 2022 Capital Markets Day some shorter term objectives that we intended to hit within the first 18 months of the Capital Markets Day centered around strengthening the foundations of the existing business, but also investing for growth and diversifying into the general nature based solutions area, and we've hit all of those milestones, delivering on working capital discipline, extending our technology reach, continuing to invest in people and innovate from a product perspective, but also delivering around the amenity service offering, landscaping area, and ecology services area, as well as investing in our biological platform, particularly in Brazil. In terms of the focus for the remainder of the term of the window for the Capital Markets Day, we're moving our focus over the next two and a half years, I suppose, to continuing to optimize the agri-core, so that will involve, I suppose, key financial disciplines around working capital and return on capital employed focus within our core businesses and maintaining that focus on those businesses. been open to add or reduce services which enhance returns within our operations. And we have been flexible, I guess, in approaching returns within the business, not afraid to close businesses where we have needed to. And that's evident, I suppose, in the Ukrainian closure that we witnessed last year, but also invest in some of our existing operations. So we've been investing in the Folic plant in Poland, investing in seed capacity within our Romanian operations and micro pack capacity within our Romanian operations and continuing to invest in pretty much all of our existing businesses in the right and in the growing areas of those businesses. But equally, if there are services which are no longer producing a return within our businesses, we're certainly prepared to close those down and no longer run with them. And equally, from a people perspective, it's about matching the talent within the organization to the structure of the organization going forward. So if there are areas where we need to reduce headcount or if there are areas where headcount needs to be appropriately increased, we'll have to flex our organization to do that, but invest in the right people and importantly, make sure that we've got people trained up and ready to do the tasks that sit in front of them. In terms of development of the amenity environment and ecology core, the intentionality here is to get this business to 30% of group operating profit by the end of FY26. The M&A strategy set out at the Capital Markets Day, adding about 5 million of EBIT to the business on an annualized basis, we'll see this business double in size by the end of 2026. So it's not outside of the original intentionality that we'd set out at the Capital Markets Day, but we've got to maintain the discipline and keep the focus on delivering that M&A over the course of the next two and a half years and finding ways to continue to reduce working capital within the business to throw cash off to deliver that M&A activity. We will broaden the portfolio of nature-based services that we have within the organization, and it's our intention to expand that offering into Western Europe over the course of the next two and a half years. So the intention will be to acquire businesses in Scandinavia or Western Europe where we can expand the platform that Origin has in this space and grow into a broader platform. And in terms of the macro landscape that we saw earlier on on the slide that TJ referred to, huge challenges coming at agriculture from an environmental perspective, lots of change in terms of rebates and farm consolidation and lots of change at a farm level. So it's hugely important that we continue to migrate our product range to a product range that best suits growers needs, but also allows growers to deliver yield sustainably. Hugely important that we enable our own people, but also our customers with tools that support their growth and underpin the yield requirement that they have from a food security perspective. And finally, then rolling our ERP system out right across the business would be hugely important in terms of informing ourselves about our customers' needs and understanding in a better way the challenges that our customers face. So making more decisions based on data and making more decisions based on information that is available to us and can be available to us is hugely important in terms of readying ourselves for the origin of the future. So to summarize, despite the fact that this is a challenged first half from a profit perspective, we've actually delivered what we consider to be a very resilient performance in what are challenging infield conditions and challenging operating conditions. And the diversification of the Origin portfolio over the last five to 10 years has continued to underpin that solid result. And that's a a journey that we're still on and intend to diversify our dependency away from being solely dependent on UK and Ireland agriculture in the medium term. It still forms a very important part of the core operations that we have, but we've got to broaden our earnings in order to make sure that weather challenges that we experience from time to time no longer have as big an impact on the overall profitability of the group. So that's a huge strategic ambition for us. Sentiment remains soft on farm, I would say. It's cautious. Fertilizer prices have stabilized and in recent weeks are beginning to move upwards. So that's certainly a positive. But output prices remain a challenge for farmers and therefore liquidity on farm and committing to purchasing is not necessarily their priority at the moment. So servicing an existing crop in the ground, which is larger than 2020 at 1.4 million hectares, will be important and maximizing the yield from that crop will be important, but also getting that spring crop in the ground hugely important over the coming weeks. Our integration of M&A continues to progress well, and there's a ready-made pipeline of activity there ahead of us, which is good news. And I think TJ moving into the MD role of immunity, environment, and ecology gives us the broader bandwidth and capacity to add and accelerate our exposure to this area in the coming couple of years. So that's an important move from a strategic perspective. We've got a strong balance sheet, which is within the normal half year leverage range of two to two and a half times, and that will come back down again at full year, but the normal working capital cycle, I suppose, has been restored to the business at this half year. We will continue to pursue an approach to shareholder returns and capital deployment, which seeks to balance between making good returns in the form of dividends and buybacks we've delivered on the 80 million euro buybacks set out of the capital markets day in 2022, or will have done by the time we conclude this current buyback, and returning significant funds to shareholders over the medium term. So we are announcing a range which is unusual for us at this time of the year but we think we've used a fairly well risk-adjusted forecast to land on what we think is the outcome for the year. The larger planted area in the UK compared to 2020 certainly provides us with some comfort and our own cropping surveys which have looked at that planted area indicate that it hasn't deteriorated significantly since the autumn period. There have been some ups and some downs but generally speaking we have a larger planted area across the UK which should drive volumes reasonably well and the balance of our businesses we expect to trade reasonably well over the course of the coming six months. So we're on track to deliver the five year ambitions set out at the Capital Markets Day in 2022. We had planned for a challenging weather year within that five-year time frame, and it looks as if, although this year is going to be one of those challenging weather years, it certainly is not going to be as catastrophic as the 2020 year was, and we're going to produce a a significantly better result than that year. So generally speaking, we're very comfortable with the five-year ambitions that we had set out at the CMD in 2022. So we'll leave it at that. I'm happy to turn it over to questions at this point in time. Sharon, if you don't mind taking questions.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we compile the Q&A roster. Thank you. We will now go to your first question. One moment, please. And your first question comes from the line of Patrick Higgins from Goodbody. Please go ahead.

Thank you. Thank you. Good morning, everyone. A couple of questions for me, if that's okay. Firstly, maybe just touching on the guidance, could you give us just maybe a little bit more color and the building blocks to that by region, I guess, specifically within the UK, crop protection versus fertilizer versus the amenity business, and then obviously, Brazil, and I guess what gets you to the top end or the bottom end of that range? Then the second question is just around the immunity, environmental and ecology business. Firstly, I guess, I assume the majority of that growth will be driven by M&A, or do you see the scope for a significant pickup in organic profit growth through any kind of synergies? And when I think about M&A within that space, you've done several deals in the landscaping sector in the last while. Do you see more potential to go there, or should we expect some more deals in the environmental and ecology side of the opportunity?

Thank you.

Patrick, I'll maybe take the latter question and hand back to TJ on the guidance piece. In terms of amenity and environment and ecology, I would expect probably about a 7% to 10% underlying growth rate within both the services and the product side of amenity environment and ecology. Sports amenity is probably, from a UK perspective, trading flat and not going to see significant growth. It's a well-saturated and well-developed market at this stage, but On the product side of the house and on the consulting side of the house, 7% to 10% organic growth is certainly very possible. Greentech, we own now for about three years and has delivered 10% TAGR since we bought that business. We own the other businesses obviously for a lesser period of time at this stage. but they are experiencing growth in headcount and underlying trading. The trading within some of our other businesses is also exhibiting growth. The market should grow by that kind of 7% to 10% level in the environment and consulting side of the house. sports amenity, which clearly forms the original part of that amenity group, is not growing as quickly for sure. We do expect to have M&A. That does not exclude sports acquisitions on continental Europe. So we are open to buying businesses in the sports amenity sector and segment. We already have some parts of our product range. So for example, the line mark paint business, it gets distributed globally. It's sold not just in Western Europe, but in the US and Australia and gets moved around the globe. So we have businesses that already have exposure to existing distributors and existing commercial relationships on a global level within the sports segment, and then within the ecology and environment segment and in the consulting side of the house and product side of the house. I'd expect we will lean more towards the product area than the consulting area over time, but we certainly have a ready-made pipeline in both spaces to expand over the coming years so you know i i would say it might be 50 50 between the two of them but perhaps it's like leaning towards uh product capability um that's probably as much as there is to say on on amenity and environment and ecology at this point so maybe tj do you want to touch on the the split between the business units in terms of performance

Yeah, sure, Patrick. I mean, I think your question on the range between the 40, 44 and 49, it really does come down to the crop protection and fertilizer impact on the quantum of cropping that's moving from winter into spring. on the downside, and that is primarily UK. On the low-end case of 44, we've assumed some slightly more conservatism in the CE market, just primarily because of drought conditions that have persisted in the first half in Romania that have just meant Romania has had a slower start. But we'd still be confident that the business will that the business will deliver in CE, but just on the low-end case have assumed a slight bit of conservatism there. And on the low-end case in the UK and Ireland context, then it really is assuming that given the tight application window that exists for application is that we just see further volume compression in that period. And on the upside case, we assume that it's a more, you know, we get kind of the fuller complement of applications done both in FIRT and crop protection. So really it's across UK and Ireland, FIRT and crop protection and a slight bit of conservatism in Romania in particular. For green, you know, as you know, the bulk of its profit for the full year is now delivered. It's a quieter window in these few months over February, March, and April, and then it gets back into profit-generating territory then by the end of the fiscal year, but we've a reasonable line of sight on the four green performance for the full year. So that's how we're thinking about it. I'd say we have been, on the low-end case, reasonably conservative, and on the upper-end case then, as I said, it seems a more normalized set of applications. And that does ultimately come down to, I suppose, the window and what the conditions are like in the key application window out over the next six, eight to ten weeks.

Patrick, you'll be familiar with the terminology around T0s and T1s and T2s and the kind of various sprays that get required over the key growth stages of the crop. um the challenge i guess is the spring crop is not yet in the ground so we need to determine what that is and then whether our there are suitably distant weather windows from each other to ensure that the farmer does not skip um an application so you know the growth stage and um whether windows need to line up in order for the 49 cents i suppose to be hissed And we're assuming at the conservative end that perhaps not all of the million hectares of barley that we're expecting to get into the ground gets into the ground or that the farmers skip an application or skip a spray. So that's the kind of complicated future that we're trying to interpret in delivering guidance. why historically the business has never given guidance this early in the season, but we've tried to take what we think is a reasonably conservative view of the spring window and come up with guidance on that basis.

That makes sense. Thank you very much. Thank you.

We'll now go to the next question. And your next question comes from the line of Kevin Fogarty from Numis Securities. Please go ahead.

Hi there. Thanks very much. Morning all. Two questions if I could do. TJ, could I just come back on the sort of working capital assumptions for the second half of the year? And really, I guess, given the uncertainty around the sort of trade payables, subject to sanctions and the timing there, assuming we sort of back those out of any kind of working capital thoughts um for the second half are you sort of do you sort of see that sort of movement sort of going back to normal in terms of um you know there was sort of working capital tied up in the business kind of unwinding materially as we get through the second half um and just secondly going back to sort of the i mean it's the environmental and ecology business for a second um In terms of sort of the international kind of M&A sort of angle there, do you think you've got sort of skills now within the group that you can leverage in those other territories that you might enter? Or is it a case that you need to sort of acquire something in those territories to sort of build a base and then acquire within those individual countries? I just wondered if you could help to kind of frame how that might play out for us, please.

Thanks, Kevin. On the international M&A, I would say, yeah, we're going to have to acquire established businesses in those geographies. Certainly from a sports immunity perspective, we would be comfortable in establishing businesses in those markets and knowing that we could drive growth into an acquired business on the product side of the house and the services side of the house within environment and ecology I think realistically we would need to acquire expertise in a new geography we certainly have the capability and the people to assess whether a business can be successful or not and whether we have the suppose capacity at an underlying level then to drive some synergies out of it. So for example, product synergies, common suppliers sourcing a product internationally should drive some synergies into an acquired business on the product side of the house. So I think we've got capability to assess our capacity to make a business a success should we acquire it. What I don't see is trying to establish a brand in a new geography from scratch and grow organically in a new country. That's certainly not a capability or a set of skills that we have or would claim to have in this space.

Yeah. Okay. No, I understood. It kind of feels like that kind of business to me. So just wanted to kind of double check. I'm not missing anything there.

Sure.

Okay. Hi, TJ.

Yeah. Hi, Kevin. If I look at it from an overall net debt perspective, I'd say at this point a range in terms of net debt to EBIT at the end of the fiscal year of between one to one and a half times is probably where we would see us land. And that does, for forecasting assumptions, we have assumed that the 35 million of sanctions that are remaining. We, just for modeling assumptions, assume that that will be paid in the second half of the year. But as I said, the timing in that is somewhat indeterminate. I suppose the other just feature, as I said, of H1 has been the reduced level of prepaid business, particularly in the fertilizer side in Ireland. And while we anticipate that those volumes will ultimately flow through, you do potentially end up with some of those sales sitting in debtors at the end of the year. So overall, we would still anticipate some working capital outflow underlying on a full year basis and rolling that up with the impact of sanctions, the impact of CapEx, the buyback, the dividends. we would see a range of between one to one and a half times at this point in the year as being where we're likely to finish. Obviously, as we work through the second half and the precise timings of how the business evolves and develops and we get more certainty in that, we'll get a clearer picture on the year-end debt position.

Thank you. Thank you. We will now go to our next question.

And the next question comes from the line of William Lawood from Barenburg. Please go ahead.

Yeah, morning, guys. Thanks very much for the presentation. Firstly, just in terms of seeing news that commodity traders are taking sort of large bets that the prices are going to continue to fall thanks to good harvest in Brazil, Russia, et cetera. Could we be faced with lower on-farm sentiment next year? Are you seeing any sort of farmers hedging against that? And then my second question is, with the buyback completing at the end of this year, how are you thinking about further shareholder returns, or should we assume that that free cash is basically recycled into M&A, given your comments around expansion into Scandi and Western Europe?

Sure, yeah. On farm sentiment piece, I'll take, and maybe TJ, if you touch on the M&A and capital returns piece. So the reality, I think, William, is that farmers could have, up until January at least, forward sold grain in the UK for 200 pounds a ton for wheat. probably didn't take that opportunity and the price has come back now to 160, 165 at this stage. They could have sold autumn 2024 at about 200 pounds a ton earlier in the year. It's probably a bit off that now at this stage, back to 180, 175. So the forward price of wheat is currently trading at a higher price than the spot price of wheat in the UK. Soy is reasonably plentiful and is predicted to have growing stock levels in the autumn, so we would watch the US Department of Ag stats in the same way as the rest of the market does. The expectation is for a good crop across Brazil and Argentina and the US. But it just takes one weather event during the key planting season to disrupt the perception of where soy markets need to be. So markets are pretty bearish in the short term and strengthening a little in the medium term. There is a a very large short position from traders in the market generally on soy, which certainly if they call it wrong will need to unwind fairly aggressively and you could see a jump in price. But from our perspective, the key metric that we watch is the affordability of fertilizer relative to the crop. And we get, again, weekly and monthly statistics on input affordability and the relativities of input affordability. And fertilizer has come down in price to a level which makes it significantly more affordable now than it was during the immediate aftermath of the Russian-Ukrainian crisis and the kind of preceding 18 months, so the kind of six months running into the Russian invasion of Ukraine and the subsequent 12 months after that. So an imbalance between grain prices and fertilizer prices, which meant that fertilizers were less affordable. I think what's important now is that fertilizers have also come back by 50% in price per ton and therefore have fallen in line with that affordability index relative to crop prices. So with no great concerns that inputs are not affordable, it's just that the farm sentiment is challenged because farmers are witnessing, I suppose, a decrease in price relative to what they could have sold at or relative to what they would have sold at six months earlier and that means that sentiment is is a little challenged but there are other markets that are improving so you know beef prices are improving dairy prices are improving the the general output price levels uh in other markets have have been reasonably okay so no no great concerns i would say william about um affordability of inputs the real question is when will farmers push ahead and spend and up to now they have just been slow to put their hands in their pockets. That means that stock on farm is going to be low and farmers are when they need to apply inputs then there'll be a rush and a concertina season where a lot of the demand will be squeezed into a short window and we've got the operational capability to deal with that very short window of application or spot demand at short notice within our fertilizer facilities and within our distribution capability within our agribusinesses across UK and Northern Europe. that responsiveness, that operational capability should serve us well in the spring application window.

I will add on your question on shareholder returns. As Sean mentioned, we will have delivered 80 million in share buybacks, which we would do as part of the five-year plan. So obviously we'll be pleased to get that completed and continue to be a progressive dividend payer. I suppose the, you know, like any decision around capital deployment, it does come down to the, you know, what is the best returning set of investments that are available at any point in time. I think we've always said that our preference is to grow the earnings of the group through accretive acquisitions and through acquisitions that align with the strategic plan, particularly around the community and environmental and ecology area. And I would say that's still very much our focus. I suppose from a balance sheet position to the earlier question, we are reinvesting back in working capital because we did see some historic low levels of working capital in FY23 as pricing unwound. So that, combined with the CapEx that we have been doing, I think will likely put us in a position where our focus will be on M&A going forward, continue to obviously be a dividend payer. And the nature and scale and timing of M&A is a variable piece, so it will come down to what options are available. what's to be done, and we'll make decisions accordingly then based on the returns and investment for any of those capital programs. But I think pleased with what we've done to date on shareholder returns and our ambition, as I say, ultimately is to grow the EPS of the group through more acquisitive earnings as we look out over the short to medium term.

Thank you.

We will now take our final question for today. And your final question for today comes from the line of Cathal Kenny from Davey. Please go ahead.

Morning all. Thanks for taking my questions. Three questions from my side. Firstly, on Latin America, obviously we saw a change in revenue mix in the period. in favour of CRF, which is lower margin. Just wondering, is that structural or can we expect some mean reversion? Second question to Sean, you touched on inventory levels on farm with regard to FIRT, saying they were low, just interested in your own positions around FIRT, UK and Ireland, your own inventory. And finally, another one for Sean, just at the outset in your prepared remarks, you spoke about you're open to reduce or add services within the organization just more interest on the reduced side you think there's many uh pockets of opportunity to sell down let's say low returning activities within the business are we largely complete on that front there are my three questions thank you okay thanks um yeah i mean maybe tj you'll touch on the uh inventory piece um for our own inventory uh on latam um

The mix changed, but I suppose the volume growth was strong across all of our product segments. So we had growth in our PNN and adjuvant volumes, just not as strong as the growth in CRF volumes or the growth in biologicals, which was off a very small base, as I mentioned earlier on. The price dynamic was actually fairly dramatic in the mix. So international fertilizer prices came back by 50% roughly, and CRF prices fell in line with that within the Brazilian business. So we were dealing with a very significant increase change in revenue mix in Brazil as a result of global fertilizer prices. We did see some minor adjustment in adjuvant and P&N pricing backwards, but to a much smaller extent. So the overall price movement downwards was less than 10%. in those categories of products. And that really reflected global raw material price inputs into those particular product sets or those particular product ranges. So they would have been elevated as a result of the supply chain crises globally in the preceding half or in the preceding kind of 18 months. So availability of micronutrient elements coming from different global sources would have fed into the product ranges there. So the mix kind of changed dramatically from a revenue perspective because of that delta in the core fertilizer price movement. We're confident that volumes are going to continue to grow and have continued to grow within PNN and adjuvants. And that's in a quite a challenged market. I mean, you know, European followers of Origen mightn't be as aware as international agriculture followers of some of the challenges that are going on in Brazil at the moment. But, you know, people like AgroGalaxy, which is a listed entity in Brazil, saw an 80% reduction profitability in its Brazilian business nutrient saw a very significant reduction in profitability of its AG retail business particularly calling out Brazil for margin dilution in the quarter that they just published and they took a very significant impairment of their Brazilian assets And Lavoro, another Brazilian business, is expected to publish results in the near term and had a reduction in profitability as well. So we're seeing a very challenged Brazilian market coming off a high or a bubble, I suppose, of soy price and sales and volume growth. uh which the ag retail sector in brazil is struggling to cope with um and in those circumstances we're very very happy with the performance of our for green business do you want to touch on inventory uh tj maybe i'll come back to the um add and reduce piece yeah i think um carl as we would have discussed kind of as

we were seeing extreme kind of volatility in fertilizer pricing over the last couple of years. The disciplines that maintained at that point around, you know, minimizing the stock holding positions, I'd say really has carried on. We've been, the benefit we're seeing in absolute terms in stock and working capital is largely pricing declined year over year. In absolute terms, the quantum of inventory that we've been holding in FIRT has been, really at minimum levels and that's again just to manage in the context of markets that have been volatile and as I mentioned we saw the lack of any appetite by farmers in the Ireland context to prepay for business in January which would have historically been a norm. I think that's reflective of just, you know, right through the chain, continued nervousness around pricing and where pricing might go. So we've just taken that very kind of prudent approach in terms of stock holding and, again, as much back-to-back management of the buy and sell side as possible. I mean, as we worked through February and into March, volumes certainly have started to pick up, as you'd expect, and are buying activity on the back of that obviously has increased as well. But I'd say managing all of that within the envelope of anticipated volumes and certainly managing against any long positions on stock, which has been, as I said, what we have focused on over the last couple of years, really. So stocks, I would say, held it at very tight levels.

I think, Carl, just to supplement that, you know, There is some chatter in the market about access to cargoes in the back end of the spring application season, you know, that getting a boat or a vessel now with product is becoming increasingly challenging because European markets are beginning to lift from a volume perspective. And of course, because everybody was reticent to commit in a downward moving market. Now there'll be a rush to bring stocks through the system over the spring period. So, you know, our well-established supply lines and our capacity to turn product around at the facilities that we have port side in Ireland and UK will be key operational advantages in driving uh performance in in the spring season so we're we're comfortable um but all of that is built into the number for the spring but certainly product availability um coming into the the spring season is a little bit more um challenged for for some operators than than it will be for others um just to touch then on on reducing services and and uh adding services across the business you know the As with any, I suppose, component part organization, we have parts of the business that perform well consistently and parts of the business that perform less well consistently. We've addressed the biggest of those in Ukraine over the course of the last 12 months, but there are other smaller pockets of either subcategories of service within the group or potentially business unit areas that are not meeting the return on capital that we would like to see them meeting. We will address those over time, Kyle. There's nothing planned for closure or disposal at this point in time, but we are acutely aware that in order to continue taking working capital out of the business and driving optimal returns for shareholders, we need to be flexible in that regard and pursue a strategy of absolutely driving for the best returns in the business. All of our component parts continue to be under pressure to take working capital out if returns are not high enough or produce a better performance and perhaps take cost out of the organization as well. you know, we will continue to pursue that strategy to improve individual parts of the group that are not performing well enough.

Thank you.

Thank you. I will now hand the call back for closing remarks.

Okay, thanks very much, Sharon. I mean, we were reasonably pleased with this morning's results, despite the challenging weather conditions that we've been operating in. Certainly, when we set out our objectives at the Capital Markets Day in 2022, we were always aware that we would face a challenging weather year in the five-year window and developed our targets with that in mind. We're very comfortable that the group can go on and meet those targets. We've already done so or are on track to do so with regard to shareholder returns, despite the fact that we're only halfway through the five-year period that we have set out. We're comfortable that the profit and cash flow metrics that we had set out as objectives for the business over the five years can be met. Despite the fact that this year's earnings levels will be slightly down on last year's, we're reasonably comfortable that the diversified nature of the business and the continued growth in areas outside of UK and Ireland agriculture will continue to broaden the earnings base and leave us less exposed to the challenges of weather in an Ireland and UK context in the future. So thank you very much for joining this morning's call and we look forward to catching up with you on the road in the coming days.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.