Nufarm Ltd

Thank you Ashley. Good morning everyone. Welcome to New Farm's 2024 interim results presentation and thank you for joining us today. Before we get into the presentation 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. Experiencing challenging conditions during the half, we continue to be pleased with the progress that we're making on our strategies, which aim to deliver long-term value for our shareholders. In the context of the industry conditions that we faced, New Farm delivered a solid result for the first half of financial year 24. For the period, we reported underlying EBITDA of $217 million and statutory NPAT of $49 million. we declared an interim dividend of $0.04 per share. We remain focused on our strategy, achieving important milestones in crop protection and in our seeds, Omega-3 and Carinata platforms. Now to the piece that I'm sure you're all looking for. For the financial year 24, we expect EBITDA of between $350 and $390 million. The midpoint implies a reduction of 16% from financial year 23 and 17% from record EBITDA reported in financial year 22. As we continue to move to more normal supply-demand dynamics, we expect a stronger second half than in financial year 23. The midpoint implies growth of 25% year-on-year in EBITDA in second half 24. Whilst we're never satisfied with the decline in earnings, that would be a very solid result in the context of the conditions that have been faced by the industry. Our balance sheet position remains strong. Despite an increase in average working capital during the period, we remain very focused and committed to driving efficient use of capital through our business and we expect average net working capital to return to within our target range which Paul will speak to in detail later in this presentation. During the first half, we made significant progress reducing inventory. As of the 31st of March, 2024, inventory was 20% lower than the 31st of March, 2023. In crop protection, we reduced inventory by 435 million year on year. We appreciate that you will have questions about the 3.6 times leverage ratio for the half. We want to remind you that our debt financing provides significant flexibility to meet movements in working capital and we have minimal financial covenants associated with our facilities and all growth initiatives continue to be supported. Assuming a normal seasonal unwind of working capital and phasing of profit we expect to return to the upper end of our target range of one and a half to two times underlying EBITDA by the end of financial year 24. We are on track to meet our 26 financial aspirations. We continue to see a healthy backdrop for the crop protection industry over the medium and longer term. A recovery from secretly low prices is likely once channel stock issues, especially in Brazil, and parts of Europe are dealt with. That should in turn create a better balance between supply and demand dynamics and a reversion to prices to more historical norms. We continue to expand our omega-3 and Carinata plantings with current planting intentions supporting strong growth in revenue in 2025. We are reaffirming our 24 omega-3 revenue guidance of 50 to 70 million and our ambition to more than double revenue from Omega 3 in financial year 25. We are currently expanding and diversifying plantings of Carinata as a plant. Turning to our segment results, during the first half, the crop protection industry continued to feel the impacts of growers and distributors reducing inventory to more normal levels. Those actions have negatively impacted revenues and profit in this result. The reduction in grower and distributor inventory also had an impact on manufacturer pricing. There are several charts in Appendix 11 of this presentation that illustrate the size of the industry-wide price reductions that have occurred. These price reductions have negatively impacted our revenue and margins. We believe that these price levels are temporary and whilst we're not able to predict the exact timing, we expect that prices will return to historical levels once the residual impacts of distributor and grower destocking have washed through the supply chain. In recent data points, we have seen some tentative signs of prices increasing for some key herbicides. Whilst our revenues and margins were impacted by the conditions that I've mentioned, we continue to manage our business for the long term, focusing on driving sustainable growth improving the customer experience and delivering operational excellence. We grew crop protection volumes in the first half. I highlight this growth because it demonstrates the strength of our market positions and the prospect of revenue and profit rebounding with a return to more normal supply and demand conditions. We achieved several important strategic milestones in our seeds business. We continue to expand base seeds in South America and see significant opportunity for further expansion in that region. We delivered omega-3 oil to customers in Chile, the US and Canada and expanded our grower base for omega-3 canola to support further growth in financial year 25. We continue to progress discussions with potential partners for distribution and marketing within certain neutral terra segments in the USA. We reaffirm our guidance for FY24 omega-3 revenue of 50 to 70 million and are on track to more than double revenue from the 24 financial year base in financial year 25. We continue to expand our geographical footprint for Carinata planting. In the first half, we expanded planting in Argentina and the USA and we held launch events in France and Spain. In an important regulatory development, cover crops were included in Annex 9A of the European Union's Renewable Energy Directive. Inclusion ensures that Carinata has a strong position as a feedstock for sustainable aviation fuel. This policy takes effect in June. Inclusion of cover crops in Annex 9 is a very significant signal toward the future value and demand for Carinata within EU sustainable aviation fuel markets. During the period, we achieved further milestones for Energy Cane with the launch of next generation hybrids with increased biomass and sugar per hectare for resulting ethanol conversion. We have successfully expanded our customer base for Energy Cane in Brazil, and whilst it will take time for revenue to build, This is another endorsement of our bioenergy platform. Turning to regional performances, in our North American segment, we recorded revenue of $637 million and underlying EBITDA of $48 million. We achieved strong volume growth in North America. Sales and margin were mainly impacted by lower prices for non-selective herbicides. We grew revenue in Canada with stronger volumes in several key brands driving the volume increase. Our turf and ornamental business performed solidly with revenue marginally down year on year and inventory across the region reduced year on year. In APAC, we reported revenues of 459 million and underlying EBITDA of 50 million. Favorable signal conditions on the east coast of Australia and Indonesia resulted in strong demand and a normalisation of inventory levels. Declining global prices for key products resulted in a year-on-year reduction in net sales and margins, with historically low 2,4-D prices the main contributor to reduced earnings. Our 2,4-D plant in Laverton is being bought back online following the works to upgrade and expand manufacturing capacity. Final works as part of this upgrade are expected to be undertaken in the second half of the year. In our European segment, we reported revenues of $406 million and EBITDA of $71 million. Sales and margins were negatively impacted by lower volume and price due to unfavorable weather and distributed destocking. Wipe was negatively impacted by lower volumes of sales to industrial customers which were affected by destocking in the agricultural segment and a prolonged downturn in the China property market. Whilst we made progress in reliability and asset integrity initiatives at WIKE, these efforts were more than offset by lower volumes. Across all regions, we continue to execute on strategies which aim to generate long-term growth in profit and improved return on funds employed. We continue to focus on more efficiently managing working capital, including more effective management of inventory, supplier and customer terms, improving commercial disciplines, and focused use of capital. Our investments in reliability to further improve HSC performance and production capacity at our white manufacturing facility and expanding capacity and reducing the cost of 2,4-D manufacturing at Laverton are expected to lead to improved growth and profitability. Turning to seed technologies, we achieved a strong result in seed technologies with revenue of $256 million and EBITDA of $76 million. Base seeds were driven primarily by year-on-year growth in Australia and South America. North America's sunflower and Brazil's sorghum revenue was softer due to lower planting. and revenue from seed treatment fell year on year due to customer destocking. During the half, we increased our sales of Omega-3 products in the Americas, including Chile, the USA, and Canada. Following the approval of AquaTerra for use in Norway, we moved forward with commercial negotiations for entry into that market. We also contributed to progress discussions with potential partners or distribution and marketing within certain nutraceutical segments in the US for expansion of our Nutraterra products. Grower acceptance of Omega-3 canola continues to build. During the period, we expanded commercial contracts with growers to support expected sales growth in 2025. We concluded the 2023 crop year with multiple audited and verified proof of sustainability certifications for Carinata, which can be applied to sustainable aviation fuel, renewable diesel and sustainable maritime fuel. The 2023 Argentina crop harvest was successfully shipped to Europe and is in the process of crushing sales with our partners. New Farm and BP held a large launch event showcasing the 2024 growing crop in Florida in March of this year. with major airlines, mining companies, transport companies, policy makers and supply chain partners in attendance. Supply expansion activities for the 2024 Carinata crop are in progress with the expansion of confirmed farm contracts already in hand in Argentina and Uruguay. Our first year of farm contracting and geographical expansion from the Brazil market is also well advanced firm contracts with farmers in hand. Initial launch activities have been conducted in Spain and France for small commercial scale planting in 2024. Meanwhile, governments are increasingly creating mandates and incentives to increase SAF production. The EU moves to a 2% SAF mandate from 2025. The mandate rises to 6% from 2030 and hits 70% in 2050. Singapore has also recently announced the SAP mandate, which will be introduced at 1% of aviation fuel volumes from 2026 and increasing to 3% to 5% by 2030. Other countries, including Japan and the United Kingdom, have also announced proposals for SAP mandates. In concluding on seed technologies, I note that the first half 24 result includes licensing revenue which was not booked in the first half of 23. The inclusion of licensing revenue in the first half is due to the phasing and is not expected to be repeated in the second half. I'll now hand you over to Paul.

Thanks, Greg, and good morning, everyone. In the first half of fiscal 24, we reported revenue of $1.8 billion, underlying EBITDA of $217 billion and underlying end payment of $51 billion. Underlying impact was broadly in line with statutory impact of $49 million. We declared an interim dividend of $0.04 per share. In comparison with the prior year, revenue declined 10%, underlying EBITDA declined 31%, underlying EBIT declined 58%. We'll talk about network capital leverage in detail on subsequent slides. Importantly, I note that comparison with the prior period is impacted by the expected change in EBITDA phasing between the first half and second half of financial year 24 as compared with financial year 23. As you may recall, in FY23, EBITDA in the first half was 72% of the full year EBITDA. First half is expected to comprise approximately 55 to 60% of the full year 24 EBITDA as indicated by our guidance range. The anticipated change in phasing has been brought about as the channel has reduced inventory and moved to replenish stock in season. This has resulted in downward pressure on prices and ultimately margins. For protection revenue bridge, This slide shows the revenue bridge for our crop protection segment compared to the prior corresponding period. Not surprisingly, price impacted revenue negatively during the period. Channel B stocking led market-wide reductions in active ingredient prices. Price reductions were passed on by formulators and distributors, including ourselves, resulting in a negative impact to revenue during the period. Growth in volume contributed positively to the revenue bridge during the half. We had particularly strong growth in volume in North America. We believe that volume growth is important as we continue to support our customers and positions us well for an eventual rebound in prices. Changes on foreign currency rates had a negligible impact on revenue. Operating cash flow. We experienced an operating cash outflow of $207 million for the half. The outflow is considerably below the $5.59 million outflow experienced in the first half of 2023 and reflects a more normal seasonal level of networking capital. We achieved a small reduction in networking capital on a year-on-year basis. During the period, we maintained a concerted focus on reducing inventory. The impact of these efforts were partly offset by higher receivables and lower payable balances at period end which we will discuss on the next slide. Consistent with prior years, significant cash inflows expected from the net working capital movement in the second half. By way of illustration, the three-year average first half to second half receivables movement, or cash inflow, has been $533 million. Net working capital. At the end of the period, net working capital was 3% below the prior year. We made considerable progress in reducing inventory year on year, whereas higher period in receivables reflected a stronger ending to the second quarter than the prior year. We are particularly pleased with our inventory result. We finished the period with inventory 20% below the prior corresponding period. Trade receivables were 133 million above corresponding period, reflecting a strong finish to the first half. Payables were $189 million below the prior corresponding period, reflecting reduced levels of ordering. Average net worth in the sales was 47%. This was above prior corresponding period and largely reflected the higher than normal inventory levels maintained throughout this period of time, due to the change in customer ordering patterns and the seasonal build that normally occurs in the first half. Going forward, through further inventory reduction and normalization of payables, we expect to return to our average network and capital sales target of between 35 to 40% financial year 25. Inventory bridge. This shows our inventory bridge Inventory in our crop protection business fell $435 million year-on-year and was driven by lower volume of stock at hand. Inventory in seeds increased to support the growth of that business and overall inventory fell 20% year-over-year. Capital expenditure. CapEx was $110 million in the first half. Spending on property, plant and equipment was in line with prior corresponding period and driven mainly by our investments in further improvements in health, safety and environment, asset integrity and plant efficiency. As mentioned at the full year 23 results, we plan to spend around $100 million per annum over the next three years across the business on a range of initiatives, in particular, like in the UK. The intangible or product development spend was $54 million and includes an element of growth investment to support our revenue aspirations through the development of new products for crop protection and new hybrids and new market registrations for seeds. Growth investment include a preliminary spend of $8 million on a major investment in wine, which is expected to be $140 million over the next three years. The majority of this spend will be in financial year 25 and 26. As previously communicated, this is a very important significant upgrade in our phenoxy capacity operation. As indicated in the financial year 23 four-year results, we expect total capex spend to be around $240 million, consistent with FY23. And also note that we expect to finalise the sale of non-core property assets, which is expected to generate net sales proceeds of $40 million in the second half. And in line with our capital management framework, we continue to assess growth opportunities with regard to referred turn-on funds employed, where the target return is greater than New Farm's weighted average cost of capital. Net debt. We finished the period with net debt of $1.2 billion. Net leverage was 3.6 times underlying LTM EBITDA. Can I assure you that this target ratio does not cause any issues for the company's debt facilities? Leverage above the target range was due to the combined impacts of seasonal working capital, lower earnings in the first half, and the second half 23 representing a lower proportion of full-year earnings than normally expected. As an illustration of the phasing impact, adjusting the second half 23 EBITDA to reflect a more normal 55-45 cent 1H28 split for FY23, adjusted net leverage for the 12 months ending 31 March 24 would have been 2.9 times underlying EBITDA. We expect the leverage to be within the upper end of our 1.5 to 2 times target by the end of FY24 assuming a normal unwind of working capital in the second half and that we achieve our FY24 EBITDA outlook. Newfarm's debt facilities and available liquidity continue to provide a flexible and durable covenant-like capital structure that accommodates volatility in our network and capital cycle. We have no near to medium term refinance requirements and the group retains access to substantial amounts of cash and committed bank liquidity. FY24 leverage expectations. I'd like to spend a few minutes discussing the expected path back to one and a half to two times leverage in FY24. The diagram on this page is conceptual and shows the main components in this path. As mentioned previously, the expected reduction in net debt through the second half is anticipated to be mainly driven by seasonal reduction in receivables. For reference purposes, I've indicated that the average first half to second half reduction in receivables over the past three years has been $533 million. In addition, we expect to achieve a better balance between payables and inventory as our stock replenishment activities get us back into a more normal cadence. EBITDA is expected to broadly cover other cash items such as capex, interest, cash taxes, dividends, etc. The bottom half of the chart shows the expected change in LTM underlying EBITDA based on our guidance. If you do a little maths around those items, you should be able to see that there is a credible path back to within, noting more towards the upper end of the one and a half to two times leverage at the end of FY24. Importantly, the anticipated reduction in receivables is based on a normal, unwinded working capital instead, specifically the seasonal phasing of sales and collections. If sales, for example, more heavily weighted to the end of the second half, then the return to our leverage target would be delayed. Under that circumstance, we would still anticipate getting back to within the range just a few months later than the close of FY24. Further, moving back to within the target leverage range also assumes that we achieve our EBITDA outlook for FY24. I hope this page helps you to form a view about our anticipated path back to our leveraged target range. And finally, on other expected financial items. On this slide, I will outline our expectations for a number of these items to assist you with your forecast. Corporate costs for full year 24 are expected to be marginally below the prior corresponding Depreciation expense in the second half is expected to be broadly in line with the first half. Second half net interest expense is expected to be marginally above first half interest expense. The tax rate is expected to be 23% for the full year 24. I'll now hand back to Greg.

Thank you, Paul. I want to take some time to discuss the pricing environment and our expectation for price recovery beyond the current phase of destocking. The chart on the left-hand side of this page shows that current prices for crop protection products are well below historical average due to the temporary impacts of distributed destocking, which has led manufacturers to sell product at lower prices. The data is taken from independent data sources, AgBioInvestor and Bainfolk. We believe that the issues that have impacted prices will be largely resolved through the course of calendar year 2024. Excess inventory at the distributor and global level, especially in Brazil and Europe, is likely to be drawn down during the 2024 calendar year. The drawdown of distributor and grower inventory is expected to normalize and create a better demand and supply balance. This should, in turn, lead to manufacturer inventories and utilization rates to return to normal. We believe this creates the environment for prices to return to historical averages in the short to medium term. Whilst we're unable to pinpoint the timing of price recovery, in general, we expect price to be a tailwind for revenue and profitability beyond financial year 24. On this and the next several slides, we want to remind you of the journey that we're on with our business and why we are confident in hitting our revenue aspirations. As a reminder, we are targeting revenues of $3.8 to $3.9 billion by financial year 26 in our crop protection business. Achieving that target is based on management forecasts and assumes a return to normal long-term average prices. Market prices are the main factor that are outside of our control. Many of the other inputs to achieving that aspiration are within our control. In the period 2016 to 2021, we reset the cost base for our crop protection business. During that period, we closed a number of factories and implemented a performance improvement program in Europe. We made the century and FMC portfolio acquisitions to build the necessary scale to be successful in our European business. We opened our state-of-the-art formulation facility in Greenville, Mississippi. We also sold our crop protection business in South America, including because we did not think that we had the right model to be successful in that market at the time. Moving on through the timeline, we have been completing the investment programs in our plants with Wyke, the last of our major manufacturing facilities requiring material investment in the near term. At our 2022 Strategy Day, we highlighted 22 major portfolio projects that we believed would contribute to achieving or would help to contribute to achieving our FY26 revenue aspirations. I can now say that as of today, the majority of those projects have either been launched or are in launch phase. As we move into 2025 and 2026, we are anticipating a recovery in market prices. We are aiming to continue to strengthen our position in phenoxy herbicides and to continue to deliver on our new product introductions. As a reminder, we compete in a $70 billion market. That market is primarily off patent, which means that there are few barriers to us competing with innovative formulations that are affordable, and effective for growers. Growing population incomes and demand for food creates a strong backdrop for demand. Moving on to the next slide, on this page we show progress with the development of our omega-3 platform. By now you will all be familiar with the basis of our omega-3 strategy. Our omega-3 canola meets a growing need for a sustainable alternative to fish oil to meet growing demand for omega-3 in aquaculture, food manufacturing and dietary supplements. In a short period of time, we've come a long way and are now rapidly scaling our omega-3 business. Over recent years, we have continued to scale our grower relationships and commercial sales in Chile, the USA and Canada. In 2023, we gained approval to sell AquaTerra in Norway. We expect to make commercial sales in that market in 2025. The Norwegian market is a large and important market for AquaTerra. We've also spoken about deregulation being an important driver of our cost of production. I'm pleased to say that we are making steady progress. Earlier in 2024, we received permits for phase two in country verification in China. That is a necessary step towards meeting the repertory approval requirements in that country. Previously, we've discussed that partnerships could be an important mode for increasing the presence of Nutraterra in the human supplements and food ingredients markets. During the period, we appointed Conoils as our exclusive partner for producing and distributing Nutraterra DHA canola oil in powder formats. Conoils is a leading international oil powder manufacturer, distributor and wholesale supplier of bulk oil ingredients. In 2025 and 2026, we expect to continue to scale amethyst reproduction. Whilst our main focus will continue to be aqua feed, we also expect to see opportunities for expansion, probably through partnerships in human nutrition and other segments of the markets. We see biofuels as a long-term growth platform for new farming extending well beyond our 26 aspirations. We launched Carinata in Argentina in 2018 and made the first shipment of Carinata for commercial scale-crushing 2022. We established a 10-year partnership with BP to support the scaling of Carinata production and sales. In 2023, we expanded production to the USA and launched our first hybrid system. In 2024, we are expanding our production further in the southern USA and Argentina, and we've launched plannings in Brazil. We also held launch events in France and Spain. From 2025, SAF markets enter an important phase with mandates taking effect in a number of important large aviation markets. The EU SAF mandate commences in 2025. initially with a 2% blending requirement which increases to 6% in 2030 and then it increases rapidly to reach 70% in 2050. Singapore's SAF mandate commences in 2026 and Japan and the UK have also announced policies for at least 10% mandated SAF blending by 2030. We've also highlighted the inclusion of cover crops in NX9 of the EU's Renewable Energy Whilst energy cane is at an earlier stage of development, we achieved an important milestone during the period, expanding the number of customers to more than 40 mils. We see a strong future for our biofuels platform. Turning now to Outlook. Despite near-term challenges, we believe that the industry has positive long-term fundamentals. Growing population and incomes create increasing global food needs, driving growth for seed and crop protection solutions. Omega-3, Carinata and Energy Cane create additional and diversified growth for new farms. For fiscal 2024, we are guiding to underlying EBITDA of between $350 and $390 million. The midpoint of guidance implies a reduction of 16% from financial year 23 and 17% from the record underlying EBITDA that we reported in financial year 22. We expect comparatively strong growth in the second half of 24, with the midpoint of guidance implying growth of 25% year-on-year in EBITDA in the second half of 24. As I mentioned earlier, we're never satisfied with the decline in earnings. However, a 25% growth in half two over last year would be a very solid outcome in the context of the conditions that have been faced by the industry. We are reaffirming our omega-3 guidance for revenue of 50 to 70 million in fiscal 24 and plantings of omega-3 canola in 2024 support our ambition to more than double revenues from omega-3 products in fiscal 25. We're on track to meet aspirations for revenue from crop protection of 3.8 to 3.9 million and revenues from seed technologies of 600 to 700 million in financial year 26. This is based on management forecasts and assumes a return to long-term average pricing in crop protection. For the reasons discussed today, we expect pricing in the crop protection industry to normalize. Although the timing cannot be precisely predicted, we have some very positive signs of prices stabilizing in recent data. As previously discussed, we have a strong correct pipeline. We expect strong growth in Omega-3 and in our base seeds business. Our biofuels platform, including Carinata and Energy Cane, continue to expand and provides a strong platform for future earnings contribution. So I'll stop there now and hand back to Ashley for Q&A.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Evan Karatsis with UBS. Please go ahead.

Good morning. Maybe just to start, can we just get an idea of what you're expecting from the various regions for the second half, how demand is, margins, et cetera?

Yeah, thanks. Thanks, Evan. So I'd say you know, sort of at a macro level, I'd say that, you know, as I said in that presentation, market fundamentals still remain pretty sound. You know, although grain prices, you know, have fallen from the record levels that we've seen, they still remain relatively high. You know, so demand for grain, oil, seeds and biofuels is strong, which should support seed sales. And I guess grain prices are current levels mean that farmers will continue to look to maximize yields, therefore demand for crop protection products remains strong. I think the other thing too is that we're seeing distributors and farmers purchasing closer to the application window, which really supports our notion that we'll change our half-on-half phasing. In North America, 70% of the US corn and 60% of the soybean crops being planted. Cotton sits at about 50%. So that's normal for this time of the year. In terms of seasonal conditions, the majority of the country is experiencing average or above average conditions. Canada's been a little bit slower with rainfall and below normal temperatures that have delayed plantings. So we'd say prospects for the second half are positive. We expect in-crop applications and channel destocking to drive increased volumes and therefore a stronger second half than we saw in 23. Here in Australia, the major driver is the Australian winter crop. WA and South Australia remain pretty dry. However, plantings are underway and we're assuming, if we assume follow-up rainfall, we would expect a larger post-emergent application. As most of you know, conditions here on the east coast are generally pretty favourable. And if we go back to last year, demand was very weak in the second half of 23 because prices were falling and we experienced significant contractions in margins. particularly in relation to 2.4D. This is now sort of normalized. So in the second half of this year, we're expecting growth in volume to deliver a stronger second half result versus 23. In Europe, we've seen very wet conditions in the UK and the northern parts of Europe, and that's delayed the season, pushing sales from Q2 into Q3. Conditions in southern Europe are generally positive, you know, which contrasts, if you remember, to last year where, you know, it was a very, very dry season. So that sets us up for a stronger second half in the southern parts. One other thing I think I'd call out is, you know, we're seeing increased insect pressure. So that's driving demand for acetamiprib. That was one of the key products that we... in the century portfolio. And we've got new market and new label registrations, which will add to greater second half contribution this year. With seeds, we're seeing very dry conditions here in Western Australia, so less canola plantings this year. And as I've already said, we're pretty much on track for for Omega 3 and Carinata planning. So I guess overall, Evan, we believe that we'll see some improvement in pricing in the second half. However, the main driver of the improvement in second half 24 over 23 will be an increase in volume.

Yep, good one, thanks. Maybe just one more if I can. I'm just looking at slide nine, that 390 mil impact from price. Obviously you would have had a degree of COGS reduction which offsets that something once you get to gross profit but I'm just trying to understand within that 390 mil what was the gross profit impact from selling through some of the out of money inventory, out of the money inventory and should we expect that to still be an issue in the second half or is all that I guess out of the money inventory selling fully washed through now?

Yeah, look, there's no doubt. I think Greg called it out. We've had margin pressure. So whilst we've been able to make some margin, it's been pretty skinny because we haven't been able to actually get that back through price. So that's happened in the first half. Look, we do expect that to continue to some extent. However, as Greg said, we're also anticipating some good seeds or some shoots, if you like, of price recovery. But volume growth is what we're expecting in the second half to really deliver this. We're not relying on pricing per se, but whilst I say that, there is a small element of pricing. So margins should expand in that second half through there being a little bit more upward pressure on pricing, plus having sold through some of the higher-priced inventory.

So, Evan, if I can just add a little more colour to that. So I'd say in... North America, where we're a significant player in non-selective herbicides, I'd say we've moved that inventory through. The same here in Australia. In Europe, given that all conditions in the second half of 23, we are carrying some inventory in Europe, but again, Most of the challenge in Europe is more around insecticides and fungicides. So we have diversified our portfolio, so we are carrying some inventory in insecticides and fungicides. But largely, across all of our regions, I'd say we've pretty much worked through, with the exception of Europe, we've worked through that inventory. The other thing that I'll just focus on or point out, we talked about Brazil in our prepared remarks. And whereas we're not operating in crop protection in Brazil, as we understand it, there are still higher inventories of product in Brazil. And that will work its way through, we believe, over the balance of 2024. And that's important because There's a lot of product that would be produced in China that would be going into that market that is now still trying to find its way into the Northern Hemisphere and the Australian market.

Okay, thanks. I'll pass it on.

Your next question is from John Purcell with Macquarie. Please go ahead.

Oh, good day, Greg and Paul. Just had a couple of questions, please. And Greg, thanks for the colour there, just around some of that imagery there. But I suppose just from a broader industry point of view, you know, where do you see channel stocks sitting? You know, still, by the sounds of things, still high in Europe, but are receding in other jurisdictions?

So, yes, I think... It's the composition, John. So as I say, in North America, we've largely worked our way through. And I think it's not just us. I think we're certainly comfortable that we've worked through our imagery in North America and in Australia. But I think as a general statement, the industry has as well. The challenges really are in Brazil. It doesn't impact us or indirectly does. But the challenge is really in Europe. But we are seeing significantly better seasonal conditions in the southern part of Europe this year than we saw last year. And as I said, because of the very wet conditions in the UK and northern Europe, we're really seeing that phasing now happening from Q2 into Q3. And I would expect that inventory... to move its way through, through the course of 2024. Thank you.

And just on Europe, obviously it was down significantly in the last half and you've called out some of the sort of timing and sort of the weather issues there, but just some of the other factors at play, obviously you've had some under-recoveries there, which you've sort of called out, but you've also should have had some benefit from less regulatory outs.

Well, yes. But again, I think that's really been offset to some degree by the seasonal conditions first half. I think the other thing I'd call out in Europe is WIKE. So the industrial sales. As you know, we make products in that plant that we sell to third parties, essentially our competitors, and into the green roofs market in China. And again, because of destocking, demand for those industrial customers has been lower and the demand for the inhibitors business into China has been down because of the downturn in the property market. Now, I would expect that to continue from a WIKE perspective through the second half of 24. But WIKE has been a major component of the underperformance in Europe in the first half versus last year.

Thank you. And just the final one, this question for Paul, just in terms of the working capital sort of unwind there in the second half. So I think your uplift in the first half was about 300 mil. So you're essentially assuming a bigger unwind of that in the second half, Paul. And is that sort of receivables driven? I suppose in the past, typically you've sort of done generally sort of if that sort of first half build unwinds and the second half, that's usually a base case, but you're sort of factoring in something more than that?

Yeah, so we use that illustration, John. I mean, we can only sort of plan with what happens historically, et cetera. So that's why we called out that on average 5.33 million reduction. But it's fair to say we're also expecting... if you like, a narrowing between the inventory and payables position. So there should be a little bit that comes through there as well. But the lion's share, you know, call it 500 plus is going to come from the receivables unwind and then you'll have a bit through the inventory reduction and payables for the squeezing.

Thank you.

Your next question comes from William Park with City. Please go ahead.

Thanks, Greg and Paul, for the presentation and your time. Just in terms of idle plant capacity charge of 26.7 mil sitting in your account, could you step through what your expectation is around this in second half, if any? Thank you.

Yeah, so thanks, William. So we expect to see some idle plant capacity continue, if you like, below the line. And the majority will be like, and that's because of the significant disruptions we're having, not only in the existing investments we're making, but also in this major CapEx upgrade as well. And so because of the interruptions, we effectively, if you like, normalise the overhead recovery so that we get a truer, if you like, normalised position for the operation. So, yes, I expect to see some further charges below the line in the second half.

Could you just step through what that could potentially look like in second half?

It won't be as much as the first half. I'll just say that we're not guiding on that at this stage, only because we're planning for a number, but that could be different because of the variability in that. in the work schedule.

Yep, that makes sense. And just looking at your EBITDA guidance for the full year, I appreciate that second half EBITDA at midpoint, 25% growth year-on-year. Can you just step through what the growth we should be sort of thinking about with respect to seed technologies and crop protection do you expect that 20 plus percent growth that we've seen in seed technologies to continue through to second half or does that accelerate and balance being crop protection is that how you see things or are there any other moving parts that we should be aware of?

I think Greg covered crop protection pretty extensively. One other piece on seeds is that we're cycling a big number on the licensing revenues in the second half last year. So that would flip some downward pressure on the seed results. So we expect seeds to be slightly below last year, and that's largely driven by this phasing of the licensing income. And seed treatment as well, yeah. So seed treatment is going to be down for the destocking that Greg talked about in the speech. We've also got some investment in higher investment in SG&A to support the growth in the business, and then you've got this cycling of this down on the licensing income year on year. Broadly, we called out $37 million for BP last year. It's going to be $20 million this year, so it's $17 million down. So that's sort of the bridge.

Thank you very much.

Your next question comes from James Ferrier with Wilson's Advisory. Please go ahead.

Morning, Greg and Paul. Thanks for your time. You showed a few charts today around the price deflation on the crop protection chemicals. What's more impactful as a headwind on your earnings, do you think? Is it the actual extent of the premium or discount to the mean historical pricing? Is that what we should focus on? Or is it more about the sequential trajectory of pricing. Just interested in some colour there please.

So James is your question in the context of the FY26 aspirations?

No it's more about, I'm looking at slide 18 and that chart there and you can see that pricing has moved around a lot historically and that's no surprise. I guess what I'm getting at is, is it the peaks and troughs in the absolute terms relative to historical means? Is that the major influence on your business? Or is it the sequential movement and the fact, say, for example, that it's starting to tick up directionally now? and that is an immediate direct benefit to your earnings? Or do we need to see that gap close right up before you can start to say there's a favourable earnings influence?

It is sequential. As that moves, we ought to see a favourable movement because the market reflects contemporary price and as prices increase, you tend to get margin expansion because you've got a holding lower imagery. That's what we've seen. In the past, that's what happened in FY22. We called out, that's why we've got expanded margins. You're pricing as the curve goes up and you've got lower cost imagery. Similarly here, as the price rises again, you should get expanded margins.

And I think, James... I mean, we've come through a pretty volatile period, right? I mean, the chart points that out. If you were to look at the significant increase from the midpoint 21 to 22, we went from 15% under the averages to 40% above. And then from mid-22 to mid-24, we've gone from 40% above to 25% below. And I guess all we're saying is that as supply-demand normalises, we're seeing a trend, if you like, or a tailwind as we move out to 2026. I think in 22, we said that there would be $300 million come from price or industry growth, and we said that there would be net $500 million from NPIs. So if we take where we are today, what we're saying is if you take that trend back to 2026 as an example, you can expect to see somewhere between 400 and 600 million of upside, revenue upsides from price movements. We've said that we're sort of halfway through the NPIs, so you could add another $250 million of revenue from where we are today in relation to NPIs.

Yep, that's helpful, Greg. Thank you. Second question is around the base seed business. You described that the performance there is strong, but when you adjust for the higher licensing revenue in the first half versus PCP, and probably some growth in the omega-3 revenue and earnings again versus PCP. It looks like the base seeds earnings declined year on year, but perhaps I'm missing something there.

Base seeds is up, James. What you are missing is seed treatment is down and also we invested in SG&A to support the growth platforms. That's effectively some of the offsets.

Your next question comes from Owen Burrell with RBC. Please go ahead.

Yeah, good morning, guys. Just actually a quick follow-up to James' question regarding that herbicide pricing chart. I'm just wondering what, given you talking about that sort of sequential price movement, Just wondering what sort of price outlook you're assuming in your EBITDA guidance for the second half. Are you assuming flat or is there a percentage increase in the pricing that you're assuming through that second half?

We're assuming relatively flat. Most of the improvement in the second half, as we said, comes from volume.

Your next question comes from Jonathan Snape with Bell Potter. Please go ahead.

Yeah, hey, guys. Maybe this is a follow-up to, I guess, what James is asking, and maybe what you kind of touched on on the targets for 26. And particularly, I'm looking at the Ag Chem business. Like, if I look at the role in 12 months, where you're at today and where you've got to get to, I think you kind of spelt it out there in numbers, but you need kind of 30% uplifts in the revenue, and it looks like nearly all that's going to have to be driven by price. So... I guess I track this trade data like you guys do as well. And when I look at the volumes coming out of China this year, it's 20% higher than they were back in that big run we had in 21-22, which looked like it was really driven by supply chain back then. But the prices are still materially lower than they were back then. So what I'm trying to figure out is if the volumes moving around are a lot higher, and the pricing's lower, what's suddenly going to reverse that? Because it looks like an element in your stripper cycle average pricing takes into account a period where there was quite material supply side disruption, you know, clean skies, all that sort of stuff, which probably won't repeat, and maybe then the pricing isn't going to get to that level. So how important is the price lever here to get in? to those targets and what's going to suddenly make it do it.

Okay. So the first point, how much of the bridge between, say, FY24 to FY26, broadly the bridge is that we're factoring a 20% price recovery, if you like, so call it $600 million. And we're also, with the MPI, But there's sort of 20% we're expecting. When I say expecting, that's what we calculated as a, if you like, a reversion back, long-term average pricing.

Your next question comes from Richard Johnson with Jefferies. Please go ahead.

Thanks very much. Pat's just following on from Snapey's question. on the long-term target, and I'm obviously giving up those numbers there, but just conceptually, when you put the target together originally, presumably you hadn't factored in the kind of price declines that you've seen in recent times, so asking the same question but a different way. What is it that's gonna make up for the middle period of underperformance in the journey towards your target? in the latter end. So just trying to understand where you make up what you've lost over in the last couple of years.

Yeah, so if you have a look at that chart, when we put out the FY22 aspirations, which were back in February 22, we actually used 21 prices. We're using 21 price or 21 actuals. That's what we're bridging on. So you can actually see that they were reverting back to that long-term average. a little bit down. So if you like, there's somewhat this little bit of upside in pricing compared to the 21, if you like, average prices we achieved. We actually looked at that just to compare long-term average prices and the FY21 base that we walked off and the pricing was a little bit below the longer-term average. So that's, I guess, a data point that we actually looked at to sort of say, okay, is it reasonable then to extrapolate back forward what those average prices are to the planned volumes. And that's how we get to that bridge that I just went through with Snokie on the 20% price and 200 to 300 in MPIs. And that 200 to 300 million in MPIs, if you go back to those aspirations, we're pretty well at the halfway point. and we've had 600 million of their MPIs, a net of capitalisation, etc. So it sort of winds up, if you like, from a maths perspective.

Your final question comes from Scott Ryle with Rimmer Equity Research. Please go ahead.

Hi, thank you very much. I think it's on the same flavour. So I was also looking at pricing and Just if you can make a comment on slide 19, you made the point that most of the crop protection market currently is off patent and that gives you the opportunity to get in with some of your solutions. But if we're off patent, why is this not looking more like a commodity industry where excess supply out of China permanently moves the market clearing price, which you've seen in a heap of other commodities, high-profile commodities in the last couple of years. I'm just wondering if you can comment on that, please.

Yeah, look, I think the assumption in what you said was excess supply out of China. I mean, I have no evidence of significantly increased installed capacity going in in China over the period that we're talking about. So if you look at them, as I said, from the midpoint 21 to midpoint 22, that was all really COVID driven that we couldn't get supply out of China. So we saw this, sorry, we saw the pull forward and then we saw China open up and product start to flow. What's happened and part of the reason I think that we moved back is that the inventory that we've seen on farm and in the channel during that period is now being sold through. So as you start to restock and replenish, demand increases, capacity is still the same in China, prices should move up. That's my hypothesis.

Thank you. That concludes the question and answer session. I'll now hand back to Mr Hunt for closing remarks.

Thanks, Ashley. And thank you, everyone, for listening. for joining the call today. I know we've got some meetings over the next week or so with many of you, so I look forward to having those conversations. Thanks, Ashley, and thanks, everyone, for joining.