Nufarm Ltd

Thank you for standing by and welcome to the New Farm Limited FY24 results call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Greg Hunt, CEO. Please go ahead.

Thank you, Harmony, and good morning, everyone. Welcome to the New Farm's financial year 24 results presentation. I'll just take a minute to draw your attention to the disclaimer on slide two and in particular the statement relating to forward-looking statements. Financial year 2024 was a tough one for the crop protection industry. Despite the challenges, New Farm continued to make good progress with our innovation and growth strategies. EBITDA was at the midpoint of the revised guidance that we gave on the 15th of August. We had an outstanding result on net working capital with a 30% reduction on the prior year. This had a similar impact on reducing debt. We finished the year with net debt of $635 million, which was 25% below the prior year. Net leverage was two times EBITDA, which is a very strong performance given our reduced earnings. Applying our capital management principles, there will be no final dividend for financial year 24. As we move into 2025, we'll continue to tightly manage costs and our balance sheet. We have clear targets to reduce costs and working capital. We will increase our focus on improving our return on funds employed. However, we will keep investing in our growth platforms. During the year, we faced competitive pricing as the industry moved volume and reduced inventory, particularly in North America. Demand remained healthy and we sold more product than we did in the year before. Tidal stocks are now lower, although reordering remains just in time. We continue to leverage strong results from our crop protection pipeline. New product introductions contributed to more than 15% of revenues We launched Oxpo Herbicide in Canada. It is the first to market in a series of herbicides powered by Duplassan, which is our Dicroprop range of products. Oxpo is a cereal herbicide that controls herbicide-resistant kosher, a weed that can lead to 20% yield losses in wheat, costing Canadian growers as much as $100 an acre each season. The launch of Oxpo was very well received by our channel partners and growers. and we plan to launch more Dupliserm products in 2025. Turning to application technology, New Farm partnered with New Zealand company Robotics Plus to design its quantum sprayer technology for the Prosper robot. We now distribute this complete solution across Australia and New Zealand. We also made a small investment in Norwegian-based Kilter, which is developing spray equipment uses advanced technology to precisely target weeds for herbicide application. And in another initiative, New Farm is partnering with UK-based research company, MOA, to develop herbicides with completely new modes of action. We are strengthening our positions across sunflower, sorghum and canola seeds. We grew our hybrid canola share in Australia and Brazil. and we see a real opportunity to leverage our leading canola traits to drive further expansion in South America. We made significant progress in Omega-3. We reached our target of 50 million of Omega-3 sales. We also expanded the grower base and the area planted, and our latest hybrid varieties performed very well. In July, we entered into an exclusive license for Yield 10's Omega 3 Camelina technology. In biofuels, we expanded Carinata planting. While mandates for biofuels are developing, we are focusing on production from the best advantage markets. We are working to optimise our cost of goods and establish market value. During 2024, Carinata was included in the Annex 9A of the European Union's Renewable Energy Directive making Carinata one of the few scalable agricultural technologies to meet the legislative criteria for SAP mandates. Turning to performance of our segments in more detail, in North America, underlying EBITDA was 49% below the prior year. Price competition negatively impacted our margins. Despite this, there was strong demand for new farm products. We matched prior year revenue. with strong volume growth. Turpent ornamentals in Canada delivered results in line with the prior year. As I mentioned before, we had a successful launch of the first of our Duplassan powered products in Canada. In Europe, underlying EBITDA was 25% below the prior year. New farm volumes and margins held well in the European domestic market. There was pricing pressure on foundational products. However, we had strong performance in the higher margin TNVV, so trees, nuts, mines, vegetable crops. We sell about 65% of our production from our white facility to new farm and third-party customers outside of Europe. Sales volumes were down, driven by lower demand, particularly in the China green roofs market and in North America to both New Farm and third-party customers. We are working to reduce costs and lift returns in our European segment. Our APAC segment reported EBITDA of $88 billion, which was in line with the prior year. Demand for New Farm products was strong. Australia was negatively impacted by low 2,4-D prices. In New Zealand, poor farmer economics impacted sales and volumes. We had an exceptional result in Asia with growth in EBITDA on the prior year. Asia is one of the regions with the highest growth and highest return on funds employed. We expanded 2,4-D capacity at Labaton. This reduced our production cost and strengthened our global supply capability. It puts us in a strong position to respond to the introduction of duties on 2,4-D in the United States. In seed technologies, EBITDA was 15% below the prior year and this was largely because licensing revenue was lower than the prior year and we have higher costs as we scale our Omega-3 and biofuels platforms. We had strong canola performance in Australia with our new TruFlex hybrids delivering higher revenue and margin. We expanded our position in South America leveraging our southern hemisphere adapted genetics from Australia. We acquired Laboo, a distribution business in Uruguay, to provide more support for our canola and carinata expansion. We also licensed out our sunflower hybrids in the Europe and Eastern European markets. It was an important year for Omega 3. We reached our target of $50 million revenue. We expanded our growing lace. and the planted area, our 2024 crop showed a further improvement in grain yields with an improved oil profile. We entered a license for Yield 10's Omega 3 Camelina, and this transaction gives us an opportunity to expand our Omega 3 portfolio with additional oil profiles and the potential to produce Omega 3 in winter Camelina crop that is grown as a cover crop. While still in the development phase, the technology and pipeline are expected to be highly synergistic to our existing Omega 3 canola platform. Our Carinata expansion plans in Argentina were tempered by unseasonally wet conditions and the late soybean harvest, and we were unable to plant all of the contracted hectares. We expanded in Uruguay and launched in Brazil with a very successful harvest and momentum for an increased planting in 2025. There was continued strong demand from growers in Argentina. We advanced our breeding pipeline with improved yields, oil content, shorter maturities and testing of herbicide tolerant traits. Although we expect industry conditions to improve, we are not sitting around waiting for that to happen. We have clear priorities to improve our business performance independently of movements in the cycle. We are targeting $50 million in annualised savings in overhead costs by the end of financial year 2025. These cost reductions are aimed at non-revenue generating functions. We want to operate in a leaner and more efficient way. We are targeting a 25-day year-on-year reduction in inventory also by the end of financial year 2025. We are refining our planning processes and behaviours so that we can operate with reduced stock levels that still meet customer demand. These and other initiatives aim to improve our profit and capital efficiency. We need a better return on funds employed. We have clear priorities for growth. We plan to continue to scale omega-3 and biofuels. We will make investment in areas where we believe that we can win. including strengthening our Phenoxy platform with the investment at WIKE, focusing our portfolio spend in areas with more immediate impact and leveraging our leading positions for more growth in canola, sorghum and sunflower seeds. We hand over to Paul and take you through the financial summary.

Thanks Greg and good morning everyone. Revenue was 4% below prior year, underlying EBITDA 29% below prior year and underlying EBIT 57% below prior year. Statutory net profit was a $6 billion loss. Material items included idle plant costs associated with improvements undertaken at Leviton and Wyke as well as restructuring costs. These costs were partly offset by profit on sale of surplus land utilisation of a deferred tax asset. It reported underlying basic earnings per share of negative 6.3 cents. At the end of financial year 24, net debt was $635 million, which was 25% below the prior year. Net leverage was two times underlying EBITDA. The reduction in net debt was principally driven by a reduction in net working capital, which we'll speak to, in more detail on the following page. Return on funds employed was 4%, which was 490 basis points below the prior year. The fall in return on funds employed was due mainly to a reduction in underlying EBIT compared with the prior year. Remedy declined 4% over the year. The reduction was mainly due to lower selling prices and a negative shift in mix in crop protection. Average selling price drifted modestly lower in the second half. We achieved strong growth in volume, which partly offset the negative impact of price and mix. Revenue increased in our seeds business, driven by the strong performance of our canola hybrids. Revenue from bioenergy was lower due to a lower level of licensing revenue, and as discussed by Greg, we grew omega-3 revenue. We reduced net working capital by 30% on the prior year. The reduction was driven by lower inventory, normalisation of payables and strong performance in the management of our receivables. Net working capital was $710 million lower than the first half, reflecting seasonal movement in working capital and reduction in inventory. As we have discussed on many occasions where a seasonal business and half on half fluctuations in work and capital are a normal part of our business. And this half sum wind is consistent with, in fact, pleasingly better than what was reported at the half on results in May. Operating cash flow was $472 million for financial year 24. Strong cash conversion was due to the net working capital reduction. I note that cash conversion has averaged 73% over the prior four years and we remain focused on this objective. In terms of working capital, we finished the period with a 300 million or 20% year-on-year reduction in inventory. Through advances in areas such as advanced collaborative forecasting, supply planning, seasonal business planning and supply chain agility, we expect to be able to further sustainably reduce inventory without negatively impacting customer service. We continue to see payables normalised as the business moves to a more normal cadence of replenishment. Trade and other receivables were in line with the prior year and reflected discipline in commercial terms in a competitive environment and strong collections performance. In terms of capital expenditure, It was $254 million for the period. This included targeted investments to address HSC and plant reliability at Wyke and growth at Cargo Heights and Laverton in the 24D area. These investments are aimed at reducing plant downtime and strategically expanding capacity and have strong near-term payoffs. We maintain investment to grow our seeds platforms, which remains a high priority. We also invested a number of small strategic investments of around $15 million, which Greg covered earlier. In FY25, we expect capital expenditure to be around $230 million. Seeds and portfolio CapEx are expected to be in line with the prior year. The majority of our seeds CapEx continues to go into our MEGA3 and Carinata growth platforms. Supply chain capex excluding Trans-End is expected to be lower than the prior year. We continue to assess investment into the Trans-End project which is a plan to expand Phenoxy manufacturing capacity at Wyke and maintain our global leadership position in Phenoxy herbicides. Trans-End is subject to a final investment decision which we expect to make during the first half of 2025. In terms of net debt, for the purpose of this presentation, we have provided you with a slightly different lens on our net debt, which we hope better assists you in understanding how we manage our debt position. Our asset-based lending facility is shown on the left of the graph. The ABL is secured against receivables and inventory and flexes up and down to accommodate movements in these balances. Reflecting our lower net worth and capital position, utilisation of the ABL was lower at the end of financial year 25 than financial year 23. We present remaining debt net of cash balances as core net debt. Largely this comprises our US senior unsecured notes, standby liquidity facility and local bank facilities. The US notes and syndicated loan facility that no financial maintenance covenants. Our targeted net leverage range of 1.5 to 2 times EBITDA reflects our desire to maintain conservative leverage through the cycle. At various points in the cycle, it is conceivable that we'll either be below the low end of the range or above the high end of the range. Largely, these deviations reflect cyclical variation in net working capital and earnings. Again, I emphasise that this leverage target is not related to the existence of debt covenants, but is set by our capital management principles. At the end of financial year 24, total net debt was $635 million, a 25% reduction on the prior year. The reduction in net debt was primarily driven by a reduction in net working capital. We had $355 million of undrawn facilities at Burlandstown. Net leverage was at two times over done, which is at the upper end of our target range. We're extremely proud of this result in the face of cyclically lower earnings. And lastly, just to assist you with your modelling, for financial year 25, we expect depreciation amortisation expense of around $210 million. Net interest expense, including the cost of FX hedging, expected to be around $90 million. and we expect an underlying effective tax rate of 26%. Capital expenditure is expected to be around $230 million. Now I'll hand back to Greg.

Thanks, Paul. Turning to the outlook, look, it would be premature to give earnings guidance now as there's really a long way to play out. I think instead let me try and give you some colour on how we're seeing our markets. There is solid end-use demand for our crop protection products and we are starting to see stable active ingredient prices for our crop protection products. Therefore, we're not expecting the same deflationary drag from falling AI prices that we saw in financial year 24. As a result, the outlook seems far more positive for our crop protection business. The setup for canola, sorghum and sunflower seeds is also positive, but as always, subject to the weather. We are targeting growth driven by supportive crop prices and multiple long-term demand drivers in food, feed and energy. We continue to invest to grow our omega-3 and our biofuels platforms. There has been some downward pressure in fish oils and biofuels pricing recently that will make it challenging to improve the profitability of those platforms in financial year 25. The outlook for plant-based omega-3 products is strong over the longer term. There is a constrained supply of fish oil and growing global demand for omega-3. At this stage, we are comfortable with our statement around two times revenue increase in financial year 25. It does remain subject to pricing and the overall market conditions. We believe that the growth of mandates creates strong long-term fundamentals for biofuels. We are conscious of pacing supply so that we don't get too far ahead of demand. This is an early stage business and so some patience is required as we scale. GHG premiums in the US have been low and the policy environment is obviously in a bit of flux. As a result, we've decided to pull back plantings in the US. We see Brazil and Argentina as being favourable for growing Carinata. Turning to the financial outlook, management is focused on reducing costs and working capital. improving return on funds employed and supporting our growth platforms. Networking capital at the end of the first half of 25 is expected to be in line with the first half 24 with a higher investment required to support growth in Omega 3. We are targeting $50 million of annualised savings in overhead costs and a 25-day year-on-year reduction in inventory by the end of financial year 25. We continue to work towards our financial year 26 revenue aspirations of 600, 700 million from seed technologies and 3.8 to 3.9 billion from crop protection, which obviously depends on our return to long-term average pricing. If you were to think about the revenue component for crop protection, We are doing well with new product introductions and getting market volume. You can see that in our numbers. The thing is that is out of our control is market pricing. Now we expect market pricing to recover from current levels, but we can't predict to what extent over the next two years. With an expanded omega-3 canola harvest in 2024, we expect to double omega-3 revenues in 2025, assuming current market positioning holds. Our focus in financial year 25 is on improving returns. I spoke at the point that Brent Zacharias and Rico Christensen, so Brent is responsible for the growth of our seed technologies platforms and Rico for our crop protection platforms, will be joining both Paul and myself now for the Q&A session. And I'll hand back to Harmony to kick that off.

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 2. And if you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Evan Karatsis from UBS. Please go ahead.

Hi, morning, Greg and Paul. Maybe just firstly for me, can you just speak to how you're thinking about the crop protection industry, especially in relation to pricing and potential excess production or capacity coming out of China? And then I guess related to that, just how that plays into your expectation, if any, for recovery in those GP margins from current sort of end FY24 levels as well, please.

Yeah, thanks, Evan. I guess that's a pretty important question. So let me try and tackle that from a few different perspectives. If we take that structural question first, and it's really to, has there been manufacturing capacity added in China? And obviously the answer to that question is yes. Therefore, if you had significant manufacturing footprint outside of China, that might be an issue for you. And I just make the point that Over the last five or six years, we have significantly reduced our footprint and we now have two very focused facilities, synthesis facilities. So one of them obviously here at Laverton that produces 2,4-D. I'm comfortable with the competitive position of that plant, particularly whilst we've got the 30% tariffs on 2,4-D imports. And as long as the Australian government wants to maintain what we think is sovereign capability, it should remain competitive. And the other plant, of course, is the operation that we have at WIKE, which primarily manufactures NCPA, and we're the global leader in that molecule. So therefore, essentially, we're talking two active ingredients. For pretty much everything else, We're a customer for China and India-based manufacturers. And the question really is, for everything else, do we have competitive sourcing arrangements in place? And the answer to that question is yes. So hopefully that sort of covers the structural issue. In terms of the cyclical, how has that played out for us given the recent downturn? And there's probably three points we'd make. The first is, that we needed to sell through the higher cost inventory. And as we replenished, the prices continued to decline and that negative impact continued to play out through 24. And I think we gave you some sort of touch points when we provided the update back in August. We're now saying to you that prices have stabilised over recent trading. And the stabilisation of prices is an important reason why we're saying that the outlook for 25 looks to be better than it was in 24. The second issue was that as distributors were reducing inventory, their requirement to reorder was naturally lower than it normally would be, and there was still stock being held by New Farm and clearly by our competitors. And that situation led to... higher levels of price competition than we would normally experience. And you can see from our inventory result, and many in the industry, that those legacy inventory balances have now largely been cleared. You know, there's still a couple of pockets, but I would say largely that the supplier inventory is normal. Distributor inventories, however, are at low levels. And I almost go so far as to say that if there was some supply bottleneck or some supply shock, you know, the situation could be reversed pretty quickly and the channel would be scrambling for inventory. And I guess the third and last point is that there will be cyclical upward pressure on prices. You know, why do we say that? Well, one of the reasons is that, you know, China-based, particularly China-based manufacturers are now generating single digit returns. So the price reductions against China are have come at the expense of profitability. I can't predict how that situation plays out. We said we can't predict what will happen with pricing, but it does look to us that the current low level of industry profitability means that there's more chance of upward pressure on prices than downward pressure on prices, and downward pressure on prices that we've seen over the last 18 months. Hopefully that sort of tries to cover or give you an answer on the structural and the cyclical issues.

Yeah, no, it does. Yeah, that's really good sort of colouring information. Okay, so just a final sort of follow-up there. If current pricing maintains, you should get a natural, you know, GP margin recovery because you're not having that, as you're saying, this sort of downwards pressure on your Your COGS. Sorry, your end market price and the COGS. So is that the way you think about it?

Yeah, that's correct. And, you know, in sort of recent trading, we've seen margin improvement on, I'd say, on similar volumes in North America. And to your point, you know, COGS have now caught up with the lower prices coming out of China. In Europe, you know, we're certainly seeing a slight margin improvement. Sales and volumes stronger again. High COGS inventory has largely been sold through. I've referred to a couple of pockets and one of those is in Europe where we tend to have higher volumes of insecticides and fungicides. But I don't see that as being a material issue. And here in APAC, margin is in line with what we saw last year, again in early trading. but volumes are up and we're certainly seeing an improvement in 2,4-D pricing and that's certainly a tailwind compared to where we were at this time last year.

Yes, that's a great question. Thanks.

Thank you. Your next question comes from William Park from Citi. Please go ahead.

Thank you, Greg and Paul, for taking my question. Can I just ask a question around how you're thinking about payables heading into, I guess, first half of FY25? I appreciate that you've been able to sort of lock in improved customer terms, negotiated these terms with suppliers, as well as your stock management being more effective. Can I just ask how you're sort of thinking about payables? Does it go back to sort of the first half FY24 levels, or should we expect that to sort of be more elevated? Just wanted to get your sense around how you're thinking about payables. Thank you.

Yeah, I guess, thanks. I think the way you look at it is the payable days, and we expect in terms of So the relationship you need to look at is really inventory and payables. We pulled that down by about $60 million in the second half and we expect that there's more to come by reducing inventory. So don't just look at payables. You really need to have a look at the relationship between inventory and payables and we think we can squeeze that further and that is on the back of what Greg mentioned, the 25-day reduction. Now that 25 reduction, because I know your question is in the first half, That 25-day reduction is actually timed by the end of the year. So in the first half, we don't expect there to be much movement, but there will be a little bit. But the real impact is going to be towards the end of the FY25 year, where we'll be able to get that more sustainable reduction in inventory and therefore squeezing the relationship between payables and inventory even more.

And perhaps if I could turn our attention to licensing revenue, can you give us a sense around what the quantum of that was in second half and what we should expect going forward?

Sorry, just repeat the question. What revenue?

So licensing to royalty, licensing revenue? Yeah.

Yeah, it's in the notes. Last year we had $55 million. I think this year it's about $46 million. So there's a movement of about $8 or $9 million.

And then expectations going forward?

Yeah, so we expect that revenue to come off because a big chunk of that, and we spoke about this last year, was the revenue associated with the BP arrangements. So we expect that revenue to come off more next year, so you'd expect that to be down.

Thank you. And then one last question I had is around potential sort of US tariff implications. So if you sort of think about your crop protection business in North America, particularly in the US, I know you touched on purchasing decisions still sort of being delayed across the board. But given potential for this US tariff being introduced, are you seeing some early signs of purchasing decisions being put forward?

Well, let me just cover that in two ways. One is there has been duties announced recently, so in the last couple of weeks on 2.4D. So these are duties from China and India manufacturers. For Chinese manufacturers, it was as high as 127%. And as low as 17%, it varies by manufacturer. And tariffs out of India, about 8.5%. So that voids well for our manufacturing operations here in Australia. And as I said, we expanded that operation or that production capacity in 2024. On tariffs more generally, it's really too early to speculate. We just don't know what, how, when and where, but generally I'd say that we're pretty comfortable with our position. We export, as I said, from WIKE, our WIKE operations in the UK to our businesses globally and to some third-party customers. There's no suggestion that we'll see tariffs on the production out of WIKE. We have some flexibility, as I said earlier, to source from the most advantaged regions. So I certainly don't think we're going to be any worse off than our competitors. And in some situations, like the 2,4-D manufacturing here in Australia, into the US market, we might be better off.

Thank you. Thanks for taking my question.

Thank you. Your next question comes from Reinhard Vanderwalt from Bank of America. Please go ahead.

Good morning, Greg and Paul. Thanks for taking my question. Greg, I just wanted to ask a follow-up on your comments around sort of the structural dynamics as it relates to China. You know, you mentioned that the Chinese manufacturer returns are currently single-digit. But, I mean, if you look at some other material sectors, you know, the Chinese could potentially potentially keep those low returns going for quite some time. How do you think this cycle plays out and how do you think the market digests the risk that Chinese production maybe doesn't actually become disciplined on pricing? I guess what I'm looking to understand is whether that pricing discipline out of China is a must-have prerequisite for us to see a material recovery here.

Well, I think... The only way I can really answer that is they're our suppliers. I'm not sure I can add much more to your comments that I made earlier. The only impact that we've got is our synthesis operations here and in the UK and in every other instance. We can buy from China, we can buy from India and we're now starting to see volumes from India increase. I mean, we still heavily rely on China. I accept that. But, you know, we do have the option of buying some of our active ingredients from India as well.

Got it. Understood. No, thanks for the colour. And can I just, you know, you mentioned that there are still a few parts of your portfolio where you're still seeing some excess manufacturer inventories. Can you just give us a sense of what some of those specific product areas are?

Well, I think my comments were in relation to small pockets, and specifically in Europe, where just given the nature of the season in 24, there were some missed applications for insecticides and fungicides, and we're carrying some of that inventory through into 2025. Apart from that, which I'd say is relatively immaterial, we have worked our way through or the higher-priced inventory well set up as we go into 2025.

Got it. Understood. So is it fair to assume then, given that high-cost inventory is now sort of out of the system, that the margin recovery could look really quite V-shaped or L-shaped? Or are you expecting a slightly more symmetrical sort of recovery in margins over the next couple of years?

Well, I guess that's the $90 million question. I think what we are saying is we will not see the drag that we saw in financial year 24 from the fall in active ingredient prices. If we stay with the assumption that AI prices have stabilized, then we should see that improvement come through in financial year 25.

Got it. Perfect. Thanks. And maybe just one last one, just some of these cost reductions that you're pointing to. Is this you kind of not letting a crisis go to waste and finding some opportunities for some permanent cost out or is this just a variabilisation of some of your cost base and can we expect some of those to eventually come back in again?

These are real cost savings and in fact we've already implemented some of these initiatives and hence why we've got a restructuring provision. Also, I'd like to point out that we don't anticipate these savings to be targeted at any of our growth projects or any other growth initiatives that we have. So we need to isolate really those costs and pretty much overhead back office type support costs and we're going after those so we're not going to be impacting any of our growth agendas. The other thing too is that we will be reporting on these. And the other aspect is that it's going to be, you know, the question is, well, how do we see them? The question is, what we need to do is isolate what's our growth investment, what's going to be our volume growth, because in our SG&A expenses, you get distribution costs inside those costs as well. And then we're going to have to sort of show how we're actually, what savings we've achieved through those overhead reductions. So very much, we're really clear on this in terms of how we're going to, go after it and be clear on how we're going to report to it because it's a question of it will not be absolutely visible in our accounts so therefore we need to provide a really good bridge to enable everyone and that includes ourselves, the board and market to how we're tracking against these cost reduction initiatives.

Maybe if I just add another point to that. growing our volume in crop protection and seeds in 2025. And to the extent that we do that, those volume-related costs will increase. I think, as Paul said, the important outcome is that these savings help us become more efficient and more competitive, help us grow our profit and improve our returns. And as Paul has undertaken, we will report to you on the progress in the savings that we are generating as we go through 2025.

Understood. That's very helpful. Thanks, Greg and Paul.

Thank you. Our next question comes from Owen Barrow from RBC. Please go ahead.

Yeah, good morning, guys. Just a bit of a follow-up question to Reinhardt's question there on the cost savings. You talk about $50 million of annualised cost saving. Can you give us a sense of whether that's an end-of-period run rate or you expect to achieve $50 million through the course of FY25?

Yeah, it's an end-of-period run rate. We will obviously have some impact this year, but the full impact will be in FY26. So it's an end-of-period run rate.

Okay. Are you able to give us a sense of, I guess, where they're coming from to, I guess, give us a sense of, I guess, how achievable they are? I mean, if it's literally just cutting heads, then clearly much more achievable than if it's driving productivity or cost deficiencies.

Yeah, so... I guess more than 50% is going to be headcount reduction. But with that, it's important that we've got a redesigned process. You just can't reduce heads and then expect to do the same things in the same way with the same people. So this is involving how do we redefine our processes, how do we redefine what we do and what we don't do. So there's a lot of work that's going on that. Back to your question, most of it's headcount, so that's going to be a lot easier to achieve. However, having said that, we need to implement revised processes to enable us to be effective and efficient in the go forward.

Okay. And I guess the second question for me, just looking at the Amiga 3's platform, you sort of reiterated the target for sort of doubling those revenues in FY25, and I think you're your broader SEEDS revenue targets of about 600 to 700 mil by 26. I just wanted to get a sense of how much of an impact the softer near-term pricing is having on that. Are you having to sort of, I guess, increase the volumes to sort of hit those targets, hence the increased investment, or were you already sort of factoring in this level of volume target?

Well, I think... Maybe I'll get Brent to come in in a minute. But I think it's sort of important that we understand where we're on in our seeds journey. And as I said in the remarks earlier, the first point is that we're confident in the long-term growth of our base seeds business, as we call it, our sunflower, sorghum and canola. I mean, that is a material contributor to the $600 million to $700 million revenue aspirations. It'll take longer. more time to grow our omega-3 and biofuels to a level at which they make a meaningful contribution to profit. And, you know, as we've shared with you today, you know, the variation in market pricing does have an influence on the rate of revenue growth. And maybe, Brent, if you could come in and maybe make some specific comments around fish oil prices and just how we see that playing out over the next year or two.

Yeah, certainly. Thanks for the question, Owen. You know, I guess if you look at, you know, one of the benchmarks that we think is most relevant for us to follow the North Atlantic fish oil pricing, you know, in September it was sitting around $3,200 per metric ton, and as recently as May 2024, that price was $5,000 a ton. So, you know, the pricing has decreased, you know, more quickly than we anticipated, and I think more quickly than the whole industry anticipated. Although the market is more competitive, the answer to your question is yes, we will have to sell obviously more volume to achieve that type of revenue under the pricing that's currently in the marketplace, but it does change quite quickly. The market is competitive, but our focus is on establishing Omega-3 as a reliable alternative source feed in the aquaculture industry. And recently we've also commented on expanding our position in human use. So, you know, I'd say we're comfortable with the progress that we're making on scaling the platform. And as Greg had mentioned, the new varieties that we're growing are improving the productivity of that crop and our oil, pardon me, our oil profile. You know, I just maybe conclude by saying, you know, we do have a scalable platform with constantly improving cost positions. that doesn't require us to invest large components of capital investment like other technologies do. So we're quite enthusiastic about where we're at and the progress that we've made even this last year on revenues.

There was a comment made earlier that the SEEDS platform earnings were depressed somewhat because of some additional costs to expand the platform. Are you able to quantify that additional cost and give us a sense as to whether it's a one-off cost or whether that's an ongoing cost that we need to factor into our numbers?

Yeah, I think Paul had called out that one of the things that impacted us probably mostly was a reduction in licensing revenue. But the increase in cost that we have to scale both Omega-3 and our biofuels platforms is does also contribute to a lesser extent. And, you know, I would say that that will variabilize and scale with the step up in volumes over time, but it's not that significant. It's really leveraging the sales teams and the boots on the ground that we have, you know, within our key markets, U.S. supplying most of our Omega-3 platform and Latin America supplying most of our Carinata platform.

That's excellent. Can I just get you to reiterate those prices you said for North Atlantic, for sure?

Yeah. So in September, the market was sitting at about $3,200 per metric ton for the North Atlantic market. But in May, it was as high as $5,000 a ton. Right. Okay. Thank you. Thanks, guys.

Thanks, Owen. Thank you. The next question comes from Steve Ben from Bank of America. Please go ahead.

Yes, thank you. I was very, very curious to hear about your outlook for the 24D demand in the U.S. You mentioned the recent duties imposed on Chinese imports of the 24D. I'm just curious whether you're also seeing any increase in demand for 24D in the states because Dicamba is currently not available and, you know, it's a primary alternative for broadleaf control. So, is that also driving demand for you and maybe a longer-term question is, do you see the opportunity for your 2,4-B to be applied as a post-emergent application on the 2,4-D tolerant cotton and soybean crops, the enlist trait?

Let me take the second piece first, Steve. Thanks for the question. Well, as you're aware, we don't have a license to apply over the top of those crops. So our focus really has been in the burn down and post-harvest, not over the top. We're certainly seeing, and we have seen over recent weeks, as there was speculation around what the tariff levels might be, we've seen an increase in demand for 2,4-D. And now that the tariffs have been announced, we're just working through how and where we will supply that market from. And we have very good supply requirements relationships out of China for 2,4-D into the North American market. As I think you'd be aware, there were differential tariffs on certain suppliers. Our main supplier is probably advantaged more than some others, so we see that as a positive for New Farm. Given the increased production here at Labaton and where we see demand in the domestic market, it allows us to channel. And we haven't really decided at this stage what volumes that we will channel from our Australian production into the North American market. But I think the point I made was that at least we have that flexibility. And your point on Dike Amber is exactly right. We see demand. 2,4-D being a beneficiary of those regulatory changes.

And is there a pathway forward for you to get access to over-the-top spraying of 2,4-D? You mentioned needing a license. Is that a pathway forward for you? And I also wanted to just ask about, you know, gene editing in your seed platform. a lot of proliferation going on out there with the use of gene editing to affect traits that are not GMO. Is that an opportunity for you? Are you already using the technology to drive yields or oil content, or is this an opportunity down the road?

I think it's more of an opportunity down the road. Certainly for our – Carinata, potentially Camelina, and other specialty crops that we are focusing on. We are doing some work around traits, but it will take some time. It's certainly not going to have a material impact on earnings in the short term.

And the over-the-top opportunity for you, Greg? Is that possible?

Yeah, look, I think, as you know, One of our major players has got those licenses. We'll continue to have conversations, but frankly, again, in the short term, I'm not that confident that we'll get a license to over the top.

Okay. Thank you.

Thank you. Your next question comes from Scott Riles from Rumour Equity Research. Please go ahead.

Hi there. Thank you very much. Hopefully a couple of quick ones and then a slightly longer one. Just could you confirm if your inventory days target is to go down to 25 days over the course of this year, what do you guys consider your inventory days were in this year? I can't find it in your disclosed stuff. I know what my calculation says, but I'd be interested in what yours is.

Yeah, okay. Just going to my notes. Just give me a second on that. 143 days is what we've got in the calculation. So you reduce that by down to from 143 down to 25 days. Just remember when you look at that, you get a calculation of about $150 million of net inventory reduction but you also get a decrease in your payables too because you just don't get that straight to the bottom line. There will also be a reduction in payables but it's really factoring in that you even further narrow that inventory payables relationship. end up there, but certainly that squeeze.

Understood. Thank you. And then in the first half result, Appendix 11, you used to give price indices for major product groups, which you haven't given this time around. I'm just wondering, based on your commentary, is it fair to say that across the herbicides, fungicides, insecticides price indices that you used to give that you haven't seen a lot of change since the first half result?

Richard, did you want to make a comment in relation to pricing?

I just want to make sure my question was that have you seen any material changes in pricing in the second half?

Yeah, it's really over the second half. You gave three charts that showed herbicides, fungicides, insecticides versus the longer-term mean, and I'm just trying to get a sense of whether that has moved much over the last six months since you gave those charts?

Since we gave those charts, there have not been material changes.

Okay, great. Thank you.

That was easy. This is also what Greg also mentioned earlier, is that we've largely seen stability in pricing during this period.

Yep. Okay, perfect. I just wanted to clarify relative to the mean. Thank you. Then in your presentation today, in Appendix 10, you've put all your global crop protection product development pipeline. Given now a couple of these products have actually come in and been part of the sales mix over the last 12 months, are you able to comment on how meaningful they are within the kind of $2.9 billion of sales that you reported for fiscal 24, please?

I think on that, Rico, maybe you can explain how we think about new product introductions. In our prepared remarks, we talked about 15% of our revenues in 24 coming from new product introductions. Maybe you can give some colour around how we well, how we track that, how we measure that, and the impacts that we see in 2526 from MPIs.

So as we also mentioned in the release, we are right now at what we call the innovation rate of 15% of MPI, meaning that of the crop protection revenue, 15% are new products that have been launched recently. And that number will swing slightly, but not a lot, Over the coming years, we typically hover around that 15% innovation rate every year, and we'll also see that in 25 and 26.

So if something appears in there in one year, then do you not consider it part of the NPIs for the following year because it's more entrenched? Is that what you mean?

Yeah, so we... So we typically track, we call it an NPI for five years. So five years after it's been launched, it's still considered an NPI. And the reason is that typically we have a stack at launch. So we don't launch in all markets at the same time. But where the product has been launched, as an example, in Australia, in 23, it will be tracked until the end of 27. And then if it's been launched in, let's say, the U.S. in 24, it'll be tracked until the end of 28 and considered NPI during that five-year period.

Understood. Very helpful. Thank you. And then my last question is to you, there's been over the last, you know, some time quite a bit of change in terms of what the European market will accept in terms of chemicals across some of your portfolio and fertilisers and beyond. Do you have a metric that, would help us understand in terms of your sales into every market outside of Europe, what proportion of your products would not be able to be sold into Europe?

No, that I don't have with me here. We have some products that are sold in markets outside of Europe that have been phased out in Europe, but it's not And in fact, what we have seen is that typically in Europe, we have a product that we expect to get phased out, and then there are typical delays, which actually means that we still retain the business not only in the EU, but also in other markets around the world. But it is not a significant number. Okay. Brilliant. Thank you.

That's a lot. Just a second. Just adding to that, I think the regulatory profile in Europe is completely different to the regulatory profile in the Americas and in APAC. What we did call out back in 2022 when we talked about our revenue aspirations in crop protection, we talked about $170 million of cannibalisation and $130 million of revenue impact on regulatory outs in Europe. We're through that and we don't expect any material regulatory outs in 2025 or 2026 in Europe.

Brilliant. Very helpful. Thank you.

Scott, just wanted to clarify that inventory days. That 143 was an average of our inventory days and the 25... be able to do the calculation. So 170 is the closing inventory days. That 143 was our average so I just want to make sure that's clear. The 25 is off to 170.

Okay, great. Thank you.

Thank you. Your next question comes from John Patel from Macquarie. Please go ahead.

Oh, good morning, Greg and Paul. Hope you're well. Just a couple of quick ones. Appreciate you having given guidance for the year ahead, but in terms of sort of first half, second half skews, perhaps just any broad, I suppose, directional commentary. I mean, the last, I think, few years we've sort of seen a heavily skewed sort of, you know, 70-30 sort of style EBITDA, first half, second half. Are you expecting, I think, directionally that to be a bit more normal? I think in the past you've talked to kind of 55-45 as being more normal.

Yeah, so anywhere between 55-45 or 60-40, John, is quite normal. So you can even probably split the difference if you have to, but it really depends on where, you know, timing of sales and so forth. But we're sort of thinking in that range of 55-60 to 40-45.

Thank you. And just that, I mean, typically before we see, obviously, a seasonal pick-up in, in that working capital and in that first half and the gearing as well, just trying to sort of get a sense of what that's looking like for the first half and what you can see, I suppose, just in terms of the working capital uplift. I know you've given some commentary on that, just trying to think through that.

Yeah, and we sort of indicated that we expected networks the end of the first half, 24. And the reason for that is, you know, we're growing volumes, so crop protection will just grow normally through the normal seasonal build, which is what we've done previously. But importantly is scaling our omega-3 bits in particular. So that's going to demand or require a fair bit of investment in working capital, so that's going to be, you know, a fair chunk, and that's... Thank you.

Thank you. There are no further questions at this time. I'll now hand back to Mr Hunt for closing remarks.

Thank you Harmony and thank you everyone for your time today and for your interest in New Farm and we look forward to catching up with some of you over the next few days. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.