Earnings Transcript for NUF.AX - Q2 Fiscal Year 2024

Greg Hunt: Thank you, Ashley. Good morning, everyone. Welcome to Nufarm'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 2 and in particular, statement relating to forward-looking statements. And to the result, despite 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, Nufarm 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 million 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 3.6x 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 supportive. 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 1.5x to 2x 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. Our recovery from cyclically 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 million 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 planned. 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 U.S. 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 Nutriterra segments in the U.S.A. We reaffirm our guidance for FY '24, Omega-3 revenue of $50 million 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 U.S.A., and we held launch events in France and Spain. In an important regulatory development, cover crops were included in Annex IX 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 IX 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 gain 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 reported 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 nonselective 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 seasonal conditions on the East Coast of Australia and Indonesia resulted in strong demand and a normalization of inventory levels. Declining global prices for cane 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 plan in Laverton is being brought 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 distributor destocking. Whilst it 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 Wyke, 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 turns, improving commercial disciplines and focused use of capital. Our investments in reliability to further improve HSE performance and production capacity at our Wyke manufacturing facility and expanding capacity and reducing the cost of '24 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 sunflower and Brazil sorghum revenue was softer due to lower plantings. 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 U.S.A. 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 for distribution and marketing within certain Nutraceutical segments in the U.S. for expansion of our Nutriterra 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. Nufarm 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, policymakers 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 Paraguay. Our first year of farm contracting and geographical expansion from the Brazil market is also well advanced in contracts with farmers in hand. Initial launch activities have been conducted in Spain and France or small commercial scale planting in 2024. Meanwhile, governments are increasingly creating mandates and incentives to increase SAP production. The EU moves to a 2% SAP mandate from 2025. The mandate rises to 6% from 2030 and hit 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.

Paul Townsend: Thanks, Greg, and good morning, everyone. In the first half of fiscal '24, we reported revenue of $1.8 billion, underlying EBITDA of $217 million and underlying NPAT of $51 million. Underlying NPAT was broadly in line with statutory [indiscernible] of $49 million. We declared an interim dividend of $0.04 per share Comparison with the prior year, revenue declined 10%. Underlying EBITDA declined 31%, underlying EBIT declined 8%. Talk about network capital leverage in detail on subsequent slides. Importantly, I'd note that comparison with the prior period is impacted by the expected change in EBITDA phasing between the first half and second half financial year '24 as compared with financial year '23. As you may recall, in FY '23 EBITDA in the first half, 72% of the full year [indiscernible]. In FY '24, 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. Crop 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 destocking 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. Pleasingly, 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 for prices. Changes in 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 $559 million outflow experienced in first half '23 and reflects a more normal seasonal level of net working capital. We achieved a small reduction in net working 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 guns as of period end, which we will discuss on the next slide. Consistent with prior years, significant cash inflow is expected from the net working capital movement in the second half. By way of illustration, the 3-year average first half to second half receivables movement or cash inflow, that's 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 price prior 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 the prior corresponding period, reflecting a strong finish to the first half. Payables were $189 million below the prior [indiscernible] period, reflecting the reduced levels ordering. Average net working to 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 net working capital to 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 on hand. Inventory seeds increased to support the growth of that business. And overall, inventory fell 20% year-over-year. CapEx expenditure. CapEx was $110 million in the first half. Spending on property, plant and equipment was in line with the prior corresponding period and driven mainly by our investments in further improvements in health, safety, 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 3 years across the business on a range of initiatives, in particular, Wyke in the U.K. 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 included a preliminary spend of $8 million on a major investment in Wyke, which is expected to be $140 million over the next 3 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 at [indiscernible] operation. As indicated in the financial year '23 full year results, we expect total CapEx spend to be around $240 million, consistent with FY '23. I'd also note that we expect to finalize the sale of noncore 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, with the target return is greater than new farms weighted average cost of capital. Net debt. We finished the period with net debt of $1.2 billion. Net leverage was 3.6x 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 a phasing impact, adjusting the second half '23 EBITDA to reflect a more normal 55/45 set 1H 2H split for FY '23. Adjusted net leverage for the 12 months ending 31 March '24 would have been 2.9x inline EBITDA. We expect leverage to be within the upper end of our 1.5x to 2x target by the end of FY '24, assuming a normal unwind of working capital in the second half and that we achieved our FY '24 EBITDA outlook. Nufarm's debt facilities and available liquidity continue to provide a flexible and durable covenant-light capital structure that accommodates volatility in our net working capital side. We have no near- to medium-term refinance requirements and the group retains access to substantial amounts of cash and committed backed liquidity. FY '24 leverage expectations. I'd like to spend a few minutes discussing the expected path back to 1.5x to 2x leverage in FY '24. 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 a seasonal reduction in receivables. For reference purposes, I've indicated that the average first half or second half reduction in receivables over the past 3 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, et cetera. The bottom half of the chart shows the expected change in LTM underlying EBITDA based on our guidance. If you do a little math 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 1.5x to 2x leverage at the end of FY '24. Importantly, the anticipated reduction in receivables is based on a normal unwind of working capital in there, specifically the seasonal phasing of sales and collections. If sales, for example, are heavily weighted to the end of the second half and the return to our leverage target would be delayed. Under that circumstance, we would still anticipate getting back to within range just a few months later than the close of FY '24. Further, moving back to within the target leverage range also assumes that we achieve our EBITDA outlook for FY '24. I hope this page helps you to inform a view about our anticipated path back to our leverage timing range. And finally, on other expected financial outlooks. 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 period. 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 and the tax rate is expected to be 23% for the full year '24. I'll now hand back to Greg.

Greg Hunt: Thank you, Paul. I want to take some time to discuss the pricing environment and our expectations 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 distributor destocking, which has led manufacturers to sell product at lower prices. The data is taken from independent data sources [indiscernible]. 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 manufacturing 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, in 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 billion to $3.9 billion by financial year '26 in our Crop Protection business. Achieving that target is based on management forecast 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 believe would contribute to achieving or would help to contribute to achieving our FY '26 revenue aspirations. I can now say that as of today, the majority of those projects appear to being launched or are in launch phase. As we move in 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 completed a $70 billion market. That market is primarily off patent, which means that there are a few barriers to us competing with innovative formulations that are affordable and effective for growers. Growing population incomes and demand food creates a strong backdrop to demand. Moving on to the next slide. On this page, we show a 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 mega business. Over recent years, we have continued to scale our grower relationships and commercial sales in Chile, the U.S.A. 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 2 in country verification in China. That is a necessary step towards meeting the regulatory approval requirements in that country. Previously, we've discussed that partnerships could be an important mode for increasing the presence of Nutriterra in the human supplements and food ingredients markets. During the period, we appointed Connoils as our exclusive partner for producing and distributing Nutriterra DHA canola oil in powder formats. Connoils is a leading international oil powder manufacturer, distributor and wholesale supplier of bulk oil ingredients. In 2025 and '26, we expect to continue to scale [indiscernible] production. Whilst our main focus will continue to be [indiscernible], we also expect to see opportunities for expansion, probably through partnerships in human nutrition and other segments of the markets. We're seeing biofuels as a long-term growth platform for Nufarm extending well beyond our '26 aspirations. We launched Carinata in Argentina in 2018 and made the first shipment of Carinata for commercial scale crush in 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 U.S.A. and launched our first hybrids. In 2024, we are expanding our production further in the Southern U.S.A. and Argentina, and we've launched plantings in Brazil. We also held launch events in France and Spain. From 2025, SAP markets enter an important phase with mandates taking effect in a number of important large aviation markets. The [ADAMA] 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 SAP mandates commences in 2026, and Japan and the U.K. have also announced policies for at least 10% mandated SAP, blending by 2030. We've also highlighted the inclusion of cover crops in Annex IX of the EU's Renewable Energy Directive. 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 mills. We see a strong future for our biofuels platform. Turning now to outlook. Despite the interim 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 Nufarm. For fiscal 2024, we are guiding to underlying EBITDA of between $350 million 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 2 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 million 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 are on track to meet aspirations for revenue from Crop Protection of $3.8 million to $3.9 million, and revenues from Seed Technologies of $700 million in financial year '26. This is based on management forecast and assumes a return to long-term average pricing proportion. 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 product 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.

Operator: [Operator Instructions]. Your first question comes from Evan Karatzas with UBS.

Evan Karatzas: Maybe just to start, could we just get an idea of what you're expecting from the various regions for the second half, how demand is margins, et cetera?

Greg Hunt: Yes. Thanks, Evan. So I would say, it's at a macro level, I'd say that [indiscernible], as I said in the presentation market fundamentals still remain pretty sound. Although grain prices have fallen from the record levels that we've seen, they still remain relatively high. So demand for grain, oilseeds and biofuels is strong and should support seed sales. And I guess grain prices at current levels mean that farmers will continue to look to maximize yields. Therefore, demand for Crop Protection products remain strong. If we look at -- well, 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 will change our half-on-half phasing in North America, 70% of the U.S. corn and 60% of the soybean crops being planted. Our [indiscernible] 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 has 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 wind crop. [indiscernible] South Australia remain pretty dry. However, plantings are underway, and 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 favorable. 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 2,4-D. This is now 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 U.K. 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, which contrast, if you remember last year, where it was a very, very dry season. So that sets us up for a stronger second half in in the Southern parts. And one other thing I think I'd call out is we're seeing increased [indiscernible] pressure. So that's driving demand for a seat of a [indiscernible]. That was one of the key products that we acquired 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 planting this year. And as I've already said, we're pretty much on track for Omega-3 and Carinata planting. 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.

Evan Karatzas: Yes. Maybe just one more, if I can. I'm just looking at Slide 9, that $390 million impact from price, obviously, you would have had a degree of COGS reduction, which offsets that once you get to gross profit. But I'm just trying to understand, within that $390 million, what was the gross profit impact from selling through some of the out-of-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?

Paul Townsend: Yes. Look, there's no doubt on Greg called it out. We've had margin pressure. So whilst we've been able to make some margin at [indiscernible] pretty skinny because we hadn'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 [indiscernible] recovery but volume growth is what we're expecting in the second half to really deliver is not -- we're not relying on pricing per se, but also say that there is an element of a small pricing. So margin should expand that second half through [indiscernible] a little bit more upward pressure on pricing, plus having sold through some of the higher-priced inventory.

Greg Hunt: So Evan, if I can just add a little more color to that. So I’d say in North America, where we’re a significant player in nonselective herbicides, I’d say we’ve moved that inventory through the same here in Australia. And 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 the other 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 we’re not operating in Crop Protection in Brazil there, 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.

Operator: Your next question is from John Purtell with Macquarie.

John Purtell: Greg and Paul. Just had a couple of questions, please. Greg, thanks for the color there, just around some of that inventory there. But I suppose just from a broader industry point of view, where do you see channel stock sitting still by the sounds of things, still high in Europe that are receiving in other jurisdictions?

Greg Hunt: So yes, I think it's the composition, John. So as I said, in North America, we've largely worked our way through. And I think t's not just us, I think we're certainly comfortable that we've worked through our inventory 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 it 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 U.K. 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 the course of 2024.

John Purtell: And just on Europe, obviously, it was down significantly in the last half, and you've called out some of the timing and 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?

Greg Hunt: 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 wide so the industrial sales is 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 wide perspective through the second half of '24. But [indiscernible] has been a major component of the underperformance in Europe in the first half versus last year.

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

Paul Townsend: Yes. So we used that illustration, John. I mean we can only plan with what happens historically, et cetera. So that’s why we called out that on average, $533 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 [indiscernible] plus is going to come from the receivables unwind, and then you’ll have a bit through the inventory reduction and payables for squeezing.

Operator: Your next question comes from William Park with Citi.

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

Paul Townsend: So we expect to see some idle plant capacity to continue toward global line and the majority will be [indiscernible], 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, normalize the overhead recovery so that we get a truer if like normalized position for the operation. So yes, so expect to see some further charges below the line in the second half.

William Park: Could you just step through what that could potentially look like in second half or?

Paul Townsend: There 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 the work schedule.

William Park: Now, that makes sense. And just looking at your EBITDA guidance for the full year, I appreciate that second half EBITDA at midpoint, 25% for year-on-year. Can you just go through what the growth we should be thinking about with [indiscernible] technologies and Crop Protection? Do you expect that +20% 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?

Paul Townsend: Okay. I think Greg covered Crop Protection pretty successful. One other piece on seed is that we’re cycling a big number on the licensing revenues in the second half last year. So that would put 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 plus and seed treatment as well. So seed treatment is going to be down for the destocking that Greg talked about in the speech. We also got some investment in a higher investment in SG&A to support the growth of the business. And then you’ve got the 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 that’s a [indiscernible] down. So that’s the bridge [indiscernible].

Operator: Your next question comes from James Ferrier with Wilsons Advisory.

James Ferrier : 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? Is it the actual extent of the premium or discount to the main historical pricing? Is that what we should focus on? Or is it more about the sequential trajectory of pricing? Just interested in some color there, please?

Paul Townsend: So James, is your question in the context of the FY '26 aspirations?

James Ferrier : 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. But 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 could start to say there's a favorable earnings inflow?

Paul Townsend: It is sequential. As that [indiscernible] to see a favorable movement because the market reflects contemporary price. And as prices increase, you tend to get margin expansion because you've got holding lower inventory, and that's what we've seen. In the past, that's what happened in FY '22, when we called out -- that's why we got expanded margins, your pricing as the curve goes up and you have lower cost inventory, similarly here, as the price rises, again, you should get expanded margins.

Greg Hunt: 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 normalizes, 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 was the $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 could expect to see somewhere between $400 million and $600 million of revenue upside from price movements. We've said that we're halfway through the NPI. So you could add another $200 million, $250 million of revenue from where we are today in relation to NPIs.

James Ferrier : That's helpful, Greg. Second question is around the base seed business. You described that the performance very 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 seed earnings declined year-on-year, but perhaps I'm missing something there.

Paul Townsend: Base seed’s up, James. What you are seeing is seed treatment is down. And also we invested in SG&A to support the growth performance absolutely some of the offsets [indiscernible].

Operator: Your next question comes from Owen Birrell with RBC.

Owen Birrell: Just actually a quick follow-up to James's question regarding that herbicide pricing chart. I'm just wondering given that you're talking about that 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?

Greg Hunt: We’re assuming relatively flat. Most of the improvement in the second half, if we said, come from volume.

Operator: Your next question comes from Jonathan Snape with Bell Potter.

Jonathan Snape: Maybe just a follow-up to, I guess, what James was asking, and maybe you kind of touched on the targets for '26. I'm looking at the [indiscernible] business like the rolling 12 months, where you're at today and where you're going to get to? I think you spelled out the numbers, but you need in a 30% uplift 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, 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 is lower, what's suddenly going to reverse that? Because it looks like an element through the cycle average pricing peak into a counter period where there was quite material supply side disruption, [indiscernible], 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 to most targets? And what's going to suddenly make it do it?

Paul Townsend: So first point, how much of the bridge between, say, FY ‘24 to FY ‘26 [indiscernible] broadly the bridges that we’re factoring a 20% price recovery, if you like, so call it $600 million. And also with the NPIs, we’re expecting somewhere between $200 million to $300 million as well. So that’s the, if you like, the bridge how we get to the aspirations, but the [indiscernible] 20% we’re expecting – when I say expecting, that’s what we calculated as a, if you like, a regulation banning [indiscernible].

Operator: Your next question comes from Richard Johnson with Jefferies.

Richard Johnson: Perhaps just following on from Snape's question on the long-term target, and I'm obviously given up those numbers there, but just conceptually, when you put the target together, originally, presumably, you haven't factored in the price declines that you've seen in recent times. So asking the same question but a different way. What is it that is going to make up for the middle period of underperformance in the journey towards your target in the latter end? So I'm just trying to understand where you make up what you've lost over in the last couple of years.

Paul Townsend: So if you have a look at that chart. When we put out the FY ‘22 aspirations, which were back in February ‘22, we actually used ‘21 prices. We’re using [indiscernible] that’s where we’re bridging on so you can actually see that they we’re reverting back to a long-term average a little bit down. So if you like, there’s some of a 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 FY ‘21 base that we’ve walked of 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 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 [Snap] on the 20% price and $200 million to $300 million in NPIs. And that $200 million to $300 million in NPIs, if you go back to those aspirations, we’re pretty well halfway at the halfway point, and we’ve had $600 million of the NPIs net of cannibalization, et cetera. So it winds up a bit of like from an [indiscernible].

Operator: Your final question comes from Scott [indiscernible].

Unidentified Analyst: I think it's on the same flavor. 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 moved 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.

Greg Hunt: 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 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 the pull forward, and then we saw China open up and products started 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.

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

Greg Hunt: Thanks, Ashley, and thank you, everyone, 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.