Earnings Transcript for NUF.AX - Q4 Fiscal Year 2024

Operator: Thank you for standing by, and welcome to the Nufarm Limited FY ‘24 Results Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Greg Hunt, CEO. Please go ahead.

Greg Hunt : Thank you, Harmony, and good morning, everyone. Welcome to Nufarm's Financial Year ‘24 results presentation. I'll just take a minute to draw your attention to the disclaimer on Slide 2 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, Nufarm 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 networking capital with a 30% reduction on the prior year. This had a similar impact on reducing debt. We finished a year with net debt of $635 million, which was 25% below the prior year. Net leverage was 2x 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 face 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. Channel 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 Oxbow Herbicide in Canada. It is the first market in a series of herbicides powered by Duplosan, which is our dichlorprop-p products. Oxbow is a serial herbicide that controls herbicide resistant kosher, a weed that can lead to 20% yield losses in wheat costing Canadian growers as much as a $100 an acre each season. The launch of Oxbow was very well received by our channel partners and growers, and we plan to launch more Duplosan products in 2025. Turning to application technology. Nufarm partnered with New Zealand Company Robotics Plus to design its Quantum sprayer technology for the Prospr 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 that uses advanced technology to precisely target weeds for herbicide application. And in another initiative, Nufarm 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 Yield10’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 optimize our cost of goods and establish market value. During 2024, carinata was included in the Annex IX A of the European Union's Renewable Energy Directive, making carinata one of the few scalable agricultural technologies to meet the legislative criteria for SAF 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 Nufarm products. We matched prior year revenue with strong volume growth. Turf & Ornamentals in Canada delivered results in line with the prior year. And as I mentioned before, we had a successful launch of the first of our Duplosan powered products in Canada. In Europe, underlying EBITDA was 25% below the prior year. Nufarm 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, vines, vegetables crops. We sell about 65% of our production from our Wyke facility to Nufarm 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 Nufarm and third-party customers. We are working to reduce cost and lift returns in our European segment. Our APAC segment reported EBITDA of $88 million, which was in line with prior year. Demand for Nufarm 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 regions with the highest growth and highest return on funds employed. We expanded 2,4-D capacity at Laverton. 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 [TriFlex] hybrids delivering higher revenue and margin. We expanded our position in South America, leveraging our southern hemisphere adapted genetics from Australia. We acquired Labuan, a distribution business in [Indiscernible] 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 grower base and the planted area. Our 2024 crops showed a further improvement in grain yields with an improved oil profile. We entered the license for a yield tens, 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 unseasonably wet conditions and the late soybean harvest, and we were unable to plant all of the contracted hectares. We expanded in [indiscernible] 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 deals, oil content, shorter maturities and testing of herbicide tolerant traits. Although, we expect industry conditions to improve, we are not sitting aware 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 analyzed annualized savings in overhead costs by the end of financial year ‘25. 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 ‘25. We are refining our planning processes and behaviors 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 Wyke 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 him through the financials.

Paul Townsend: 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 Laverton, and Wyke and as well as restructuring costs. These costs were partly offset by profit on sale of surplus land, utilization of a deferred tax asset. We reported underlying basic earnings per share of negative $0.063. At the end of financial year 2024, net debt was $635 million, which was 25% below the prior year. Net leverage was 2x underlying EBITDA. The reduction in net debt was principally driven by a reduction in net working capital, which I'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 deployed was due mainly to a reduction in underlying EBIT compared with the prior year. Revenue 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, normalization 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've discussed on many occasions, we're a seasonal business, and half-on-half fluctuations in working capital are a normal part of our business. And this half unwind is consistent with in fact pleasingly better than what was reported at the half one 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'll note that cash conversion has averaged 73% over the prior 4 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 [indiscernible] 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 normalize 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 $230 million for the period. This included targeted investments to address HSE and plant reliability at Wyke and growth to Chicago Heights and Laverton in the 2,4-D area. These investments are aimed at reducing plant downtime and strategically expanding capacity and have strong near term payoff. We maintain investment to grow our seeds platforms, which remains a high priority. We also invested in number of small strategic investments of around $50 million, which Greg covered earlier. In FY ‘25, we expect capital expenditure to be around $230 million. Seeds and portfolio CapEx expect to be in line with the prior year. Majority of our seeds CapEx continues to go into our omega-3 and Carinata growth platforms. Supply chain CapEx excluding Transcend is expected to be lower than the prior year. We continue to assess investment in the Transcend project, which is a plan to expand Phenoxy manufacturing capacity at Wyke and maintain our global leadership position in Phenoxy herbicides. Transcend is subject to a final investment decision, which we expect to make during the first half of ‘25. 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 assist you in understanding how we manage our deposition. Our asset-based lending facility is showing 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 networking capital position, utilization of the ABL was lower at the end of financial year ‘25 and financial year ‘23. We present remaining net -- we present remaining debt net of cash balances as core net debt. Largely this comprises our U.S. senior unsecured notes standby liquidity facility and local bank facilities. The U.S. notes and syndicated loan facility have no financial maintenance covenants. Our targeted net leverage range of 1.5x to 2x EBITDA reflects our desire to maintain conservative leverage through the cycle. At various points in the cycle, it is conceivable that will either be below the low end of the range or above the high end of the range. Largely, these deviations reflect cyclical variation in networking capital and earnings. Again, I emphasize 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 driven reduction in networking capital. We had $355 million of undrawn facilities at balanced day net leverage was at 2x EBITDA, 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 modeling for financial year ‘25, we expect depreciation amortization 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.

Greg Hunt: Thanks, Paul. Turning to the outlook. Look, it would be premature to give earnings guidance now as there's really a long way to playout. I think instead, let me try and give you some color on how we're seeing our markets. There is solid end use demand, and 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 2024. 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 2025. The outlook for plant-based omega-3 products is strong over the longer term. There is a constrained supply of fish oil and global, and growing global demand for omega-3. At this stage, we are comfortable with our statement around 2x 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 pricing 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 U.S. 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 U.S. We see Brazil and Argentina as being favorable 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. Net working 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 annualized savings in overhead costs and a 25-day year-on-year reduction in inventory by the end of financial year 2025. We continue to work towards our financial year 2026 revenue aspirations of $600 million to $700 million from seed technologies and $3.8 billion 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 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 ‘25, assuming current market positioning holes. Our focus in financial year ‘25 is on improving returns. I spoke to 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. We'll be joining both Paul and myself now for the Q&A session, and I'll hand back to Harmony to kick that off.

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

Evan Karatzas: Good morning, Greg and Paul. Maybe just firstly for me, can you just speak to how you're thinking about the crop protection industry, just 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 FY ‘24 levels as well, please.

Greg Hunt : Yes, thanks Evan. I guess that's a -- it's a pretty important question, so let me try and tackle that from a few different perspectives. If we take the structural question first and it's really too -- has there been manufacturing capacity added in China? 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 Wyke which primarily manufactures MCPA and we are the global leader in that molecule. So therefore, essentially we have, we are 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 that, 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 sort of that played out for us given the recent downturn. And there's probably three points we make that the -- first is that we needed to sell through the higher cost inventory and as we replenished the prices that 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 are now saying to you that prices have stabilized over recent trading. And the stabilization 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 Nufarm 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. There's still a couple of pockets, but I would say largely that the supply inventory is normal. Distributor inventories, however are at low levels. And I'd sort of almost go so far as to say that if there was some supply bottleneck or some supply shock, 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. Why do we say that? Well, one of the reasons is that China-based, particularly China-based manufacturers are now generating single-digit returns. So the price reductions ex China had come at the expense of profitability. And I don't know when -- I can't predict when or 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 the 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.

Evan Karatzas: Yes. No, it does. So, yes, that's really good sort of color and information. Okay. So, just a final follow-up there. If current pricing maintains, you should get a natural GP margin recovery because you're not having that as you're saying, somewhat pressure on your COGS sorry, your end market price and the COGS. So, is that the way to think about it?

Greg Hunt: Yes. No, that's correct. And in sort of recent trading, we've seen margin improvement on, I'd say on similar volumes in North America and to your point, COGS have now caught up with the lower prices coming out of China. In Europe, we're certainly seeing a slight margin improvement, and sales and volumes stronger again. High COGS inventory is largely being 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.

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

William Park: 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 FY ‘25, appreciate that you've been able to sort of lock in, improve 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 FY ‘24 level? So should we expect that to sort of be more elevated? Just wanted to get your sense around how you're thinking about payables.

Paul Townsend : Yes, I guess thanks. I think the way you look at it is the payable days, and we expect to we think we're just about where we expect it to be. In terms of the average payable. So the relationship you need to look at is really inventory of 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 of payables and we think what we can squeeze that further. And that is on the back of what Greg mentioned at the 25-day reduction. Now that 25 reduction, because I know your questions in the first half, that 25-day reduction is actually targeted 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 FY ‘25 year where we we'll be able to get that more sustainable reduction in inventory, and therefore squeezing the relationship between payables and inventory even more.

William Park: 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?

Paul Townsend : Sorry, just repeat the question. What revenue?

William Park : So licensing to royalty licensing revenue?

Paul Townsend : Yes, it's in the notes we had -- last year we had $55 million. I think this year's about $46 million. So it's a movement of about $8 million or $9 million.

William Park: And then expectations going forward, sorry?

Paul Townsend : Yes, we expect those, that revenue to come off because a big chunk of that 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.

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

Paul Townsend : Let me just cover that in two ways. One is there has been duties announced recently, so in the last couple of weeks on 2,4-D, 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 bodes well for our manufacturing operations here in Australia. And as I said, we've 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 Wyke. Our Wyke 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 Wyke. 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 U.S. market, we might be better off.

Operator: Your next question comes from Reinhardt van der Walt from Bank of America.

Reinhardt van der Walt: 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 mentioned that the Chinese manufacturer returns are currently single-digit. But I mean, if you look at some other material sectors, the Chinese could potentially keep those low returns going for quite some time. How do you think the 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?

Greg Hunt: Well, I think the only way I can really answer that is, I mean there are 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 center’s 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're still heavily reliant on China. I accept that. But we do have the option of buying some of our active ingredients from India as well.

Reinhardt van der Walt: Got it. Understood. Thanks for the color. And can I just -- you mentioned that there are still a few parts of your portfolio where you're still seeing some excess manufacturing inventories. Can you just give us a sense of what some of those specific product areas are?

Greg Hunt: 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 all of the higher-priced inventory well set up as we go into ‘25.

Reinhardt van der Walt: 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?

Greg Hunt: 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.

Reinhardt van der Walt : 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 variablization of some of your cost base and can we expect some of those to eventually come back in again?

Paul Townsend: 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 in the accounts that we call out as well as in the material items. Also like to point out that, we don't anticipate these savings to be targeted 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 the question is, 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 we're 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're going to need to provide a really good bridge to enable everyone and it includes ourselves, the board and market to how we're tracking against these cost reduction initiatives.

Greg Hunt : Maybe, if I just add another point to that, we anticipate 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 prove our returns. And as Paul was undertaken, we will report to you on the progress in the savings that we are generating as we go through ‘25.

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

Owen Birrell : Just a bit of a follow up question to Reinhardt's question there on the cost savings, you talk about $50 million of annualized cost saving. Can you give us a sense of whether that's a end of period run rate or you expect to achieve $50 million through the course of FY ‘25?

Paul Townsend : Yes, it's an end of period run rate. We'll have, obviously have some impact this year, but the full impact will be an FY ‘26, so it's the end of period run rate.

Owen Birrell : And 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 efficiencies.

Paul Townsend : Yes, so I guess more than 50% is going to be headcount reduction. But what we said, it's important that we've got to redesign processes. 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 there. So it's -- 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.

Owen Birrell: Okay. And I guess second question for me. Just looking at the omega-3’s platform. You've sort of reiterated the targets of sort of doubling those revenues in FY '25, and I think your broader seeds revenue targets of, what $600 million to $700 million 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?

Greg Hunt: Look, I think maybe I'll get Brent to come 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 as we've shared with you today, 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?

Brent Zacharias: Yes, certainly. Thanks for the question, Owen. I guess, if you look at one of the benchmarks that we think is most relevant for us to follow the North Atlantic fish oil pricing. 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, the pricing has decreased 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 of feed in the agriculture industry. And recently, we've also commented on expanding our position in human use. So 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 profile. I'd just maybe conclude by saying 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.

Owen Birrell : You made -- there was a comment made earlier that the seed platform earnings were depressed somewhat because of some additional cost 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?

Greg Hunt : Yes, I think, Paul had called out that one of the things that impact was probably mostly was a reduction in licensing revenue, but the increase in cost that we have to scale both the omega-3 and our biofuels platforms does also contribute to a lesser extent, and I would say that that will variablize 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 within our key markets U.S. supplying most of our omega-3 platform and Latin America supplying most of our care and auto platform.

Owen Birrell : Can I just get you to reiterate those prices you said for North Atlantic for sure?

Greg Hunt : Yes. 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.

Operator: Your next question comes from Steve Byrne from Bank of America.

Steve Byrne : I was very, very curious to hear about your outlook for the 2,4-D demand in the US. You mentioned the recent duties imposed on Chinese import for the 2,4-D, but just curious whether you're also seeing any increase in demand for 2,4-D in the states, because Dicamba is currently not available. And 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-D to be applied -- as a post immersion application on the 2,4-D tolerant cotton and soybean crops, the enlist trait?

Greg Hunt : Let me take the second piece first, Steve. Thanks for the question. 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've certainly seen a -- 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 are just working through how and where we will supply that market from, and we have very good supply relationships out of China for 2,4-D into the North American market. And 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 that we see that as a positive for Nufarm and given the increased production here at Laverton, 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 Dicamba is exactly right. We see 2,4-D being a beneficiary of those regulatory changes.

Steve Byrne: And is there a pathway forward for you to get access to over-the-top spraying of 2,4-D, you mentioned maybe a license. Is that a pathway forward for you? And I also wanted to just ask about gene editing in your seed platform. There's certainly 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?

Greg Hunt: 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.

Steve Byrne: And the over the top opportunity for you, Greg? Is that possible?

Greg Hunt: Yes. Look, I think as you know, one of our major players has got those licenses. We will 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.

Operator: Your next question comes from Scott Ryall from Rimor Equity Research.

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

Paul Townsend: Yes. Okay. Just going to my notes. Just give me a second. 143 days is what we've got in the calculation. So you reduce that by down to from 143 down to 25-days. Now 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 don't -- 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 narrow -- you even further narrow that inventory payables relationship. That's what it's about. So it's net working capital is one and top up. I haven't seen that, but certainly that's squeezing.

Scott Ryall: Yes. Understood. Thank you. And then in the first half result, you -- 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?

Paul Townsend : Rico did you want to make a comment in relation to pricing?

Rico Christensen : So I just want to -- I understood the question was that, have you seen any material changes in pricing and the second half or…

Scott Ryall : Yes, 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.

Rico Christensen : Since we gave those charts. There's not been material changes now, which is also what, sorry, what Greg also mentioned earlier is that, we've largely seen stability in pricing during this period.

Scott Ryall : 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?

Greg Hunt : 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 color around how we, well, how we track that, how we measure that, and the impacts that we see in ‘25, ‘26 from NPIs.

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

Scott Ryall : So if something appears in there as 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?

Rico Christensen : 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 staggered 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.

Scott Ryall : And then my last question is, do you -- there's been over the last 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 fertilizers 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?

Rico Christensen: 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 significant. 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.

Scott Ryall: Okay. Thank you. That's the –

Paul Townsend: 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 cannibalization 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.

Scott Ryall: Brilliant. Very helpful. Thank you. That's all I had.

Greg Hunt: Scott, just wanted to clarify that inventory days that 143 was an average of our inventory days, and the ‘25 is off our ending inventory days, which is 170 which should 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.

Operator: Your next question comes from John Purtell from Macquarie.

John Purtell: Good morning, Greg and Paul. Hope you're well. Just a couple of quick ones. Appreciate you haven't given guidance for the year ahead. But in terms of sort of first-half, second-half SKUs, 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 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.

Greg Hunt: Yes. So anywhere between 55%-45% and 60%-40%, John is quite normal. So you can even probably split the difference if you have to, but it really depends on where we're going to sell and so forth. But we're sort of thinking in that range of 55%, 60% to 40% to 45%.

John Purtell: Thank you. And just that I mean, typically, Paul, we see obviously a seasonal pickup 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 from 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.

Greg Hunt: Yes, and we sort of indicated that we expected net working capital to be similar to the first half last year. That's at the end of first half this year, at ‘25, no similar to the end of the first half of ’24. And the reason for that is, we're growing volume, so crop protection will just grow normally through the normal seasonal build with what we've done previously. But importantly is scaling our mega three business in particular. So that's is going to demand or require, a fair bit of investment in working capital. So that's going to be a fair chunk and that's around about 100 million of the -- if like as a component of the first half position.

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

Greg Hunt : Thank you, Harmony. And thank you everyone for your time today and for your interest in Nufarm. And we look forward to catching up with some of you over the next few days. Thank you.

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