Nufarm Limited (NUF) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is John Gillam, I'm the Chairman of Nufarm. Welcome to all of you who are participating online in our 2021 Annual General Meeting, which, due to the ongoing uncertainty around travel and gathering restrictions, is being held virtually again this year. Our Company Secretary has informed me that we have a quorum present, I officially declare the meeting open. I am chairing the meeting from Melbourne today, and I'm on the land of the Wurundjeri people of the Kulin nation, and I wish to acknowledge them as traditional owners. I would also like to pay my respect to the Elders past and present and to other Aboriginal elders of other communities who may be joining us today. Life this year has again been very challenging for all of us. At Nufarm, the health and safety of our employees, customers and shareholders has been our #1 focus since the commencement of the COVID pandemic and continues to be. While we are holding this meeting virtually again this year, it is our sincere hope that next year we'll all be able to meet again in person. Today's meeting is being held online by the Lumi platform. This allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxies can ask questions and submit votes. Before I turn to how to participate in this meeting, I'd like to welcome my fellow Board members who are in attendance today. With me today is Greg Hunt, our CEO and Managing Director. Joining us from Melbourne are Gordon Davis, Frank Ford, Peter Margin and Marie McDonald. Lynne Saint, Toshi Takasaki, and David Jones are joining us from Queensland, Tokyo and London, respectively, as they are unable to travel due to ongoing restrictions. In addition, Greg and I are joined in the room by Paul Townsend, our Chief Financial Officer; Fiona Smith, our Company Secretary; and Rachel Scully, our General Manager of Investor Relations, and Rachel will be moderating questions from shareholders later in the meeting. We're also joined online by Chris Sargent, representing our auditor, KPMG, who is available to answer any questions in relation to the audit later in the meeting. Before we move to the formalities, there are several housekeeping matters regarding how to participate in this virtual meeting that I'd like to update you on. Online attendees can submit questions at any time. To ask a question, select the messaging tab at the top of the Lumi platform. At the top of that tab, there is a section for you to type your question. Once you have finished typing, please hit the arrow symbol to send it to us. Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated, or if we receive multiple questions on one topic, we may choose to amalgamate them together. For those shareholders who wish to ask a verbal question, an audio questions facility is also available during this meeting. To use this service, please pause the broadcast on the Lumi platform and then click on the link under asking audio questions. A new page will open where you will be prompted to enter your name and the topic of your question before being connected. You will listen to the meeting on this page while waiting to ask your question. If you have any issues using this system at all, please return to the Lumi platform. I do expect that we'll be able to answer all your questions today. In the event that we are not in a position to do so, we'll answer them in due course via email or by posting responses on our website. Depending on the questions, I'll make the decision whether I will answer it or ask a member of our management team or another director or the auditor to respond. Voting today will be conducted by way of a poll on all items of business. To provide you with enough time to vote, I will shortly open voting for all resolutions. If you are eligible to vote at this meeting, a new voting tab should now appear. Selecting this tab will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare the voting is closed. I now formally declare open all items of business. The voting tab will soon appear. Please submit your votes at any time from now until the end of question time. I'll give you a warning before I move to close the voting. Michael Hutchison from Computershare will act as the returning officer for the purposes of conducting and determining the result of the poll. The results of which will be announced to the ASX later today. That deals with today's formalities. I'll now move to my formal address. Welcome once again shareholders and guests to Nufarm's 2021 Annual General Meeting. I hope you've enjoyed our opening video which shows Nufarm's deep Australian roots. I'm honored to Chair an agricultural company with a unique heritage, a strong global presence, and one where cutting-edge science, technology and innovation will define and drive long-term growth. I'll start with a few opening remarks and then hand over to our Managing Director and CEO, Greg Hunt, to make some comments, before I return to address the formal business of the meeting. It's of no surprise that COVID continues to be a dominant issue on the global stage impacting both national economies and global markets, as well as employees, investors, our partners, growers, friends and families around the world. As an essential service to the agricultural industry, we're proud to have been able to maintain supply to customers and growers during what has been an incredibly trying time. Being a global organization has presented unique challenges with COVID status and restrictions continually changing month-to-month and country-to-country. The safety of our people has remained our most critical priority at all times, guiding our approach throughout the pandemic. Each of our regions has its own COVID Response Team which regularly assesses local circumstances and adapts work practices accordingly to keep our people safe. On that note, I'd like to acknowledge the tremendous efforts of all of our people, led by Greg and the Nufarm Executive team. Their dedication and commitment to servicing customers and growers during this time is commendable and has contributed to the outstanding results delivered by Nufarm this financial year. Most importantly, their efforts allowed us to make good progress on our long-term growth plans whilst supporting customers and nurturing long-term relationships that will underpin future success. Regarding our financial achievements for the year, we reported a significant uplift in performance across the Group, delivering an over 50% increase on the prior year's underlying EBITDA, a profit after tax of AUD 61 million. In recent weeks, S&P Global Ratings has upgraded Nufarm's credit rating to BB, recognizing the financial and operating discipline underpinning these results. These results represent an important turning point for your Company, following some tough years that we are pleased to have put behind us. Our improved cash flow position has also allowed your Board to announce a return of dividend payments to shareholders, declaring an unfranked final dividend of AUD 0.04 per share. Nufarm strives deeply to help farmers get more from their land. We have a long history of innovation as a leader in crop protection technologies, and more recently in seed technologies. With the world's population increasing in size and prosperity, farmers around the world must produce more whilst reducing the impact of agriculture on precious ecosystems. Nufarm's crop protection and seed products provide solutions that help farmers grow more while using fewer natural resources. Our seed technology business, Nuseed, is developing crops that positively impact global environmental issues and provide new economic opportunities for farming communities. If you look at the major innovation in seed technologies, they have mostly focused on what we call input traits, those that drive greater yields. These technologies have built an entire global industry, and yield improvements are still critically important. Nuseed has a focus that's more biased to output traits, characteristics that change how the end product can be used so we can create higher-value crops. Yield is still vital, and we combine both input and output traits in our crops. We call this our Beyond Yield strategy. The outlook and growth prospects for Nuseed's Beyond Yield strategic agenda are extremely exciting. Supported by the established global network of Nufarm's core business, Nuseed's Beyond Yield seed platforms are directly aimed at helping solve important global challenges, human nutrition, soil health and climate change. This innovation is expanding the agricultural supply chain, building new value chains and opening up new markets. We are committed to research and development to further advance sustainable agriculture. Our R&D approach is bolstered by partner alliances with reputable organizations which include the CSIRO and leading universities around the world. This ensures our solutions are always tailored to the specific and evolving needs of farmers. Within our own operations, we accept the challenge to find new ways to minimize our direct environmental footprint. We have continued to grow the proportion of biological crop protection products in our portfolio. We're also working towards a 30% targeted reduction in Scope 1 and 2 greenhouse gas emissions from our manufacturing sites by 2030. Our commitment to sustainable agricultural and production processes has also been strengthened by 3 major actions. Firstly, aligning our practices with the United Nation Sustainable Development Goals. Secondly, progressing our ambition to transparently report our sustainability approach and performance by aligning our reporting to the Global Reporting Initiative Standards. And thirdly, adopting the Task Force for Climate Related Financial Disclosures (TCFD) framework to improve and increase our reporting of climate-related risks. I encourage all shareholders to read our detailed sustainability review which you can now access on our website. COVID has also triggered many supply chain and logistics challenges across the globe. Our teams have worked diligently and skillfully to overcome these difficulties ensuring continued supply to customers and growers. This work continues into the new financial year. Recently, Australian Government support, at a modest level, under a Supply Chain Resilience program was confirmed for a modernization initiative at our Laverton 2,4-D manufacturing facilities. We are hopeful of more significant support being forthcoming in the next round of the Australian Government's Modern Manufacturing Initiatives to substantially upgrade our Australian-based formulation capabilities. This would greatly enhance supply chain surety for Australian growers. We continue to work closely with government in that regard and thank them for their interest. Turning to your Board, I'd like to make note of the Board renewal that has taken place over the past year or so. The task of Board renewal was commenced under the leadership of the previous Chairman and my appointment in July last year formed part of that renewal. The renewal process has been undertaken to ensure the necessary combination of skills, experience, and expertise for effective governance of Nufarm, particularly as the business evolves. I'd like to thank Frank Ford, who retires at the end of this meeting, for his valuable contribution after many years. This follows Anne Brennan's retirement at the end of last years' Annual General Meeting. We welcome Ms. Lynne Saint and Dr. David Jones as independent Non-executive Directors and I'm pleased to report that both Lynne and David are already making valuable contributions. You will recall that Lynne stood for election at last year's AGM and David is standing for election at this meeting. And David will speak to his background and expected contribution to the Board shortly. Having endured volatile and trying conditions in the recent past, it is pleasing to report much stronger results. Significant efforts have been made, and continue to be made, to ensure our crop protection and seeds businesses are well positioned to perform well in future years through investments in a raft of growth initiatives and a strong focus on disciplined operational performance. Nufarm is entering a new chapter of growth which will capitalize on the exceptional opportunities in agriculture for innovation that addresses key global challenges. As I noted earlier, this innovation is expanding the agriculture sector by building new value chains and opening up new markets. On behalf of the Board, I would like again to reiterate our thanks to all of our people for their unwavering dedication and commitment during such difficult times. We recognize the challenges that everyone has faced, both personally and professionally due to COVID. To all of our shareholders, thank you sincerely for your ongoing support. I'll now pass to your Managing Director and CEO, Greg Hunt. Thank you.

Thank you, John, and welcome to everyone joining us today. Nufarm today is a more focused, efficient and capable Company. The steps that we've taken over recent years to strengthen and focus our business has helped position Nufarm for the next phase of growth. The Company is a key player in the agriculture sector across the globe. A sector that is increasingly under pressure to produce more, and yet do so in a sustainable and positive way. The coming decades will see a big increase in demand for agricultural technologies, due to both the growing global population and the requirement to sustainably produce more from the scarce resources we have available. By 2050, food output will need to expand by as much as 50% in some parts of the world to meet the demands of a population that by then will be approaching 10 billion people. At the same time, the production system will be under increasing pressure from climate change impacts, water scarcity, urbanization and soil degradation. Nufarm is well positioned to play a part in delivering solutions to these global challenges. We continue to provide the tools and products that farmers need to achieve higher yields today, whilst developing new and innovative products to meet the changing needs of our time. To capture this significant opportunity, our strategy is to remain focused on our core crops and key geographies. We believe that this focused segment and geographic approach, deeper rather than broader, will allow us to drive better returns and the geographic diversity helps protect the business from commercial pressures or adverse seasonal conditions, in any one market. At the same time, we are pursuing new technologies with specific customer and consumer benefits, in particular technologies that positively impact the global environment and provide new economic opportunities for farming communities. These technologies provide a range of new and important growth options for the business. As John noted, we are committed to innovation and development to further advance sustainable agriculture, and position us in the industry. This commitment, in partnerships with organizations like the CSIRO, University of Queensland and the University of Liverpool, to name a few, are tangible ways that we are working with leading organizations and like-minded partners to improve the effectiveness and sustainability of our current portfolio, as well as developing cutting-edge solutions that will shape the Nufarm of the future. Providing more sustainable solutions for farmers presents both a challenge and an opportunity for Nufarm. Nufarm's crop protection products enable sustainable practices such as minimum and no-tillage cropping, which continue to play a very important role in sustainable farming practices by improving soil health, conserving moisture and reducing erosion. These products also prevent crop losses to pests, weeds and disease, which improves yield and reduces waste of valuable inputs. There is, however, a growing market for solutions that further reduce environmental impacts and reduce the risk to human health. In the coming year, we will direct nearly 20% of our innovation and development budget to more sustainable crop protection products, including biologicals. During the year, we appointed a new Group Executive, Rico Christensen, to accelerate the development of our product portfolio and identify and evaluate new opportunities. The Board also established an Innovation Committee, chaired by David Jones to provide oversight of these opportunities. In addition to the partnerships that I mentioned earlier, we have recently invested in Enko, a company that is utilizing proven technology from the pharmaceutical industry to accelerate the discovery of new products that address challenges such as the growing resistance to current chemistries. Another investment in a German ag-tech start-up, crop.zone is a hybrid alternative for weed management that works by pre-treating plants with a conductive liquid and then applying an electronic charge to control weeds. These are technologies that have already moved from concept to the commercial trial stage. Other exciting technologies at Nufarm are centered around plant-based solutions that have the power to solve important global challenges. One of these plant-based solutions is our Canola Omega-3 technology. And I'd like to show you a quick video which gives some further detail on this exciting innovation. [Presentation]

As you just saw our Omega-3 Canola product, Aquaterra, is already providing another option to wild fish as a non-marine source of Omega-3 fatty acids. It is estimated more than 80% of people worldwide are not getting enough Omega-3 in the food they eat, so we are very excited about the opportunities for this technology. Also mentioned in the video, the technology provides several new markets for the Company, in particular the human dietary supplement market, which is where we intend to launch our Nutriterra product in 2022. Following successful completion of a human clinical trial, Nutriterra achieved US FDA recognition as a New Dietary Ingredient, which has paved the way for commercialization this financial year. Proving their sustainability credentials, Aquaterra and Nutriterra were both certified by Friends of the Sea during the year. Another exciting plant-based solution is Nuseed Carinata. Carinata is an oilseed cover crop used in the production of low-carbon fuel. It reduces emissions by replacing fossil fuels, removes atmospheric carbon, and restores soil carbon as it grows and improves soil health. Carinata received verification as a feedstock for Sustainable Aviation Fuel by the International Civil Aviation Organization in 2021. Demand for Sustainable Aviation Fuel is forecast to grow from 7.9 billion liters per annum in 2025 to 450 billion liters per annum by 2050. Therefore, there is a significant opportunity for our Carinata technology as many key markets move to Sustainable Aviation Fuel. And achieving the ICAO verification was a very important milestone in accessing this market. Our focus on these types of products is assisting the agricultural industry in moving towards carbon neutrality and promoting sustainable agriculture. Our confidence and excitement in the delivery of near-term value from these investments is growing, as we continue to meet important commercialization milestones. As I mentioned at the start of my address, we have continued to transform the business over recent years. We've sold the South American businesses, restored the balance sheet, further improved our working capital management, extracted costs and improved margins through our performance improvement program. These improvements, together with better seasonal conditions, helped to deliver strong earnings uplift across all operating segments during the year. Importantly, these improvements have provided a strong platform for further growth. Revenue was 10% higher at AUD 3.2 billion, with a 51% increase in underlying EBITDA to AUD 370 million and net profit after tax of AUD 61 million. This improvement in our operating results also translated to higher cash generation, with average net working capital to sales of 34%, exceeding our target range of 35% to 40%. As John mentioned earlier, the positive results for the year were achieved despite the ongoing challenges and disruptions caused by the COVID-19 pandemic. The COVID impact saw the cost of raw materials increasing, as well as global logistics and supply chain challenges pressuring margins. These were offset to some extent by price increases, a reduction in some expenditure due to COVID restrictions, but also by achieving volume growth. Despite these challenges, each of our business segments reported positive results during the year, growing both revenue and earnings. In Europe, EBITDA grew 80% as a result of improvements in the competitiveness of our supply chain and cost base, coupled with the normalization of raw material costs. The Century and Surf portfolio of crop protection solutions that we acquired in 2017, delivered a meaningful contribution to the result. The Asia Pacific region delivered a strong financial performance as the headwinds from the drought in 2019 and 2020 turned to tailwinds. The reinvestment in our product portfolio and business processes over the past few years has enabled us to fully leverage the very favorable market conditions and strong demand whilst delivering a competitive and reliable offer for our customers. In North America, our Turf and Ornamental business benefited from the easing of COVID-19 restrictions, and improved market conditions drove strong demand for our crop protection portfolio. While industry supply chains within North America were strained by ongoing disruption, we achieved strong organic earnings growth reflecting the value of the investment that we've made in both our customer relationships and our manufacturing footprint in recent years. As I mentioned earlier, we have invested significantly in our seeds technologies platforms and these are exciting future growth opportunities for our Company. The contribution from the base sunflower, sorghum and canola seeds portfolio was a highlight of the 2021 result. It is the continued development of this base that provides the opportunity to confidently develop and launch new technologies. Looking to the immediate future. The outlook for soft commodity prices continues to be very positive. Coupled with ongoing favorable agricultural conditions across the major grain-producing regions, we are experiencing continued strong demand for both our seed and our crop protection products. There is evidence that continued tight supply conditions are driving early purchases by our customers. We've had a very strong start to the financial year and we expect earnings to once again be weighted to the first half of the financial year. With the benefits of our recent investments and performance improvement program, combined with favorable conditions and strong demand, we expect to deliver revenue and earnings growth in 2022. In closing, I would like to thank my Nufarm colleagues for their commitment and focus throughout the year. The determination and flexibility that you have shown to ensure we continue to meet the needs of our customers is a true reflection of who we are at Nufarm. To our shareholders, thank you for your continued support, confidence and shared belief in the future value to be delivered from our business. Thank you. I'll now hand back to John.

Thanks, Greg. I'll now move to the discussion on the formal items of business as set out in the Notice of Meeting. I'll remind you that the poll is open for voting. And if you've not already done so, I encourage you to vote now. The Notice of Meeting contains all the material information in the Board's possession to assist you in determining how you wish to vote. This includes the Board's recommendation for shareholders to vote in favor of all resolutions. During the year, the Board continue with the important task of Board renewal and succession. At last year's AGM, we saw the appointment of Lynne Saint and David Jones joined in June 2021. We also [ saw ] Committee Chair succession with the appointment of Lynne Saint as Chair of the Audit Committee from 1 July 2021 following Frank Ford's decision to retire from the Board at the conclusion of this AGM. David Jones, as mentioned by Greg in his speech has taken on the role of chairing the Board's new Innovation Committee, and he commenced that role in July 2021. David is standing for election at this AGM as required by our constitution. We identified David as a suitably qualified candidate to be appointed as a director with the requisite skills and experience required by the Board. He has extensive leadership experience, having held Chairman and Director roles in large global agricultural businesses. Full details of David's experience are contained in the Explanatory Notes to the Notice of Meeting. The Board supports David's election because the Board considers David's extensive experience in global agricultural companies enhances the Board's ability to oversee Nufarm's performance, governance and growth. I'd now like to invite David Jones to address the meeting.

Thanks, John, and good morning to everyone. It's my pleasure to address you today and seek your support for my election to the Nufarm Board as an Independent Non-executive Director. I've been involved in the agricultural industry for over 40 years. During this time, I've gained extensive experience, leadership experience in large global agricultural businesses, including Head of Business Development at Syngenta [Technical Difficulty] of Zeneca China, Arysta Life Science and Plant Impact. These positions have given me broad executive experience in operations, in strategy, mergers and acquisitions, and intellectual property in multiple jurisdictions, including Asia, Latin America, Europe and the United States. My particular career test is the commercial placement of new technology in agriculture. This will be applying my role as Chair of the Innovation Committee as we heard a new Board Committee for Nufarm, reflecting the growing contribution to the Company from new science-based products. I watched the progress of Nufarm with interest over the years and my 6 months of association with the Company as a Board member has reaffirmed my favorable impression. I'm enthusiastic to continue in this role and can confirm both the time and the energy to commit to Nufarm through the roles of Non-Executive Director and Chair of the Innovation Committee. Thank you for the opportunity to address you today and for your support. Thank you.

Thanks, David. And it's very late in the evening for you, we appreciate you being able to participate in this AGM. The other item of business I would briefly like to address is the Grant of the Deferred Rights to Greg Hunt, our Managing Director and CEO. As set out in the Remuneration Report within the Annual Report, Greg achieved 141% of short-term incentive target opportunity in the financial year 2021, which resulted in an overall award of AUD 1.395 million, with 50% of that delivered in cash and 50% in deferred rights. The amount of deferred rights shareholders are being requested to approve is AUD 145,890. This amount was determined using the 5-day volume-weighted average price of Nufarm shares over the period 18 November to 24 November 2021 and advised to shareholders via an ASX release on 26 November 2021. All information relevant to this item has been included in the Explanatory Notes in the Notice of Meeting. I am now going to take questions on all the items of business in the order that they are submitted or on any general question relating to Nufarm that you may have. I encourage you to submit your question by the online platform if you have not already done so. As I mentioned earlier, the poll is open on all items of business. The proxy results for all items of business are now being displayed on the screen, and this will stay up for the remainder of the meeting. As you can see, from the proxy results, all resolutions have been passed. And I'll take this opportunity to thank shareholders for this terrific support. I'm now going to ask Rachel Scully, our General Manager, Investor Relations, to read me any questions that have popped up. How are we placed, Rachel?

Thank you, Chair. I can confirm we've received no questions via the Lumi platform today.

All right. We'll add [ Lib ] for a second or 2 to allow anyone who's typing to click the button and get through because we are very comfortable to commit to answering any questions. It's a Victorian thing to do, as we've discovered over the last year or so, when you go to a press conference and talk for several hours and answer every question. Is that enough living to allow the time for a question to come? We don't have any, Rachel?

No further questions.

I am going to be closing the poll at the end of this period of question time. So I'll make that statement now, so people know that to finish their voting if they haven't done so already. We still don't seem to have any questions. I think this format and the combination of all the disruption that COVID is creating in all sorts of communities has led to maybe shareholders not being able to participate in the way they would normally, which sort of goes back to the comment we made at the start that it's just see -- hope that we're able to meet in a normal way next year. But there are no questions. There has been nothing on the platform. And as such, this concludes the discussion on the items of business and all the matters that we need to cover in our meeting today. So I will now formally close the poll for this meeting. The final poll results will be released to the ASX and posted on Nufarm's website later today. On behalf of the Board, I'd like to thank you for participating in today's AGM. I also wish you a safe and happy festive season. And I hope you get the opportunity to spend valuable time with family and friends after what's been an extraordinary 2021 on the back of an extraordinary 2022. Thank you again to all shareholders for their support. It's true to have the support for the resolutions we put to the meeting. Congratulations again to Greg and the executive team and all of the Nufarm team for the terrific results in 2021. We're well placed to produce very pleasing results again in 2022. And I look forward to being able to report that to you at our next AGM whenever we're able to schedule that. With that, I'll now declare the meeting closed. Thank you very much, and Good morning or good afternoon or good evening, wherever you're dialing in from.