Nufarm Limited (NUF) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the Nufarm Limited First Half '22 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Greg Hunt, CEO. Please go ahead.

Thank you, Noah, and good morning, everyone. Welcome and thank you for joining us today. Before we start today's presentation, I'd just like to draw your attention to the disclaimer on Page 2, particularly the section on forward-looking statements. I'm joined by -- I'm joined today by our CFO, Paul Townsend; and Brent Zacharias, he's our Group Executive at Nuseed. Many of you would know that he's joining us from Canada and will speak to Nuseed Technologies' result. It's a very strong result for Nufarm, with earnings up on all of our key measures. We have performed exceptionally well as we have capitalized on strong industry conditions whilst managing global uncertainty and volatility. We have clearly benefited from favorable seasonal conditions and higher grain prices. However, we're also reaping the rewards in our transformation and performance improvement program over the recent years. Our deeper and broader focus on core crops in key geographies is delivering better returns from our crop protection business. Our Seed Technologies business continued to see revenue growth in the core seed portfolio and continued to hit major milestones in our omega-3 and carinata growth platforms. The outlook for Nufarm remains positive with industry trends and conditions highly favorable for growth. And there's a fundamental need to [ lower ] -- to meet the needs of a growing population, and Nufarm plays a part in this objective. The outlook for the remainder of this year is also positive, and I will discuss that further later in the presentation. Our financial performance speaks for itself. Revenue up 31% to $2.2 billion, and underlying EBITDA up 41% to $330 million. This result has allowed us to declare an interim dividend of $0.04 per share. Our balance sheet is strong, which Paul will expand on shortly. So in essence, a very strong interim financial results. The strong result is not just about market conditions, it has been about our ability to navigate the current economic climate, introduce and advance new products and to deliver on milestones. This is despite pressure due to higher raw material prices, global supply chain and logistics challenges. Our decision, as an example, to establish a procurement hub in China 5 years ago has helped us secure supply for our customers despite backlogs arising from COVID-related foreclosures and logistics challenges. The investments that we have made in our supply and manufacturing sites are delivering real benefits to our business and our ability to reliably supply our customers. In Ukraine, our #1 priority has been supporting our people. We have taken a prudent provision against assets held there within the range we previously guided. Importantly, we continued to forge ahead, advancing our product and our technology pipelines. Our crop protection pipeline remained strong, with over 150 registrations or expansions of label uses granted during the half. Along with the new product introductions discussed at our Investor Day in February, this demonstrates the health of our pipeline and underpins our revenue aspirations. Our investment in Value Beyond Yield technologies is developing new plant-based technologies. The growth in the base seeds business, the carinata agreement with bp and repeat sales of omega-3 canola to our customers in Chile support the growth aspirations in our 5-year plan. The high-yield bond refinance was also completed during the half, further improving our balance sheet and saving USD 9.8 million in interest annually. Our business segments all performed impressively given the prevailing market and regulatory conditions. The combined result validated our diversity strategy, a strategy that seeks to minimize risk and maximize returns. Despite the revenue impacts of product deregistrations of EUR 26 million, Europe delivered a very solid result, in line with the strong result that we achieved last year, and this further demonstrates the value of the acquired portfolio, which contributed 42% of the gross margin in our branded business. Seed Technologies saw strong demand across the portfolio. Growth in core seeds business continued the momentum that we established in financial year '21 with the release of new hybrid varieties. We have also continued to hit key milestones in both our omega-3 canola and carinata biofuel feedstocks, which Brent will talk to shortly. And this slide shows the drivers of revenue and earnings growth, with 3 of our business segments contributing to significant uplift in both revenue and earnings. As I said at the outset, we have benefited from seasonal conditions across all regions. However, the strategic initiatives that we have implemented over the past few years have helped drive the earnings growth. I'll come back to the outlook later, but now I'd like to hand over to Paul to discuss our financial performance.

Thanks, Greg, and good morning, everyone. The excellent financial results for the half was underpinned by strong demand for our crop protection and seed products and increased revenues as a result of favorable commodity prices and trading conditions across all regions. The 31% revenue increase includes sales of $183 million to '21 -- sorry, $36 million in the first half of 2021 at 0 margin to Sumitomo Latin America under the transitional services agreement. Underlying EBITDA was up 41% at $330 million, and underlying EBIT increased 66% to $222 million. Underlying financing costs decreased due to the impact on the refinancing of the U.S. dollar high-yield bond notes together with reduced foreign exchange losses, offset by unfavorable commodity exchange translation on foreign currency-denominated interest. We expect full year interest expense to be around $50 million compared with $58 million in the prior corresponding period, reflecting the lower interest on the refinanced U.S. dollar notes. This, of course, is contingent on A dollar-U.S. dollar exchange rate movements. Foreign currency exchange losses decreased despite currency volatility, particularly in Eastern Europe. We are seeing the benefits of targeted foreign exchange currency risk mitigation initiatives, including expanding the hedging program and recapitalizing subsidiaries, allowing them to reduce their local currency exposure. Depreciation and amortization expense increased $9 million or 9% to $108 million, due to increased amortization of European products that have been phased out and Seed Technologies IP following commercialization. Full year depreciation and amortization is expected to be materially in line with last year. Our underlying effective tax rate of 31% is now where we expect it to settle over the medium term and is consistent with the full year effective rate in 2021. The average net working capital-to-sales ratio sits at 27%, well below Nufarm's target of 35% to 40% and an improvement of 8 percentage points half-on-half. This illustrates how we've been able to drive down absolute net working capital relative to the large increase in sales. Pleasingly on the back of the excellent earnings, net debt and leverage improved half-on-half. While our free cash flow is negative for the half, this is largely due to the seasonal buildup in working capital, which we expect to unwind in the second half, resulting in a positive free cash flow outlook for the year. The positive earnings and cash flow outlook, together with our current loan leverage of 1.1x, has enabled the directors to declare the interim dividend of $0.04 per share. This dividend has been declared in the context of Nufarm's new capital management principles, which will guide our application and allocation of free cash flow. These principles are in the appendices. We remain disciplined in our expense management to ensure increases are aligned to support our growth agenda. As the chart shows, the increases relate to increased spend on head count and other costs associated with our growth initiatives across Crop Protection and Seed Technologies; increased selling and distribution costs, which are predominantly logistic rate increases and third-party sales commissions; an increase in the employee incentive provisions associated with the strong outlook for earnings; an increase in depreciation and amortization expense; increased travel as we transition out of COVID restrictions; increased insurance due to market-related increases; and CPI increases and staff costs. The next chart illustrates and reconciles our underlying EBITDA to free cash flow. Just as a reminder, free cash flow is the cash flow derived by the business before any distribution to shareholders. Obviously, EBITDA and net working capital are dominant contributors to this bridge. In terms of working capital, the key driver to the outflow is the seasonality of the business and relates predominantly to the increase in receivables due to higher sales over this period. This seasonality has been exacerbated by the increased skew of revenue to the first half and pricing. The net working capital position is expected to unwind in the second half with positive free cash flow generation for the full year expected. Accordingly, the average net working capital-to-sales ratio is a more relevant metric to assess net working capital management as it is a rolling 12-month calculation. As Ken said on the chart, this ratio continues to improve and is now at 27%, well below our target range of 35% to 40%. While this is an excellent outcome for Nufarm, the focus on net working capital will continue and will need to be balanced with ensuring continuity of supply, given the global logistics and supply chain challenges, and optimizing our commercial relationship with our customers. In terms of inventory and payables management, the supply of financing facility utilization further increased during the half, largely due to raw material price increases. This facility remains an important element to strengthening Nufarm's relationship with key Chinese raw material suppliers, which assist in securing product supplies in the current tight market conditions. Tax and interest payments of $18 million and $40 million were as forecast. Our CapEx investment of around $60 million is down on expectations due to lower property plant equipment investment at Wyke due to timing-related matters influenced by COVID-19 challenges. To arrive at a net cash flow number for the group, ordinary dividend payments of $15 million and payments under the Nufarm step-up securities of around $5 million need to be deducted. Turning to the balance sheet. As you can see, net debt and leverage improved half-on-half. Leverage is at 1.1x on a rolling 12-month basis, which is lower than our core leverage target of 1.5 to 2x, including leases and is expected to be less than 1x for the full year. The company maintains very strong liquidity with undrawn facilities at March 31 of around $550 million and around $460 million of cash balances. Finally, the high-yield bond refinancing will deliver ongoing annualized interest savings of $9.8 million, as Greg alluded to earlier, with the full monthly savings run rate occurring from March 2022, following the transition to the new arrangements. I'll now hand you back to Greg.

Thanks, Paul. Looking now at some detail on our Crop Protection business. Diversification of our product portfolio and geographical presence is a key mitigant to earnings volatility. Many of you will know that our portfolio is weighted towards herbicides products that growers need year in and year out and is complemented by a lower proportion of higher margin insecticide and fungicide products for which demand can be more volatile. As you've heard us say at the Investor Day in February, we are investing in differentiated higher-margin products, which complement our portfolio of foundational lower-margin products, both of which are important to our growth aspirations. In terms of geographical diversity, we retain a strong presence in the key markets where we believe that we can be relevant to our customers and generate good cash returns for our shareholders. Our ambition for growth from the Seed Technologies business we outlined in February will add to the diversification of income streams in the coming years. Turning now to the geographical regions. APAC had a very strong year. Last year, we were asked if it was as good as it gets, and this result clearly shows that, that hasn't been the case. Higher revenues, improved margins and lower selling, general and administration costs delivered a 45% increase in EBITDA. This region comprises our businesses in Australia, New Zealand, the crop land spraying equipment business here in Australia, Indonesia and our operations in Malaysia, which supports sales into other Southeast Asian countries. Our China joint venture also sits within this segment. Australia and New Zealand are important markets to us. They are our home base, and we have a leading position in these markets. The restructuring in the APAC region over the last 5 years, in which we've closed 5 factories, consolidated 2 brands into 1 and removed costs from the back office continue to deliver synergies, which will and continue to benefit the bottom line. With the reset of our manufacturing footprint and back office complete, we have now turned our focus to our portfolio of growth. We launched a number of tailored products for the domestic market in financial year '21. As an example, Terrad'or, which is a new and proprietary herbicide, highly active against key broadleaf and grass weeds that are resistant to glyphosate. Saracen, another herbicide, when mixed with our phenoxy products, creates a differentiated solution which is active on difficult-to-control weeds in cereal crops. Each of these contributed positively to the first half result. As outlined at our Investor Day in February, we're also working with local institutions such as the CSIRO and the Queensland University to develop products to support Australian growers, and we expect these products to be commercialized in the next 2 to 3 years. Whilst we will be impacted by seasonal conditions from year-to-year, all of these products and innovations will provide a solid platform for growth. As I mentioned earlier, resetting the earnings base in Europe was a key priority for management in financial year '21. And I'm very pleased to say that Europe has continued to deliver strong results. At our '21 results, I said that in the near term, the existing portfolio is capable of sustaining the current earnings, given normal seasonal conditions, in spite of the regulatory headwinds, and this has transpired as expected. While it's a solid result, there is more to do. We have invested heavily in this region over the past 3 years, and the current return is not sufficient for that investment. Despite EUR 26 million lost in sales from products that were deregistered during the period, Europe still saw a revenue increase of 6% and an earnings result exactly in line with the first half of 2021. We're generating higher sales from the acquired portfolios. And while it's becoming more difficult to split the earnings from these portfolios from the rest of the business, they contributed approximately 35% of the total gross margin and, as I said earlier, 45% of the branded business. Our North American business has had an excellent start to the year with revenue growth of 49% and 167% uplift in EBITDA in U.S. dollar terms. All parts of this segment recorded strong growth, with revenue up in Crop Protection in the U.S., Canada and Mexico. And it's really driven by strong corn and soybean prices, and market conditions drove significant demand. The turf and ornamental business returned to more normal volumes with COVID restrictions easing, and we saw improved product mix and volume growth in all of the key segments of the business. The significant uplift in both earnings and margin reflect the benefit of the investments that we've made in domestic manufacturing capability in North America. Having a presence on the ground means we can supply locally as well as developing closer relationships with our customers. We have maintained their confidence throughout what has been a very difficult period for them in terms of supply. Continuing prudent and efficient management of expenses has also contributed to the expanded earnings margins. The channel inventories in North America have been at relatively low levels, which reflects the global and domestic supply disruption that has impacted the entire industry this year. We have sufficient inventory on hand or on the water to meet the majority of our orders in the second half. I'll now pass over to Brent to discuss Seed Technologies. Thanks, Brent.

Thanks, Greg, and good morning, everyone. As Greg mentioned, we continue to see revenue growth in the core seeds portfolio and hit major strategic milestones in omega-3 and carinata platforms. We are well on track to meet our strategic assets. Seed Technologies revenues were up 28% [indiscernible] also up 24% to $46 million. These are very strong results and reflect broad-based cost to total business. Key growth drivers in our core seeds business included sales used in hybrid canola varieties in Australia, South America and Canada. Our newer varieties of sorghum continued to go [indiscernible] with higher sales in Brazil and U.S.A., and there was increased demand for sunflower varieties in both North and South America. The first half also saw important milestones achieved in omega-3 and carinata. These results see value on the old strategy. We see earnings continue to be strongly weighted to [indiscernible] '21, primarily driven by the timing of planting and commercial activity for our crops' prospective geographies. Looking at our omega-3 platform and a little more [indiscernible] during the first half, demand for some continues to grow. This helps drive increased orders for Aquaterra and for Nuseed and seed-producer customers, and Aquaterra is now an established feed input for the Chilean aquaculture market with repeat orders and strong positive feedback. As the Aquaterra business continues to grow, we're also refining our supply chain and logistics capabilities with the first vessel shipment of oil to Chile [indiscernible]. Our omega-3 human nutrition product, Nutriterra, also progressed several milestones during the half. FDA, the Food and Drug Administration, acknowledging it is a safe ingredient for food. This, together with the FDA's earlier recognition of Nutriterra as a new dietary ingredient places us strongly, hence, our discussions with potential partners for the commercial launch of Nutriterra into human nutrition markets. We also now contracted growers to supply [indiscernible] to meet our demand expectations into next [indiscernible]. We are preparing for the launch of our second-generation hybrid genetics. These hybrids are expected to deliver a significant [indiscernible] We continue to see very positive demand in growth market and are positioned as the leading global supplier of plant-based, non-marine omega-3. It places us in a strong position to capitalize on opportunities. At the Investor Day in February, we shared additional key milestones and continue to focus on next steps, including customer expansion, scaling our operations, expanding our margins and achieving further important market approvals as key [ outcomes ] for the next 2 to 4 years. Now turning to our carinata platform. The highlight for the first half was a signing of our long-term strategic offtake in market development agreement with bp. We see this as a transformational development for this program and strong validation of Nuseed carinata's potential as an advanced nonfood agricultural sustainable feedstock for biofuel production. The agreement for an initial 10-year term allows us to rapidly accelerate the development and expansion of our network of growers, channel and supply chain partners to deliver carinata oil to bp or its affiliates. We have commenced validation and development work in all 4 continents with carinata this year and we're expanding our production base in Argentina and Uruguay. Next, we'll be launching carinata in hybridized genetics and intend to expand supply from our current base in Argentina and Uruguay in 2022 and then launch in the U.S.A. in 2023, followed by Brazil in 2024, while simultaneously advancing further product developments in Europe and Australia for future launch. Together with our omega-3 oil and our strongly performing core seeds portfolio, carinata will be a key growth platform over the coming years. Thank you. I'll now hand you back to Greg.

Thanks, Brent. I realize that the audio may have been a little bit difficult for a part of your presentation, Brent, particularly the omega-3 portion. It seemed to get a lot better when you're talking about carinata. So I guess we'll get a chance in Q&A to maybe go back and just reaffirm some of those things that you talked about with omega-3. But in any event, I think some very encouraging developments over the past few months, which, as I said earlier, gives us continued confidence in the potential value of these technologies as we've talked about in our 5-year plan. Anyway, now sort of turning to the outlook. And as I said earlier, the agricultural landscape continues to change, and there are significant megatrends that I think is worth reminding ourselves over that continue to reshape our industry. First major trend is the surge in demand for food that's expected over the next 30 years driven by population growth. The next megatrend is the drive to extract more productivity from the same land whilst making sure that we continue to improve that land. And our industry, like many others, is also facing a powerful trend to a more sustainable future. The need to limit our impact on the environment and improve our oceans, air and soils is growing. And lastly, modern technology will help us find solutions to these issues as well as generating new opportunities. And the reinvigorated Nufarm is at the center of this evolution and the improvements that we've made to the business over the past 5 years and the investments that we have made position us well to capitalize on existing and emerging growth opportunities. At our Investor Meeting in February, we outlined our 5-year growth aspirations in a lot more detail, and I'm pleased to reaffirm those ambitions. Sustainable annual revenue of $4.6 billion by 2026, and Seed Technologies contributing around $650 million in 2026 with very strong margins, and we're well on the way to achieving this result and clearly excited about the future growth prospects. Nufarm will benefit from the shift to more sustainable agricultural solutions. We are enabling our growers to produce more from less, whilst providing products that help them adapt to climate change and minimize unintended environmental consequences. Innovation and technology will drive new funds growth and sustainability. And this slide showcases some of the innovations and technologies that we are working on. As I said, we provided some detail back in February. I don't intend to go back through the detail today, but a key component of our strategy is to partner with and invest in like-minded organizations to advance our aspirations. Turning to the outlook. Going forward, industry conditions remain highly favorable. The outlook for grain prices remains positive, and favorable seasonal conditions in our regions are generating continued strong demand for seed and crop protection products. So we expect full year earnings to be strong. As I've previously said, the full year results will be proportionately weighted to the first half given the strength of forward sales driven by global uncertainty and volatility. While some easing of these favorable conditions is likely to occur in future periods, there are several factors that support our growth aspirations through seasonal cyclicality. Recent global issues, including the conflict in Eastern Europe, have increased awareness that crop protection is a vital component in ensuring global food security. This is encouraging agricultural production in other geographies and tightening global supply. Longer term, we believe the underlying dynamics of our key markets are strong, and the opportunity before us is significant. The next phase of our growth in evolution has begun, and a large part of that is about innovation and technology. The technologies that we have invested in to meet the future needs of our industry will form the core growth or the core of our growth engine. So thank you all, and now happy to hand you back to Noah to take some questions.

[Operator Instructions] Your first question comes from John Purtell with Macquarie Group.

Can you hear us okay?

Yes. Fine. Thanks, John.

Just had a couple. Just in terms of the Europe result, the EUR 26 million of sales impact. What was the profit impact related to that? And I know that you obviously mentioned, I think it was a EUR 15 million profit impact you're expecting for the full year. Is that still sort of order of magnitude what you're expecting as a headwind?

Yes. So it's pretty much -- John, Paul Townsend here. So the impact is about that, that EUR 15 million, that's the margin impact of the EUR 26 million. And it's really on our table. We feel our cost is low in the first half. So that whole rig-out is really in the first half because in the second half last year, we're already starting to experience some of that revenue reduction.

Got it. Just the second one on North America, obviously, a strong result there. Would you sort of characterize that as a bit of a catch-up from last year? Obviously, seasonal conditions weren't ideal, but we still had drought this time in Canada. And do you see momentum continuing in the second half there? Because historically, it's actually been a bit more weighted to the second half or at least we saw that last year.

So John, I think, as I said earlier, low channel inventories resulted in a very strong demand in sales in the first half, so resulting in pull-forward sales. The season there is running a little late with dry conditions in the southern states of Texas. And we've seen demand soften a little bit in April and May. So I wouldn't expect, at this stage to see the second half to be as strong as it was last year. Supply chain logistics mean supply will continue to be tight. But I just don't see it as strong this year as it was last year.

Got it. And just a final question for Brent. The question is sort of in terms of the key milestones that we should be looking for omega-3 and carinata over the next 12 months?

Yes. Great. Thanks, John. I think in terms of next steps, I'll start with omega-3. And it might not have come through. I guess we had some noise on the line as I was talking, but the next steps that we're really focused on is customer expansion beyond what we currently already have in Chile. Starting to scale our operations in terms of some of the efficiencies we can achieve as we get to greater volumes and resulting in expanded partners. And then also achieving further import market approvals as we seek to finish the rest of the regulatory approvals around the world. So I think those are probably the key nearby milestones for carinata -- or sorry, for omega-3. In terms of carinata, we're really focused now on expansion with the announcement of the bp deal. A lot of it is about supply expansion. So as I highlighted, it's -- we've got a very step-by-step plan in terms of launching now in multiple countries and scaling from those countries and then working with our value chain partners to deliver against that bp contract. I think the other thing that I'd maybe come back to in terms of looking at both those businesses plus the core seed businesses, as we outlined in the Investor Day in February, we have an aspiration to achieve $600 million to $700 million in revenues at 20%, 25% EBITDA margins by 2026. And I would say that the progress that we're now seeing with all 3 of those platforms being in commercial phase and scale up, but all 3 of those are really significant contributors to that aspiration. So hopefully, that's helpful for you there, John.

I think maybe, John, if I can just add a little more just around omega-3 in a way that we're sort of thinking about that with the prior guidance, if you like, or information that we had given prior to COVID. And this is a way that Brent and I have been thinking about it, if you really think about financial year '22, it's sort of a sell-out year for omega-3 essentially, if you like, the inventory from calendar year '20. You know we didn't plant a crop in calendar year '21. And in this year, calendar year '22, the crop that we are planting now we believe will meet the demand, if you like, the demand in calendar year '23. And then in calendar year '23, the acres that will be planted will really be determined based on the reforecast demand at that time, which we would expect to have a rebound from the COVID impacts and should be higher than 2021 and/or '22, if that helps.

Your next question comes from Evan Karatzas with UBS.

Greg, you sort of touched the increased, I guess, food -- global food security concerns. Has that had any impact or changes to, I guess, some of the Europe regulatory challenges that you've seen, I guess, over the last few years? Have you seen any change to that over the past 3 to 4 months, 6 months?

Yes. Look, good question. Nothing that we can specifically point to. I mean there's certainly some of the leaders of -- some of the European countries are saying that we may just have to review those objectives. But as you know, the Farm to Fork objectives haven't been legislated. And I'd just sort of remind everybody that the base for that was sort of the average of 2015, 2016, 2017. So a lot have been achieved over that last 5, 6, 7, 8 years. And I think, again, the way that we think about that is we know what the impact is in this current financial year. We know we've got some more impacts next financial year. And again, the challenge is for the new portfolio and other product introductions really to be able to cover the revenue that we lose from those regulatory outs. And then we're really looking to '24, '25, '26 when we've got -- and these are some of the products that we talked about at the Investor Day. And if you go back and have a look at that calendarization, you'll see that '24, '25, '26, we've got quite a few of those new product introductions coming through, and we've also got the agreement with Sumitomo for distribution, not exclusive, but distribution of some of those higher-margin fungicides and insecticides. But really, to be specific, nothing significant or change in view coming out of the bureaucrats or the regulators.

Yes. Okay. Great. That makes sense. And then just looking at the, I guess, the underlying, excluding the corporate 26% revenue growth, maybe this one is for you, Paul. Can you sort of parse out, I guess, what was price, volume and mix? Any sort of direction or guide you can give to what price was as a percentage of that revenue growth?

So this is the corporate revenue, which is the $183 million that we...

Sorry, excluding the corporate revenue.

Oh, excluding the corporate revenue. So it's mainly price, but there is some -- and I guess, Greg touched on it through the, I guess, the specific regions. There has been some volume growth in some key segments and mix. So it's a combination of all 3. And we're not specifically calling out, but certainly, price has been the main contributor to the growth. And you're seeing that in our peer results announcement as well that the price has been, by far, the biggest contributor, but we've certainly had some good volume growth in some key segments and total mix improvement.

Your next question comes from Grant Saligari with Credit Suisse.

Great. Good solid results. So great to see that. On Europe, and I think it's obviously a bit of focus on that in the call. But on Europe, could you outline sort of more specifically what things you think you can do to squeeze a little more in terms of performance out of Europe? And maybe also just in terms of the current results, how would you think about that in terms of the whether this is a good or above-average crop and sort of general market conditions? Like is this reflective by what we should think about for a normal crop and market conditions in Europe?

So let me tackle that first -- sorry, the last piece first. I would describe it as fairly normal. I mean it's quite variable. When we talk about Europe, as you know, it covers a huge area and different seasonal conditions across that. So I would describe it sort of as normal, I think it's fair to say. When we look at the next 4 or 5 years, there's still more we can do in our supply chain. We've got a capital program to invest in our operation at Wyke, which is really a global facility for our specialty phenoxies and MCPA where we have a global position. That's included as part of the European result. So I see that contributing more. Then we've got the formulation facilities at Gaillon and Linz. And there's more we can do, which is really what we've done in North America, if you like, to modernize our supply chain formulation and logistics and warehousing. So there's quite a bit of work to do. But the real driver, once you've got those base parameters right, the real growth then comes from the portfolio. And as you know, it takes time to build those products and get the registrations. The acquired portfolio has and will continue to hold us over. But I don't see a significant improvement, save for doing something else like acquiring some products, and there's nothing there at the moment that I've got clear visibility of. So it really is about just that hard work and targeting the business up and tweaking out more margin where you can with the focus of really '24, '25 when we start to see the impact -- the real impact of what we've talked about, again, back to the Investor Day and with the Sumitomo portfolio. I do think there will be other opportunities that come our way over that time period, I just can't be specific about them now.

And just second, on the North American result. I mean, the improvement there was a standout, and it was actually achieved with sort of Canada having drought conditions. So it wasn't all sort of favorable there. Could you just -- do you think that, that level of performance in North America is sustainable? And again, I guess, similar question, what more do you think you could do in the North American market to improve your position?

Again, unlike Europe, the hard work, if you like, or the heavy lifting around the supply chain, and we've talked about the facilities there before, the insecticide, fungicide operation, they're all set, state-of-the-art, performing well. Greenville was only commissioned 18 months ago, going very, very strongly, and shouldn't underestimate the impact that, that has on both our internal efficiencies but also our ability to reliably supply our customers. There's some more work that we need to do with Chicago Heights, and that will be done over the next probably 2 or 3 years. And then it's really assessing the growth and whether we need to do more Greenville-type operations. We're potentially looking at putting something in Canada or something on the West Coast. So there are things that make a difference. But again, ultimately, it's about what comes through the portfolio. And that's where the focus is. And I absolutely agree, it's been an outstanding result. I wouldn't put this down anywhere near as normal. There was quite a heavy swing to first half given uncertainty in supply and volatility. I do think though, when you look at the performance of North America over the last 4 or 5 years, it just has been continual growth. And I see no reason why that can't continue. If you look, take a 4 to 5 year sort of view rather than a half-over-half, I think that's probably the better way to look at it.

Good results.

Thank you.

Your next question comes from Richard Johnson with Jefferies.

Greg, can I just return to the earlier comments on volume growth in the first half? And perhaps you could try and help me understand a little bit more what kind of volume growth you enjoyed. And the reason I ask the question is, it sounded like you were talking down volume a little bit. And that's a surprise given you've had favorable conditions, seasonal conditions and obviously, core markets. So I'm just trying to understand that a little bit more. And then also to reconcile how we should think about the level of volume today relative to the long-term trend, which is obviously population growth, which is a far lower number.

Yes. And I think, Richard, that is the way to really look at it. I think on sort of current trends, we're going to finish up from a revenue point of view, and some of that goes to volume, some of that goes to pricing, some of that goes to product mix. And there is volume growth in some of those segments, I think, particularly in North America. I think in the other markets, it's been more predominantly price-driven. And then I think at some point -- and I don't think anyone rings the bell as I've said before at the top or the bottom, but we are starting to see an easing in active ingredient or raw material prices. Now whether that impacts in the second half or whether that impacts in the first half of '23, I just don't know. But we will get a correction in pricing at some point. And I think the volume story then is really linked to the portfolio and what you've got to sell. And that's frankly where our focus is when we look to the 5-year plan. It's all about having products that do 2 things. It keeps your relevance with your customers, so therefore, volume, but it also -- the mix starts to improve the quality of earnings and the margin percentage as the volume of higher-margin, differentiated product starts to buy.

That's great. That's very helpful. And then just a quick one for Brent on carinata. Qantas have been out and about the last day or so talking about the potential for synthetic fuels replacing biofuels. So really, my question is, I'm curious to know what your view on that is. And whether you've taken account of that in your long-term thinking around the size of the addressable market.

Yes. Thanks, Richard. Thanks for the question. As we've assessed the market, the market size is obviously huge in terms of the need for whether it's renewables, biofuels or other technologies in aviation. So yes, we're well aware and have been tracking all the developments of other types of technologies. But at the same time, maybe one of the reference points or things to think about is the industry, the IATA industry, the International Air Transport Agency (sic) [ Association ] has been putting out some guidelines as to what the role of sustainable aviation fuel is in the future. And they project that out of the -- out of all the volume that's going to move to new types of fuels or technology, 65% of it is going to have to come from sustainable aviation fuel, which will come from veg oil or other types of plant-based sources. Meanwhile, there's still 35% of a very huge market looking at new and other technologies that will come down the track. And I think, in particular, in our discussions with the aviation industry, the real and probably hardest thing to solve for is long-haul flights and transport, and that seems to be the real focus today of most of the airlines. But I think it's fair to say they're looking at all different types of technologies as they try to make the transition and shift to the future.

Got it. That's helpful. And then just quickly on omega-3, is the ongoing sort of COVID closures in China still a drag on growth for the broader markets, salmon market?

Yes. It's interesting that we've seen very strong rebound in all the salmon markets. The pricing has recovered. The margins have recovered in most of the salmon markets around the world. I don't know if we've seen some of the short-term impacts of China right now, but the European and the North American and rest of world markets have been very strong. So at this stage, we're seeing really good results and growth in demand globally. But I think everyone is keeping a close eye on those developments and what impact they may have. But it continues to be a dynamic that we have to track pretty closely. But at this stage, the market is looking really healthy.

I think, Richard, just one other comment I'd make, and Brent may not have seen the Qantas announcements. But I think the other point I'd make in addition to what Brent has said, carinata is already now an option and it was. I think it will continue to play a role until those new technologies are developed and/or commercialized.

Your next question comes from James Ferrier with Wilsons.

Congratulations on the results. First question, can you just give us a little bit more color about the $190 million of CapEx you're expecting for the full year? Maybe if you could sort of split it sustained business versus growth or split it fixed assets versus intangibles?

Yes, James. So basically, the -- and we sort of indicated this at the full year that we expect about $150 million of that $190 million is staying in business and $35 million is -- was expected to be invested in Wyke, essentially. There's a number of projects in Wyke increasing the capacity in the -- for methyl and the propionics area. So that's how we've sort of the split this between, if you like, staying business and grow. Inside that $150 million, though, the split is roughly about $100 million of intangible spend and then $50 million of P/E investment, which is staying business, property plant equipment investment. Of the $100 million, that 60% of it is Crop Protection, 40% is Seed Technologies. And as we've called out, there is an element of growth CapEx, whether it's local extensions or other, if you like, expansions of our IP inside that $100 million, if you like, but we don't just sort of call that out. If we don't try to specifically isolate growth CapEx to that staying business for the purposes of how people should think about what our CapEx is.

That's very helpful. And that leads onto my next question then. So it's about $60 million there of intangible CapEx in relation to crop protection. Over the last decade, that number is sort of probably been somewhere between, say, $40 million and $60 million. Is that the right amount of spend? Is that enough in terms of being able to not just keep the crop protection revenue where it is, but to be able to facilitate that $500 million to $600 million of net new revenue within crop protection that Nufarm is aiming for by 2026?

Yes. I don't know if you were on the Investor Day call, James. That was a question that came about, and effectively, we expect the crop protection investment, so as a ratio today, to continue to, if you like, obtain that ratio. And I think it's about 3.5% sales. So that will continue going forward. So that way, we're able to support the growth in the crop protection revenues that we've identified at the time of the Investor Day. But yes, there is a growth element, a growth in that $60 million to support the growth in the crop protection.

And I think, James, just to add to that, we talked about 200 projects in the pipeline, 22 projects that are particularly important to us. And I'd just make the point that those 22 projects have been funded in that CapEx program and have passed proof of concept. So we've got pretty good visibility around what those projects will deliver in that 5-year plan.

Excellent. That's great color. In the North American results, can you put some numbers around the sort of return to more normal demand in the turf and ornamental part of the business?

Yes. We don't specifically call that out. What I can say is elaborate on what Greg said that this result is not normal. But normally, we -- this is at a high level, we normally have a sort of 50-50 split between the halves. Last year, it was skewed to the second half, and that's because of all the supply constraints, the polar vortex, et cetera, et cetera, which impact the first half. So this half is just not -- they're not apples with apples because you've got to pull forward an increased demand because of people wanting to get their foot on product. And we think about North America normal conditions of more 50-50 split weighted first half, second half.

Okay. Last question and perhaps for Brent. I certainly understand where omega-3 is going longer term and your intentions around planting in outer years in relation to demand. In the near term, though, I'm interested to see what sort of feedback you're getting, what sort of reception you're getting from growers to plant omega-3 seed as part of the program in the context of the cash crop canola prices being so high and then how that might impact your likely acreage this year?

Yes. It's a good point. I mean, obviously, there's been a lot of volatility and escalation in commodity prices. Maybe just to broaden the question a bit, with the impact of canola prices, obviously, growers expect to be paid more for base canola, we do pay them premiums to grow. This is an identity -- identity-preserved product over and above that. So really, it's a question of in our business model being able to be competitive at the farm gate and be able to pass those additional costs through to our end-use customers. And what I would say is that at the end-use customer side, they understand that because they're buyers of fish oil, which is trading at record levels. They also buy canola oil and fully understand the volatility that's -- that we're seeing in the world markets right now. So what I would say is that a lot of it is about being competitive at the farm gate to be able to get the acres as well as being able to then land that product at higher values in the end use market. And we've actually already seen that in our ability to move prices up correspondingly with the end-use market. So it's part of really managing the business model. So I don't necessarily see canola or commodity prices as limiting the potential to acquire growers. Probably the most exciting thing for us is bringing better and continue to improve genetics to the farm gate. And I think I've mentioned that we're now moving to our second-generation genetics, and we'll be launching those this year in '22 to be planted in '23 for oil in '24. So it's all coming together quite nicely, I'd say, in terms of being able to balance all those factors.

Your next question comes from [ Matt Perry ], a private investor.

I'm particularly interested in omega-3 canola and the progress in capturing market share. What would you estimate the reasonable TAM would be? And how would you anticipate being up? How much of that would you anticipate being able to capture?

Yes. No, thanks for the question. It depends how you define the market, of course, that you're participating in. But one of the highlight that we provided in our Investor Day was that in our first year of commercial operations or, I guess, 15 months, we had estimated that we had achieved about 4% market share in the Chilean salmon feed market. And so we provided that color back in February. So we're pretty pleased with that in terms of having just on commercial, but it also speaks to how much growth there is in the -- in our potential with that product. Probably the -- back to the question of how do you look at the size of the market and the size of the opportunity, we also project that over the next 10 years, in an unconstrained model, meaning that when we can supply additional omega-3 oil from this type of technology into a market that's been constrained and just with a flat amount of fish oil available to it, that we believe that the market will demand approximately 2x the current size of fish oil market growing from 900,000 tonnes to 1.8 million tonnes. And that the value pool available that we can participate in with this technology is worth about $850 million of EBITDA in AUD terms. So it's a very large market for us to participate in. And our view is that we are clearly the market leader in new technologies to supply to that market today, and we continue to believe that we will retain that market leader position. So hopefully, that's helpful for you.

Yes. Where is competition coming from in that market?

Yes, it's a good question. I mean there have been various technologies that have been making some announcements about their developments. I'd say that the only other ones that we're seeing in the market today is what I'll call alternate sources from marine sources being fish oil is ourselves as well as some algal technologies where they're fermenting and creating different types of options for algal technologies. The challenge that I think the industry is seeing with algal technologies is they're very high-cost, given the type of technology that they require to produce it. And I think through the COVID period, we saw that they were very, very challenged, and we know that we're already starting to displace some of the volumes of those alternate technologies. So I think the advantage that we see from a plant-based source is using agriculture as a really efficient system to be able to have a competitive position and probably, most importantly, a scalable position. So at this time, we really don't see really significant competitive pressure from alternative technologies in the market and our opportunities to help the market grow as being the leader in this space.

Thank you. There are no further questions. That does conclude our conference for today. Thank you for participating. You may now disconnect.