UPL Limited (UPL.NS) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. This is Radhika Arora, Head of Investor Relations. Thanks for joining us today for the Capital Markets Day and Results for the Fourth Quarter and Financial Year 2020. On this call, we will be referring to the presentation available on the webcast. The management team will be represented by Mr. Jai Shroff, Global CEO; Diego Casanello, CEO (sic) [ COO ]; Rajendra Darak, Group CFO; Anand Vora, Global CFO. We also have with us other members of our leadership team. Raj Tiwari, Global Head of Supply Chain & Manufacturing; Farokh Hilloo, our Chief Commercial Officer; Carlos Pellicer, our COO, Integration Global Strategy and Special Growth Initiatives; Rico Christensen, Chief Marketing Officer. And all our regional heads throughout the globe are joining us on the call. The presentation will have a strategic update by Mr. Shroff, followed by the business update from Diego and then a financial update from Anand. Post the presentation, we will be having a Q&A session. Please note that some of the information on today's call may be forward-looking in nature and will be covered by the disclaimer page of the presentation. With that, let me hand over to Mr. Shroff to provide you a strategic update. Over to you, Jai.

Thanks, Radhika. A pleasure for -- to join you virtually today for our crisis -- in crisis shareholder meeting. I'm very pleased to tell you, and hopefully, some of you have been able to go through the results announcement earlier this evening. But as promised, UPL has been able to deliver a fantastic year in very challenging times. My team will take you through the challenges faced during this year by UPL and by the industry, more than just UPL. And in spite of this, UPL has been the fastest-growing company in our industry. We've had an amazing year, full of challenges. The number one was integrating Arysta into the UPL portfolio. Worldwide, our teams have worked relentlessly through the year to put together this amazing combination of 2 companies. The success of the transaction can be seen by the performance of each region in our business. We have grown volumes and revenues in all the regions in the world. This just is an absolute -- which shows that we have been able to integrate our businesses together. I'm sure that even later on in the presentation, we will share with you that we are well ahead on our synergy capture and our other performance like our inventory management and cash generation. The business has performed on all fronts. And I'm very pleased to say even during the COVID crisis and during this period, our businesses have been operating currently and in not normal conditions, but within the constraints we have, we've been able to perform. All our factories are operating, and all our business units are operating and are supported by the local governments and -- to perform -- to be able to deliver. Our responsibility is very important, and we take our job very seriously. And we've been able to fulfill our obligations to our -- to the industry, which is the food supply chain. We have been operating remotely for the last 90 days. All our operations are -- we are constantly communicating with our teams and making sure the supply chain are operating -- and operating in the best possible form and that we are able to supply our goods to everyone. Anything else? Great. So I can hand over to Diego now.

No, you hand over to Anand, Jai.

Anand, okay.

Hello, everybody. Good day. Thank you, Jai. Thank you for the introduction. I'll take you through the financial results. Before taking through -- taking you through the financial results, the key numbers for the fourth quarter and full year, we take as having read the safe harbor statement. And we would also like to inform that financial results for the quarter and full year 2020 are being compared with the pro forma financials of the previous year and the year ended 31st March 2019, in order to make them comparable. The numbers of the previous year, as you know, we had only 2 months of Arysta. So therefore, we are showing the pro forma numbers where we have the full year of Arysta added to the full year of UPL performance. The pro forma numbers, moving on to slide -- yes, thanks, Radhika. So as you will see the key highlights, we delivered on revenue, INR 35,756 crores. We closed the year with INR 35,756 crores of revenue and 13% of growth. In terms of EBITDA, we delivered INR 7,452 crores, a growth of 18%. I would like to highlight here, in dollar terms, we delivered an EBITDA of $1.050 billion. We used the average rate for the full year. Hence, we deliver -- in rupee terms, we delivered INR 7,452 crores. In terms of our net debt, we ended the year with INR 22,060 crores of net debt. We reduced the net debt by INR 4,400 crores. And again, here, I would like to -- I'm very pleased to let you -- inform you all that we reduced the net debt, as guided, by $500 million by end of 31st March 2020. In terms of EPS, our earnings per share stood at INR 23.24 per share, again, a growth of 19%. Here, again, I would like to highlight that when we did the acquisition, we had said that the acquisition is going to be EPS accretive. And I'm very pleased to say that we ended the year with a 19% growth over the pro forma EPS of both the entities put together. Moving on to next slide, please. In terms of sales, we -- as I mentioned earlier, a 13% growth. We had a volume growth of 16%. And price, we saw a degrowth of 1%. And on the FX, we saw a degrowth of 2%. Next slide, please. These are the pro forma financial results. Total revenue from operations, INR 35,756 crores against INR 31,616 crores, a 13% growth. Gross margins grew by 8%. And EBITDA at INR 7,452 crores against INR 6,312 crores, a growth of 18%. Can you move to the next slide, please? This is the financial results for the full year. I would just like to take you through the first column is the reported column. As we mentioned during our quarterly updates, we had the PPA adjustment, the purchase price adjustments, some of the inventories which we got from Arysta at the time of closure. Under the IFRS, you need to record them at the book fair value, so which is close to the market price. So therefore, this required some PPA adjustment. At the same time, there were adjustments on amortization and depreciation. Both this had an impact on the tax so the tax adjustment is also there arising out of PPA. So post PPA adjustment -- or before the PPA adjustment, our revenues were INR 35,756 crores against INR 21,837 crores. Just to reiterate, the previous year's numbers includes only 2 months of revenue from Arysta. This shows a growth of 64% over that of the previous year. Our EBITDA at INR 7,452 crores against INR 4,555 crores, again, shows a growth of 64%. PAT at INR 3,184 crores against INR 2,337 crores shows a growth of 36%. And net profit after exceptional items and minority interest stood at INR 2,162 crores, showing a growth of 19% over that of the previous year. The exceptional items of INR 623 crores for this year largely was represented by about 50%, 55% of this came from the provisioning, which we did out of the Agro -- the suit which was filed against us by Agro...

Agrofresh, Anand.

Agrofresh. Yes, sorry. Thanks. Yes, by Agrofresh. And the balance was towards the redundancy and other integrated -- integration-related costs. Moving on to next slide, please. Working capital, again, we did very well on working capital. We brought down our net working capital from 119 days to 80 days. Again, all the 3 components. Inventory, we saw a significant reduction of 25 days in inventory from 106 days to 81 days. In terms of receivables, we saw a reduction from 135 days to 118 days. On the payables side, we were slightly, I would say -- I wouldn't say worst off. We were slightly not as good as it was last year, with 119 days of payables against 123 days in the previous year. And this was largely on the back of challenges in China, which resulted us in buying a lot of raw materials and intermediates on cash terms or on a shorter credit period term basis. Next slide, please. This is the breakup of the cash flow. As you would see, our opening cash was INR 2,851 crores, and we ended the cash with INR 6,752 crores. One of the things which I would like to highlight here is consciously, we have taken a decision to retain cash. Especially, we saw in the last quarter the impact of COVID-19 and its implications on -- particularly on the money markets. There was significant tightening in the money market and therefore, we felt that it was best to retain cash on the books rather than use it to repay the loan. Once the situation settles down or improves, we could use this cash for repaying some of our outstanding loans. As you would observe that cash from operations was INR 8,738 crores, represented by -- from increase of INR 3,338 crores (sic) [ INR 3,384 crores ] by PBT, profit before tax. The noncash items was INR 3,513 crores, and working capital change was INR 3,050 crores, and taxes and others was a negative INR 1,208 crores. Cash from financing. We repaid some of the borrowings. We repaid about $200 million plus some working capital loans. So we repaid during the year INR 2,870 crores. Interest outflow was INR 1,646 crores. Dividend outflow -- dividend of the last year, INR 457 crores. And as you know, we raised perpetual bonds, $400 million. So there was a cash inflow of INR 3,027 crores, and other expenses, INR 229 crores, was a cash outflow. That was cash from financing activity, totaling to about INR 2,175 crores net negative. And cash from investing activities was INR 2,663 crores. This largely represented towards CapEx, we spent INR 1,981 crores. Payment to Arysta, INR 620 crores. This is towards the adjustments in working capital after the closure of the deal. And then there was -- we did a small acquisition in Costa Rica of a company called Bioquim This was an outflow of INR 141 crores, and others was an inflow of INR 79 crores, thereby, the closing cash balance of INR 6,752 crores. Next slide, please. This slide shows the debt profile. As you would observe, 44% of our debt is in U.S. dollars; 40% is in euro; 10% in JPY, that's Japanese Yen; 3% in Indian rupees; 2% in BRL; and others is 1%. Again, a very diversified debt profile, different currencies. Again, I would also like to highlight here that we have significant revenues in Eurozone as well as in Japanese besides the U.S. dollar. And therefore, we have spread our debt accordingly just to give us a natural hedge against the revenues which we get in the respective currencies. In terms of security, 98% of our debt is unsecured, only 2% is secured. In terms of maturity, our first maturity comes in October 2021. Until then, we have no commitments to repay any debt. That's our USD 500 million bond, 5-year bond, which matures in October 2021. Thereafter, we have the acquisition loan, which we took for Arysta. As you would have -- as I shared during the cash flow, we repaid $200 million of this loan out of the proceeds from perpetual bond, and we have an outstanding of $2.8 billion, which is maturing in March 2024. And we have a 10-year bond, which matures in 2028. So again, no debts which are there, which is going to be needed to be repaid at least for the next 15 months. We are -- as I would just like to highlight again, we again -- we remain committed to retaining our investment grade. And even after -- with the debt repaid -- I mean the net debt reduction of $500 million, our net debt-to-EBITDA ratio now stands at about 2.9, comfortably from the 3.7 we started -- 3.5 we started and went all the way to 3.7. We are back down to 2.9. And we are confident that by March 2021, we should be in a position to bring it to the around 2 levels, which is our commitment to the rating agencies. I'll just quickly take you through the Q4 performance. Next slide, please. In Q4, we had a revenue growth of 25%. From INR 8,788 crores last year in Q4, we ended the quarter 4 with INR 11,022 crores, a 29% growth in volumes. We had a price impact of 2%, and we had an FX impact of 2% during this quarter. Next slide, please. These are the pro forma financial numbers against last year, 26% growth in revenues, and EBITDA of INR 2,169 crores against INR 1,740 crores, a 25% growth in EBITDA. Next slide, please. This is our detailed P&L for Q4. Again, there were some purchase price adjustments largely on account of amortization and depreciation, as most of the inventories were sold out during the earlier quarters. And so the column -- the third column and the fourth column are the comparable columns. Against INR 11,141 crores of revenue in the quarter, against that previous year same quarter was INR 8,524 crores, showing a growth of 31%; EBITDA, a growth of 17%, INR 2,169 crores against INR 1,852 crores; and net profit of INR 705 crores, showing a 20% growth over the previous year which was INR 587 crores. Exceptional items stood at INR 171 crores against INR 299 crores in the previous year same quarter. Next slide, please. With this, I'll invite Diego to take over -- take you through the business updates and strategic roadmap. Over to you, Diego.

Thank you, Anand. I hope everybody can hear me well. Good morning. Good evening. Let me talk a bit -- give you a little bit more color on the business results and talk about the long-term strategy of UPL after the integration. But first, before we go into this, I want to spend a minute giving you a little bit of flavor of how we are managing this unprecedented crisis. And I think we can say that we are privileged to be in an industry that is considered essential together with the pharma industry and a few others, but it's also a great responsibility to help farmers produce food and make sure that this is not only a health crisis but -- that does not become a food crisis from the health crisis that we are living right. now. The first priority has been to ensure the safety of our employees. Everyone that can work from home is doing so today. And we are following guidelines from the WHO and governments around the world to take care of those in the plants and in the labs, sometimes going even beyond what the authorities are recommending us to implement. The second point, the second aspect we're focusing on is on business continuity. And all our plants are operational. We're moving product to customers and that can be sometimes cumbersome right now. But so far, we have managed to do this well. I am happy to say, I'm amazed about how our teams have adapted to work in this way. They are the real heroes in this crisis. I want to thank all of them for the energy, for the passion and for the commitment that they're showing every day. It is also amazing how efficient we are working from home. Virtual product launches. We have virtual customer meetings. We get more than this way than we actually used to do before. I hope you're going through the same experience, but a lot of lessons that we can take home after the crisis to make our business even more efficient in the future. And finally, we are also reaching out to many of the communities where we are present today. We have donated $10 million to several initiatives to fight the crisis. We are producing hand sanitizer in several of our production plants. We are producing face masks for hospitals. So a lot of activities, and everybody somehow directly or indirectly engaged. Moving to the next slide. So talking a bit about the highlights of the business, and Anand touched upon this already. Let me say that this was an outstanding year for UPL, an excellent job done by the entire team. And I want to also thank our customers for trusting us in such a manner during an integration year like this one. We grew 13% of revenues; 16%, our volumes, which makes us, Jai said before, the fastest-growing company in the industry. And we have gained important market share that gives us a great head start into this new year. We're growing, but we're growing profitably, and we have put emphasis on expanding on our EBITDA margins to a little more than 21%. And the reason for this is also that fact that we were well ahead of our plan in delivering our synergy guidance and the fact that the team managed to complete the ERP implementation in record time. I mean this has been a fantastic success. One key target for UPL this year was to reduce our net debt post Arysta acquisition. I believe that the reduction of INR 4,400 crores is really a testament of the strength of UPL when it comes to cash generation. And last but not least, probably the most encouraging data point I can share with you is the peak sales potential of the combined pipeline of INR 20,000 crores. That makes us very confident about our ability to sustain this growth in the future. If you move to the next slide. So let me give you more color about our results for the full year 2020. We were able to grow share in the majority of the countries we were operating, especially in our herbicide portfolio with products like Interline, like Select, like Dynamic, insecticides like Sperto, fantastic performance of these brands. The growth in others that you see here is especially driven by our success on biosolutions in our ProNutiva programs in many countries. We also lost some margin, but this is mainly driven by the different regional mix compared to last year. Remember that we faced extreme weather conditions in the Northern Hemisphere, which is historically a higher-margin business. And as these markets come back, we expect to see a normalization of our margins, which have been quite stable over time. If you consider that in an integration year like this, we outperformed the industry despite facing extraordinary weather situations, the disruption of supply out of China in the first half, the devaluation of emerging countries like the Brazilian real and since February, the COVID-19 impact. You can see how robust and how solid the business model and strategy execution of the new UPL can be. Let's move to the next slide. And now diving into our regions. In 2020, we were able to claim the #4 market position in Brazil. And we advanced to #1 in Mexico and Colombia. We grew that region in the double digits as you can see. The response from customers after the integration of Arysta was incredible. We are now an alternative to other larger multinational players to become a backbone supplier. And with the breadth of the portfolio we are building, we can really complete our crop solutions in all our key markets. So also in North America, we grew in a market that has declined in 2020. In addition to what I said before, UPL is in the U.S., a welcome hedge for our customers to the uncertainties in the trade relationships between the U.S. and China today. In European agriculture, now moving to Europe, was hit hard last year by a dry and a hot season and also the currency depreciation, in particular, for the euro currency. Despite some demand weaknesses in herbicides due to the lack of moisture that we saw, we were able to deliver strong growth in biosolutions and we continue to gain share with products like seed treatments and insecticides this year. Moving to the next slide. In India, we experienced a great Rabi season, and that offset the difficult Kharif. But the biggest highlight was really the ability of our teams to develop new markets and bring technology to farmers. We are educating farmers in the use of seed treatments. We have distributed more than 1,000 machines to treat seeds. And also the use of biostimulants, and we're doing this literally village by village. So great, great work from the India team this year. And finally, in the rest of the world, we saw strong growth in Japan and Asian countries like Vietnam and Indonesia. And a month ago, we announced the acquisition of Laoting Yoloo in China. This has been a strategic acquisition that is adding a very strong team, more than 150 products and a state-of-the-art plant. And here, the team has done a terrific job to focus on innovation. I'm talking about the Yoloo team and also the UPL team in China. The 2 portfolios are very complementary and also the customer relationships that both companies bring to the table. China is the second largest crop protection market after Brazil. And we have now a fully backwards integrated position with the opportunity to grow in that market in the future, too. Moving to the next slide. This slide shows our quarter 4 results with a great finish despite the COVID crisis, which brought to a full -- almost full lockdown in March, if you remember. Some businesses of legacy Arysta moved this year from Q3 to Q4. So that also helped deliver this high growth because we changed the fiscal year from December in legacy Arysta to March 31st in legacy UPL. The biggest headwind we faced in March was the sudden devaluation of many currencies like the Brazilian real. Our teams usually will start increasing prices in local currency immediately when this happens. And we are actually well advanced on this. But there's always a lag of a few weeks until you can really see the offset of these actions. Moving now to the next slide. Let me talk about the integration, and Jai touched upon this already. We worked so hard to get the organization right, to get the integration plans right, the new branding, the new strategy, the synergies, the ERP consolidation. It was really a massive endeavor. So many things. And today, we can say really mission accomplish. It feels like we are working together for years now, and the teams came together as one. We are better and we are stronger together. I believe that the OpenAg vision and the mission really was able to rally everybody behind a clear purpose. And no matter from which legacy you came, you can really feel part of it and feel -- find yourself in this mission and vision. Moving to the next slide, please. So last year, we announced a run rate target for year 1 of $120 million of cost synergies out of a total target of $200 million for year 3, and $100 million of run rate for year 1 for revenue synergies out of a total target of $350 million. We exceeded both our revenue and cost synergy targets. Our run rate is today well above these values, and we are confident that we could achieve the run rate target even this second year. So from a P&L perspective, the impact in the full year 2020 are the numbers on the right-hand side of the chart, also well above expectations and prior statements that we have done to this group. The latest contributions to -- or as I'll call it, the largest, sorry, contributions to our synergies came from the implementation of our new organization starting in April. So we were very quick in implementing this new organization. And the in-sourcing of a few key active ingredients that were sold both -- by both companies before, but Arysta was sourcing from a third party, right? So beyond our synergy commitments, we believe that there is more opportunity to gain efficiency in fixed cost and take more cost out of our cost of goods. And we continue to learn about new projects, new ideas, so certainly more to come in the future. Moving to the next slide. While last year, we focused on integration and we shared with you our plans for the year. Today, I want to talk to you about our strategic road map to bring UPL to the next level in the coming 5 years. And Jai shared before, again, our mission statement, which is to make every single food product more sustainable. And what does it mean? It means that as a company, we need to build our strategy around these macro goals that you see in this slide. Helping create robust food systems that can withstand climate change or a crisis like the one we are living right now, where it really becomes very obviously important of stable food systems. Meet the needs of more than 500 million farmers when it comes to crop protection. But we need to do this with innovation and affordable innovation, products that farmers can buy and will, at the end, leave money in their pockets. We're not using yet the full power of big data, of artificial intelligence, Internet of Things in agriculture. So how can we connect farmers with everyone else? How can we use these technologies? And we need to do all this, making sure that we protect the environment and the health of billions of consumers. This challenge 20 years ago was more simple. I mean, right now, the complexity is higher. But if you go now to the next slide, and this is why the winning strategies for companies like UPL 20 years ago are different than the ones that are effective today and are also different than the ones that will be required in the coming 10 years. So let me talk a little bit about the evolution of our business, of the industry and where we're going. And first of all, 20 years ago, our focus was on developing new chemistry. How can I discover and develop a product that will allow farmers all over the world to control broad spectrum of weeds, of insects, of diseases all at once, right? One fits all, global blockbuster Ais. In the last 10 years, the focus moved to creating the right programs from seed to spray strategies to feed the needs of a specific crop in a specific country. It was not about killing 95% or 98% of the weed population, but how can I create an input strategy that maximizes yield and quality. This is still the world we live in today, right? Now in the next 10 years or 20 years, the focus will move again. And it is not enough to optimize yields, but how can I do this using less resources? How can I help withstand climate change for farmers and even helping reduce the climate change impact through agriculture? The farmer cannot be put under more pressure to add cost to its operations. I mean it has to help increase farmer margins along the way as we move forward. So we're moving from product innovation to crop solution innovation, to resource efficiency innovation. And we in UPL, we see this very clearly, and we want to lead the way in this new era moving forward. So going to the next slide. That brings me to our strategy. How do we want to win? How are we going to win in this environment to reach that vision? Well, these are the 5 key elements of our road map. We will, first of all, leverage our new scale to reach more farms, to finance more innovation efforts and to offer more price-competitive products and to take a Tier 1 position with our distribution partners. Secondly, we will continue to win in the post-patent market. Very important market. It still continues to grow and where UPL has a great competitive advantage. The third focus will be on executing and expanding our pipeline of proprietary chemistry. UPL has the ability to play in both the post-patent and the innovation business with chemical specialties. And this is a great advantage when you want to be a leader in this industry. The next point is to expand our sustainable solutions platform, especially with biosolutions, water efficiency technologies and service to sustainability services in particular. And the fifth point here talks about how we want to do business in the future, moving our business from supplying products to supplying Smart Farming Solutions. And I'm going to talk about this in a moment. So if we move to the next slide. Let me go now through each of the points in more details. The slide here talks about this -- our scale post-Arysta integration. You can see that we have a very large footprint in all regions covering manufacturing, R&D, commercial resources. And the number of products is one of the largest in the industry today. On the right-hand side, you see the split of our portfolio in comparison with the market. The position is balanced and matches quite well the market today. And in terms of our geographic footprint, now we have managed to balance better acquisitions in North America and Europe. LATAM is the largest region, a growing region. So it's fantastic to have -- to be able to have such a strong position in this region that is going to feed the world. And we are still underrepresented in Asia, outside of India. But with the Yoloo acquisition, we are set to change this. Moving to the next one. The second point I talked about in our road map was to strive to dominate the growing post-patent market. And no doubt that UPL has a strong position today. But we expect actually moving forward, that $5 billion of additional market value are becoming off-patent in the next 5 years, $5 billion. And we have the backwards integration and the scale to take a large share of this market. And with our R&D engine, we can bring differentiated and new formulations, so instead of just need to products to the market. So that way we are able to maintain margins at a higher level and expand the life cycle of these products. The value of the pipeline, we have valued today in $2 billion to $2.5 billion of peak sales, reaching maturity in the next 5 to 8 years. If you move to the next slide. With the integration, we have also managed to strengthen our R&D platform for proprietary innovative products. And -- but we are building this platform in a different way. We are building this platform in a very nimble and effective way as an open innovation concept. This means in network, with thousands of partners, focusing on our core competencies but letting others focus on their core competencies. And we do innovation from the field to the lab instead of the other way around, always listening to farmer first. Moving to the next one. The pipeline is strong and is actually pretty full. We have 38 new active ingredients in early stage and 14 in late stage of development. We are forming a great team under the leadership of Adrian Percy, who I think is on the line. He used to be the Head of R&D for Bayer Crop Science. And we have a team that brings experience from many different companies. And we wanted to do that. We wanted to have different perspectives in our teams. And we are very, very happy with how the team came together. The peak sales value of this pipeline is USD 1 billion to USD 1.5 billion, with maturity also again in the next 5 to 8 years. So this, you can add to the pipeline that I was mentioning before. Moving to the next slide. We have been working also in building the broadest portfolio of biostimulants and biocontrol products. On this area, we're active from discovery to commercialization. And our approach is not to sell a product, but to offer a solution throughout the entire crop cycle here. We call this solutions ProNutiva. That's how we go to market commercializing these programs. If you move to the next one, please. So -- and this brings me to the last point of our road map, which I was talking about before, how we want to do business as UPL. We are moving our business from left to right. On seed, if you see Smart Farming partner, we are talking about partnering with farmers and distributors to literally be on the farm with farmers throughout the entire campaign. How do we do this? Using digital technologies, using remote sensing, using imaging analysis, using sensors, algorithms. In that way, we're able to not only increase yields, but actually to optimize the programs to reduce the use of resources to protect the environment and increase yields. We expect, in the coming 5 years, to move more than 50% of our business in the category B and C. That is going to also help us expand margins because these are very attractive and defensible market positions. Moving to the next slide. So that brings me to our long-term ambition. And I hope that with what I mentioned before, you can see why we are -- continued to be bullish with respect to our growth momentum as UPL. Long term, we want to grow revenues in the range of 7% to 10% year-over-year. But we want to also do this, as I said before, with a pipeline of products and a higher share of Smart Farming Solutions, which comes at a higher margin. So that's going to help us improve our margin mix. And we see the opportunity to continue to progressively reduce our SG&A-to-revenue ratio, okay? So we will invest on growth. We are investing in expanding our presence in different countries. We're investing in R&D. We're investing on people on the ground. But we believe that we can grow revenues even faster and actually continue to reduce that ratio and also capturing the synergies, capturing the cost efficiency measures that we have. So we will continue to invest in CapEx to grow -- and to invest in R&D, to invest in planned operations and also in digital projects moving forward. To the next slide, please. So I want to end this presentation with this because everything we're talking about can only be achieved with the right values, the right principles. That's what guides our behaviors, what guides the execution of the strategy. And we are so proud about this charter for the entire team. We all stay behind. And you see here, very important, that the aspect of agility. How important it is in a market that is as dynamic as this to be an agile organization. We want to be the most agile organization in the crop protection industry. And I think this can differentiate us in the coming years. So thank you, and thanks also to the entire team for the great performance this year. I now hand over, I think, Radhika, to questions and answers? Or...

Yes. So we are now going to questions and answers.

So is it going to be Radhika reading the questions? Or is it...

Yes. Yes, it's going to be me reading the questions.

Okay.

So the first question is from [ Srinidhi ] from Pioneer Wealth Management. She says that congrats for the excellent set of numbers. How much will be the impact on consolidated top line and margins if the government of India goes ahead to implement the draft regulation?

Thanks for that question. Very sudden notification by the government. So we are very surprised and confused also as most of the farmers and agriculture industry is, if this is going to be, as you say, in our language, be a game changer in many ways -- many ways. We've had a dialogue with the; Ministry of Commerce and the Minister of Commerce, and he has confirmed to us that any of this notification will not affect any exports. So we are very happy about that. Regarding the notification as to it impacting the Indian business, we believe that the -- most of this will be reversed. If it is not reversed, we think it will have an adverse effect on the farmers' ability to produce crops and grow crops effectively and cost effectively. All these 27 -- 25 out of these 27 products are approved in OECD countries like Japan, U.S., Europe and Australia. And so we believe that these countries act responsibly and understand the need for these products. We also believe that in case these products are restricted in any form, UPL is well ready with a complete portfolio of products which can replace these products for the farmers. Cost of cultivation may go up. We believe that our new portfolio of products will improve margins for UPL. And to that extent, I believe UPL is well positioned to benefit from these sort of things. Whether or not it is implemented is yet to be seen. Whatever feedback we are having in our dialogues with the government is that they also agree with us that some of these things will cause some negative impact to the ability of farmers to be cost effective. But in these times, it's very difficult to predict what in the end will happen. But at least, we don't think that any of our global supply chain will be impacted. We also are committed to make sure that our global suppliers are not disrupted. UPL has an extensive manufacturing capability around the world. And on critical products, we have alternative sourcing available. So we are not too concerned. Our ability, we will also look at investing further in key markets like Brazil and Latin America, where UPL has a very strong position, and we would not like to depend too much on just having India as a single source. So future investments, we will build manufacturing capacity in different parts of the world.

Next question is from Varshit Shah from Emkay. What is the outlook on pricing environment in North America and LATAM given expected pressure in December quarter due to lower commodity prices, specifically corn?

So I'd jump into that question. I think we have seen last year a deterioration of prices, especially export prices out of China. But we also believe that pricing in general have -- has bottomed, and we are actually seeing even some different trends going up partially. So I'm not seeing -- I mean if you look at commodity prices in general, it has been historically already low. So it's not a big difference with respect to the situation right now. So pricing moving forward, we hope actually we can revert the trend, and you should be able to see this in our margins in the coming months.

Okay. Next question is from Nagraj from Lab Cap. What's the impact on margins due to FX devaluation in first quarter FY '21? And have pricing actions taken been able to pass these through? How is your raw material cost mix trending Y-o-Y?

I can briefly answer that, and then pass it on to Diego to comment. So overall, most of the countries are importing goods in dollars. So -- and assuming that there is not much substantial backward-integrated manufacturing in Latin America or other places, most of the goods are priced in dollars. And as we have said many times before, there is a catch-up. Short term, when there is currency impact on currency fluctuations, we do see some impact, but over a couple of quarters, all that gets adjusted. We are seeing -- as an industry, which is operating in these times, we are seeing some really good benefits in pricing for raw materials, which some of our -- I'm sure that some of our competitors also are seeing the benefits of lower cost of raw materials. And so overall, everything will be equalized. We don't see a major impact. But Diego, you can have another go on that.

Yes, Jai. No, I think that was right. If you look at our margins, the biggest effect on our margins is the regional mix. It's the fact that U.S. and Europe -- I mean if you look at LATAM, the market conditions in LATAM were extremely well. So we grew in LATAM, which historically has a lower margin compared to Europe and North America. But as those markets are coming back and agronomic conditions, so it seems year-to-date, are better than what we saw in the market at this point in time last year, so we expect also our margins to come back to historical levels. And on the, call it, ability to manage exchange rate, as Jai said, we historically have always stabilized our U.S. dollar margins, but there is always a lag, right? If you get in March an effect like this, it's going to take you part of March, April to get back to those pricing.

The next question is from Ian Hargreaves from INVESCO. Is the reduction in inventory rates sustainable? How might lower oil prices impact agrochem pricing? Might this be a problem for operating leverage and margins?

So I mean our ability to continue to reduce inventories is there. I mean it's true that we did a very big step last year. So please don't extrapolate one-on-one because at a certain point, you need stocks to also sell, especially when you are in March and selling into April. But we see efficiency opportunities still. And more important, when it comes to net working capital, is on our receivables, right, in our payables. So here, I see a lot of opportunity in this year. And the team is putting a lot of focus on collection, on adjusting payment terms to crop cycles in an even more efficient way. So you can expect more efficiency also moving forward. And maybe with respect to oil prices, we -- as Jai said before, we can see some benefits in our margins through -- from oil prices. I think the pricing for active ingredients is following a different pattern. It's not really here following the oil price. So if -- that makes us confident with respect to margins for this year because we're doing a good job in our sourcing activities, taking advantage of that, and at the same time, on the pricing side, right? I mean to not -- to gain pricing power and momentum.

And the third part to the question was, if we see it as a problem for the leverage and the margins?

Yes. Let me intervene here. I'll take that. I don't think we are seeing much issue. As we see, we have -- when we had committed of $0.5 billion reduction, we have managed to deliver those. And we continue to focus on cash flows to ensure that we bring down our leverage. As I mentioned earlier, we are committed to bring down our net debt-to-EBITDA to around 2 levels, which is what is required of an investment-grade company. And we're quite confident that by March 2021, we should be in a position to bring down our net debt-to-EBITDA to around 2 levels.

Next question is from [ Richard Lang ]. His question is, do we see any impact of the COVID on revenues, margins, working capital, any regulatory or health risk posed by product portfolio?

So the COVID crisis -- as you know, I mean the agricultural industry is, in general, more resilient to crisis like this compared to other industries, and it's also supposed to recover faster. We're confident about that. Obviously, in the short term, there is an impact on certain crops like cotton, like corn, for example, that basically an adverse impact, although you also have positive impacts when it comes to wheat or it comes to rice. So the industry is readjusting to this situation. There is some impact in moving goods right now. I mean especially ports of entry, really getting even the packaging to get your products. But the product is moving. It's moving slowly. I think you will see -- and for the full year, talking about the full year now, we are confident that we can grow our business in the full year, that we can also grow our profitability in this year, helped also by the synergies and the cost measures that we are implementing. Potentially, Q1 is going to be the more difficult one because the business is in a slow mode. I mean if you think about it, customers are waiting until volatility starts being lower. And everybody is basically fighting with this supply concerns. But as we move into the Q2, Q3, Q4, we will see that the demand -- the pent-up demand, and we are very confident with respect to grow the business even in an environment like this.

Next question is from Girish from Morgan Stanley. Basically, he wanted to check on the guidance for FY '21 on revenue, EBITDA, tax and net debt reduction and working capital?

So let me talk about the revenue, and then I will also hand over to Anand when it comes to net debt reduction. But as I said before, although we are not giving a specific range at this point in time, we're going to be giving this later in potentially Q1, Q2. But what we can confirm is that we see growth for the full year, both in revenue and EBITDA. We can -- we see the opportunity to expand contribution margins. And we see the opportunity to reduce our fixed costs. We will be more specific as we get a bit more clarity on the situation in this first quarter. But that is a statement we can already do right now. And Anand, you want to comment on net debt?

Sure. Thanks, Diego. Yes. I think Girish, we continue to focus on seeing how we can reduce our net debt further. And at this stage, as we mentioned, we have kept a fair amount of cash on the books just to ensure that we have enough liquidity for our business growth. But when situation stabilizes, we will use this money to repay the debt. And again, on the targets for this year, as I mentioned earlier, we are committed to bring down our net debt-to-EBITDA to around 2 levels. Currently, it being at 2.9. You can do the math. But specifically, we are not getting into just now giving you any specific numbers. But as the year progresses, and we have some clarity in terms of how the quarter goes by and the impact of COVID and other things, we will certainly come back to you. But our commitment remains in terms of reducing our net debt further just to ensure that we retain our investment.

Next question is from Chirag from HDFC Fund. The question is that we spoke about a INR 20,000 crore pipeline products. In what period can these be executed?

So if you look at UPL's growth in the past, we've been able to grow our business substantially over the last 10, 15 years. If -- and we almost doubled our business every 4, 5 years. The product pipeline is very strong. Regulatory environments are quite unpredictable around the world. So exactly, we can't say, but we believe that all these products are in pipeline at various stages of launching. And I believe that it's not -- I mean it's not 10 years away. These things are going to happen in the next 2 to 3 years. But Diego, you can comment a little more.

Yes. So we -- as you said, I mean we are -- this is technology that is either to be launched or is -- well, these -- all these INR 20,000 crores are to be launched. But we can make a -- made a statement in the presentation that we expect to reach those -- that maturity in a period between 5 and 8 years. So some of these products are going to reach maturity 5 years or before, and some are going to reach more towards the eighth year. So we don't give a precised number here, but you can model more or less the growth based on that statement. And we believe that we are conservative on the statement because we -- as you can imagine, we risk discount a lot. So we feel confident about our ability to deliver on that pipeline.

Next question is from Neha from JPMorgan. She has 2 questions. One of our peers indicated muted prebuying in LATAM. What are we seeing in the market? And how should we expect this season in 2020?

Sorry, what was the question?

One of our peers indicated muted prebuying in LATAM. What are we seeing in the market? And how should we expect season in 2020?

I did not hear -- sorry.

Yes, I can address that. So there is -- obviously, there is a lot of uncertainty going on among everybody right now. So we also obviously see that farmers are getting concerned. Distributors, dealers are getting concerned. But if you go back to March, the situation was very uncertain. If you go to a situation today, the certainties are much more there. Most governments are very focused on food security. We are getting inbounds from so many different governments about becoming self-sufficient in different, different food supplies. They want to collaborate. They want us to bring in technology to help them be self-sufficient. So a lot more focus has gone from just being a health crisis to being a food security awareness, I would say. And that's what's giving farmers a lot of more confidence that the supply chain for food is going to continue to be open. A lot of governments are taking care about even making sure that farmers are getting labor. Governments are taking responsibility for making sure they get labor. And so it's -- and I'm not talking about India, where the situation is different. I'm talking about country -- in California, Germany. In different, different parts of the world, people are -- the governments are very -- being very agile as to make sure the food security remains there. Even many countries in Africa are actually being very active on making sure that the agriculture production continues to be stable and reliable. So the muted -- I don't know who made that comment, but yes, there was a bit of anxiety, but that is smoothening off and I think is getting better.

I think, Jai, if I can add something there. Planting seasons are not changing significantly. So the crop is going to be there. Farmers are going to buy products. I think people are just -- probably, the sales are going to be closer to the season, right, because people will not take off-season positions often in this case. But we feel demand is going to be there, and we are reflecting this already on our growth projections.

And just to add to what Diego is saying, I think because of the sharp decline in Brazilian currency, I think people are taking decision closer to the spend. The acreages are not going down and therefore, we don't see -- I mean demand has to come back once the sowing starts or closer to the sowing. But considering the sharp decline in the real over the last 3 months, it is expected that they won't be doing a forward buying. And they would be rather buying closer to the market -- to the season.

There's a question from [ Eric ] from Nomura. On what are we guiding for the cost and revenue synergies for next year?

I think we are maintaining what we have said, while we have exceeded this year, our cost synergy target on a run rate was $120 million, and credit to the P&L -- or accrual to the P&L was $80 million. As you know, we crossed that. We are at about $109 million in terms of accrual to the P&L. And on run rate, we are ahead of the target. So -- but we are retaining our next year's target of cost synergies of about 120 -- $150 million to the -- credited to the P&L. And in terms of revenue synergies, we had guided for $150 million this year. We've exceeded that. And next year, we're talking about a $200 million target that we have set at the beginning, and we continue to retain that.

There's a question from Deepak from Reliance Nippon Life Insurance. Latin America is contributing nearly 39% of revenues. At what percent levels will the company be comfortable to cap that? And thoughts around the risks in this market?

No. I mean, there is no way to -- I mean, we love our customers, and we love our business too much. There's no capping anything. But we believe that our future growth will come from Asia, Africa, and that will moderate our presence there. The team in Latin America is doing an amazing job. Today, there are many more markets in Latin America where UPL is either in #1, #2 position. Our ranking in Brazil has gone up 1 notch. And we believe that between -- this is just first year of synergies. We believe that as companies come together -- last year was obviously a challenging time where we had to do a lot of activities, which are not normal to operating of our business. But we believe that the company can focus much more now on revenue synergies and product launches and see the -- really understand the core competencies of both the portfolios and position them better. Even customers had some kind of anxiety about how well the integration would go. So some of them were obviously hedging their bets. All that is behind us. We are one company now. And so we believe that the business will -- operating cost of the business, the operating ability to capture synergies, the ability to execute on things which were a lot more difficult last year will be much easier now. We are a single company with a single focus. And so I expect the performance to be better under the circumstances of another challenging year. We think last year was also challenging, and this year is challenging already in the beginning. We don't know what other challenges will come. But being a very agile company, we believe we are probably best suited in times of crisis. Being completely hands on, we can navigate much better than companies who do not have an integrated approach or have the ability to be flexible or have global operations. So we think UPL will benefit from all these challenges and crisis' coming up.