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

Ladies and gentlemen, good day, and welcome to UPL Limited's Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Radhika Arora, Head, Investor Relations. Thank you, and over to you, ma'am.

Thank you, operator. Good morning and good evening, ladies and gentlemen. Thanks for joining us today. On this call, we will be referring to the presentation that has been shared with you and is also available on our website. From our management team, we have with us Global CEO, Jai Shroff; Global CFO, Rajendra Darak; COO, Diego Casanello; Global CFO, Anand Vora; Carlos Pellicer, Global COO of Strategy, Innovation and Integration; and Farokh Hilloo, Chief Commercial Officer. The presentation will have a business update followed by a financial update. Please note that some of the information in 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 Diego for his update. Over to you.

Thank you, Radhika, and good afternoon, everyone. Today, I am pleased to present robust results for our first quarter in the context of what is still an unprecedented global health crisis that continues to affect millions of people around the world. Our team contributes to our communities every day by making sure we support farmers in keeping food production uninterrupted. In this kind of uncertainty, we have never been so clear and so proud about being part of this industry. I want to extend my sincere thanks to all our employees. Our hearts and thoughts are with the victims of this terrible pandemic. In the course of the quarter, we had to deal with changes in demand patterns, currency volatility and restrictions to move material in many geographies and yet, we were able to achieve revenues at the level of the strong last year's quarter and also increase our EBITDA by 3%. In our last earnings call, we mentioned that despite the significant improvement in net working capital achieved last year, we still saw opportunity to keep optimizing. Thanks to a strong focus on collections and payables, we reduced once again our net working capital by 31 days. Our EBITDA was supported on the one hand by 20 basis points increase in gross profit margins. This is the development that we also anticipated during our last quarter's earnings call. Three factors have contributed to the positive gross margin development. First, we have created incentives for our country teams to sell higher-margin and differentiated products, improving our product mix and putting focus on the launch of new products. Secondly, we have considerably reduced our cost of production in several of our key product lines, thanks to synergies from the acquisition of Arysta, the continuous investments in backwards integration and by taking advantage of lower raw material prices. And lastly, after the significant devaluation of several emerging country currencies in Q4, especially the Brazilian real, we are successfully increasing prices in local currencies to recover our U.S. dollar-based price points. This is a gradual process. And although year-on-year our price deviation shows minus 1%, compared to Q4, our pricing has recovered a large part of this currency weakness. These efforts continue as we move into Q2. The second contributor to our results was an 8% year-on-year reduction of our fixed cost. We put tremendous efforts on the acceleration of the implementation of SG&A synergies and COVID-related contingency measures. With respect to COVID-19, many of our employees and customers continue to work from home, and we are learning ways to increase sales efficiency and leverage digital media to keep regular contact with customers and promote our innovations. We believe that there is room to continue to reduce our SG&A to revenue ratio in this and coming years. Our main objective is to expand our cost leadership in post-patent product lines, while at the same time make sure that we staff and invest in growing our business with differentiated and sustainable solutions. Agronomic conditions in most markets in both the northern and southern hemispheres have improved compared to the same period last year. The pandemic has had limited impact on crop planting patterns. While crops like cotton, sugarcane and corn were somewhat impacted by lower consumer demand and weak oil prices, crops like wheat, rice and soybean showed strength. The pandemic also caused supply delays in the first weeks of lockdowns in almost every region. While our logistics have significantly normalized, this situation led to a shift of orders from Q1 to Q2. In summary, we expect robust demand for crop protection products in the coming quarters and are well positioned to deliver growth in Q2 and the full year. Now I'm coming to the regional highlights, and you will find them in the deck. The following few slides provide more details on the performance by region. In Lat Am, we are seeing good agronomic conditions across the region with an increase in the soy and the corn acreage. Our teams continue to successfully increase prices in local currency to gradually compensate for the significant devaluation experienced in Q4 of last year, especially in Brazil. These currency fluctuations have led to postponement of orders from Q1 to later quarters, closer to the demand and changing the phasing of our business in the first half. North America has been impacted by COVID-19-related prebuying in Q4. Agronomic conditions are good, and we are gaining market share with herbicides. We are very well positioned to participate in the growing glufosinate market this year, which is expected to capture share from competitive products like dicamba and glyphosate, both of which are facing public pressures. Additionally, we expect that the China and U.S. trade war will remain a tailwind to UPL by helping customers hedge supply risks. North Europe delivered a strong herbicide campaign with robust demand in Russia and Central Europe, offsetting a weaker business in Southern Europe, which experienced COVID-19-related challenges in Spain, France and Italy. Now moving to the next slide in the deck. In India, UPL outpaced a 15% growing market by delivering 27% growth. We saw strong performance of insecticides and herbicides with our differentiated branded business growing 36% in addition to our continued adoption of ProNutiva packages, driving growth in biosolutions. Despite the impact of the coronavirus in the region, India had record collections in Q1. In the rest of the world, we saw strong growth in Southeast Asia, thanks to the return of rains and revenue synergies with an increase in herbicide sales in Vietnam. We also saw a demand recovery in Asia as the continent came out earlier of imposed lockdowns. Furthermore, the strong growth in Asia offset the adverse currency devaluation impact sales in Africa. For 15 years, and moving to the next slide, we would like to provide an update on our sustainability performance. Aligned with our OpenAg purpose, we are constantly working to reduce our environmental footprint and develop innovative solutions that benefit farmers and society. The Dow Jones Sustainability Index gives us a unique opportunity to provide an in-depth and complete picture of our global sustainability efforts. Our score improved by 61% compared to the previous year. Similarly, our Financial Times Stock Exchange Russell score came out at 3.7 out of 5, which is 68% higher than the industry average. Also worth mentioning is that 60% of our plants are zero liquid discharge, and we will continue to focus on becoming a more sustainable organization in the future. As I mentioned before, flipping to the next slide in the deck, the pandemic has brought forth many challenges, but also many opportunities to think about our business differently. Our team never ceases to amaze me. And with the drive and commitment, it has been really incredible. And COVID-19 may have caused an abrupt interruption to our travel plans, but it did not slow down our ability to effectively engage with our customers. Through our newly formed customer engagement initiatives, our team quickly adopted multiple technology platforms to continue to engage and create customer intimacy. While we know technology will never fully replace the effectiveness of face-to-face interactions, we are taking this opportunity to innovate in the way we deliver our product launches, trainings, conventions and other key engagement activities in a new virtual environment. This slide shares a few ways or things around the world who were able to quickly pivot to digital solutions and operate successfully during the pandemic despite imposed restrictions. Now moving to the next slide in the deck. Our commitment to technology and innovation is also continuing in a big way. This is demonstrated through the opening of our state-of-the-art OpenAg Center in Research Triangle Park in U.S.A. This global R&D hub enable partnerships with other innovative companies to get new technologies tested, approved and out in the field. Our smart R&D development program is driven by market and portfolio needs that is technology-agnostic and cost-effective. A new portal was recently launched on our global website to quickly connect partners with the R&D team and identify opportunities for collaboration. Now I want to use this opportunity to say thank you to all our employees for their efforts this quarter and to thank farmers and partners for trusting us with their business. And with a strong belief in our OpenAg purpose, we will continue to position UPL as a global leader in providing solutions to make food more sustainable for all. I want to thank you very much. I will now turn the call over to our CFO, Anand Vora, to provide more details about our Q1 financial results. Anand, it's your turn.

Thank you. Thanks, Diego. Thank you very much, and good afternoon, good day to all of you all. Before taking you through to the key numbers for the first quarter, we take as having read the safe harbor statement. Let me start with the key financial highlights, and then I shall take you through to the detailed financial numbers. We had an encouraging Q1 in a very challenging environment in the middle of the global pandemic, supply chain delays, currency volatility, trade wars, changing demand in crops. While the revenues for the quarter were flat, we delivered a 3% higher EBITDA versus last year on the back of lower cost of goods and SG&A. Net debt was maintained at March 2020 levels at INR 22,000 crores or around $2.9 billion. Key working capital, our net working capital at 84 days, one of the lowest working capital levels for Q1. And we had an EPS jump to INR 7.20 per share versus INR 3.74 per share last year in the same quarter. Going into the details of the financial numbers, let me take you through some of the key financial numbers in the profit and loss statement. We are comparing financial results for Q1 FY 2021 versus the same period in the previous year as on reported basis. The reported figures for Q1 FY 2020 excludes the PPA adjustment of INR 340 crores in the cost of goods on account of Arysta product inventories for the last year, so for the previous year. The corresponding before PPA pro forma numbers for Q1 of last year are available in the appendix for your reference. Gross margins were higher by 11% on a reported basis. Gross margin as a percentage of revenue was at 43.2% this quarter against 38.7% in Q1 last year, an increase of 450 basis points. On a pro forma basis, the gross margin as a percentage of revenue was 20 basis points higher versus the same quarter last year. The quarter had an impact on account of FX, especially in Latin America. In certain products, we saw a price decline on the back of cheaper Chinese exports, which were offset by a combination of increase in prices in local currency in some regions as well as because of the cost synergies that we got on account of the integration of the 2 companies. We did very well in terms of optimizing our fixed costs, and these were lower by 8% as compared to that of Q1 in the previous year. EBITDA was higher by 29% on a reported basis. EBITDA as a percentage of revenue was at 21.7% this quarter against 16.7% in Q1 last year, an increase of 500 basis points. On a pro forma basis, the EBITDA was higher by 3% and EBITDA as a percentage of revenue was 70 basis points higher than the same quarter last year. Exceptional items were at INR 25 crores versus INR 72 crores last year, largely on account of redundancy costs of integration. So these exceptional items are largely on account of redundancy costs. Net profit at INR 550 crores versus INR 286 crores of last year in the same quarter. As mentioned earlier, we're pleased to report an EPS of INR 7.20 per share, almost twice of that of last year in the same quarter. On cost synergies, and cost synergies in Q1 stood at $11 million or in INR at about INR 83 crores. And cumulatively, the cost synergies are at about $120 million till date. As informed to you earlier, the cost synergies at the time of the closure of Arysta transaction, we had guided for a total cost synergy on a run rate basis of about $200 million-plus. So as of first quarter and cumulatively we have already delivered cost synergies of $120 million. Moving to revenue synergy, revenue synergies in Q1 stood at $7 million or in INR terms INR 53 crores. And on a cumulative basis, the revenue synergy stood at $247 million from the time we started the integration. As mentioned on the revenue side, we have guided for revenue synergies over a period of 3 years of $350 million. So at the end of 1 year and 1 quarter, the first year and 1 quarter, we are now at already at $247 million in terms of revenue synergy. Working capital analysis. We continue to optimize the working capital and saw a reduction of 31 days over that of the previous year in the same quarter. The inventories for the quarter were flat at 106 days. Receivables at 116 days were lower by 8 days than those of the previous year. And those are the previous year, which were at about 124 days. And payables at 136 days (sic) [ 138 days ] were higher by 23 days as compared to previous year in 115 days. I must add here that the procurement team has done an incredible job in ensuring that we could maximize our terms with our vendors. And that's going to be the trend as we move forward during this year. So with this, the net working capital stood at 84 days as compared to 115 days in the previous year. On the cash flow statement, cash flow from operations for the quarter stood at INR 871 crores. Some of the other key cash numbers to impact the cash flows were borrowings of about INR 3,828 crores, which includes INR 3,778 crores of bond issuance. We had an issuance of bonds done in this quarter. It was a 10-year bond which we issued and it was a U.S. dollar bond which we have issued for a tenure of 10 years. It was our biggest issuance only. And the basic purpose of the bond issuance was to use the proceeds to buy back the bonds which are maturing, the 5-year bonds which are maturing in October '21. So along with the bond issuance, we did announce a tender offer to buy back the 5-year bonds which had maturity in October '21. We've got about $82 million worth of bonds which we bought back. The balance bonds, we continue to tap the market. It's available at par value. And we would be redeeming them on maturity in October '21. The proceeds of the issuance after the tender offer being closed would be kept as insurance capital so that in this global pandemic, if there is any tightness in money markets, we have adequate cash on our balance sheet to ensure that our growth is not impacted. Gross debt as of June 2020 was at INR 32,500 crores as against INR 28,800 crores in March 2020. However, the net debt maintained at INR 22,000 crores or USD 2.9 billion, which is almost at the same level as of that of March 2020. So net debt at June 2020 stood at INR 22,000 crores. To summarize, we believe that the good agronomic conditions globally, improvement in the regional and product mix, cost synergy and further optimization of fixed costs would help us to deliver growth in revenue and EBITDA. Due to uncertainty around COVID, we are not providing specific guidance. But if things were to stay as they are, we do expect to deliver revenue growth in the range of about 6% to 8% and an EBITDA growth in the range of about 10% to 12% for this year. On the balance sheet side, we remain committed to achieving our 2x net debt to EBITDA by the end of March 2021 and maintaining our investment-grade rating. This, in turn, would involve therefore a reduction of close to about $1 billion of net debt from the $500 million which we did last year and $500 million which we intend to do this year. With this, I hand over back to Radhika. Thank you.

[Operator Instructions] The first question is from the line of Love Sharma from Lombard Odier.

Thanks, everybody, for the presentation and the call. Just 2 follow-up questions from me. So firstly, on the working capital, if you can indicate the improvement in the trade payables, which we have seen, if you can give some details to what kind of progress we can see further in this? And is there anything like the banker acceptances, et cetera, being also included as part of these payables? And also on the receivables side, how much of factoring have been done this quarter? The second question is with respect to the Latin American business. And I think you have indicated that you expect to see whatever has been sort of lost in the last quarter to come back in subsequent periods. What's the trend so far in the second quarter for this business for Latin America, if you can give some color?

Sure, Love. Thanks, Love, for asking the question. I'll first take the first question on working capital and on factoring. And then I will hand over to Diego to answer on the Latin America business. On the working capital on the payable side, I think when we announced our results for the full year, I do recollect mentioning clearly that we have opportunity to increase the payables by at least 15 to 20 days. And as we started the year itself, worked closely with procurement team and clearly pushed them to make sure that we get extended credit terms. So we do believe that we will be able to end the year with at least 15 to 20 days increase in payables. So we are on course. We did pretty well in Q1. We need to maintain this as we move forward. In terms of receivables, our factoring in this receivable as of June '20 is about roughly about INR 6,000 crores. This actually has reduced from INR 6,970 crores which was there as of March 2020. So there is a reduction in factoring by about INR 970 crores in this number as of 30th of June. As compared to the same period last year, the last year, as of June, we had factoring of close to about INR 2,000 crores. So that's on the factoring which is benefiting in this receivables. I'll hand over now to Diego to take the question on Latin America business. Diego, over to you.

Yes. Thanks, Anand. As I said in the opening remarks, we expect the Latin America business to perform well this year. What we see is a postponement of orders, but we have a good part of our orders on hand. And what we see is that the market, the agronomic conditions in general, with some exceptions in south of Brazil, but the vast majority of the market in Brazil is in very, very good shape. You have to think that with this current level of exchange rate, farmers have very good margins. And there is more soy, more corn than the last season. So overall, we're very positive about the Latin America market for the year. We also have a good amount of new launches this year that will significantly shape our business in the future years. In particular, one product that is going to be launched in the biggest market in Brazil, which is the Asian rust fungicide market for soybeans. This is a market north of $1.5 billion. So here, we have a fantastic product that is going to be launched later in the year. So we are positive about the prospects here.

Understood. All right. And just one follow-up, Anand, on the payables. So does it include any bank acceptances, et cetera, as part of your payables definition?

No. Generally, we don't do that, Love. If at all, there will be LC, but otherwise, we don't have bank acceptances.

Okay. Got it. Okay. And just one follow-up on the Lat Am market. So do we expect most of this lost, let's say, business from the first quarter to come back within the second quarter?

Diego?

Yes. Yes. So first of all, it's not lost business, right? So it's a postponement. So what we're seeing, obviously, with this, currency fluctuations usually change the phasing of the business. And so we're expecting Q2 to offset the Q1 situation. And one of the offsets is that we are increasing prices in local currency in Brazil to offset for the currency devaluation of last year. We are ahead of our own plan in terms of achieving that. So that having that behind us, I am very confident about our ability to deliver in Brazil.

The next question is from the line of Girish Achhipalia from Morgan Stanley.

Sir, just on operating expenses, I think, on a Y-o-Y basis, the operating costs are down INR 60 crores. So if you just highlight firstly, what are the line items that you have been able to? And also the CapEx of INR 530 crores, is this the quarterly run rate that we should expect for the balance part of the year? Because going into Q1 earlier in May, you said that you could probably be doing less CapEx. I want to understand your thoughts on these 2 ideas.

Sure. So Girish on the operating costs, basically, there are some manpower costs which has come down. We had planned redundancies and some of the costs compared to last year same quarter. And this year, there has been some redundancies during last year. So there is some reduction there. Needless to mention, because of the COVID-19, we did see a drop in travel costs. We also, as a management, did a conscious decision, and we reviewed all our consulting contracts. And we saw because of the travel restriction, none of the consultants could travel or come over to either office or go to the plants. So we either terminated some of these contracts or we postponed some of these contracts giving them a vacation for 3 or 6 months before we restart the consulting assignment. So I would say, and a little bit on selling and admin costs were reduced. So largely, these are the 4 account heads under which we saw some good amount of cost reduction. As for CapEx, I would not benchmark that this would be the -- we should look at this as a quarterly spend for the CapEx for the next 3 quarters, particularly on the intangibles would largely depend on how the agencies are coming back, recuperation of the wholesale and the registrations and other things, whether it's going to take time or whether it will happen as what we did as in the past year. On manufacturing side, I must say that we are seeing some robust demand. I mean, we are pretty much out of capacity with most of our plants. So we have certain, but those, again, get spread. You can't put up a plant in 3 months, right? It takes time. So I would say that we don't necessarily view that this is the run rate. Typically, our fourth quarter always go a bit slow on the CapEx to manage our cash flows and our borrowings. So I would say that gets spilled over in Q1. So I wouldn't consider Q1 as a benchmark for the subsequent quarters.

Sir, just last follow-up. On the net debt, can we expect the gross debt to climb down? And how do you think about this right now going into Q2, Q3? Are you expecting any working capital increases in Q2, Q3, and hence, you are keeping this? I mean, how do we think about it or is it more inorganic opportunities that you're thinking about? Just wanted your thoughts, I mean, because the magnitude is quite large.

No, you're right. I mean, Girish, you have been tracking us for the last so many years, and you have seen that every given opportunity, we have actually shrunk the balance sheet. We shrunk the balance sheet significantly from '13 to '15, '16 almost when we didn't have any growth opportunities or any acquisitions or anything to be done. We just paid off the debt. And it's our intent also, and as I've been mentioning in the past, the commitment to the rating agencies is also to bring down our net debt to 2x. Today, we are at about $2.9 billion, and we need to bring it to about $2.5 billion, $2.4 billion. So that's our commitment. And we are working towards that. Having said that, the reason we are maintaining gross debt and keeping cash is largely, is only and only because of the global pandemic. I mean, today, you hardly get any returns on the cash which you have. The good part is also that the cost of borrowing are not significantly higher. So that's the only saving. But I mean, it is no incentive to hold cash today only from a return point of view. Just because of the risk which we run in case if the pandemic continues and if there's a significant cash crunch, we don't want to impact our growth story. And that is one of the reasons why we have kept, decided to keep the cash on hand. Let me put it differently. Tomorrow, if the pandemic was to be over or maybe by December, January, everything is back to normal, I think we will definitely review our position whether we need to hold this sort of cash or not.

The next question is from the line of Matias Vammalle from BlueBay Asset Management.

Congrats on the results. As you know, I'm more focused on the debt side. So if you can help me just with a few figures I wasn't able to spot from the materials. But if you can tell me what, and referring to Anand, what your current liquidity right now and where does that put your net debt, either in rupees or in dollar terms, please?

Sure. Thanks, Matias. Thanks for joining and it's always good to talk to you. Okay. So on the net debt position, I will be going in rupees because typically, yes. But feel free to get back to me over e-mail and I'll give you all the details in dollar terms I'll tell you. So opening gross debt was at about INR 28,812 crores and our cash and bank balance was INR 6,752 crores. This is as of 1st April 2020. And as of the closing date, that's as of 30th of June, our gross debt is at INR 32,587 crores and our cash and bank balance is at INR 10,462 crores. Therefore, our opening net debt was at INR 22,060 crores and our closing net debt is at INR 22,125 crores. I would say, largely, the delta between the 2 is the exchange difference between 1st April or 31st March and 30th of June. There's been no such increase in our net debt since then.

The next question is from the line of Ritesh Gupta from AMBIT Capital.

Sir, just on the net debt side, because when I look at the presentation, I see operating cash flow was INR 1,886 crores and then I see that CapEx and working capital is another INR 1,100-odd crores. So they should still release about INR 700 crores of free cash flow, and hence, should reduce the net debt by as much. So could you just reconcile where, like is it just the exchange difference that has gone away?

No. Exchange impact is about INR 130-odd crores. We bought back the bonds, which you saw, about INR 619 crores, which is there. And then, yes, CapEx is INR 532 crores. These are the 2 large numbers. Cash from operations is INR 1,886 crores. We had a working capital -- increased our working capital increase of about INR 644 crores. So that was largely then there are some other noncurrent effect of INR 197 crores and income tax paid of INR 150 crores. So we did the acquisition of Laoting Yoloo, which we announced. We paid INR 144 crores for that. So those are the big numbers which I'm seeing here. Interest paid is about INR 133 crores and yes.

Got it. And just on the OpenAg. The question is on the agro actually. So how soon you can we see the revenue impact coming in from that? Because I would understand you are bringing in a lot of innovation, attracting them on your distribution platform, which has become a large global one right now. So what are you exactly doing in this? And like how soon it can translate into probably more revenue opportunities or new growth areas over and above agrochemicals also?

Diego, over to you.

Thank you, Anand. Yes, that's a good question, actually, very soon. And I tell you why. There is a very good impact, which is in-sourcing a significant amount of work that we have been outsourcing in the past at higher cost, right? So this, actually, we did this not only a cost-neutral project, but is actually helping us reduce cost. Sometimes we're talking costs, sometimes we're talking CapEx, right? But with the new size of the company, we had the opportunity to evaluate this make or buy decision, right? So there is an immediate impact on that. And in fact, it's actually part of our synergy tracker. The second impact in the short and midterm is that we are not only looking at new active ingredients, but we are also looking at how can I bring existing active ingredients from one crop to another or existing active ingredients from one country to another. So there is a lot of cross-selling opportunities with the combined portfolio now. In this active center, what allows us to do is very, very quickly in a reduced time frame, to identify those opportunities and go immediately for registrations or registration trials, right? And then we have the long term or mid to long-term opportunity of continuing to develop our biosolutions business, our new active ingredient business. And that gives us, we are one of the few companies, if not the only company today that is able to play effectively in the post-patent market, but at the same time, in the innovation space. And we are getting bigger and bigger in that space. And this OpenAg Center is going to be a significant contributor. It also, it brought something else, it also allows us to reduce the risk of our R&D expenditures because what we are doing is trying to detect early in the process regulatory risks. That we can stop projects before they become lame duck, right? So that is, I think the benefit you will see is already in the short term, not only in the long term.

And just a follow-up, the new AIs that you talked about that you partner, for instance, are the typical Japanese research guys or the research and the Japanese chemical companies, which I think Arysta had good relationship with or you are able to attract more non-Arysta guys also on your platform?

So it's a variety of partners. I mean, we have very strong relationships with Japanese discovery companies. We work with Chinese discovery companies. We work with a significant amount of start-ups in the U.S. and Latin America. And in fact, this R&D center is actually located in a hub that includes a lot of start-ups. So we are co-located with a large amount of start-ups that are even co-working with us in the campus, right? So it's a really open innovation process. We also have our own discovery, especially in the biosolutions space and re-engineering of the molecules in the chemical space. So it's not depending on Japan. Japan is an important hub, but we have collaborations with more than 100 partners around the world.

The next question is from the line of S. Ramesh from Nirmal Bang.

I just wanted to get your thoughts on why the U.S. or North American sales was down given that we expected some advanced booking there on the good season. And secondly, if you were to look at the European markets, given the kind of strength you've seen in the European market, has it been captured in your EBITDA margin since European margins are better?

Diego?

Yes. So in North America, if you go back to Q4, we had a growth of -- and Anand, correct me if I'm wrong, I think, north of 40%, right, compared year-over-year, Q4-to-Q4. So there was some prebuying in Q4. In March, it was very clear that COVID is going to disrupt, call it, the value chains, right, and that some customers took position early. So that impacted a bit on Q1. But the interesting point here, I think U.S. is going to be a great opportunity for us this year because we're expecting a very strong herbicide market, we're expecting a strong fungicide market. And we have gained share not only with our combined portfolio now that we are playing a much bigger role in front of our customers there, but also the fact that we are, call it, an India-based manufacturing company. We have plants around the world, but we have a strong footprint in India. And obviously, customers in North America are looking to hedge their risk, right, when it comes to the trade uncertainties with China, right? So all this together, I think what you see in Q1 is the phasing situation. But overall, you can expect UPL to have a very strong performance in North America this year.

And what about the impact of the European sales?

The European, yes, Europe is actually with some -- I mean, if you look at the, Western Europe has had some dry weather, and that impacted some fungicide applications. But our business actually performed very well, especially in Eastern Europe and also in the herbicide business in Western Europe. And we believe, actually, we are going to see better numbers in Europe also in the next couple of quarters. And as you said, properly said, I mean, as Europe is coming back, that is helping our mix overall on the, let's say, for the company because there are higher margins in Europe compared to other regions, also higher margins in the U.S. compared to other regions.

Yes. And the second part is now there is a report about, regarding the disruption to chemical supply from China because of the floods in the Yangtze River. And one of the products apparently that's impacted is the raw material for glufosinate. So do you have any thoughts or update on that?

Well, we have a backwards integration on glufosinate, so we are not impacted by this situation. But we are following that development. There could be some disruption, let's say, of supplies from China. Obviously, we are there to capture that opportunity, but we are on the safe side on this respect.

Next question is from the line of Neha Manpuria from JPMorgan.

Diego, my first question is, on the revenue synergy number that you mentioned, if you could give us some color in terms of where you have seen these revenue synergies emerge from a market perspective and what are the big gaps that we will probably look at filling to get to that $300-plus million synergy target from Arysta's revenue?