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Edited Transcript of OIZ.I earnings conference call or presentation 25-Sep-19 7:30am GMT

Full Year 2019 Origin Enterprises PLC Earnings Call

Sep 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Origin Enterprises PLC earnings conference call or presentation Wednesday, September 25, 2019 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Sean Gerard Coyle

Origin Enterprises plc - CFO & Executive Director

* Thomas Joseph O'Mahony

Origin Enterprises plc - CEO & Executive Director

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Conference Call Participants

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* Christopher Wickham

Equity Development Limited - Analyst

* Kevin Christopher Fogarty

Numis Securities Limited, Research Division - Analyst

* Patrick Higgins

Goodbody Stockbrokers, Research Division - Analyst

* Roland French

Davy, Research Division - Food Analyst

* Sophie Maye Jourdier

Liberum Capital Limited, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's 2019 preliminary results call. (Operator Instructions) I must advise you that this conference is being recorded today, Wednesday, the 25th of September 2019.

I would now like to turn the conference over to your speaker today, Tom O'Mahony, CEO of Origin Enterprises. Please go ahead.

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Thomas Joseph O'Mahony, Origin Enterprises plc - CEO & Executive Director [2]

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Good morning, ladies and gentlemen. You're all very welcome to this presentation of Origin's preliminary results for the year ended 31st of July 2019. I'm joined by my colleagues Sean Coyle, Chief Financial Officer and Brendan Corcoran, Head of Investor Relations and Group Planning.

So if we turn to the introductory slide, ladies and gentlemen, and overall this has been a strong Origin performance with full year results ahead of guidance, really reflecting good organic and acquisitive growth within the year. We had 15.6% growth in operating profit, we had a strong contribution from our associate and joint venture feed interest, really following what was a strong comparative in 2018 and that translates into a 7.9% increase in adjusted diluted earnings per share to EUR 0.5265.

Cash generation was another pleasing highlight of the year with a free cash flow result of EUR 54 million. That's reflecting a 90% free cash flow conversion and year-end leverage of less than 1x at 0.87. In line with our commitment to resume a progressive dividend policy, the group is pleased to announce a 1.5% increase in the total proposed dividend to EUR 0.2132 per share.

Looking next to the operational highlights and overall, we'd say Origin benefited from strong business and operational execution, particularly across our Ireland, U.K. and LatAm platforms. Operationally, it was a highly challenging year and market backdrop in Ukraine, which drove a lower year-on-year performance for the -- our Continental European division overall. And reflecting that underperformance in Ukraine, we have taken a noncash impairment charge in the carrying value of our Ukrainian investment.

It's been a year of strong success, operational success for our digital services, the further enablement of our digital services offer with over 1 million hectares now on board is on our proprietary digital platform. The scalability and overall functionality of the application has been enhanced, and we saw further integration and embedding of a digital service offer within our established routes to market, our established agronomy teams.

Looking to the strategic highlights then. I think firstly, we'd call out the successful first year or entry into LatAm, really initiates an important strategic priority for the group to bring geographical and portfolio diversification to the overall business profile of Origin. Our continuing focus on our product-based capabilities is bringing pleasing momentum in relation to our value-added portfolios, particularly around nutrition and feed. We were very, very pleased with that development during the year. And we continue to strengthen our organizational capability, really to create those building blocks to enable future growth in line with our 2023 ambition.

So if we turn to the next slide then, ladies and gentlemen, on Slide 5, and just look at Origin, an overview for 2019. So we're a leading international Agri-Services group providing agronomy services, digital services and crop inputs to over 50,000 farmers, growers and immunity professionals across 7 geographies. Revenue in 2019, EUR 1.8 billion, which generated an operating profit of EUR 82.3 million.

I'd just call out some important revenue and volume drivers at the bottom of the slide there, which you will -- are important. The prescription, blending and marketing of over 2.5 million tonnes of fertilizer and crop nutrition, the prescribing for infield application of over EUR 500 million of crop protection and EUR 160 million of seed revenue, very important profit drivers.

Looking at a split of operating profit across our 3 geographical divisions. In 2019, Ireland, U.K. at 73% and Continental Europe back on the previous year at 17%, and I think importantly, out of our first year, LatAm now representing 10% of overall operation profit. So a very encouraging start there.

If we turn to the next slide then and give you some color on an analysis of revenue. And this analysis focuses on agronomy services and crop inputs. It excludes crop marketing volumes, which are -- revenue and volumes, which are really not a fundamental driver of profitability. So underlying growth, that's at constant currency excluding acquisition, grew 7.41%, that's a 7.41% increase in our total revenue. The individual components of that 7.41% are volume increase of 3.96%, very different across each of the geographies, which I will outline in the next few slides, and largely driven by higher crop protection and fertilizer volumes with a price impact -- an increased price impact of 3.45% and that's largely driven by fertilizer price inflation.

So if we turn to the next slide then, ladies and gentlemen, and look at the trading reviews of our individual divisions. And firstly, Ireland and U.K., which recorded an 8.6% underlying increase in operating profit of EUR 60 million with a 10 basis point reduction in operating margin to 5.2%. And that 10 basis points reduction predominantly relates to the pass-through or arithmetical effect of higher fertilizer prices. And this is a very good performance and really driven by, again, strong operational execution and pleasing underlying business value momentum there of 6.8% growth, really driven, I'd say, by 3 factors. One is we had robust seasonal activity on-farm, really driven by favorable crop planting conditions and also generally favorable sentiment on the farm. The second reason is that we would have had the impact of poor grass-growing conditions in our FY 2018 financial year, which drove higher feed and fertilizer volumes during H1 of 2019. And the third driver, just less to an extent, but there was an element of advanced buying of crop imports, mainly by U.K. farmers and growers, for application in our 2020 financial year.

Amenity -- our Amenity channel, a very important channel, a high-margin channel, delivered a lower year-on-year result, largely due to the impact of higher customer stockholdings, which led to reduced market demand overall. And we're very happy with the operational progress on Digital Agricultural Services, very much focused on application delivery and that organizational design to really communicate and support farmers and growers realize the practical benefits of digitally enabled decision support tools.

During the year, we merged our long-established precision farming expertise with this new digital agronomy capability to create a new identity called, [RISE], which will be used to market our overall digital agronomy and services.

If we look next to Continental Europe, and this has been a disappointing performance, operating profit back to EUR 13.9 million from EUR 16.2 million in the prior period and also an underlying volume reduction of 2.9%. This result reflects underperformance in our Ukrainian business and that was largely driven by a market characterized by low liquidity, excess inventories, which drove highly competitive market conditions and lower margins as a result. We are responding to this prevailing business environment and dynamic with strategies to improve our overall commercial effectiveness. And we are confident that we can return this business to an acceptable level of return and profitability.

Our Polish, Romanian and Belgian businesses delivered good performances in the year, really on the back of favorable business mix. And again, that product-based capability coming through where we've seen enhanced sales and margins, particularly across our seed and nutrition portfolio performances. Overall, volume development was back within Poland and Romania, and that was largely due to the cropping profile during the year, but we're very happy with the overall performance of Poland, Romania and Belgium.

If we turn to the next slide then and our Latin American division, which was established in 2019 following the acquisition of the Brazilian-based speciality crop inputs business called Fortgreen. This business has delivered really an excellent first-time contribution. It's in line with the expectations we would have set for the business and we would have announced when we announced the acquisition last year. And really the driver of that has been strong product innovation, really driving new applications, if -- new nutritional solutions, particularly dedicated to grain, crops, i.e., corn and soybean. Underlying volume year-on-year growth would have been approximately 11% within the business. We put some investment in the business to expand our production capacity, and we completed the acquisition of a 20% interest in the Brazilian-based -- located in Paraná as well of our agronomy service and crop input distribution business called Ferrari Zagatto that we'd announced earlier.

I'll now hand you over to Sean, who'll take you through the details of the financials.

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Sean Gerard Coyle, Origin Enterprises plc - CFO & Executive Director [3]

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Okay. So turning to Slide 11. Thomas touched on a number of these points already, but some of the key financial metrics that we might touch on here. Our group operating margin, which as Tom explained has gone up by 20 basis points to 4.6%. I have a slide on that later on which explains the movement. Return on invested capital is down by 30 basis points to 13.2%. If we were to exclude the Fortgreen acquisition, that number would be 13.4%. So just down by 10 basis points on the prior year, largely down to the higher level of working capital carried through the year. And obviously, the Fortgreen acquisition is carrying the deferred consideration in that calculation. So we are carrying a deferred consideration element there, against which current returns are being measured.

The total dividend per share, as Tom explained, is up by 1.5%, which is our first increase since 2015. Free cash flow coming largely in line with last year's figure at EUR 54 million, despite a small working capital outflow of about EUR 13 million. Net debt has increased year-on-year, just under EUR 76 million, compared to last year's figure of about EUR 38 million. And our net debt-to-EBITDA ratio at 0.87 is down 1.7 turns of EBITDA since the half year. So we did have a significant increase in the net debt-to-EBITDA ratio at half year and explained it would largely unwind by year-end and we have seen that to be the case.

In terms of the profit and loss, again, Tom has largely touched upon the top half of this table in terms of explaining some of the dynamics year-on-year, but a number to call out in particular here is the financing cost, which has gone up by 46% year-on-year, from EUR 8.1 million up to EUR 11.8 million, that is largely because of the carrying cost of additional working capital, particularly in Ukraine and Romania, and will need to be addressed over the course of the next 12 months. So it is our intention to carry lower working capital in the Romanian and Ukrainian business over the coming 12 months.

And just to give some guidance out there in relation to next year's charge, we are going to be carrying an additional interest rate charge within this line of approximately EUR 1.6 million next year down to a change in the accounting standard in relation to leases. So despite that, we do expect the overall financing cost to be lower year-on-year than the EUR 11.8 million.

We will see a net impact of that IFRS standard change of about EUR 400,000. So operating cost will reduce by about EUR 1.2 million and interest charges will increase by about EUR 1.6 million, so a net impact of about EUR 400,000 from IFRS 16 being adopted.

Adjusted diluted EPS up by 7.9%, and net debt as we have explained has increased from about EUR 38 million to EUR 76 million at year-end.

A bridge in relation to group revenue, very successful growth in Ireland, U.K., in particular. And in particular, largely related fertilizer price increases or significantly related to fertilizer price increases has driven group revenue up on an underlying basis by 7.2%. The Fortgreen acquisition and a couple of other smaller acquisitions have driven up the revenue by a further EUR 51 million or 3.2% and a very small currency impact in the year, 0.01%, leading to a total revenue increase of 10.5%.

Group operating profit, in contrast to that, you can see the fertilizer price impact change coming through here and that the underlying growth in profit is just 3.5%. And you can see the very significant difference in margin between our traditional Ireland, U.K. and Continental European businesses and the new addition in LatAm with the profit growing by 12% compared to a smaller revenue growth. So that net margin of 25% flowing through there in the operating profit growth from acquisitions. Again, a very small impact from currency in the period, so total group operating profit up by 15.6%.

Earnings per share. The feature of the additional working capital in Ukraine and Romania has really diluted the earnings per share growth within the underlying businesses. So the growth in profitability has, in effect, been wiped out by that increase in interest carry from the Ukrainian and Romanian businesses over the course of 2019. Very significant growth in earnings per share as a result of the acquisitions and approximately EUR 1.1 million of the increase in interest rates -- or interest charge within the year related to the acquired entities. And again, minimal impact from currency in the period.

And Tom touched on the operating margin changes through the year. So the change in business portfolio and the mix effect of different selling right across the group has increased margin by 10 basis points. The increased fertilizer input prices and, as you know, fertilizer is a business where we try to earn a fixed margin per tonne, rather than see our margin increase or decrease in line with the fertilizer price changing has given us a decrease in margin of about 30 basis points. And the acquisitions, and in particular Fortgreen, have driven up the margin by 40 basis points. So overall, a 20 basis point increase in margin to 4.6%.

Cash flow, strong throughout the period. You can see that outflow in working capital there of just under EUR 13 million compared to a small inflow last year, generating a total of EUR 53.1 million in net cash flow from operating activity, compared to EUR 56 million last year and higher interest and tax charges, in particular our Brazilian tax, which is in the 30s from a percentage perspective, significantly higher than the rest of the group, seeing an increase in cash outflow from that area.

From a balance sheet perspective, the business is in very robust shape. You can see the net increase in working capital year-on-year is about EUR 29 million. To shape that in broad terms, about EUR 20 million of that increase relates to the Fortgreen acquisition, so the LatAm business. We had an outflow in working capital within our Ireland and U.K. businesses, again to the extent of about EUR 20 million, and that's principally related to the fertilizer businesses and the buildup of stock as we head into the autumn season in preparation for Brexit.

And then finally, we have had an inflow within our Continental European businesses by year-end. So despite the fact that we carried significantly more working capital on average right throughout 2019 from those Continental European businesses, by the time we got to year-end, there were quite significant inflows within those businesses, so the net effect of those 3 elements is a net outflow of working capital to the extent of about EUR 29 million.

The goodwill and intangible assets have obviously climbed in relation to the acquired entities purchased throughout the year. And you can see an element of deferred and contingent acquisition consideration partly offsetting that jump in deferred and contingent acquisition consideration, dependent, obviously, on out-turn and future financial performance from the Fortgreen business, in particular.

From a banking perspective, the treasury team here have extended EUR 300 million of our committed banking facilities. Our core RCF facility was extended during the year. Previously, the maturity was May 2022, and that was extended out to May 2024. So the weighted average debt maturity has moved from 3.66 years out to 4.3 years. We're in good shape from a covenant perspective. You can see there that the net debt-to-EBITDA ratio of 0.87 is well below that 3.5x covenant that we have, and also the EBITDA-to-net-interest ratio significantly above the 3x covenant that we have in place as well. So from a banking and from a facilities perspective, we're in very good shape and certainly have the firepower to do more acquisitions through the year should we require it.

And from a capital allocation perspective, certainly, we see ourselves maintaining that strong financial discipline and maintaining balance sheet strength over the coming 12 months as we wait and see how Brexit plays out. So the capital that we generate tends to go back into people and investment in people, strategic CapEx. In particular, we're interested investing in extending our product capability right across the group and reinvesting into our digital platform and growing the functionality within the digital platform. So that reinvestment within the existing business is important to us.

Shareholders are clearly getting a strong dividend. Approximately 45% to 50% of free cash flow has been paid out by way of dividend this year and will be next year. So that's a good return for shareholders.

And from an acquisitions perspective, our target return on capital is 15%. So we're interested in and continue to look for potential acquisitions, particularly in LatAm and particularly in the product-based space in the European context. And our acquisitions, you can see there on the right-hand side of the page, are focused on making sure we're generating that return on investment, paying an accretive earnings multiple, paying the right multiple for businesses so that we begin to get accretive earnings straightaway into the pot. The opportunities to use our existing routes to market, our existing B2C businesses and leveraging those is something that we're trying to get synergies around. And using sourcing opportunities or using a product mix change within the mix of acquisitions to potentially source product or source particular types of nutritional supplements or other elements within the mix is hugely important to us. And that would include new technical capabilities being added to the group as well. So all in all, our capital allocation policy stands, I suppose, in good stead and the balance sheet leaves us in good stead in terms of potential investment over the coming 12 months.

I'll hand back to Tom now.

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Thomas Joseph O'Mahony, Origin Enterprises plc - CEO & Executive Director [4]

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Thank you, Sean. So ladies and gentlemen, if we turn to the next slide and we focus on strategy and development. And this slide, we want to express the evolution of agronomy and where Origin sees it and how we're positioning our business. And in very high-level terms, for the last 60 years, we've seen the capacity of crop production systems to successfully meet rising food demand, really through sustained technological advances, be it crop genetics, be it pest and disease control or new innovation around fertilizer application. And as a bench to express this, what we've reflected in this slide, if you take the 1940s, the capacity of a U.K. wheat crop production system was to feed 6 people based on yield and calorific consumption. If we go to the present day, there has been a threefold increase in the capacity of that hectare of soil to feed the -- feed people, same hectare of soil really through best adoption of technology. And Origin's business model today, in terms of its protocols, what we endeavor to do is to bridge the gap between best practice crop science and agronomic application in field to outperform the average for our customers with an approach that's practical and relevant to local growing conditions.

I think what's particularly interesting also on this slide, if you look from the 1980s, at an average level, yield development has been largely static. Yes, there have been increases, but effectively, scientific barriers, the regulatory process posing challenges to new innovation and the use of crop technologies, the escalating cost of fundamental innovation has driven a slowing down in the actual capacity for yield enhancement.

And from Origin's perspective, we see more and more that best-in-class crop production systems will combine best available technology with a new approach, an approach that seeks to manage agronomic differences at a field and subfield level, to drive improved crop performance and, very importantly, to meet the more exacting sustainability requirements of the farm enterprise. And we term this Advanced Adaptive Agronomy.

An Advanced Adaptive Agronomy is about building micro knowledge at field level. It's -- Advanced Adaptive Agronomy, we say, is data-driven and digitally enabled. We're likely to see a lot more innovation coming through data insights as we get scale and momentum, with the ultimate objective of bringing more prescriptive advice, more prescriptive crop management systems and climate-sensitive practice to sustainably exploit the soil potential, the crop genetic potential to ultimately deliver sustainable economic returns over the long term for our customers.

So if we turn to the next slide with that perspective on Advanced Adaptive Agronomy, Origin's focus is to deliver researched-based or technically led growing systems and crop production solution, which address our customers' requirements for their profitability and competitiveness, their environmental sustainability, yield enhancement and input supply chain. And it's a capability we continue to develop, invest in and improve. It combines that field-level research and knowledge with our own crop input formulation capabilities with the wider crop technologies of global crop technology developers and our own field-level dynamic decision-support capability, really being built through our developing digital capabilities.

The second important element of this is the independence and trust that we build up through developing those long-term customer relationships; to being that trusted adviser, that leading and trusted adviser grounded in the quality of the advisory service and the overall crop services support that we bring through our actual brands.

If we turn to the next slide then and look at the 4 pillars for our strategy to deliver that sustainable value. And firstly, our objective for a scale, and that's very much around expanding that services footprint, principally within that farm services footprint, be it B2B or be it direct farm organically and through acquisition in existing geographies and newer geographies, particularly where primary crop production is efficient and scalable. Scale also talks about the further -- or speaks to the further enhancement of our product-based capability to enhance the service offer and complement the existing supply partnerships.

Our market focus, this is very important. Be it B2B or direct farm, we directly market technologies for in-field application. So the brand is very, very important. And that is delivered through leveraging our agronomic and digital capabilities. And it's very much around focusing on return, focusing on farmer gross margin and return on investment.

Portfolio positioning. This is about maintaining that commitment to be that differentiated value-added route-to-market for our supply, technology and service partnerships. That's very, very important in the actual value chain. And also that commitment to maintain balanced diversification and bring counter-seasonality to the overall business portfolio of Origin. So geographically, market segment, be it agri or be it amenity or channel, product-based or -- and direct-to-farm or direct-to-customer. People and organization are critical components of pillar for our future growth, and that's really about the priority or the focus to implement new and evolved leadership capabilities through our structure with greater autonomy and accountability to execute our growth and expansion agenda.

If we look to the next slide then and what are our focus points for growth in terms of our 2023 ambition. Firstly to Ireland and the U.K., and it's very much around sustaining that track record of strong cash generation and returns, which is really about capitalizing on our market position to accelerate product and service extension through that technical and application focus, broadening the actual agronomy portfolio. Underlying business volume growth in these markets isn't mature, but we believe going for the higher value segments, more margin is where we go.

And again, to bring to that point about market focus and customer return. We're moving to establish that leading digital capability to establish new crop advice models, which will really focus on return on investment for our customers and complement the existing farmer-agronomist relationship.

If we look to Continental Europe, it's very much around the theme of driving and implementing performance, growing volume and share in our existing geographies, both organically and through acquisition, leveraging our own product-based capabilities to really enhance our distribution brand, the offering that we bring on farm and leveraging our central capability sets to build value through our synergistic input portfolios, maintaining that focus on R&D investment and innovation and the rollout of our digital offerings.

If we turn to Latin America then, it's very much around leveraging the growth opportunity in the fragmented market of speciality nutrition. So it's building volume and share in those segments, leveraging that agronomy distribution route-to-market. We've seen that as a strategy in our U.K. and Europe. It works very, very well. So scaling our nutrition capability and technologies through distribution is -- will be a focus point for us.

And I think finally, really to mutually optimize for the benefit of the group, both in Ireland, U.K., Continental Europe and LatAm of the technical capabilities within the Fortgreen business and the wider technologies of the Origin group. So some cross transfer there of technologies that we can benefit from.

We turn to the next slide then, ladies and gentlemen. And just building on our progress, it has been a strong year. We are well on track in terms of our 2023 ambition and building upon that is really all about taking advantages of our opportunities and capabilities as that differentiation and value-added route-to-market for our technologies. I'll just call out some here. Firstly, the customer focus, maintaining that prescription-based and agronomy-led sales model into our customer franchise.

In terms of supply and technology partnerships, really, partnerships where we can mutually leverage the strength of Origin's market access, it really is our distinctiveness in terms of our distribution capability, the breadth and scale of our service offer and our technical expertise to enable the rapid uptake of new technologies, and we think that is very valuable.

And finally, portfolio enhancement and this is really about looking at channels and product set where we can build scale credibly and where we can meet our requirements for margin and return.

So looking to the summary and outlook then on our last slide. So today, I'd say Origin operates a well-invested and focused Agri-Service business. We're bringing that geography and business balance across the actual portfolio. It's been a good performance as we've seen in FY '19. We note that demand for agronomy service and inputs in Ireland and U.K. is -- will normalize in FY '20 off a very, very strong comparative, and we expect our growth projections in LatAm and Continental Europe to track the long-term guidance that we gave in our Capital Markets Day.

Brexit. Sean mentioned Brexit, and I think against the uncertain nature and timing of Brexit, we will adopt a prudent approach to risk management and capital allocation. And in conclusion, ladies and gentlemen, we're well positioned to deliver on our strategic and financial objectives that we have set out in our 2023 ambition. And now we'd be very pleased to take any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Patrick Higgins from Goodbody.

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Patrick Higgins, Goodbody Stockbrokers, Research Division - Analyst [2]

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Couple of questions for me, if that's okay. So firstly, just on the U.K. Obviously, very strong growth in the period. Would you be able to just split out the 6.8% between underlying and maybe the [further] crisis benefit and some of the early planning procurement by farmers as well? And maybe just touch on what exactly that was within the crop protection business?

Secondly, just on the Ukraine. You talk about having some plans in place to help drive a recovery in that -- in performance of that region. Would you mind just elaborating a little bit on that?

And then finally just on Brazil, could you talk about the outlook for the market in that region in the context of obviously the benefit of the U.S. trade and kind of trade tensions, although that seems to have eased a little bit? And then also the escalation of ASF issues within China? That would be great.

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Thomas Joseph O'Mahony, Origin Enterprises plc - CEO & Executive Director [3]

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Yes, yes. Sure. Okay. I'll kick off, Patrick, and thank you for your questions. So a 6.8% business growth, what I'd encourage you to do is a look back to the guidance that we would have given in the Capital Markets Day. If you take Ireland and U.K., generally underlying business volume growth is probably 1%. It is a mature consolidated market that's reasonably well intensified. So we -- that's the way we look at it on underlying growth. And if you take off the FY '18 base, you should expect volume growth normalized to be compounding at a roughly 1%, and we've guided EBIT growth of 1% to 2% across Ireland and U.K. I think in relation to crop protection, and we don't call out the individual underlying growth within the mix, but I think 6.8% is reasonably evenly distributed across the 3 portfolios. And I'd say of that, in relation to crop protection, it's probably 1.5% to 2% of the growth you could attribute to that advanced buying itself.

If I go onto Ukraine, look, we're clearly disappointed with the performance in Ukraine. It's been the confluence of a number of market factors that have driven this oversupply tighter and that generally deflationary environment, which has impacted margins. And I'd say it's very largely an industry issue, which requires an industry response, and I'm confident that response will come, and I think we should frame it in that actual context.

The business model -- our business model to address the requirements of our customers is entirely valid. It's been as valid as the day we actually entered the market. So we are fully committed to Ukraine and we are confident that we can get those returns to actually increase. In relation to Brazil, yes, there's obviously been a lot of news flow in relation to African Swine Fever, the U.S. trade tensions. The reality is Brazil has had a 20-year heritage of supplying soya bean protein requirements into the Chinese market. It's a 36 million-hectare franchise that has become very technologically orientated, particularly over the last 7 -- 5 to 7 years. And whether it is soya bean or it is pork exports from Brazil directly into China, we don't anticipate any significant reduction in consumption of soya bean. We would expect the area to be broadly equivalent, and we're now in the planting season as we speak. So we're not forecasting any particular change there as a result of those dynamics. Ultimately, Brazil is meeting a consumption market and if it's not directly through soya exports, it'll be through the pork exports, which obviously consume soya bean.

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Operator [4]

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Your next question comes from the line of Sophie Jourdier from Liberum.

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Sophie Maye Jourdier, Liberum Capital Limited, Research Division - Analyst [5]

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A couple of questions, please. Just first one on the U.K. market and the outlook. Obviously, you've talked about expecting the business to normalize. But I just wondered whether you could talk a little bit about farmer sentiment as we're entering into this year in terms of where the wheat price is, where sterling is, and obviously still Brexit. And also in the past, we've talked about the potential for this market to consolidate further and just whether you're sort of seeing that on the ground, so that's the first question. And then the second question, just on Continental Europe and actually more on Poland and Romania, which obviously had a reasonably good performance despite it sounds like quite tough economic conditions. I just wonder whether you could just update us on those 2 markets as to how your business is growing, the integration in Romania and just sort of on the ground, the business in Poland?

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Thomas Joseph O'Mahony, Origin Enterprises plc - CEO & Executive Director [6]

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Thanks, Sophie. Yes, so sentiment in -- farming sentiment in the U.K. certainly in our segments of crop production is good. I'd have to say, Sophie, the focus is always on the immediate. The focus is on we had a pretty wet August. It was a late harvest. The harvest came good in the end, so growers have been very focused on getting the crop out of the ground in good condition, which it generally is, are now focusing on their planting intentions for the winter. We think there'll be a lower oilseed rape area compensated by a higher winter cereal area because of agronomic factors.

Brexit is not really influencing the mindset right now, I would have to say. Growers are focused on their business. Yes, we are seeing some consolidation. And we have seen this over the time. Output prices have weakened a little, but again, the barometer for our business, particularly in the U.K., is that mix of winter and spring cropping. And at this point, we would expect the winter area, that planning, to happen as per normal and it should only be interrupted by any -- by agronomic factors, which could see some shift into spring. But we're not seeing anything dramatic, Sophie, on that account itself.

In relation to Poland and Romania, if I take Romania first, there's been a lot of very good work in bringing both of our businesses together, Comfert and Redoxim. Monalisa Ungureanu, who some of you would have actually met her, our leader in Romania, she's building a new team. She's building a new central management team and well underway to fully integrating those businesses. So we are very, very pleased with that progress. In relation to Poland, it has performed very well in 2019 and particularly the product-based capabilities, that point that we bring out. We've seen our leader there who's been in the business for the last 15 years. He succeeded Rafal Prendke, who was Head of CE, Continental Europe. He's doing an excellent job and we are seeing the actual fruits of that, particularly within the higher-margin portfolios. So overall, we are pleased with both of those geographies right now.

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Operator [7]

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You next question comes from line of Roland French from Davy Research.

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Roland French, Davy, Research Division - Food Analyst [8]

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I've got a couple of questions. On the U.K., Ukraine and capital allocation, so maybe I should start with Ukraine. You talked about the market outlook and the industry approach needed for an industry problem. Could you maybe give some detail as to your own kind of self-help measures either with your suppliers or your customers? And then secondly, just on the U.K. clearly, the volume outlook is somewhat tempered, but are there measures that you're doing in terms of driving margin or mix through pricing strategies or [is it just] wait and see? Sorry, that's in the U.K., Tom.

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Thomas Joseph O'Mahony, Origin Enterprises plc - CEO & Executive Director [9]

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In the U.K. Sure. Sure.

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Roland French, Davy, Research Division - Food Analyst [10]

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Yes, yes. And finally on capital allocation, maybe a little bit of color around the M&A pipeline, whether we should (inaudible) about product distribution by region and then also just [that] note in the outlook statement in terms of your capital allocation, you refer to a prudent approach to capital allocation, which I read as kind of an internal working capital piece and you've alluded to Ukraine and Poland there. Just thinking how much working capital you might be able to extract in those regions.

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Thomas Joseph O'Mahony, Origin Enterprises plc - CEO & Executive Director [11]

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Okay. I'll hand you over to Sean now, who's eager to answer some questions there.

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Sean Gerard Coyle, Origin Enterprises plc - CFO & Executive Director [12]

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Thank you, Tom. So on Ukraine, Roland, the market outlook is tough. I think what we're seeing is a dynamic amongst the other distributors in the market that largely revolves around a cash market and a movement to a cash market. So our decision to reduce working capital in that environment is largely about making sure that we are matching appropriately purchases and sales of product, making sure that we've got appropriate commercial arrangement in place with suppliers, making good progress in that regard, restructuring the cost base to an appropriate level there and we have taken out a couple of our distribution warehouses in Ukraine and managing the business from a working capital perspective on a tight leash over the coming 12 months. So good work has been done there. The management are very much aligned with that intention, the seller of that business did exit during the summer and we now own 100% of the Agroscope business. So management are very much aligned to our thinking in relation to how we manage that from a working capital perspective over the coming 12 months.

On capital allocation, as you know, there's always a fairly significant pipeline of potential acquisitions and discussions ongoing. I think in terms of the likely color of that, what that will mean over the coming 12 months, it's more than likely that our next acquisition will be in the Brazilian market and more likely that it will be a B2B acquisition, rather than a B2C acquisition or a distribution acquisition. So again looking at product-based businesses, and there are a number of those out there, and there are always a number of those out there. So it's about due diligence-ing them appropriately and finding the right one that works from a cultural perspective with the existing Fortgreen acquisition and with the Origin group from an overall perspective. There are product-based businesses available in Europe and coming available in Europe over the next 1 to 2 years, so we may see opportunity in a European context as well. But again, the focus would probably be leaning more towards B2B businesses, rather than B2C businesses, unless we get some niche bolt-on that fits seamlessly into existing distribution markets. We certainly don't see ourselves entering any new Continental European distribution market in the short term. You're right, from a working capital perspective, it is about managing to extract some of the working capital from the business, and I think realistically, there's probably in the region of EUR 25 million to EUR 30 million that can be extracted on average from the working capital versus last year. And I would say that's obviously a non-acquisition scenario, a like-for-like scenario with existing businesses. Our working capital this year or our net debt this year is typically running about EUR 25 million to EUR 30 million below last year's level, and I think if we maintain at that level throughout the year on average, we'd be very happy with that result. Remind me of your U.K. question, again, Roland, sorry.

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Roland French, Davy, Research Division - Food Analyst [13]

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Yes. It was just to get -- I guess we have context for the volume outlook, just kind of your internal levers or initiatives that might drive margin or mix around procurement or pricing or up-weighting feed or higher-margin products? (inaudible).

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Sean Gerard Coyle, Origin Enterprises plc - CFO & Executive Director [14]

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Yes, I mean look, the U.K. business and in particular, the fertilizer business continues to transition to the energy-efficient product base that we have and the more specialty product, which is, on average, higher margin than the traditional blended products that we have within the mix. So that's an ongoing trend, both within Ireland and U.K. The acquisition of Symbio and the move towards biologicals in that space is important as well in that context and trying to push our own product through the existing distribution channels is an important part of the mix. But as important as that is our existing relationship with the major manufacturers in the U.K. and I'd have to say that, that is as good as ever. And those relationships with major manufacturers continue to yield strong performance within the U.K. business.

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Operator [15]

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Our next question comes from the line of Kevin Fogarty from Numis.

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Kevin Christopher Fogarty, Numis Securities Limited, Research Division - Analyst [16]

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I think the sort of first question was sort of partly answered. It was really around the, I guess the priorities for product-based acquisitions going forward. They seem to have sort of come up the priority list, at least from where I'm sitting. That seems to be the case. And I mean if I'm right in understanding, they seem to be more of a priority in LatAm and Continental Europe. I just wondered sort of 1 year in sort of post the Fortgreen acquisition, what have you found that give you in those markets as opposed to other acquisitions, i.e., non-product deals? And just secondly, just pressing a little bit on Continental Europe. Could you give us a flavor as to sort of, on a 12-month view, what you kind of hope to achieve there given, obviously, you've got some sort of self-help levers you can pull, but you're also sort of dependent on, as you mention, Tom, an industry solution? And just finally a bit of a housekeeping one, just in terms of the size of the enlarged group now. Can you sort of help us with sort of a CapEx going forward this year, what might that look like in terms of a number?

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Thomas Joseph O'Mahony, Origin Enterprises plc - CEO & Executive Director [17]

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Okay. Well, I'll kick off, Kevin, and thanks for your question. I firstly think it's important to understand the context for a product-based business, and we use the term B2B, which doesn't in any way mean that it's an inferior channel because the reality is we are in-field prescribing, we are guiding strategic choices on-farm. So that's a very important point. And our whole approach, whether it's a B2B channel or a B2C or distribution channel, is about customization and localization. And Sean alluded to it there in relation to our fertilizer business. We have focused on driving added value to drive margin within our fertilizer business, and using the benefits of our routes to market, be it a B2B customer or be it our own internal customer. So Origin fertilizer and Agrii is a very good example of that and increasing the penetration of speciality fertilizer. Multiple nutrients, multiple components. It's a very, very flexible operating system that can meet the requirements where standard compositions can't. And that's very much the model of Fortgreen. It uses distributors, but it's on-farm working with those customers and it's a branded presence and that is very important.

So I think the sort of perception of a B2B shouldn't be confused with our ability to influence application on-farm. It obviously does deliver higher returns and margin so I think it's entirely appropriate that we should look to build upon what we have done in both LatAm and Continental Europe itself.

If we look towards CE then, I would say the main element is precisely building upon what we have, building upon our seed, upon our actual liquid nutrition competence called [folic]. And I think been improving the organizational capability, improving the whole sales focus, training our actual sales teams to be delivering solutions. And we're starting to see the benefits of that and will see more particularly within Romania and Poland.

Ukraine is a specific industry issue that I referred to earlier, and I think the industry is pretty much aligned on what needs to be done. And your final question on CapEx, maybe if I hand that over to Sean.

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Sean Gerard Coyle, Origin Enterprises plc - CFO & Executive Director [18]

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Yes, Kevin, the CapEx next year, I suppose will be expected to be in line with this year's figure, so roughly EUR 16 million to EUR 17 million. One caveat in relation to that, the timing of the Cork disposal is not yet certain and the timing of the move in relation to the Cork properties is not yet certain. So as we free up capital from the disposal of those Cork sites, there will be a requirement to reinvest in a new plant somewhere in the Cork region. And we've guided before that less than 50% of the proceeds of those -- of that sale will be required to be reinvested in a new Cork facility. So somewhere in the region of EUR 20 million to EUR 22 million out of the EUR 47 million will be the expected CapEx outlay. It's not expected that, that will happen in FY '20, but if things accelerate and permissions happen and all that, we may see some of that EUR 20 million falling into this year on top of the normal run rate of about EUR 16 million to EUR 17 million in CapEx.

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Operator [19]

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Your final question comes from the line of Chris Wickham from Equity Development.

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Christopher Wickham, Equity Development Limited - Analyst [20]

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Congratulations on, yet again, good numbers. I mean the thing I always find looking at some share prices, I mean particularly in your case, I mean you've got a great offering, you have a very relevant sector, you've got a strong management team, you've got -- you've revamped the financial side of the team, very strong position and the M&A program is very clear, the financials are robust. However, your share price has, in the last 5 years, gone from EUR 8 down to EUR 5, your sterling share price has gone from GBP 6.25 down to GBP 4.42 and your trade-in fee has contracted from 14x down to 9.5. And I'm just wondering whether in light of [CMC], et cetera,, whether it's not time just to bite the bullet and move the listing to London?

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Thomas Joseph O'Mahony, Origin Enterprises plc - CEO & Executive Director [21]

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Thank you, thank you, Chris. Yes, I mean look, we continue to evaluate the listings. I think there are technical issues with that in terms of Origin's business. I think ultimately, it is about consistency and it's delivering consistency of results, and I think that's what management should always predominantly -- it must focus on. I think as a story, we've delivered a very good cash return to our shareholders, good return on capital, which we want to improve. And I'd say it's something the Board always keeps center stage, Chris, in terms of listing, but we don't see the dynamics there quite right now for that and we just got to continue on doing what we're doing and managing and run the businesses. I don't think it inhibits us in any way.

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Christopher Wickham, Equity Development Limited - Analyst [22]

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Well, what it is, as a shareholder, I mean if I've done my work and I'd done my research into your company 5 years ago, I would have concluded that it's a really well-run business, it's in a really good sector and it's got an unbelievably strong opportunity in M&A, given that it's got such robust finances. I mean every bit of work I've done has been correct and every bit of work you've done has been correct, and yet there's nothing to show for it as a shareholder because the PE has contracted from 14 down to 9.5. (inaudible).

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Thomas Joseph O'Mahony, Origin Enterprises plc - CEO & Executive Director [23]

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Sure. Yes, I get that. Again, it's difficult for me to comment on shareholder matters and the market. I think as a management team, as I said, we continue to evaluate all options in relation to the listing, getting in front of newer shareholders, creating appetite for the stock and hopefully delivering on the outcomes that we've committed in our 2023 ambition. And I think that's really all we can focus on right now, Chris.

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Operator [24]

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There are no further questions at this time. Please continue.

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Thomas Joseph O'Mahony, Origin Enterprises plc - CEO & Executive Director [25]

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Ladies and gentlemen, thank you for your participation on this morning's call and for your questions, and that now concludes this presentation of Origin's preliminary results for 2019. Thank you. Bye for now. Bye-bye.

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Sean Gerard Coyle, Origin Enterprises plc - CFO & Executive Director [26]

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Thank you.

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Operator [27]

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That does conclude our conference call for today. Thank you for participating and you may now disconnect.