Hello, welcome to the Nufarm first half 2023 result conference call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Greg Hunt, CEO, to begin the conference. Greg, over to you.
Thank you, Connie. Good morning, everyone. Welcome, and thank you for joining us today. I'm joined on today's call by our CFO, Paul Townsend, and also joining us are Rico Christensen and Brent Zacharias, who will take this opportunity to provide an update on the progress that we've made in the half towards our longer-term growth aspirations. Before we start, I'd like to draw your attention to the disclaimer on page 3, particularly the section on forward-looking statements. I'm pleased to report a strong result and a positive start to the financial year for Nufarm. Revenue and EBIT were relatively steady, while our underlying net profit increased by 7%. We achieved underlying EBITDA of AUD 316 million.
This is an excellent result considering we're coming off a record year, and I'm pleased to say that we are on track to meet our full-year earnings guidance. Importantly, during the period, we made progress and remain on track to meet the key milestones that we have committed to as we work towards our FY26 growth aspirations. Given the strong result and positive outlook, we are pleased to announce an increase in the interim dividend to AUD 0.05 a share. A number of factors are driving our performance. We launched a number of new products across our crop protection platforms that contributed to the gross margin improvement. This is an important part of our growth aspirations. As I said earlier, Rico will provide further detail in relation to those launches and the overall health of our pipeline.
Seed technologies delivered a very strong result, with revenue and earnings up 25% and 34%, respectively. The strong contribution from seeds and the improved product mix across the portfolio has resulted in gross profit margins expanding by 120 basis points in the first half. We have reported an increase in inventories and working capital, particularly in North America. Inventory is expected to reduce in the second half as we see more traditional supply-demand patterns return. We also anticipate leverage to be within the targeted range of 1.5x-2x net debt to EBITDA by the 30th of September 2023. Our balance sheet is robust and remains flexible.
Favorable seasonal conditions have been experienced in most of the key markets that we operate in, and we are seeing good demand for our seed and crop protection solutions in early second half trading. We remain on track to deliver modest earnings growth for the full year. Moving to next slide. Here you can see that we've made a lot of progress and continue to hit key milestones as we execute on our strategic objectives. Crop protection, as I mentioned earlier, is benefiting from successful product launches and driven by strong relationships with our technology partners. The Sumitomo commercial relationship remains strong with the renewal of all of our marketing and distribution agreements now complete. Our seed technologies platforms continue to make progress with new hybrids achieving growth across multiple markets.
We're also well on the way to deliver a minimum 16,500 metric tons of our Omega-3 Canola oil from 2023 crop plantings. A very positive development during the period was the news that the Norwegian Scientific Committee for Food and Environment has given a positive recommendation regarding Canola oil enriched with Omega-3 for fish feed. The Norwegian aquaculture market is the largest in the world, so this represents a very large potential opportunity and another milestone achievement towards our growth plans. Likewise, our bioenergy aspirations remain on track as we delivered our first shipment of Carinata oil under the long-term supply agreement with BP. As we forecast in November, we are working towards our goal to double the hectares planted of Carinata in 2023.
Argentina has experienced drought conditions. We are focusing on expanding the area in other countries to try and offset any shortfall that we may experience in Argentina. In summary, executing on these milestones leaves us well-placed as we work towards achieving our FY26 revenue aspirations. Turning now to the segment results. We've included this table because it simply gives you an insight into the strength and the diversity of our business. Our geographic footprint and growing contribution from our seed technologies helps us to minimize risk and reduce volatility while providing a clear platform for growth. Moving now to Europe, where we delivered a very positive result with revenue and earnings growth. This was achieved despite a €17 million decrease in revenue from product deregistrations.
The performance was driven by new product introductions, organic growth, and improved gross margins, and much of this is coming from the portfolio that we acquired in 2018. We continue to deal with some challenges at our site in the U.K. However, these issues will be progressively addressed through the CapEx program that we announced in February of last year. We expect some benefit due to the delayed season in North and Central Europe, with sales shifting into the second half. However, this will be somewhat offset by drought conditions, which are persisting in Spain. We expect deregistrations to impact revenue by a further €4 million to reach the €21 million already flagged for the full year. However, we believe that we can offset the revenue impact with what is in our current portfolio, organic growth, and new product introductions.
Assuming normal seasonal conditions, we are on track to deliver a result slightly above last year's. APAC experienced a solid first half, particularly on the back of the record contribution in the first half last year. As expected, revenue and earnings were impacted by some softening in active ingredient pricing, particularly glyphosate. As flagged at the full year, restocking has occurred at lower prices, resulting in no additional provisions required at the 31st of March for inventory that we held at that date. During the year, we launched a number of new and higher-margin products, and each of these contributed positively to the result, and we would expect that this will be a continuing pattern in future periods as the mix of the portfolio continues to change. In the short term, we are seeing continuing favorable conditions with good early rainfall.
These conditions and relatively higher grain prices are resulting in continued strong demand for our crop protection products, current trading is in line with what we experienced at this time last year. Turning to North America, where the result was impacted by a shift in sales from the first half to the second half as customers moved to a more in-season purchasing. A reduction in sales resulted in revenues down by 12% and higher inventories. Increased sales of higher-margin products boosted gross margins and helped offset to some extent the volume decreases. Despite this, the outlook remains very positive. Forecasts from the USDA for 2023 show that acres of corn, soybean, wheat are expected to expand. In addition, 65% of corn, 49% of soybean, and 35% of the cotton crop has been planted as at the 14th of May.
Conditions remain favorable, with adequate to above adequate soil moisture across 80% of the area planted. Combined with agreements that we have in place to reduce our exposure to pricing volatility on lower-margin products, we are confident of a strong second half in North America. Onto Seed Technologies. I really covered most of the points that I wanted to make in my earlier comments. However, we are on track for a stronger second half, and I'll just probably reinforce the point that, again, that Seed Technologies provides a very exciting and meaningful growth platform for the company. This result continues the earnings momentum that has us on track to meet or exceed our FY26 aspirations. Brent will talk to our current programs and our growth aspirations over the next few years later in the presentation.
I now hand over to Paul, and he'll take you through the detail and the financials. Thanks, Paul.
Thanks, Greg. Turning to more of the details surrounding the financial performance. Revenue is slightly down by 1%, as Greg has covered, underlying gross profit margin up 122 basis points, reflecting improved sales mix, the introduction of new higher-margin products across the regions, and increased contribution from Seeds Technologies, which has higher relative gross margins. An excellent result giving manufacturing cost increases and manufacturing disruptions. Although underlying gross profit is up by 3%, underlying EBITDA at AUD 360 million is 4% down and reflects higher SG&A and R&D costs, AUD 26 million and AUD 4 million respectively.
The main SG&A cost impacts being increase in headcount and other costs to support the growth in the Seeds Technology segment, CPI and salaries and incentive increases, increase in freight and warehousing costs associated with holding increased inventory volumes, and increased travel as we come out of COVID. Underlying EBIT of AUD 228 million is 3% higher than the corresponding period, reflecting the lower depreciation amortization due to the phasing out of products and regulatory extensions to certain products in the main Europe, together with delayed plant and equipment CapEx. Underlying NPAT is up 7%, reflecting the higher EBIT and lower effective tax rate despite higher financing costs. The underlying tax rate has improved half on half due to Nufarm's continued strong financial performance, which has enabled the recognition of unbooked tax losses through the P&L.
Underlying financing costs have increased half-over-half, mainly due to increases in floating-based interest rates on drawn debt facilities together with higher drawn debt levels. Average net working capital sales is still below our target range of 33%, increasing by 6 percentage points, coming off an abnormally low percentage level, 27% the first half of FY22. Net debt has increased to AUD 1.04 billion, with leverage now at 2.5 times, reflecting the negative cash outflow for the half. We see these debt levels and leverage as temporary only, with leverage anticipated to be below or within the target leverage range of 1.5 to 2 times by 30 September 2023.
Basic earnings per share has increased by AUD 0.02 per share from AUD 0.34 to AUD 0.36 per share, the board has declared a dividend of AUD 0.05 per share up from AUD 0.04 per share for the prior corresponding period. Turning to cash flow. Importantly, the net working capital balances have been relatively low over the past two years, driven by lower levels of inventory, which have been impacted by supply chain disruptions through the COVID period. Net operating cash flow of negative AUD 559 million the first half 2023 is predominantly driven by EBITDA and the movement in net working capital. The net working capital movement being a significant factor in driving operating cash flow outcomes, in particular, movements in receivables and growth in inventory.
As can be seen on this slide, the operating cash flow each half is typically significantly lower and/or negative in the first half than the second half, reflecting the seasonal build and unwind of net working capital. Essentially, higher receivable collections in the second half compared to the first half due to the seasonality of Nufarm sales. Although there is seasonality in the current net working capital movement, resulting in higher net working capital in the first half compared to the second half, this has also been impacted by the higher stock levels Nufarm is carrying, and more specifically, the higher stock levels in North America, together with receivables coming off at normally low levels second half of 2022. I now turn to the next slide. This illustrates the composition of the net working capital balance over the last five halves.
This slide illustrates how the composition of net working capital changes between the halves. As I said, the big move in the receivables balance between 1H 2022 and 2H 2022 resulted in unusually high receivable collections through customer prepayments and improved collections as customers sought to shore up supply given stressed supply chains during that period. This was highlighted at the time of the FY 2022 result. Whilst this led to an excellent net working capital outcome for financial year 2022, the movement back to a normal level of receivables in the first half of 2023 has exacerbated the overall net working capital movement reported in first half of 2023. In the second half of 2023, however, consistent with prior periods, we expect receivables to unwind relative to first half levels.
For example, in applying an historical sales and collection profile could lead to a movement or cash inflow of AUD 200 million-AUD 300 million in H2. The other big component of the net working capital movements is in our inventories. Inventory levels throughout FY 2021 and 1H 2022 were particularly impacted by COVID-related supply issues. Towards the end of FY 2022, we were able to restock inventory and build up a safety buffer as supply chains started to ease to support anticipated customer demand, ensure we were well covered ahead of the season. Our inventory levels for the first half of 2023 reflect these decisions but have also been impacted in North America by customer-led decisions to hold back orders to a more just-in-time basis as opposed to advanced ordering, which we experienced over the past couple of years.
We maintain our confidence that this is largely a timing issue and that inventories will reduce since agriculture fundamentals remain strong, soft commodity prices being at or above five-year averages, and planted acres in the U.S. expected to increase, resulting in more normalized customer buying behavior. Importantly, we expect this level of net working capital to reduce as receivables and inventories unwind, resulting in cash flow generation in H2 2023 to bring leverage down to below or within our target range of 1.5 times to 2 times by 30 September 2023. By way of example, as of May 16th, we've already seen a net reduction group's inventory of approximately AUD 120 million, which is a good indicator that inventory is trending to where we would like it to be by the end of the half.
In terms of CapEx spend in the half, there are essentially three elements being investment CapEx, tangible spend, and property plant and equipment. The investment CapEx includes a small boom sprayer acquisition for our Croplands business in Australia. Further investment in Encote, and deferred consideration for the Biovertis and Easy Cane acquisition. The intangible or product investment spend includes both an element of stay in business and growth spend. For crop protection, this includes spend associated with maintaining and defending product registrations, new products, and product enhancements. Seed technologies spend is associated with new hybrids, registrations in new markets, and other regulatory investment. The property, plant, and equipment spend includes a number of safety and environment initiatives together with asset integrity investment, the majority in Wyke, to improve the overall reliability and efficiency of our manufacturing facilities.
Further investments expanding the capacity of Propionic and Preventol in Wyke, formulation improvements in Chicago Heights, together with 2,4-D efficiency spend in APAC, is included in the spend as well. You may recall we have earmarked circa AUD 100 million in addition to normal maintenance or stay in business type CapEx over FY 2022 to FY 2024. In total, AUD 80 million-AUD 90 million per annum in property, plant, and equipment spend over that period. Labor shortages and raw material available in the main has delayed the execution of these projects, which will impact the overall timing of the FY 2022/2024 initial plan. Just a reminder, all growth investment spend is assessed in accordance with our capital management principles, where we target a return greater than Nufarm's weighted average cost of capital.
The full-year outlook for CapEx is around AUD 200 million-AUD 220 million, which includes carryover AUD 30 million from 2022. As mentioned, net debt has increased to AUD 1.04 billion, with leverage at 2.0 times-2.4 times net debt to EBITDA. As previously mentioned, the increase in net debt is mainly due to increases in net working capital during the half, with leverage anticipated to return to within or below the targeted range of 1.5 times-2 times as net working capital unwinds in the second half. In terms of debt facilities, during the half it was announced that Nufarm has entered into a 5-year, $800 million revolving ABL credit facility secured against trade receivables and inventory.
A smaller AUD 150 million liquidity facility has also been established to sit alongside the ABL facility to assist in the ongoing funding of Nufarm's working capital requirements. Complementing the $350 million senior unsecured notes, which were issued in January 2022, the ABL facilities delivers considerable benefits for Nufarm's capital structure, transitioning Nufarm to a covenant-like financing structure and extending the duration of the group's debt maturity profile. With the increase in the group's net working capital balances over the half, Nufarm's new working capital debt facilities are delivering on their objective to enable a flexible and durable capital structure through operating cycles and variable trading conditions.
In terms of liquidity, Nufarm has access to undrawn debt facilities of AUD 319 million and access to cash of around AUD 348 million as at 31 March 2023. With increases in base floating rates and higher average debt levels, interest expense is expected to increase in the second half of 2023 compared to. I'll now hand back to Greg. Thanks, Paul. Look, before I hand over to Rico and Brent, I just wanted to quickly take the opportunity to remind you of the broader macro trends and why we believe that this is an attractive industry. Agriculture is the primary source of food and therefore plays a crucial role in feeding a growing population. With the global population continuing to increase every year, we need to produce more food to feed everyone.
Importantly, advances in technology and science have enabled farmers to increase their yield and reduce waste, which is crucial for meeting the needs of the growing population. At the same time, there is increasing pressure to meet our food needs more sustainably, and advances in technology and science are rewriting the way that we use land and plants to supply food and nutrients. Increasingly, agriculture and oilseeds will also play an important role in energy production as they will be used to produce renewable fuels. The use of sustainability certified renewable fuels reduces our dependence on fossil fuels, lowers greenhouse gas emissions, and provides economic benefits to farmers by creating new crops or, sorry, for creating new markets for their crops.
The cultivation of cover crops can contribute to sustainable agricultural practice, sequester carbon, reduce erosion, and improve soil health. Nufarm is at the front of these changes. A large part of that is about our focus on innovation and technology. We believe demand for our products will continue to grow and drive our revenues and our margins. It's this belief that is driving the investments in our various platforms and our future growth aspirations. As I've said before, we remain on track to meet or exceed those aspirations, which we first outlined in February of 2022. We are executing on the key milestones that underpin those aspirations, and we'll now hear from Rico and Brent, who will give you some more detail on what we've actually achieved over the past few months. I'll hand first to Rico to talk about crop protection.
Thanks, Greg. As Greg mentioned earlier, Nufarm is contributing to and also benefiting from the shift to more sustainable and innovative agricultural solutions. We are enabling our growers to produce more with less, while providing products that help them adapt to climate change and minimize unintended environmental consequences. Innovation and technology will drive Nufarm's sustainable growth. We will now give you an update on our development pipeline, which we presented in February of 2022 at our Investor Day. We have a pipeline that will deliver across our core crops, our targeted geographies over multiple years, will continue to strengthen our customer relevance and support our revenue aspirations. Over the past year, our product launches performed as planned. We are on track to launch the scheduled new product introductions for financial year 23. Our top projects have an estimated market size of AUD 6.65 billion.
You may recall that in February of 2022, the equivalent slide had 22 projects with a market size of AUD 6.6 billion. In the almost 18 months that have passed, some projects have been launched in all markets and are therefore successfully closed. At the same time, other new projects have been added, including some that will be launched after 2026. On the next slide, I will share some examples of product launches, but the overall message is that we are on track to deliver our 2026 ambition, and our pipeline also looks promising beyond that. During the first half, we launched a number of products. Bear in mind that our projects generally have staggered launches because we don't get the registrations at the same time in all countries. Projects continue to be active until they have been launched in all target markets.
As an example, we have now received the first registrations of Jaust, but the project remains active since further launches are coming. Our portfolio consists of five platforms. The foundational products, such as Jaust, Galaxy, Terrad'or Flow, are what we refer to as the bread and milk. They are products farmers use every season and are incredibly important to solve critical economic problems. However, as you know, we are increasingly investing in innovative solutions that are covered by IP. I'm pleased to let you know that we have achieved several important milestones for our innovative solutions. We launched our own IP protected DropZone in late 2022 and received an incredible positive response from farmers across Australia. We also achieved registrations and launched a new, an Anuew EC across North America in collaboration with an important research partner.
Lastly, we extended our distribution agreement for Terrad'or with FarmHannong , another important discovery partner. In the biological space, we also achieved important milestones. Last year, we launched our bionematicide, Trunemco, in the U.S. We have now also launched in Brazil together with 3 distribution partners. Brazil is the largest and fastest-growing market for bionematicides. This was an important step for us. In Australia, we also launched a new biofungicide, Intervene, which has been developed together with a strategic partner and had previously also been launched in the U.S. Our new crop project together with Crop.Zone has also made good progress in the first half. We have now appointed partners in several markets and are working to add more. Lastly, I also wanted to mention Silicet, which is a biological pod shatter reduction product for canola that we have developed with another strategic partner.
This product will be part of the input platform we are designing to support the agronomic needs of our Nuseed Omega-3 Canola and Carinata programs. These are just some examples. In fact, we have had more product lines than product launches in the first half. Also, I want to highlight that generally speaking, these new products are higher margin products and as such, contributed to the improvement in average gross margin in the first half. Altogether, we are quite pleased with the progress this first half and as mentioned earlier, our pipeline is on track to deliver our 2026 ambition.
Now over to Brent.
Thanks, Rico. As Greg covered, we are very pleased with the performance of the seed technologies results. We are experiencing strong customer response to the innovation we are bringing to the market. We significantly outperformed the prior period in volume and revenue across our three core seed positions in canola, sorghum, and sunflower. We expanded revenue and margins in both the bioenergy and omega-3 platforms compared to the prior period. This result highlights the strength and synergy across all our technology platforms working together, the strong market adoption of those technologies, and the very clear trajectory we are on to meet or exceed our 2026 aspirational growth targets.
Now, looking in more detail at the drivers of these first half results, our core seeds business continues to perform very strongly and remains the critical driver of our innovation, farm market presence, and capability that enables our Omega-3 nutrition and bioenergy growth platforms. A strong seeds capability is a precursor for success in our value beyond yield technologies. In the first half, Nuseed achieved additional market expansion in canola in Australia and Latin America South. We grew volumes in our sorghum markets in Brazil, the USA, and export markets, and we expanded our sunflower position in Southwest and Central Europe, the USA, and Latin America South, which more than offset our choice to reduce sunflower volumes in Eastern Europe due to the conflict. On our Omega-3 platform, we saw the revenue and margin grow year-on-year due to the continued benefit of scaled production and supply of Aquaterra.
Pleasingly, customer adoption and support in our initial market of Chile continues to be strong, and the first half period saw initial sales to North American aquaculture customers. We completed a successful planting trial in South Texas, which offers an important additional winter season production zone. On the regulatory front, as Greg mentioned, we made important progress on our planned Norway approval, and I will speak to that in more detail shortly. We also progressed commercialization plans for Nutriterra and see momentum building both in food ingredients and with a high-value market segment opportunity developing around concentrated oils. We have developed, been granted patents, and now commercially piloted the enrichment process to take our oil to higher concentrations that are of interest to the nutraceutical market. First half saw a number of important milestones achieved with respect to our bioenergy platform.
Following the first dedicated shipment of Nuseed Carinata to Saipol in Europe BP took its initial deliveries of oil under our strategic long-term offtake and market development agreement. Production expansion continues, including new commercial scale planting activity in the Southern U.S., we generated strong performance from a new hybrid variety in large scale commercial harvest in Argentina, despite unusual impacts from drought and frost conditions. Our newly acquired energy cane technology was successfully integrated into Nuseed's Brazilian operations with additional resources invested in research and development, agronomy, and commercial capabilities. Nuseed secured its first energy cane revenues in the first half. Looking ahead, we are confident that the drivers are in place, both internal and external, to support strong growth over the coming periods.
For the seeds platform, that confidence is supported by the resilience of our core seeds positions and our ability to grow revenues through the cycle, given our higher value niche market positions, strengthening market shares, and a strong pipeline of new genetics and products. Our Omega-3 platform is at an important transition point with greater scale and market expansion starting in FY24 from larger FY23 planting, driving revenue and margin growth for AquaTerra and new high-value market segments presenting opportunities with Nutriterra. We also continue to see trends towards sustainability, tightening fish oil supply, and price appreciation. As a very current example of that, in the last 48 hours, the Peru Ministry made a public announcement that they have delayed and may reduce or possibly cancel first, the typically largest anchovy fishery quota.
Coming back to Norway, while a number of key steps are still to be completed, we are positively progressing towards regulatory approval and market entry into Norway for AquaTerra. This represents a step-by-step growth opportunity in the world's largest salmon farming market. A final ruling from the Norwegian Food Safety Authority is anticipated within this current calendar year. The value indicators and demand for lower carbon energy feedstocks remain very strong and support our continued investment and rapid expansion of Nuseed Carinata. Our ability to bring better performing genetics to the crop is delivering important gains in agronomics and yield and will translate to stronger economics for Nuseed and our value chain partners.
Similarly, we feel very confident in our investment in energy cane, as we have already started to expand our customer base with existing products and focus on the value that can be generated from the successful introduction of next-generation hybrids with industry. In the immediate future, we expect to achieve further growth in both seed technology revenues and EBITDA in the second half of this financial year. As in recent years, however, seed technologies remain strongly weighted to the first half. Over time, we will start to become more balanced between halves as Omega-3 and bioenergy platforms grow with more balanced year-round revenues. Longer term, we remain committed to, and very confident, that we will meet or exceed our aspirational growth targets by 2026. Thanks. I'll now hand back to Greg.
Yeah, thanks. Thanks, Brent. I just thought it was important that we provide an update on our progress against our 2026 aspiration as we execute against these important milestones that we've set for ourselves. I guess I'm hopeful that as we continue to make progress that your confidence grows in line with ours, that we will continue to deliver. We've delivered, as I said earlier, what I think is a strong result for the half. Our outlook for the remainder of the year is positive as we anticipate continued strong demand for our products. Early trading in the second half has been encouraging, and we remain on track to deliver modest earnings growth and constant currency underlying EBITDA anyway, for the full year. Increased plantings and favorable seasonal conditions are driving demand for in-crop application.
Whilst manufacturers generally have reported higher inventories, channel stocks are relatively low, particularly in North America, where we are expecting to have a strong second half. This gives us confidence that our inventories will reduce over the second half, and that our leverage at year-end, as Paul has taken you through, will be within our targeted range. We'll continue to invest in innovation and technology to create improved solutions for crop protection and execute on our growth aspirations in our Omega-3 and bioenergy platforms. Our goal is to help our farmers maximize crop yields, create new markets for their crops, while protecting the land and its natural resources for future generations. We are committed to being a reliable partner for our customers, and we remain dedicated to providing innovative solutions that deliver results. In summary, we have a clear plan for growth.
We've shared our growth aspirations with you, and we are on track to meet or exceed these aspirations. We've delivered a very strong start to the year and are on track for another strong earnings result for Nufarm. With that, I'll hand back to Connie. We'd be happy to take some questions.
Thank you. Now, at this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Thank you. Your first question comes from the line of Evan. Evan?
Yeah. Thanks.
Your line is open.
Great. Thanks. Hi, Greg and Paul. Obviously, a pretty solid result in some volatile conditions here. Could we just get maybe a bit more of a detailed around the grounds for all your regions of what your second half expectations are? Maybe touching on price and volumes, et cetera, if you can.
Yeah, thanks for the question, Evan. I think, you know, there's been commentary around grain prices and how they've come off highs, the point I'd make is that they remain at relatively high levels. Here in Australia, you know, we're seeing expectations for, you know, another large winter crop, maybe not as large as it was in 2022. I think the point that I'd make is that, you know, our products are used as inputs, I'm aware of the Bureau of Meteorology forecast. We really make our revenues at the time that the crop's planted or, you know, in the early post-emergence, at planting and not at harvest.
As I said earlier, you know, we're seeing demand for our products now similar to what we saw last year. You know, we would sort of expect, if conditions continue positively that, you know, a similar sort of result second half this year as compared to second half 2022. In Europe, you know, seasonal conditions in the Iberian Peninsula are quite difficult. It's been in the middle of a drought. I did note overnight that there's quite a bit of rainfall in Italy. I think the F1 race was canceled. I'm hopeful that some of that rainfall has got into places like Spain and Portugal. The other parts of Europe, so Central, North, and East, you know, positive.
As I said earlier, I think second half trading there is also in line with or slightly above.
Above what we saw last year. In North America, we're seeing an increase in acres planted. We have seen. I think about 50% of the crop, as I said earlier, has been planted, and we're now seeing very good soil moistures. The prospects really are for a good crop. The big difference in North America this season is that we're seeing a shift from first half to second half, and we're expecting to see purchases in sort of June, July, August for in-crop applications. That's probably more in line with the traditional practice that we experienced, say, for example, in financial year 2020.
In 2021 and 2022, sales were brought forward as I think Paul touched on, customers were concerned about securing supply. General inventories are relatively low, you know, we're expecting a strong sales result in the second half. We probably will see, to your question around margins, I think, you know, we will see some margin pressure in the second half. You know, we expect EBITA contribution to be higher in the second half than what we saw last year, really on the back of, you know, the lift in revenues. Hopefully that gives you a bit of a summary of around the grounds.
That's perfect. Really appreciate that color. Maybe one for Paul Townsend, just on the working capital unwind. Firstly, thanks for the update into the dollar unwind into 16 May. I'm just looking at slide 15, the total unwind for the second half has traditionally or typically been around that AUD 300 million mark. Should we be expecting a similar unwind through this second half? Is that the messaging you're trying to giving or will it be, I guess, above that AUD 300 million?
Yeah. I guess it really depends. Thanks, Evan. What I did do is looked at the receivables, and if we say that our receivables sort of balances, if you're going all days, if you like, go back to normal levels, you know, we can expect anywhere between AUD 200 million-AUD 300 million just in receivables. That's one point. That's one aspect, if you like. That's on the assumption that the profile and collections represent what we've historically experienced. Just that caveat, but we would expect that to be. On inventory, that's the one that it depends. It really just depends on the volumes and as we've spoken about, a lot of the... Well, we...
A bit more color on this is that a lot of that volume's in our herbicide area in the sense that a lot of the product is glyphosate and other herbicide products, which basically mean that we're carrying excess volume, it really depends on what that sales mix looks like in the second half. What I did point out is that we're seeing some good signs, and it's just a bit too difficult to understanding to, if you like, to be very specific on what that inventory unwind is, but we're confident on the receivables piece given the profile that we've experienced in the past.
I know that's a bit, more detail than you expect, but that net working capital unwind could be anywhere between AUD 200 million to AUD 400 million, as a guide.
Yeah. Okay. All right. That's great. At least that AUD 600 million build in receivables, that element or that part of it, you're confident in collecting, though. Is that right?
Yeah. Well, that's the thing. I think the important point we wanted to highlight is that, it's on that slide 16, that AUD 550 million balance at 30 September was really unusually low. If you go back in the history, that's why we put those other halves out there, just to show what it's, what it's looked like in the past to indicate that AUD 550 is extraordinarily low.
Yeah.
Therefore, and that is really, that AUD 550 to the AUD 1.2 billion, that's what's driving the net working capital movement in that, in this first half. That was the point of that, Evan, just to illustrate that was unusually low and as you can see, it is, the current balance is very typical of what we experienced, say, last year in the first half. When you look at the balances between the two and the sale, top line sales, they've moved in unison in the sense that we're AUD 100 million down on revenue, and we're AUD 100 million down in receivables balances.
Yeah. Yeah. No, that's really good color. Appreciate it. I'll pass it along. Thanks.
Your next question comes from John Purtell. John, your line is open.
Good morning, Greg and Paul. How are you?
Good, thanks, John.
Good, John.
Just had a couple of questions there. Yeah, we're obviously seeing a fair bit of sort of price volatility in Ag Chem and a bit of a normalization in the supply side from where we were last year. How are you sort of managing the price volatility there? Obviously sort of glyphosate you've talked about before, but we're also seeing obviously some weakness come through, you know, phenoxies and some of the other ag chem grades. Just how does that sort of impact the business?
Well, I think the point you make is right. You know, we've seen ag chem prices come off the highs that we experienced in 2022. You know, in most categories, we're now seeing, you know, a stabilization at the current levels. You, you know, you pointed out that glyphosate's been the most volatile, and that's really fallen from, you know, around U.S. $12, you know, this time last year to around U.S. $4 today. As you know, we took a provision at the 31st of March here in Australia, and as I said earlier, glyphosate sales are really running at more normal volumes for this time of the year, supported by the, you know, the good rainfall that we've seen across most of the grain-growing regions.
Whilst it's true that margins have compressed due to, you know, the declining AI price, we've not needed to take any provisions against inventories because we're moving the inventory through. You know, we've less glyphosate, we've less than 60 days of cover here in Australia. We're now in a position that we'll be restocking in coming weeks at lower prices. In North America, you know, we're seeing increased demand and sales orders in May, and we expect, as I said earlier, that to go through to June, July. We'd expect more as, you know, in crop over the top, as you know. We have procurement arrangements in place that limit our exposure to both the upside and the downside on glyphosate.
The point I guess, that I'd make is that on the balance of the portfolio, you know, in terms of margin, volumes, mix, I mean, that's really included in our forecast.
Thanks, Greg. Just a second one, in terms of, obviously, we saw a strong result there from Europe and obviously some delayed phaseout of some of the products you've sort of called there. There looks to be some evidence of some of those new product registrations and product launches coming through there.
Yeah. Look, I think I'd just call out, I know that there's been some nervousness around the, you know, the portfolio and the regulatory environment in Europe. What we have seen, is, you know, we're pretty much on track with what we've called out. The next biggest molecule that we have talked about before is tebuconazole, and we highlight that in the pack. That phaseout's now been delayed to 2025. The important point is that the substitute product, prothioconazole, will now be registered in 2024, so we'll have 12 months of handover. Basically, by the time we get to '26, we believe that both the revenues and margins that we lose from tebuconazole will be covered by prothioconazole.
As we sit here today, we're really largely through the impact of regulatory outs in Europe. You know, it's becoming more difficult for us to sort of really call out specifically the contribution of the, as you would recall the Centry and Serval products. I think the business case at the time, from memory, was around AUD 100 million-AUD 115 million of EBITDA. I'd say that, you know, we would be delivering on that. It's not just the core products, it's actually the mixture products that we've. That was part of the original business case that we've been able to develop. I think we're moving from, you know, this nervous expectation around Europe to being a lot more positive.
You know, you're starting to see the narrative change. I think probably the invasion, Russia invading Ukraine's probably moved some of the focus back to food security. Whilst, you know, we don't believe that there's gonna be a material step away from the Farm to Fork objectives, the reality is that those objectives were set from the average of 2015, 2016, 2017. The regulators have actually made a lot of progress. I think the point is when you look at our portfolio going forward, at the moment, we're relatively comfortable that we're in a position that our portfolio now is solid and it should start to contribute, to our, you know, to really to our earnings growth. There's some challenges around our manufacturing operations that we called out, and is part of our CapEx program.
Once that is complete, Europe sort of falls into the same category as both North America and Australia, is that your growth really comes from the portfolio that you're bringing through or new products that you can either acquire or develop and deliver with technology partners. I'm feeling a lot more comfortable about our position in Europe today than we probably were three years ago.
Thank you.
Your next question comes from Richard Johnson. Richard, your line is open.
Thanks very much. Greg, can I just go back to North America? I'm just trying to get a sense of whether the change in buying patterns there came as any surprise to you. I'm just really thinking about it in relation to the inventory levels, which were obviously high at the start of the year and have continued to grow. I'm just trying to get a sense of how that all works.
Yeah, yeah. No, good question, and thanks for that. If we go back to sort of full year results, you know, we were talking at that stage about demand being very strong in the first quarter, so specifically in October and November because of low channel inventories and demand then for burn down products. What then happened in December was you had China really started to sort of step back from the position that they had of, you know, net zero in terms of COVID, and we then started to see through December and January, we started to see supply chains and the ability to supply improve significantly. You also, as a consequence, you had this, you know, falling in active ingredient prices. That then stimulated the channel basically to stop buying.
We've seen that come really through the first half of this financial year. Typically, in North America, what happens is it tends to be at this time of the year where you see demand particularly for glyphosate and herbicide products because they get applied in crop. What had happened in 2021 and 2022 is that those sales had been pulled forward so that customers knew that they had the product. What we're actually seeing now is a move back towards more traditional practices. I'll just repeat again, we would see, and we are seeing much stronger demand now as the channel starts to restock. You've got to remember that the crop's only really just being planted.
What happens is, as the crop grows and you get weed pressure, so we're really now starting to talk about May, say, June, July, you would expect much stronger sales in June, July that will go over the top of crops. A more traditional pattern that if you go back to 2019 and 2020, that's in fact the case. I hope that answers the question.
Yeah, it certainly does. That's very helpful. Thanks, Greg. I just took notice of the comment that was made around the value of the pipeline remaining sort of broadly unchanged to what it was when you initially gave your aspirational targets. I mean, I haven't calculated what the burn rate's been, but, I mean, is the implication of that those targets, I mean, or your confidence in those targets has increased or that the even longer-term outlook is better than it would have been when you first put them together?
Again, look, thanks for the question. There's a very detailed slide, if those that are listening in, if you can turn to that slide that shows the pipeline, multiple years, multiple segments, multiple crops. Maybe Rico can talk to what's changed since what we presented to you in November of 2022 and the update that we provided at full view last year. Thanks, Rico.
Yes. Thanks, Greg. If everybody turns to that slide with the pipeline overview, what you'll notice is that we have a few helpful indicators there to help you navigate through this slide. The first one is that around all the advancements we have made for active projects, we've put a little green chevron around the advancements. That will indicate what was the change since we communicated the same slide in February of 2022. The other thing we've also done is as we talked about in our call earlier, we have had some projects that were successfully closed. We have removed those because they are no longer in the pipeline. They are actual commercial products. Instead, we've added a few more.
The new ones, we have put a little asterisks and also a green star out on the right side. That will help you navigate through the slide and see what's new in there. We've also updated some of the launch years based on what we've seen, and you'll notice that some of them we have actually anticipated launch years. That's all very positive news. I just wanna highlight one thing, which is that we've always said that these projects are only a selection of the projects we have. It's not our complete pipeline. In fact, we have more projects than we're showing on this slide. We highlighted that during Investor Day in 2022, and I'm re-emphasizing that now. I hope that helps answer your question.
It does. Thanks very much. I don't know if Brent's still there, but I got a couple of easy ones on seeds.
Yeah, sure.
Is Brent still on the line?
Great. Thanks, Brent. I'm just wondering what the impact of FX was on your results in the first half. Secondly, could you just remind me or talk a little about the seasonality of the business?
Sure, yeah. In our business, FX doesn't play much of a factor because we're in multiple geographies and because we have a very strong business based in Australia. It really doesn't have much impact in terms of when you look at constant currency analysis. That's I think the first part of your question, Richard. The second one, you know, in terms of seasonality, because we grow spring crops in the northern hemisphere and winter crops in the southern hemisphere, we are very weighted to the first half. That continues to be the case for a lot of our core seeds business.
We still have more season to go, you know, really in the first couple months of our second half, and we've continued to have pretty strong trading results in the last six weeks. As I think we called out, the other thing that's starting to change, of course, is that our Omega-3 and bioenergy businesses are becoming more year-round businesses. We're starting to see a little bit more contribution coming, you know, from those into the second half. We're still gonna be fairly heavily weighted to the first half, but as Greg called out, we'll probably expect to have a slightly stronger second half than we had the year before.
Got it. That's very helpful. Thanks very much. That's it from me.
Thanks, Richard.
Your next question comes from Jonathan Snape. Jonathan, your line is open.
Yeah. Hi. Thanks, guys. Can you hear me okay?
Yeah. Loud and clear, Jonathan.
Thanks. Look, maybe one for Paul first around the working capital. I know we love to disagree on these off-balance-sheet facilities, it looked like in the first half, it was quite a drag on your cash flow, i.e., it looked like you used it, utilized it far less than you had a year ago, where it's probably a positive cash flow contributor, whereas it looks now like it was quite a material negative cash flow contributor in the six months. Is there any particular reason why that number dropped so materially?
Yeah. It's pretty simply we're not ordering, so therefore we're not accessing the supplier financing facility. Your payables are going down.
Okay.
We've got plenty of inventory.
Good. Okay. Yep. Can I just ask, I think last time you gave guidance around D&A to be largely in line with 2022 are not immaterially different. Is that still the case? I couldn't find anything in the, in the deck.
No, it's a fair question. Because of the product registrations being delayed, that's basically led to a decrease or a reduction in our amortization of intangibles, plus the delayed CapEx. We expected to have spent more than what we have on the product. We guided to similar to FY22. Now it really depends on what our CapEx spend profile looks like in this second half, Jonathan. That's why we've been deliberately silent. I would say that it would be less than last year, given the, I guess, the delayed position.
Okay. Look, Brent, can I just ask on Omega-3, I mean, your biggest or one of your competitors in that space, in the agri sector anyway, was reporting pretty big growth in pricing, like over 30%, if I looked at their second quarter results. I think you've alluded to some of the movements elsewhere, but it's double-digit pricing growth from what I can see across probably everything that you compete with. I know you're trying to get into that sector. Are you finding that given the surge in the last 12 months, you're getting more inbound inquiries for your product?
Yeah. I'd say the demand side for AquaTerra right now is very strong. You know, we've had good indications for expanding our market in Chile. I mentioned that we've now started to grow in North America and of course, now the comments about, the potential to get a Norway approval. Yeah, we're seeing very strong demand. I think, you know, particularly also as the industry sees the tightening of supply in fish oil and this announcement in the last 48 months or sorry, last 48 hours, you know, we'll probably push that even further. You know, we've seen fish oil prices appreciating, as I'm sure you're monitoring as well.
Yeah, the market is pretty strong from our perspective on the demand side. We expect that to continue, especially as the customers are also seeing with our product, the fish health benefits and the sustainability advantages. Yeah, we're pretty pleased with how the market's developing.
Maybe just one on Carinata, just because, you know, you have said you're starting to sell it through, but you get the carbon credits in the second half, right? You'd be expecting some sort of profitability to come through from that. Is it possible that the seeds business rather than lose money breaks even at an EBIT level with that contribution? I mean, I know you've said that there's an improvement, but is it that material or not really?
Sorry, just trying to make sure I understand the question, Jonathan, in terms of our.
Well, you've got the carbon credit sales coming through.
Mm.
In the second half this year, we see the first lot, so that should be a positive contributor. I'm just trying to understand how material...
Yeah. I'd say that in the...
It is in the second half thinking process.
I'd say that Carinata benefits really are probably more of a second half story for us. We do expect to be for that to be to contribute to our EBITA growth in the second half, if that's helpful, Jonathan.
Yeah. All right. Thank you.
Your next question comes from James Ferrier. James, your line is open.
Thank you. Morning, gents. Thanks very much for your time. Brent, while you've got the floor, perhaps the first question to you. Just in aggregate, when we look across Omega-3 and the bioenergy programs, just wondering what sort of materiality the aggregate contribution to the P&L is. There obviously there's SG&A costs, as Paul was referencing, given those programs in some cases are still sort of developing. In aggregate, what sort of financial contribution they represent within the seeds business? Obviously the legacy business itself had an exceptionally strong result.
Yeah. Yeah. You know, what I'd say is, yes, the seed platform did have a great result, and as I mentioned in my comments. We also saw both revenue and margin growth both in Omega-3 and in our bioenergy segments as well. You know, they still are, you know, a fairly small contributor, you know, at the half, and I think as we signaled before, you know, we're expecting much more significant contributions from those platforms in 2024, 2025 and 2026. Yeah, at the half, they're still, you know, relatively small contributors, but growing. You know, to put that in perspective, you know, probably a little less than AUD 10 million in revenues in each of those platforms.
Yep, understood. Thanks. Second question, Greg, probably for you to start, but I'm sure Paul might like to chip in as well. You know, we think back to FY 2022 and the revenue across the group, and it was largely a pricing story. Your comments at the time I think were there was sort of, you know, reasonably modest volume growth in aggregate across the group. Looking at this first half result now, can you provide some references or observations just around the mix of price versus volume?
Thanks, James. It's more mix and price than volume. Volume's been impact because that's reflected in our inventory balances 'cause we haven't really been able to sell a lot of the high volume herbicide products. Volume down. The mix, product mix has certainly improved, and that's because of that shift away from the herbicide. But also a bit of price because we have had cost pressures in manufacturing on input costs, also some manufacturing underrecoveries given the CapEx programs that we've got in place, Wyee in particular. That's also putting some pressure on margins, but we're able to recover that through price.
Majority would be mix, but there is some price element to cover some of these costing costs. The volume's down because of the that mix factor, I guess, and that's reflected in our inventory balances.
James, maybe if I can just add to that. I think at the full year results, we talked about earnings weighted to the first half. We said in 2022 that it was 75% first half, 25% second half. We said, I think at the full year that we thought forecast this year would be closer to 65%-35%, which is what we saw in 2021. I now think it'll be probably closer to 70%/30%. Really reflecting the better half year result that the increased sales. You're gonna see volumes in the second half probably tempered with some margin pressure. I think that's the way to think about it.
Yeah. That's, that's very helpful and probably leading into my final question there, Greg. That margin pressure you talk about, you sort of, you really only referenced North America in your earlier comments when you raised that concern. I'm just interested, firstly, within North America, is it an agriculture thing or a turf and ornamental thing? Why just North America? Why aren't you, why don't you hold those same concerns in other regions?
Well, North America, particularly with glyphosate and as I tried to call out, you know, we see demand in the second half for over-the-top applications. This is where I'm using commentary around a stronger sales volumes in the second half. As I said, we have tolling agreements in place that limit both the upside and the downside. Well, the other point is that we, you know, we have been buying some products and not a lot in recent weeks, but we have restocked in North America at lower prices. That's some extent why on the balance of the portfolio, and particularly our own phenoxy products that I don't have a concern. In Australia, you know, we've really run stocks down, particularly glyphosate.
Which essentially we took a provision at this time last year because we could see that prices were going to fall, and that's happened, and they've continued to come off.
We're selling through glyphosate in Australia at the moment on limited margins. As I said, we've probably got less than 60 days of cover. On the balance of the portfolio, you know, I don't have the same concerns. We haven't seen the volatility in the balance of our portfolio that we've seen in glyphosate. As I said, glyphosate come from $14 a kilo about this time last year to currently about $4. We haven't experienced anywhere near that sort of volatility in the balance of our portfolio.
Yep, understood, Greg. just probably, just finally, your comment there just around the agriculture market, in North America versus TNO.
Sorry. You're right. There's really three markets to think about in North America. There's Canada, where we have the exclusive distribution of Sumitomo products, so that tends to be a higher margin segment for us. We're seeing pretty good demand through turf and ornamental, so margins are definitely holding up there. The real pressure is in the crop protection broadacre market is probably the best way to explain that. In the U.S., where, you know, as I said, manufacturers have got higher inventories, and that's been well reported from our competitors. Again, you know, I would just reinforce that channel inventories are relatively low.
you know, we're gonna see over the next few months, next few weeks, but certainly in this financial year, we'll see the channel start to restock. That then gives us the opportunity as, you know, we've been saying, reduce, certainly reduce inventories and reduce the working capital to the levels that, you know, we've talked about by the end of this financial year.
Yeah. Yeah. Understood. Really, to wrap that up, there's a big inventory position seasonally on the balance sheet right now. You're happy with how quickly that's moving through in a falling price environment and where you're sitting on elevated inventory, for example, glyphosate in North America, where you're essentially a pass-through, the potential for that to impact your margins is negligible.
Yeah. Well, I wouldn't say I'm happy. I'd say I'm comfortable. What I would say is that, you know, I'd expect the overall impact on it will impact, there's no question. What I'm saying is I don't believe it's going to be material, it's certainly reflected in our forecasts.
Terrific. That's helpful. Thank you.
Connie-
There are no-
It doesn't appear as though there's any more questions?
Yeah, there are no further questions at this time. I turn back the call to Greg. Thanks.
Okay. Thanks. Thanks, Connie. Again, thanks everybody for joining us today. I know we're catching up with some of you over the next couple of days and early next week. I look forward to catching you. Thanks to Brent for joining us from Calgary and for Rico. Look forward, as I say, to giving you an update sometime between now and the full year. Thanks again.
This concludes today's conference. You may now disconnect. Thank you.