Good morning, ladies and gentlemen, and welcome to the Origin Enterprises PLC preliminary results call 2022. Just a reminder that this call is being webcast live on the Internet, and the presentation is available to view on the Origin website. I will now pass over to Sean Coyle, CEO of Origin Enterprises PLC. Please go ahead, sir.
Thank you, and good morning, everyone. Welcome to the full year results for 2022 for Origin Enterprises. As you would have read in this morning's announcement, the numbers are a very strong set of numbers, and I'd just like to thank all of the team across the group, good delivery across all segments. In particular, I'd like to thank our Ukrainian team who continue to operate in a hugely challenging environment for them. After two very difficult years from a weather and pandemic perspective, it's great to be announcing strong growth across all of our individual segments. We saw improved financial returns with very significant lift in operating profit across the group.
We just start with the normal safe harbor disclosures, and as is normal for this time of the year, we're not issuing guidance for the year as a whole. As many of you know who follow Origin, the weather challenges that we variously encounter from year to year can typically dictate a large amount of our profitability, and not giving any guidance at this part of the year. The business delivered very strong operating profit results with an increase in operating profit of 96% to just under EUR 120 million. A strong increase in operating margin as a result of that, and growth in EPS to just above the range of analyst expectations, which we had guided and which are lifted a little further by the share buyback, which was executed during the year.
The business finished with a net cash position, albeit somewhat bolstered by delayed payments to suppliers who are falling within the remit of sanctioned payments. We're announcing an increased dividend of EUR 0.16 this morning, up from EUR 0.11 last year, and a further buyback of up to EUR 20 million, which will be executed in the coming months on top of the buyback which was completed for EUR 40 million over the course of last year. The business delivered strong operating performances as well in terms of, I suppose, the price volatility which the business experienced through the year.
A number of changes to characteristics with gas prices moving frequently up and down throughout the year, availability of raw materials and fertilizer being challenged by both those gas prices and also supply chain challenges because of COVID in certain manufacturing jurisdictions for some of our principal suppliers. Access to product supply and you know, considerable work done by the team has gone into delivering a very strong operating performance with, as I mentioned earlier, very strong growth across all three segments of the group. We continue to see the business evolve from a strategic perspective with significant investment going into changing our own product set. We have a new coated urea plant which has opened in Romania. We've developed a new biological lab facility in our Latin American business in Fortgreen called F1rst Agbiotech .
We're also seeing significant growth in the internal portfolio within the group, within our BAM portfolio, biological products, adjuvants, and micronutrients. The business is also focused on embedding sustainability right across the group with the creation of new KPIs to focus on the area of soil health and nitrogen use efficiency as well as biodiversity within the group. Our capital markets day focus strongly on that area, and is still available to view on the Origin website. In addition to that, then we have a very strong M&A pipeline with a focus on the specific areas of amenity, the environment and ecology sector, where we see ourselves acquiring businesses, and also in the product-based area where we're also looking at other opportunities.
To touch on some of the individual business segments very briefly, and I'll just pick out some highlights here because TJ will cover the financials in-depth later on. All of the individual businesses within the Ireland and U.K. portfolio saw very strong growth, particularly strong within our U.K. fertilizer business, but also strong growth within our feed ingredients business, which bounced back from a very challenging year last year, which had a fire and also a challenging delivery schedule with some vessels coming from South America. Our amenity business continued to grow and grow strongly post-COVID. The traditional agri businesses, our D2C businesses in the U.K. market also saw very strong growth. Very pleased with the delivery from our Ireland, U.K. businesses.
You can see that all of the metrics from operating profit to margin right across the group improved considerably. Our continental European businesses saw very strong growth across our Polish and Romanian businesses in particular, and that's offset then by the loss of our Pilar business, which we sold in the previous year, which is coming out of the comparable numbers, and also a decline into loss-making figures for our Ukrainian business. You know, considerable work has gone into improving margins across our Polish and Romanian business with a focus on specialty revenue and strategic products. They've continued to deliver for us, so we're very happy with the performance of those two businesses.
Obviously, Ukraine has been extremely challenged, both from a volume perspective and also the price environment and availability of products has been a challenge for that business over the last year. We continue to focus on reducing working capital and optimizing margin across our CE geographies in particular. Finally, then in Latin America, again, strong growth in the business, which has been evident, I suppose, since the completion of construction of our controlled release fertilizer facility in the second half of FY 2021, but continued growth in our traditional core product set within that business as well.
The Brazilian business growing strongly, supported by the currency translation as the Brazilian real strengthened again during the year, and also the general geopolitical tensions on global grain and oil seed markets has supported Brazil as a production economy, and we see increased soy production area in that geography over the coming 12 months. I'll hand over to TJ perhaps who'll run through the financials.
Thank you, Sean. Just to focus on some of the highlights from the financial metrics piece. Revenue growth overall at just over 41% in a reported currency basis, driven primarily by fertilizer pricing and with strong growth in volumes delivered in our CP and seed businesses offset overall by what were pricing-led declines in fertilizer volumes. I'll come back on the build of revenue a little bit later. From an operating profit perspective, as Sean said, very strong growth up to just under EUR 120 million from EUR 61 million in FY 2021. That really reflected good growth particularly across the U.K. and Ireland segment, as we've just seen.
You know, good management of the pricing volatility in the fertilizer book, underlying good performance in the amenity business and what were also strong underlying volumes in our core crop protection and seed businesses across the U.K. and Ireland segment. LATAM equally, as Sean just highlighted, delivered strong growth, volume growth evenly spread across the core BAM portfolio and the CRF portfolio. Pleased with progress in the LATAM business and our CE business, despite the challenges of the Ukraine performance underlying solid performance across both the Romanian and Polish businesses.
From a dividend perspective then, you know, pleased today to be announcing a final dividend of EUR 0.1285, which brings the total dividend to EUR 0.16, which in conjunction with the share buyback already completed of EUR 40 million in FY 2022 and a new buyback being proposed today of EUR 20 million, we believe delivers very solid and attractive returns to the shareholders. To put that in context, we are distributing 50% of the FY 2022 profit after tax number with today's announcements. From a return on capital employed perspective then, clearly very pleased with the progress there, up to just over 18% from 9.3% last year.
That compares to our targeted returning capital range of 12%-15%, and really in FY 2022, a function of the strong profit delivery across the portfolio. Looking at revenue in a little bit more detail, from a headline perspective, revenues excluding crop marketing is up just under 43%, with underlying revenues up just under 40%. Of that as you can see, pricing is a significant driver, and of that 45% pricing growth, approximately 80% of that is fertilizer pricing-led. Within the revenue declines of 5.4%, when you back out the impact of Ukraine, that decline is about 2.7%, and when you strip out the volume declines across fertilizer, then overall the portfolio's showing about mid-single digit volume growth across the core product offerings.
As I say, I'm pleased with the performances on an underlying basis across the core crop protection and seed areas. Moving to the financial highlights pages. We've covered some of these earlier. Just draw your attention to a couple of points here. Finance costs or interest costs, as you will note, have increased from EUR 8.6 million to EUR 11.1 million in the current year. While we had a very strong cash performance in the year and are actively managing our working capital position, we have various interest rate hedging programs in place, we are exposed nonetheless to interest rate volatility in certain markets where it's not possible to have synthetic hedges in place.
Obviously with the, you know, recent rate rises that we've seen, we continue to have some exposures where we're not hedged and where we're in markets where we don't have hedging programs such as Brazil, Romania, and Poland. Really the key driver of that interest rate rise in the year was just the exposure to those variable rates. From a JV and associates perspective then, you know, strong improvement in the year, benefiting from, again, very strong trading conditions overall. To bear in mind that that performance is set against a challenging prior year where we suffered the impact of the fire in our Ringaskiddy facility, and we also had some supply chain challenges, late H1, early H2 of FY 2021.
Looking at the operating profit bridge, underlying, you know, profit up active Green-tech , which is the acquisition column and Pilar disposal, largely offsetting, and we see some currency tailwinds come through, primarily as a result of a strengthening sterling against the euro in FY 2022 over FY 2021. Clearly that's a dynamic that has been changing in the last couple of days, as you will know. From a balance sheet perspective then overall shareholders' funds improved by about EUR 40 million, and that approximately equates to the improvement in our net debt position at the end of the year. Again, for those of us who know us will be aware that the year-end July does reflect and represent a seasonal low point in terms of our working capital cycle.
From a free cash flow perspective, again, obviously very pleased with the conversion of profitability to cash. I mean, the key driver ultimately of that free cash flow of EUR 108 million is the increase in EBITDA performance from EUR 69 million to EUR 130 million. You'll also note there that we did have a working capital inflow. There are a few components to that working capital inflow, one of which, as Sean mentioned, is the impact of sanctioned payments whereby our net working capital has benefited from the fact that there are certain trade payables that have been suspended in accordance with the international sanctions imposed on the Russian authorities. We're benefiting in that EUR 60 million to the tune of EUR 45 million.
We've also had a strong cash mix in our sales in FY 2022, so we continue to improve the mix of cash over credit sales in the year. That's also contributing to that working capital inflow. Similarly, we have been actively reducing the working capital levels in Ukraine post the start of the conflict. That again has driven a working capital inflow from a working capital perspective. We have seen underlying headwinds from a pricing perspective, as you might expect. Just to give you some sense of some of the tailwinds that are helping offset or have helped offset those headwinds in FY 2022. Our taxes paid number also you'll see is up year-over-year.
That's partly a function of increased profitability, frankly, and it's also a function of the timing of certain of our prelim tax payments in FY 2022 over FY 2021. From a credit metrics perspective then, again, as you'd anticipate on net debt to EBITDA, given that we're in a cash positive position at the end of the fiscal year, is zero. EBITDA net interest again, very strong metrics through to the end of the fiscal year, FY 2022. With that, I'll hand it back to Sean.
Thanks, TJ. From a strategic perspective, one of the things that we've been very focused on, if you have watched our Capital Markets Day videos, you'll get a good flavor for us, is changing our product set and changing the profile of the business, to, I suppose, live with the new reality of increased regulation around fertilizer, increased regulation around pesticide usage, and the changing regulatory environment, from an EU Farm to Fork perspective and a Agriculture Act 2020 perspective. The business has been focused for a number of years now on developing manifestos which will provide advice for the farmer, centering on these principles. A Green Horizons and Fertile Future manifesto were published over the course of the last couple of years.
We've been very focused on productization within our portfolios, and those of you who got an opportunity to look at the Capital Markets Day videos would've seen Peter Scott and Clare Bend talk about the technical approach to product selection within the portfolios. Within our M&A focus, again, we are continuing to look at opportunities within environment and ecology as part of our approach to M&A. In addition to that, then broadening our exposure to the landscaping and amenity sector that we're already in and focused on product-based solutions, improving the overall profitability within the group and the overall trajectory of growth within the group. We published our first sustainability report this time last year, and we will be publishing another one in tandem with our annual report again this year.
That sets out our commitment to the UN Sustainable Development Goals. Our Nurturing Growth framework is within that sustainability report, and obviously, we're focused on setting real targets from a science-based perspective and the taxonomy of the overall business as well. The business is hugely focused from top to bottom, from a board perspective down to the individual businesses on where we can impact our own business and how we can change the focus of the business to cope with the reality of the new world from an environmental perspective, and we're continuing to focus on that space. We set out our strategic growth drivers within that then responding to what we see as the three key macro growth drivers that then impact our business.
Sustainable agronomy and the type of advice that will need to be given to farmers over the coming years is the first focus. The food supply chain and the responsiveness of the globe to food production challenges and the emerging nature economy as being another key aspect of the business. We've set out there our strategic priorities in relation to each of those three key macro drivers, continuing to focus our business, which it already has been in fairness, but continuing to focus the business on good technical advice and good technical solutions within our U.K., Irish, and continental European businesses. Transitioning our product set away to biosolutions where we can, and specialty nutrition products focused on yield optimization and accelerating the group's investments in products and services that will enhance the environmental and ecological benefits and sustainable use of land.
We see our approach in terms of the sustainable use of land and sustainable agronomy, both in the agricultural front and in the amenity front, being focused on balancing sustainability of food production and outputs, focusing very much on soil resilience and plant nutrition. Again, I advise you to take a look at those technical presentations from Clare and Peter within the Capital Markets Day. Innovative and integrated plant nutrition, so combining traditional chemistry with new product sets around plant protection and enhancing biodiversity within our systems and protecting natural capital within our systems. Again, our focus as an organization will continue to be in that space. Across each of our three geographic segments, we see the aspect of transitioning our product portfolio and transitioning the services that we provide as being addressed in different ways.
Obviously we're a reasonably diverse group of businesses, but the focus is slightly different within each of the individual business units. The transition of our product set, the transition of our advice portfolio from Ireland and U.K., where we intend to widen the BAM portfolio within the overall group, expanding our Polish business with a new product plant going into production and construction over the course of FY 2023, and continued investment in controlled-release fertilizer plant and biologicals businesses in Latin America as being key to transitioning the group to a new way of thinking from a product perspective.
Within the nature economy and the environmental and ecological markets, which we have some exposure to via our Green-tech business and via our agricultural businesses now, which are falling under the environmental land management schemes, as part of the U.K. agricultural policy and the various other regulatory changes that are taking place in a European context, we need to build out businesses and build out service offerings in these areas, which will continue to enhance the group's offerings. We continue to view this area as an opportunity for growth, and where we will continue to focus some of our M&A activity over the coming years.
In terms of actions that management want to take over the next 12-18 months, we set out at our Capital Markets Day some of the areas where management will continue to focus, and working capital discipline is hugely important at the moment, particularly in a very inflationary price environment. Cost of fertilizer, cost of grains, cost of raw materials in general continues to tick upwards and is still at very elevated levels compared to 18-24 months ago. Investment in working capital is a huge resource challenge for the business, and we continue to maintain very strong discipline in relation to cash versus credit sales, credit terms generally across the group and our overall approach to working capital.
We've talked a good bit about our product innovation and transition in terms of mix of products and rolling out those specialty fertilizers and nutritional products as well as the BAM portfolio within the group will continue to improve the mix of products sold within the business and ideally the margin opportunity within the business. We're continuing to invest in our people and, you know, the technical capability and strength of the organization is well proven, particularly in the Ireland, U.K. context. But we have some very good people right across the group from a technical selling perspective, and we've been hugely investing in training and improving the skill sets of both our continental European teams and also our Brazilian teams. Continuing to invest in technical specialists to improve sales in both those segments.
The business is focused on people and driving forward the business and recruiting the best people within those businesses. Quite apart from our use of digital technology, which continues to improve in terms of use of our products across the group. We're also investing in technology in a number of areas, so a significant investment in Dynamics 365, which is our new ERP across our Ireland, U.K. geographies. Investing in technology in a number of our other businesses to improve either sales or technical capability of the group, and the business continues to see opportunity to improve the sales, but improve data and data gathering as part of the technology process there.
In terms of growth investment, we mentioned broadening our Amenity service offering, and we're happy that there is a strong pipeline of potential acquisitions within the Amenity segment, initially focused on U.K. and Ireland. We do see the opportunity to broaden the Amenity business out to Western Europe over the course of the next few years. Growth in our Biologicals business, and apart from investing in our plant in the LATAM business, we also see the opportunity to research and do near market trials on a very significant number of products within our U.K. businesses. Also looking at partnering with a number of Biologicals providers for distribution within the U.K. And continental Europe agri businesses.
We are looking at the opportunity to acquire businesses in the ecology services space, and we're hopeful that over the next six months we'll have an acquisition in that space. From a landscaping perspective, the Green-tech business has shown us the way in terms of opportunity within that segment, and we think there are a number of potential bolt-ons within the landscaping area that will continue to drive further growth within the landscaping part of the business. That should supplement our amenity offering over the course of the next 12-18 months. To summarize, FY 2022 was a fairly challenging year from an inflationary perspective in terms of energy challenges, various different disruptions to fertilizer and supply of crop protection products over the course of the year.
The business has been well managed operationally with the supply chain sourcing challenge addressed, and I suppose the volatility of raw material prices being well managed through the year. We see, I suppose, the global macroeconomic environment being a challenging environment for the foreseeable future. It's likely to persist into the bulk of FY 2023. I suppose even looking at some of the challenges that Sterling has faced over the course of the last few days is characteristic of that, and I'm sure there will be many other challenges to be faced by the business in the coming 12 months. We are comfortable, given the good balance sheet position that we have, to increase both the dividend and launch the share buyback in the coming months.
We see ourselves continuing to invest in both opportunities for organic growth and also some specialist capability in good adjacencies, which we feel that we can grow into and will also benefit the rest of the group. The business is well set, we think, to deliver on the financial, strategic, and ESG objectives that we set out at the recent capital markets day with very strong financial returns overall. A good cash conversion ratio and strong cash generation across the group and a well-positioned balance sheet. Leaving us in a good position to withstand any of the various challenges that no doubt the market will throw at us in the coming months. That's where we stand as of today.
We're happy to take questions and open up the call to questions now, if that's okay.
Thank you, sir. To ask a question, you will need to slowly press star one and then one on your telephone and wait for your name to be announced. Once again, it's star one and then one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. This will take a few moments. We are going to proceed with the first question. Please stand by. The first question comes from the line of Jason Molins from Goodbody. Please ask your question. Your line is open.
Hi, good morning, Sean and TJ, and congratulations on a great set of results. Couple of questions from me. If we just start off on farm sentiment across some of your main markets, particularly in the context of where output prices are, but then we've also got the backdrop of cost inflation that the farmers are facing and clearly on the interest rate costs. Just some color on what you're seeing there. Just specifically on the fertilizer market, maybe a few comments whether that's around supply chain and product availability, given some changes that we've seen in the last few months or more recently in the U.K., and how you think farmers are looking to deploy given, I guess, where you saw volumes over the last 12 months. Thanks.
Thanks, Jason . I would say in general, farm sentiment is pretty good. Clearly, grain and oil seed prices have been very strong over the last nine months. That's, I suppose, coupled with probably reasonably good input prices over the course of the year. Some farmers may have bought fertilizer ahead of some of the larger price increases that we would've seen over the course of the fiscal year for Origin meant that farmers in general have done well in the arable sector and in the oil seed sector, particularly in the Brazilian marketplace. Likewise, you know, dairy is the predominant crop and grass is the predominant crop here in the Irish marketplace and dairy is the predominant output.
You know, milk prices have moved up appreciably over the course of the year as input prices were reflected in those prices. Generally speaking, I would say farm sentiment has been positive and farmers have done reasonably well over the course of the last 12 months. It does become increasingly challenging as the full year cycle of fertilizer prices in particular has impact on the coming 12 months. I would think that you know, part of the challenge that we've seen is reduction in fertilizer usage. There is some resistance to the types of raw material price increases that we've seen. We've had a fall back in fertilizer sales of just north of 20% over the course of the last 12 months.
Demand can be somewhat moderated by high prices in fertilizer. But the reality is, with gas prices being where they are, there's a huge amount of production offline. You know, CF, apart from closing one of their U.K. plants completely, has pretty much closed the other plants to production now because of the gas price cost. Production of ammonium nitrate in that context or nitrogen in that context is very limited domestically in the U.K. A number of producers across Europe, Yara and Borealis and various other producers who you'll no doubt have heard of, have also either curtailed production or stopped production in individual plants because of the high gas prices.
That has led us to go and source material further afield than we would've necessarily had to in the past. That includes larger vessels coming from countries much further afield. You know, we're taking in product from Canada and the U.S. on the fertilizer front, which previously we generally would not have done, given the transition time and the duration of travel to the Irish and U.K. marketplace. We're taking in product from much further afield, North Africa, Turkey, Greece were generally markets that we would have dealt with, but they wouldn't have represented as big a proportion of our fertilizer book as they do now.
We are having to source product from further away and typically on larger vessels than product which would have come from near market Europe in the past. That's a feature of the fertilizer supply chain at the moment. There has been a transition from manufactured fertilizer into more urea-based products which are coming from those geographies. Ammonium nitrate or CAN is now being substituted for urea and coated urea in many cases. A transition to a different source of nitrogen in those circumstances. Do you wanna touch on cost inflation generally and maybe CP cost inflation and other cost challenges across the group?
Yeah. I mean clearly, you know, a key feature of FY 2022 as we outlined has the inflationary impacts on raw materials coming through on the fertilizer book. From a CP perspective, I suppose.
Generally across the regions, the impact and in terms of pricing was somewhat more limited, albeit we have seen more pricing inflation pressure come through at the back end of the year and into the early part of the FY 2023 season. We'll obviously keep that monitored. I mean, it does come back again to the general on-farm sentiment, liquidity on-farm, and you know, willingness and ability of the farmer to invest to optimize yield in the context of what are very strong commodity output prices. While clearly we've seen some level of demand destruction as a result of fertilizer pricing, both in the CP and seed spaces, we haven't seen any significant negative impacts as yet as a result of greater inflation come through.
That's something, as I say, we continue to monitor through the season.
Thank you.
Next question.
We are going to proceed with the next question. Please stand by. The next questions come from the line of Kevin Fogarty from Numis. Please ask your question. Your line is open.
Thanks very much. Morning, guys. Just a couple of questions from me in terms of you focused a lot in terms of, I guess, transitioning the product portfolio. What does this mean for you think sort of future investment or capital requirements of the group, going forward? And are there any restrictions or challenges around, I guess, kind of labor availability and skills, to develop that portfolio further? And then I guess, you know, as a follow-up to that, M&A would probably sort of form part of that, as you mentioned in the presentation. I guess I just wondered if you could share what kind of differentiation you think future acquisitions might bring to the group, you know, as opposed to perhaps what's been done in the past.
Thanks, Kevin. From a product portfolio perspective, I don't envisage any major labor challenges arising out of that. I mean, there's a couple of aspects to any transition. One would be products that we don't own the IP on. You know, we continue to be a distributor for a significant number of major manufacturers and also smaller manufacturers within the crop protection space. It's about selecting and driving changes within the mix of products that we distribute to attempt, I suppose, to improve margin within the business. The principal challenge here is driving a product transition that aligns with a better sustainable outcome for farmers and for customers, but also maintains and improves margin from that perspective.
Generally speaking, new products, including biologicals, including bioproducts, tend to carry a higher margin opportunity than a more standard, or a more commoditized product set. Improving the product portfolio and making that transition on the crop protection side, and indeed on the fertilizer side, represents margin opportunity. It doesn't change the demand for labor in any way. It does mean that our sales teams in continental Europe, in Brazil and our agronomists in those markets need to be more technically prepared and capable of selling the product sets.
In terms of M&A and ownership of IP and ownership of product sets, we think that we can acquire new products within the portfolio similar to what we've done in our Fortgreen business and similar to the types of acquisitions that we have looked at in the past where IP can come at not the expense of our traditional distribution relationships. You know, we for example distribute a range of products in the U.K. called Clean Crop, which is wholly manufactured on our behalf by a third party, but which is our IP, and making the transition from a product perspective to own IP products in those circumstances.
Like equally on the fertilizer side, the complex blending capability that we have and the technical coating and delayed release capability that we add to our product sets means that essentially we can drive slightly higher margins on the same ton of products by improving the technical complexity of the product. That's all important.
You know, we see ourselves enhancing the business from a margin perspective and from a growth perspective through acquisitions which add technical capability. You know, we have plenty of products within the portfolio, Kevin, that attract single-digit growth margins or growth margins which are not necessarily the most attractive. While they're necessary to have within the portfolio, and farmers demand them, it's about migrating part of the mix into a more technical product over time and improving margin.
Okay.
We are now going to proceed with the next question. Please stand by.
Great. Thank you.
The next question's come from the line of William Larwood from Liberum. Please ask your question. Your line is open.
Yeah. Morning, guys. Thanks for the presentation and congratulations on the strong set of results. Two fairly quick ones from me. Just in terms of just spoke about it there in terms of product mix, and particularly looking at LATAM, obviously the CRF facilities come online. Is there any more margin dilution to come as a result as that mix shifts any further? Then also just you mentioned sort of the plant in Poland being constructed in FY 2023. Just wondering if you could share some details on cost and exact timings on that.
Hi, Will. Yeah, just on the LATAM product mix, I mean, as you would've seen this year, we did suffer some margin contraction as a result of the expansion in the CRF portfolio, which structurally has a lower gross margin than the traditional BAM and PNN portfolio of products. You know, as Sean said, you know, our ambition is to grow our capabilities in both sides of that business. We will look to do some again modest capital investments to expand our CRF production capacity in the region. We are also in the process of investing in further biologicals capability.
You know, the extent to which both of those go out further in terms of volume, if CRF goes as a slightly faster pace than biologicals, you might see some further modest compression in margin, but ultimately our goal is to keep it in that low- to mid-teen margin level at an OP margin percentage level. That's really a function of the fact that, you know, the cost to serve in Brazil is high, interest rates are high, you know, cost of debt is not insignificant and hasn't been over the last 12 months.
Combine that with the relatively high local tax charge, the economics of the returns are such that you need to be generating margins in that low to mid-teen level to make the economics of the investment work. That's very much our focus. We're ambitious in terms of growth, but also, you know, need to ensure that the margins maintain in those kind of low to mid-teen ranges, as I said. That's our plan for the business out over the next 12 - 18 months or so.
From a Polish perspective in terms of the investment in the new foliar plant, we are kinda still at the design stages in terms of the plant there, but in terms of costs of the investment, we think about that in the context of kind of, you know, I'd say low- to mid-single-digit millions, kind of the EUR 4 million-EUR 5 million range as an investment in the facility there. Modest, I would say, in the context of the overall capital capacity of the group. Again, ambitious for the returns that that business and the product set in foliar can generate for us.
Great. Thanks.
Thanks, Will.
We are going to take the next question. Please stand by. The next question's come from the line of Dan Ahrens from Kepler Cheuvreux. Please ask your question. Your line is open. Hello, Dan, your line is open. You may ask your question.
Hi-
I think his line got disconnected. We are going to take the next question. The next question's come from the line of Anne Margaret Crow from Edison Group. Please ask your question. Your line is open.
Good morning. Thank you for taking my question, and congratulations on a great set of results. I was wondering if we could go back to slide 9, and if you could take me through that movement in volume again, and the impact of the situation in Ukraine, and just tease that out again. I wasn't able to write quickly enough to take note. Thank you.
Yeah, I mean, you know, as you can appreciate, it's been very much a year of two halves in the Ukraine context, with the start of our second half obviously coinciding with the start of the war in the region. Really what we've seen is a kind of precipitous decline in volumes in the second half of our fiscal year from early March. Overall volumes in Ukraine back about a third on a full year basis, but really that's not reflective of the impacts that we've seen, you know, going into our Q4.
May, June, July period, where we would've seen overall volumes decline at north of 70%, in Q4. You know, a precipitous decline, I would say. But it's been, you know, as you can imagine, very much in the first instance about the safety and wellbeing of our staff, which has been the-
Mm-hmm
...the primary focus. We have in parallel with that been managing the balances in terms of exposure around working capital. That's a process that is ongoing. The business at the moment, I suppose, is running very you know on you know relatively modest volumes compared to previous years and given the tightness of liquidity in the market, it is very much a cash market at the moment. Volumes, as you can appreciate, significantly back on where they would've been historically.
Okay. If you were to strip out what was happening in Ukraine and look at volumes overall for 2022.
Yeah. Well,
What would that have looked like?
As I touched on, I think in the presentation earlier, what we've seen is overall volume decline of just under 5.5%. If you strip back the impact of Ukraine, that volume decline just reduces to just under 3%. That gives you some sense of the impact of the Ukraine volumes in the overall group.
Right. That's very helpful. Thank you.
We are going to proceed with the next question.
[crosstalk]
The next question has come from the line of Dan Ahrens from Kepler Cheuvreux. Please ask your question. Your line is opened.
Hi. Good morning. Sorry, guys, can you hear me now? Hello?
We can, yes.
Yeah. Oh, wonderful.
Yes, we can hear you.
Hi. Wonderful. I had a single question on the news that broke earlier this week about the new government in the U.K. looking to review the post-Brexit agricultural subsidy plans. One option being discussed is moving away from, let's say, a nature economy more towards or revert rather to EU-style payments based on simply acreage. I was wondering to get your view on how important is it for you to not see a revert of these plans, and how would it impact maybe also the sustainability strategy and the expansion of the product portfolio if we would see a reversal to single payments based on acreage? Thanks.
Thanks, Dan. Yeah. I'm not sure that the strategy that's been announced by the U.K. government is necessarily one that will pertain for a 10-20 year period. Obviously when we're looking at the opportunity to make strategic investments, we'll be looking in the long term rather than at any short term changes in agricultural policy. You know, a change which focuses on payment per hectare and food security and food production isn't necessarily a bad thing for our agricultural customers. Longer term, I have no doubt that environmental impact of farming and the environmental challenges posed by food production will also be a feature of government policy. Albeit it may not be a focus in the term of the current government, which is, you know, for another two years.
We, I think, are not unduly hurt by any transition back to just a payment per hectare and focus on food production in a U.K. context. I think, you know, that's not necessarily a bad thing for our customer base, but at the same time, we've got to have one eye on the future and one eye on the environmental challenges that the globe faces. I mean, all governments have made commitments at COP26 and various commitments under carbon, I suppose, reduction plans, which will need to be delivered on and will need to be recognized at some point in the future.
While the immediate challenges of food scarcity and food security may change policy for a short period of time, I've no doubt that the environmental aspects of food production will come back on the agenda in short order.
Okay, thanks.
Once again, to ask a question, you will need to slowly press star one and then one on your telephone and wait for your name to be announced. It's star one and then one on your telephone. We are going to proceed with the next question. Please stand by. The next question's come from the line of Roland French from Davy. Please ask your question. Your line is open.
Thank you. Morning, everybody. Hope you can hear me. I've got three questions if I could. First pertains to fertilizer. You called out that you're sourcing products, I guess from regions further than you typically stretch to, so namely Canada and the U.S., and that brings longer lead times. Just wondering, are those orders effectively back to back with your customers or are you taking that price risk over the timeframe? That's the first question. Second question is just on farm activity. Have you a sense around key products or regions how much stock might be carried over from the prior season? Whether that's a risk to application through FY 2023. Finally, just on European margins, you talked about lifting margins in context of product mix.
Just wondering, can you give us a little bit more detail there, i.e., how much more exclusives or owned products you're selling, and how that's being achieved? I'll leave it there. Thanks.
Okay, Roland, I'll maybe deal with the first question in terms of the longer leads, the longer lead times. I think this, yeah, there's certainly a couple of dynamics at play with sourcing product from further markets, as Sean touched on. Typically they're larger vessels as one factor. The other piece we're seeing is that, given pricing inflation, credit limits do come into play and, you know, product being shipped against cash is another feature which obviously puts an additional strain on working capital. I suppose, more broadly in terms of back-to-back nature of the business, I would say, you know, that probably needs to be kind of looked at in the context of both the Ireland and U.K. Markets.
Again, the U.K. market typically will work on relatively shorter lead times. If you like, kind of inherently it is somewhat more of a back-to-back type market in that the lead times are shorter. Offtakes are on a more routine recurring type basis, as opposed to the Ireland market, which typically holds product and inventory for longer, up to the kind of peak offtake period, which starts around the start of the calendar year each year. I would say one of the things we've noticed this season is that orders in an Ireland context are slightly stronger. To that extent, that is partly a function of farmers trying to procure product and, you know, with concerns around scarcity of supply.
We are actively, more actively managing that offtake pattern as well, such that we are monitoring the order book relative to our purchasing positions. I would say yes, there is certainly more of an intent to be as back-to-back as possible. It isn't obviously 100%, it's not a zero-sum game, but it is certainly more in the thinking of our commercial teams and commercial organization, given the relative risk around a sudden correction or a sharp correction in markets. I suppose the other dynamic we've seen is that in an Irish context, the trade generally has been quiet in terms of volumes, again, for that reason of you know, concern around being caught on the wrong side of a sudden downward correction in the market.
I would say prudent discipline buying and embedded in that, yes, is more of a sense of being as back-to-back as possible. But as I say, it's not 100% sum, but it is, we are certainly working and the commercial teams are working to be as closely matched as possible. From a farm activity perspective, Sean, do you want to
Yeah, we think that there's not a huge amount of stock on farm. You know, compared to certainly fiscal 2020 coming into 2021 when, you know, there was no opportunity to apply product because of the weather. You know, you had a carryover of stock on farm. In this last 12 months, the reality is you had fertilizer prices increasing as the year went on, crop protection and seed pricing, grain being the, I suppose, key driver of seed price increases, those moving up over the course of the year. Any stock on farm that would've existed is likely to have been exhausted. You're not going to see a significant carryover of on-farm product as a result of that.
No, I don't envisage that there's a huge amount of carryover product on farm. Then margin mix, I think you were gonna take that too, TJ?
Sure. Yeah. I suppose there's a few pieces in that, Roland. I mean, you know, we've spoke before about an ambition to get the continental European business up to margin similar to the U.K. and Ireland segment. I think that's a journey. But it is, as you rightly pointed out, partly enabled by driving an improved mix in terms of higher margin products in the portfolio. This is one of the factors we've seen in FY 2022, is that we have, you know, when you strip out from the continental European business the impact of Ukraine, we have seen some margin accretion, and that was delivered in the Poland and Romania context despite selling more product for cash margin, which is typically a lower margin.
That's really a function of better liquidity on farm. Despite that, we have managed to get modest margin accretion in the year, but that's also reflective of a better mix in the portfolio in terms of higher margin products. We'll continue to push that and continue to push, you know, more higher margin, higher end products, whether that's in the foliar range, you know, in favor of, you know, over more commoditized type products. Again, a goal of getting into that kind of 5% range similar to the U.K. is the long term ambition, but that there's a lot of enablers behind that that are required, which is back to some of the comments that Sean made earlier around investing in people and capability.
You know, within the year, what we've seen is an overall approximately 30% growth in our BAM portfolio across the businesses coming out of the likes of the foliar range. We'll continue to drive and push for that type of growth year-over-year, and that in turn will improve the margin mix within the CE segment.
That compares to mid-single-digit percentage growth rates in our core CP portfolio. It's growing faster than the core portfolio.
That's very clear. Thanks very much. Well done.
Thanks, Roland.
Thanks, Roland.
We have no further questions at this time. I hand back the conference to you for any closing remarks.
Okay. Well, thanks very much everybody. We're obviously out on the road show for the next few days, so hopefully we get an opportunity to meet some of you face-to-face. It's great to be going out and meeting people face-to-face again rather than doing these calls by video link and Teams. We will be out on the road in the next few days. As I mentioned, you know, this is a strong set of results and delivered by the team right across the group with all segments contributing very strongly to the growth in the business. You know, it has been a challenging year, but a tremendous outcome.
We look forward to growing and developing the group in the direction that we're seeking to in the next 12-18 months, delivering on some of those objectives that we've set out. With that, we'll close the call and thank you very much.
Ladies and gentlemen, that concludes our conference call for today. Thank you for participating. You may now disconnect your lines. Thank you.