Origin Regulatory News (OGN)

Origin Enterprises plc

PRELIMINARY RESULTS STATEMENT

Strong operational delivery, robust cash generation; adjusted EPS of 53.16 cent, at the top end of guidance

Dublin, London, 26 September 2023: Origin Enterprises plc ('Origin' or 'the Group'), the international Agronomy-Services group, providing specialist advice, inputs and digital solutions to promote sustainable land use, announces its results for the financial year ended 31 July 2023 ('FY23').

Results highlights for FY23 

· Strong Group performance delivering operating profit1 of €90.8 million

· Increase in Group revenue of 4.9% to €2.5 billion

· Adjusted diluted earnings per share3 of 53.16 cent

· Strong cash generation and conversion with free cash flow of €104.4 million (free cash flow conversion of 178.2%) 

· Year end net cash4 position of €53.2 million (FY22: €43.4 million)

· Completion of four complementary acquisitions in the Group's strategically important Amenity, Environmental and Ecology business

· Strong ESG progress with improved external ESG ratings

· Proposed final dividend of 13.65 cent per share with total FY23 dividend of 16.8 cent

· Completion of €20.0 million share buyback

Commenting on FY23 performance, Origin's Chief Executive Officer, Sean Coyle said:

"Origin delivered a strong overall performance in declining commodity markets. The Group delivered an operating profit of €90.8 million resulting in adjusted diluted earnings per share of 53.16 cent, at the top end of our guidance.

Effective operational execution helped deliver a robust cash performance with a net cash position of €53.2 million at year end. This result was driven by a strong free cash flow of €104.4 million which included a working capital inflow of €43.9 million, as fertiliser raw materials and feed prices decreased globally, combined with favourable timing impacts of purchases and sales.

We continue to pursue a disciplined approach to capital allocation to drive shareholder returns. We made strong progress against a number of our strategic objectives with four acquisitions, totalling €30.1 million, in our Amenity, Environmental and Ecology business. These acquisitions complement our organic growth strategy and broaden our expertise and capabilities in the growing market for ecological and environmental products and services. From our strong cash flow, we also returned €38.0 million to shareholders this year through a combination of share buybacks and dividends.

We have, however, taken the difficult decision to close our Ukraine business at the end of September. This decision was taken after much deliberation, given the reduced activity levels and the market dynamics over recent years which have resulted in the business being loss making, with little evidence that the trading environment will improve.

Thanks to the continued dedication of all our staff, we continue to drive sustainable growth and are on track to deliver our strategic ambitions as set out in our 2022 Capital Markets Day. We delivered a return on capital employed in FY23 within our targeted range at 12.6% and we will continue to invest for growth across our existing operations and strengthen our earnings potential through margin accretive acquisitions."

Consistent with previous years, the Group will issue a Q1 Trading Update for FY24 on the date of the AGM, 16 November 2023.

Conference Call and Webcast details:

The management team will host a live conference call and webcast, for analysts and institutional investors today, 26 September 2023, at 08:30 (Irish/UK time). Registration details for the Conference Call and Webcast can be accessed at: www.originenterprises.com

Alternatively, please contact FTI Consulting by email at originenterprises@fticonsulting.com

Participants are requested to dial in 5 to 10 minutes prior to the scheduled start time.

Financial Review - Summary

Group revenue

Group revenue increased by 4.9% to €2,456.2 million on a reported basis and 6.5% on a constant currency basis. Excluding crop marketing, revenue in the Agronomy and Inputs businesses delivered constant currency growth of 5.2%, with price growth of 12.5%, reflecting global commodity prices, and an increase of 1.1% from acquisitions set against reduced volumes of 8.4%, driven primarily by a combination of reduced Ukraine activity and lower fertiliser volumes.

Operating profit1

Operating profit1 amounted to €90.8 million compared to the unique contribution in FY22 of €119.7 million, which was impacted by strong commodity prices and highly volatile trading conditions. Excluding FY22's result, the operating profit delivered in FY23 of €90.8m exceeds the previous best of the Group with increases recorded in Continental Europe and Latin America set against the expected reduced contribution from Ireland and the UK. 

Group operating margin reduced from 5.1% to 3.7% in FY23, principally driven by the Ireland and UK segment, which saw its operating margin reduce from 5.9% in FY22 to 3.5% in FY23. 

Associates and joint venture2

Origin's share of the profit after taxation from associates and joint venture amounted to €4.0 million in the period (FY22: €6.8 million). The FY23 performance reflects a weaker feed commodity market in the second half of the year compared to the stronger operating and trading conditions experienced in FY22. 

Finance costs and net bank debt4

Net cash4 at 31 July 2023 was €53.2 million (net debt4 of €1.7 million including IFRS 16 lease debt) compared to net cash4 of €43.4 million (net debt4 €5.1 million including IFRS 16 lease debt) at the end of the prior year, an increase of €9.8 million. The movement is primarily driven by the strong FY23 operating performance and a net working capital inflow during the year, as described below.

Net finance costs amounted to €13.0 million, which represents an increase of €1.9 million on the prior year. Excluding the impact of IFRS 16, there was an increase in net finance costs of €1.8 million reflecting increased interest rates, year-on-year, across the Group.

At 31 July 2023, the Group had unsecured committed banking facilities of €400.0 million (2022: €400.0 million), with pricing linked to ESG performance, of which €33.8 million will expire in 2024 and €366.2 million in 2026. 

At year end the Group's key banking covenants were as follows:

Working capital

For the year ended 31 July 2023, there was a working capital inflow of €43.9 million reflecting the continued focus on working capital optimisation across the Group. While the year-end represents the low point in the working capital cycle for the Group reflecting the seasonality of the business, working capital performance was positively impacted by lower fertiliser raw material and feed pricing, the favourable timing impact of purchases and sales offtakes during H2 and the net benefit of trade payables which have been suspended in accordance with international sanctions imposed in response to the Russian invasion of Ukraine in 2022. We continue to monitor the situation regarding sanctions and work very closely with the relevant National Competent Authorities and will continue to act in accordance with their guidance.

Adjusted diluted earnings per share ('EPS')3

Adjusted diluted EPS3 amounted to 53.16 cent per share (FY22: 71.53 cent), a decrease of 25.7% on a reported basis and 25.9% on a constant currency basis.

Free cash flow

The Group generated free cash flow in the year of €104.4 million (2022: €108.5 million). This strong cash flow performance delivered a net cash position of €53.2 million at year end. This was due to a continued focus on working capital optimisation, falling feed and fertiliser raw material prices and disciplined cash management across the Group.

Free cash flow means the total of earnings before interest, tax, depreciation (excluding depreciation of IFRS 16 Right of Use leased assets), amortisation of non-ERP related intangible assets and exceptional items of wholly owned businesses ('EBITDA') adjusted to take account of interest, tax, routine capital expenditure, working capital cash flows and dividends received.

Free cash flow conversion ratio means free cash flow as a percentage of profit after tax of wholly owned businesses, excluding exceptional items and amortisation of non-ERP related intangible assets.

Return on capital employed

The Group's strong operating performance delivered a ROCE of 12.6%, within our targeted range. Return on capital employed is a key performance indicator for the Group and represents Group earnings before interest, tax and amortisation of non-ERP related intangible assets from continuing operations ('EBITA') taken as a percentage of the Group Net Assets. For the purposes of this calculation:

Exceptional items

Exceptional items net of tax amounted to a charge of €0.6 million in the year (FY22: credit of €2.8 million), and are summarised in the table below:

Dividends

The Directors are proposing a final dividend of 13.65 cent per ordinary share for approval at the AGM in November 2023, bringing the total dividend payment for FY23 to 16.80 cent, an increase of 5.0%. Subject to shareholder approval at the AGM, this final dividend will be paid on 9 February 2024 to shareholders on the register on 19 January 2024.

Board changes

Rose Hynes resigned as a Director of the Company with effect from the conclusion of the 2022 AGM in November 2022 and was succeeded by Gary Britton as Chairman as planned. Also during the year Mr. Alan Ralph and Ms. Pam Powell were appointed as independent Non-Executive Directors.

Share buyback programme

On 28 September 2022 the Group commenced a share buyback programme to repurchase up to €20 million of ordinary shares. The programme was completed on 29 March 2023, with the average price paid per share of €4.0583.

Sustainability

Origin made significant progress on its Environmental, Social and Governance ("ESG") agenda in FY23. During the year the Group continued the implementation of its environmental sustainability strategy, 'Nurturing Growth' and its associated targets. Origin is focused on actions in the areas that are most important to stakeholders and has prioritised work in the evolution of a more sustainable product portfolio.

The Group also implemented its carbon transition plan and has committed to a 54.9% reduction in Scope 1 and 2 emissions, and a 32.5% reduction in Scope 3 emissions by 2032 from a 2019 base. These targets have been submitted for validation to the Science Based Target initiative ("SBTi").

The Group's efforts have been acknowledged with improved ESG ratings: Sustainalytics (Low Risk), MSCI (A rating), and CDP (B rating). This achievement has resulted in Origin attaining the top end of its ESG targets within its sustainability-linked revolving credit facility.

On the social agenda, Origin has also made progress on Diversity and Inclusion during the year with good engagement across the organisation culminating in achieving a 25% female representation in leadership and management positions (7% increase since 2018) and 33% female representation on the Origin Board. The Group also increased resourcing within its environmental compliance team and launched a series of actions across education, talent acquisition and engagement to further embed our progress.

Corporate development 

During the year, the Group continued to strengthen its offering in its Amenity, Environmental and Ecology business with the acquisitions of Keystone Environmental, Neo Environmental, Agrigem and British Hardwood Tree Nursery. Subsequent to the year end, the Group acquired the business and operating assets of Suregreen Limited ('Suregreen'), a UK based landscape and gardening products supplier for trade professionals and DIY customers from its Administrators. These acquisitions complement the Group's organic growth strategy, are EPS enhancing and broaden its expertise and capabilities in the growing market for ecological and environmental products and services which will continue to play an important role in sustainable land use to help tackle climate change, restore biodiversity, and create recreational spaces to promote social wellbeing.

The Group also continues the rollout of Dynamics 365 ERP solution across its UK and Ireland businesses, with the solution being deployed to the remaining key business units over FY24. 

Investor relations

Our strategy aims to create long-term shareholder value and we support this strategy through regular and open communication with all capital market participants. Contact with institutional shareholders is the responsibility of the executive management team including the Chief Executive Officer, the Chief Financial Officer and the Head of Investor Relations. 

We engage with institutional investors in numerous one-on-one meetings, as well as at roadshows and equity conferences. During FY23, meetings were held with 142 institutional investors. Engagement was facilitated through a combination of in-person meetings and remotely using virtual conferences and video calls. 

Annual General Meeting (AGM)

The AGM is scheduled to be held on 16 November 2023 at 11.00am (UK/Ireland time) in the Merrion Hotel, Upper Merrion Street, Dublin 2. 

Cautionary statement

This Preliminary Results Statement contains forward looking statements. These statements have been made by the Directors in good faith based on the information available to them up to the time of the preparation of this document. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially from those expressed or implied by these forward-looking statements.

The Directors undertake no obligation to update any forward-looking statements contained in this document, whether as a result of new information, future events or otherwise.

Review of Operations

Group Overview

The Group delivered a strong overall performance in FY23, despite significant price and volume volatility across all our markets. As previously noted, the FY23 performance is set against a strong comparable period in FY22 due to the unique backdrop of strong commodity prices and highly volatile trading conditions.

Group revenue increased by 4.9% on a reported basis, while Group operating profit and adjusted fully diluted earnings per share reduced by 24.2% and 25.7% respectively. 

There was an underlying decrease in agronomy services and crop input volumes, primarily driven by a combination of reduced Ukraine activity and lower fertiliser volumes, excluding crop marketing volumes, of 8.4% for FY23.

Ireland and the United Kingdom

Ireland and the UK delivered a good performance in FY23, reflective of a return to more normalised trading conditions as the year progressed, including some recovery in Q4 from what was a wet and cold Q3 period. As previously stated, FY23 is set against a unique prior year comparative, and while reported revenue increased by 1.7%, operating profit decreased by 38.8%. 

While FY23 continued to be characterised by significant price and volume volatility, these challenges were successfully managed across the Group. Agronomy Services and Agri-inputs experienced an underlying volume reduction of 7.4% for the period, primarily fertiliser driven. 

Operating margin decreased to 3.5% from 5.9% in the prior year. This again reflects the exceptional nature of FY22's result.

Agronomy Services

Integrated Agronomy and On-Farm Services delivered a strong result for the year. 

The result was supported by a robust planted area across the UK, despite the impact of some weather related challenges. Strong volume performance across our seed portfolio was set against reductions in fertiliser and crop protection volumes, as anticipated. The FY23 harvest is progressing well, after a slow start, and yields to-date are as expected.

Agri-inputs

Our Business-to-Business Agri-Inputs division delivered a solid performance, despite experiencing reduced demand as a result of higher global raw material prices, which have fallen towards the end of the year. 

Fertiliser

Fertiliser delivered a solid financial and operating performance, while navigating ongoing pricing uncertainties and supply chain challenges. The global fertiliser market experienced significant raw material price volatility throughout the year, and this negatively impacted FY23 volumes. 

Despite the challenges faced in global markets, the Group continues to execute strongly across the business. Sustainable land use and soil health are a core focus for the Group, and Origin will continue to invest in innovative products to meet evolving customer's needs. 

Feed Ingredients 

Origin's Feed Ingredients division delivered a satisfactory performance in FY23, again set against stronger FY22 operating and trading conditions.

The Group's animal feed manufacturing associate, John Thompson & Sons Limited, in which the Group has a 50% shareholding, delivered a satisfactory performance in the period.

Amenity, Environmental and Ecology

As part of the strategy outlined at the Group's 2022 Capital Markets Day, Origin committed to accelerating its participation in the amenity, environmental and ecology markets. In FY23, the Group's Amenity, Environmental and Ecology business delivered a good performance supported by the impact of acquisitions completed during the year. 

During the year, the Group completed four acquisitions in this space, totalling €30.1 million, with a further acquisition post year end. The five acquisitions are: Agrigem; British Hardwood Tree Nursery; Keystone Environmental; Neo Environmental; and Suregreen.

These newly acquired businesses provide a diverse range of ecological and environmental products and services, in areas such as forestry, landscaping and habitat conservation. They primarily cater for the growing demand from customers seeking sustainable nature based solutions.

These acquisitions complement Origin's organic growth strategy and broaden its offering in the emerging nature economy through sustainable land use. 

Continental Europe1

Continental Europe ('CE') delivered a solid performance in FY23, with an overall increase in operating profit to €15.8 million, an increase of 6.6% on FY22.

Overall volumes were back in each geography in CE, with underlying business volumes reducing by 18.2% in the period, primarily driven by Ukraine and the impact of higher product pricing.

Poland

Poland delivered a good performance in FY23, with the cropping area largely in line with FY22. 

The performance was characterised by a continued focus on working capital optimisation, with a reduction in net working capital delivered year-on-year. Across Poland, the harvest is progressing as planned with good yields reported across most regions. Farm sentiment remains cautious, with input price volatility delaying purchasing decisions. The construction of the expanded 'Foliq'-branded liquid foliar fertiliser facility is progressing to plan, with commissioning expected during first half of calendar 2024.

Romania

Romania reported a strong performance in FY23, supported by a robust planted area, satisfactory crop establishment and generally favourable soil moisture levels.

The harvest of winter crops is largely complete across Romania, with record oilseed rape yields recorded in some regions set against lower than average yields for other winter cereals. Farm sentiment is cautious with some early purchasing of oilseed rape noted, however purchasing decisions for other winter cereals are expected to be delayed. The Group will commence its investment programme to expand our micropack production facility and fertiliser coating facilities in early FY24.

Ukraine

Activity levels in Ukraine have continued to reduce significantly as a result of the war. In recent years the Group has undertaken a significant de-risking of the balance sheet through a sustained focus on working capital reduction. Subsequent to year end, the Group took the difficult decision to wind down operations in Ukraine, and it will cease trading at the end of September 2023. The Group's Ukraine business has experienced a number of challenges, most recently as a result of the war with reduced activity levels in relation to on-farm liquidity, however, a volatile trading environment and challenging market dynamics have resulted in the business being loss making over a number of years, with little evidence that the trading environment will improve post war.

Latin America

The Latin American ('LATAM') reporting segment incorporates the Group's operations in Brazil.

Latin America delivered another strong performance in FY23, with operating profit increasing to €15.7 million from €9.7 million in FY22, with an underlying increase of €4.6 million. 

There was an underlying increase in volumes of 30.1%. The strong volume development and underlying growth was enabled by the broadening of our product range, following additional investment to increase capacity of liquid, dry and Controlled Release Fertiliser ('CRF'). The Group's CRF operations reached maximum capacity, ahead of targets, in FY23. Further investment will be required in FY24 to address current production related constraints. The establishment of F1rst Agbiotech, a dedicated biological business unit supporting research and development of bio-solutions, continued in line with expectations, with initial sales volumes delivered through Q4 FY23.

The overall result was supported by the total cropping area dedicated to soya, Brazil's principal crop, increasing by 5.1% on the prior year to 43.6 million hectares, with the expected soya harvest increasing to 153.3 million tonnes from 125.5 million tonnes last year. The total production for Brazil's secondary crop, maize, is forecasted to increase by 10.6% to 125.1 million tonnes.

ENDS

Origin Enterprises plc

Consolidated Income Statement

For the financial year ended 31 July 2023

Origin Enterprises plc

Consolidated Statement of Comprehensive Income

For the financial year ended 31 July 2023

Origin Enterprises plc

Consolidated Statement of Financial Position

As at 31 July 2023

Origin Enterprises plc

Consolidated Statement of Financial Position (continued)

As at 31 July 2023

Origin Enterprises plc

Consolidated Statement of Changes in Equity

For the financial year ended 31 July 2023