Origin Regulatory News (OGN)

Origin Enterprises plc

INTERIM RESULTS STATEMENT

Highly challenging operating conditions reduce demand for agronomy services and crop inputs

5 March 2020

Origin Enterprises plc ('Origin' or 'the Group'), the international Agri-Services group, providing specialist agronomy advice, crop inputs and digital agricultural solutions to farmers, growers and amenity professionals, today announces its interim results for the half year ended 31 January 2020.

Highlights

· Group revenue decreased by 13.8% to €604.9 million

· Operating loss of €2.8 million in the first half of the year

· Decrease in underlying operating profit of €11.4 million, principally reflecting a 25.6% reduction in business volumes in Ireland and the UK, due to lower autumn and winter crop plantings

· Continental Europe and Latin America divisions performing in line with expectations

· Strong working capital performance in Continental Europe offset by higher working capital in Ireland and the UK as a result of lower sales

· Adoption and integration of the Agrii brand across our Continental European agronomy businesses

· Over 1.2 million hectares on-boarded on Contour digital platform

· Increase in net debt to €264.2 million

· Interim dividend of 3.15 cent per share

1 Before amortisation of non-ERP intangible assets and exceptional items

2 Profit after interest and tax

3 Before amortisation of non-ERP intangible assets, net of related deferred tax (2020: €3.9 million, 2019: €3.4 million) and exceptional items, net of tax (2020: gain of €0.3 million, 2019: charge of €0.7 million)

4 Before impact of IFRS 16 Lease transition

Origin Enterprises plc

Commenting on the results, Origin Chief Executive Officer, Tom O'Mahony said:

"It has been a challenging first six months for the Group. Operating conditions faced by farmers and growers, principally in the UK, due to intense and prolonged rainfall has led to a 40% year-on-year reduction in the level of autumn and winter crop plantings. This significantly exceeds the 25% reduction estimated at the time of our Q1 Trading Update in November 2019 and has resulted in lower than expected underlying profitability and cash generation in our largest division, Ireland and the UK.

Continental Europe and Latin America recorded good performances in the first half of the year, delivering an underlying increase in operating profits. Especially pleasing was the reduction in working capital delivered by our teams in Continental Europe.

As set out in our Trading Update on 26 February 2020, the adverse weather conditions experienced in Ireland and the UK, together with the challenges associated with an anticipated large increase in spring cropping means that it is likely that Group operating profit and adjusted diluted earnings per share for the full year will now be significantly lower than expected at the time of our Q1 Trading Update. Against these particularly challenging conditions, we will focus on optimising operational performance while pausing M&A activity.

Consistent with prior years, we will provide a comprehensive update on full year guidance at the time of the Q3 Trading Update on 17 June 2020. Notwithstanding the weather challenges currently being experienced in Ireland and the UK, we remain confident in the delivery of our 2023 growth ambition as set out at our 2019 Capital Markets Day."

ENDS 

Conference Call

Origin will host a live conference call and webcast, for analysts and institutional investors today, 5 March 2020, at 08:00 (Irish/UK time). Dial-in details are set out below for the conference call and the webcast can be accessed on the Group website: www.originenterprises.com. Participants are requested to dial in 5 to 10 minutes prior to the scheduled start time.

Participant access numbers:

Replay

A replay of this call will be available for seven days.

Enquiries

About Origin Enterprises plc

Origin Enterprises plc is a focused Agri-Services group providing specialist on-farm agronomy services, digital agricultural services and the supply of crop technologies and inputs. The Group has leading market positions in Ireland, the United Kingdom, Belgium, Brazil, Poland, Romania and Ukraine. Origin is listed on the Euronext Growth (Dublin) and AIM markets of the Irish and London Stock Exchanges.

INTERIM RESULTS STATEMENT

Financial Review - Summary

Origin delivered an adjusted diluted loss per share3 for the period of 4.53 cent compared to an adjusted diluted earnings per share of 3.61 cent in the corresponding period last year. On a like-for-like basis (excluding the impact of currency movements and acquisitions) the underlying decrease was 8.02 cent.

Group revenue

Group revenue was €604.9 million compared to €701.6 million in the corresponding period last year, a reduction of 13.8%. On an underlying basis at constant currency, revenues decreased by €108.1 million (15.4%), reflecting reduced agronomy service revenue and crop input volumes.

The underlying reduction in agronomy services and crop input volumes, excluding crop marketing, was 19.1% in the period compared to the corresponding period last year.

Operating (loss)/profit1

Operating loss1 from the Agri-Services business was €2.8 million compared to a profit of €9.1 million in the corresponding period last year. On an underlying basis at constant currency, the decrease year-on-year was €11.4 million.

Associates and joint venture2

Origin's share of the profit after interest and taxation from associates and joint venture amounted to €1.1 million, a €0.7 million decrease on the prior year.

Net debt and financing costs

Average net debt amounted to €279.3 million compared to €277.1 million in the prior year. Net debt5 at 31 January 2020 was €264.2 million compared with €238.8 million at 31 January 2019, and is 3.24 times EBITDA4 for the twelve months to 31 January 2020. The average and period end net debt increase is principally attributable to Ireland and the UK, reflecting a reduction in sales in H1 on foot of weather impacted demand and a reduction in operating profit. Net finance costs amounted to €5.5 million compared to €5.9 million in the corresponding period last year. Excluding the impact of IFRS 16, there was a reduction in net finance costs of €1.2m reflecting lower local debt levels in our Continental European businesses and lower interest rates, year-on-year, in Brazil and Ukraine.

At period end our key banking covenants are as follows:

Working capital

Following the seasonal investment in working capital in the period, the net cash outflow from operating activities was €141.2 million (H1 2019: €134.1 million) and there was an increase of €138.4 million in working capital (H1 2019: €137.5 million). The year-on-year net working capital outflow reflects higher working capital investments in Ireland and the UK against the prior year, as a result of the reduction in, and timing of sales, which were largely offset by working capital reductions in Continental Europe.

Dividend

An interim dividend of 3.15 cent per share will be paid on 14 April 2020 to shareholders on the register on 27 March 2020.

1 Operating (loss)/profit and Group operating (loss)/profit are stated before amortisation of non-ERP intangible assets and exceptional items

2 Profit after interest and tax

3 Before amortisation of non-ERP intangible assets, net of related deferred tax (2020: €3.9 million, 2019: €3.4 million) and exceptional items, net of tax (2020: gain of €0.3 million, 2019: charge of €0.7 million)

4 Net debt/EBITDA ratio as per the requirements of the Group's syndicated bank loan agreement

5 Before impact of IFRS 16 Lease transition

Review of Operations

Group Overview

Origin's financial performance in the period was impacted by extremely challenging operating conditions for farmers and growers in Ireland and the UK. This resulted in a reduction in Group revenue, operating profit and adjusted fully diluted earnings per share of €96.7 million, €11.9 million and 8.14 cent, respectively. Prolonged unseasonal weather conditions have resulted in a significantly lower planted area for autumn and winter crops relative to a normal year, impacting demand for agronomy services and crop inputs in the period.

Ireland and the United Kingdom

Ireland and the United Kingdom recorded lower revenues and profits in the seasonally quiet first half.

The decline in revenues and margins in the period largely reflected prolonged unseasonal weather conditions, resulting in a lower planted area for autumn and winter crops, relative to a normal year impacting agronomy service, seed, fertiliser and crop protection volumes. On an underlying basis, at constant currency, there was an €11.7 million reduction in operating profit. The reduction in underlying business volumes was 25.6% in the period.

Integrated On-Farm Agronomy Services

Integrated Agronomy and On-Farm Services recorded lower revenues and operating profits in the period, reflecting the impact of highly challenging operating conditions in-field as a result of intense and prolonged rainfall throughout the period. Following a poor start to the autumn and winter crop planting season in the first quarter, minimal progress was achieved in the second quarter. Farmers and growers were unable to complete their planned sowings as large areas of cropping land remained waterlogged, thereby precluding any meaningful field work. This has resulted in the lowest level of autumn/winter oil seed and cereal plantings in 30 years. Due to the sustained nature of the adverse weather conditions, it is likely that a proportion of hectares will not transfer to spring cropping and remain unplanted in 2020.

Total autumn and winter plantings for the principal crops are estimated to be 40.4%, or 1.1 million hectares, behind last year at 1.7 million hectares. The area of winter wheat is estimated to be down 43.0% to 1.0 million hectares (1.8 million hectares in FY2019). Relative to winter crop production systems, spring crops are lower yielding and typically attract a reduced investment spend. Based upon current estimates, approximately 55% of the 1.1 million autumn and winter cropping shortfall will transfer to spring planting with the balance remaining as fallow hectares. Total autumn, winter and spring plantings for the 2020 growing season are forecasted to be 10.7% behind last year, at 4.0 million hectares.

Digital Agricultural Services

The Group's Digital offering has continued to deliver increased functionality to farmers and growers throughout autumn and early winter. This has seen our active hectares under the platform grow to 1.2 million hectares, including significant growth in our Continental European operations.

In a challenging season in many of our geographies, the ability to use data to make decisions on cropping, to measure establishment and to produce more comprehensive advice, input prescriptions and climate sensitive practices to sustainably exploit the available crop potential is ever more critical. Farmers and growers use our digital solutions to manage cropping and varieties, identify and take decisions to manage pest and disease risks, use high resolution satellite imagery to isolate issues within the crop and rapidly create nutrition plans to maximise return on investment.

New image-based functionality deployed during the period is enabling highly efficient planning at a sub-field level to allow farmers restore soil health and nutrients over time while more precisely and effectively applying inputs to drive crop performance. We continue to see farmers adopting digital solutions as an integral part of our overall offering to manage their crop production systems in a sustainable and responsible manner.

Business-to-Business Agri-Inputs

Business-to-Business Agri-Inputs had a challenging start to the financial year, recording lower volumes and margins for fertiliser and animal feed ingredients, set against a strong comparative period last year.

Fertiliser

Sales demand in the period was below expectation reflecting the extreme difficulties encountered by farmers and growers due to impact of extended rainfall and an uncertain pricing environment for fertiliser raw materials. This has resulted in farmers adopting a cautious approach to procurement ahead of the main application period in the second half of the financial year. Although activity levels on-farm were more favourable in January 2020, the reduced cropping profile in the UK is likely to result in full year demand behind that achieved in the prior year.

The Group's speciality and bespoke nutrition ranges continue to gain momentum.

Amenity

Amenity delivered an improved performance on the prior period, with volume development in the case of the professional sports turf channel returning to normal levels following a challenging FY19.

Feed Ingredients

Feed Ingredients achieved a satisfactory performance in the period, recording, as expected, lower volumes against a strong comparative period last year. Prior year volume development benefitted from higher demand due to the impact of fodder shortages in the earlier part of FY19.

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.

Continental Europe1  

Continental Europe recorded a €0.2 million increase in underlying operating profit at constant currency in the seasonally less significant first half. Underlying business volumes reduced by 3.4% compared with the corresponding period last year, with a good start to the year in Poland and Ukraine set against a slower start in Romania. The overall winter and spring cropping area across our CE markets is expected to be largely in line with last year.

Performance in the first half was supported by the benefit of improved working capital efficiency and pleasing sales momentum in the case of the Group's value added seed and nutrition portfolios.

In common with Origin's direct farm customer facing business operations in the UK and Poland, our Romanian and Ukrainian businesses adopted the Group's single brand identity, Agrii, in the period. The common identity supports the group-wide framework for technically led and integrated agronomy services.

Belgium

Belgium delivered a satisfactory performance in the period, on lower underlying business volumes. Early season demand has been impacted by wet conditions and an uncertain pricing environment for fertiliser raw materials is resulting in farmers maintaining a cautious approach to procurement until closer to the main application period in the second half of the financial year.

Poland

Poland achieved higher revenues and profits in the seasonally quiet first half. Performance was supported by a combination of favourable business mix and the benefit of improved in-field conditions for growers compared to the challenges experienced in FY19.

Autumn and winter plantings are estimated to be in line with last year at 4.7 million hectares with an increase in winter cereals offsetting a 1.5% reduction in the oil seed rape area. The total cropping area for the 2020 growing season is expected to be marginally ahead of the prior year at 8.2 million hectares. To date winter crops are well established supported by favourable growing conditions in the period.

Romania

Romania has delivered a satisfactory performance against lower underlying business volumes in the first half of the year. This reflected a delayed start to plantings in the first quarter due to unseasonably dry conditions throughout the main crop growing regions.

The second quarter experienced a significant catch up in cropping activity with the total sown area for autumn and winter plantings now forecast to be 5.3% ahead of last year at 3.0 million hectares. This increase will result in a reduction in the estimated spring cropping area, with the combined area for winter and spring cropping estimated to be in line with the prior year at 8.3 million hectares.

Ukraine

Ukraine recorded an improved result in the period in highly competitive trading conditions. Performance benefitted from a combination of favourable business mix and enhanced commercial effectiveness. Overall crop establishment in the period is satisfactory, however the continuation of current dry conditions may impact full year demand.

Total autumn and winter plantings are anticipated to be marginally behind last year at 8.2 million hectares with combined autumn and spring plantings currently forecast to be in line with last year at 22.5 million hectares.

Latin America

Latin America, which includes the Group's Brazilian speciality inputs business, Fortgreen, achieved higher underlying operating profits in the seasonally significant first half. Underlying business volumes grew by 2.9% compared with the corresponding period last year. Volume development was influenced by the impact of sustained dry conditions which led to a delayed planting season for Brazil's principal crop, soya. This drove lower overall market demand in the period which is expected to continue in the second half of the year.

The total cropping area in Brazil dedicated to soya in the current year is estimated to be 36.6 million hectares, an increase of 2.0% on last year. The cropping area dedicated to Brazil's secondary crop, maize is also expected to increase in the current year by 2.3% to 13.2 million hectares.

Outlook

The impact on Ireland and the UK performance of the prolonged, adverse conditions experienced to-date together with the challenges associated with an anticipated large increase in spring cropping, means that we expect Group operating profit and adjusted diluted earnings per share for the full year will be significantly lower than expected at the time of our Q1 Trading Update, as set out in our market release on 26 February 2020.

Consistent with prior years, we will provide a comprehensive update on full year guidance in our Q3 Trading Update on 17 June 2020.

ENDS

Origin Enterprises plc

Condensed Interim Consolidated Income Statement

for the six months ended 31 January 2020

Origin Enterprises plc

Condensed Interim Consolidated Statement of Comprehensive Income

for the six months ended 31 January 2020

Origin Enterprises plc

Condensed Interim Consolidated Statement of Financial Position

as at 31 January 2020

Origin Enterprises plc

Condensed Interim Consolidated Statement of Financial Position (continued)

as at 31 January 2020

Origin Enterprises plc

Condensed Interim Consolidated Statement of Changes in Equity

for the six months ended 31 January 2020

Origin Enterprises plc

Condensed Interim Consolidated Statement of Changes in Equity

for the six months ended 31 January 2019

Origin Enterprises plc

Condensed Interim Consolidated Statement of Cash Flows 

for the six months ended 31 January 2020