Origin Enterprises PLC (ORENF) (Q4 2024) Earnings Call Transcript Highlights: Strong ...

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Group Revenue: EUR2 billion, down 18% year-on-year on a constant currency basis.
Operating Profit: EUR83.5 million, resilient performance despite challenging weather conditions.
Net Debt: EUR71.7 million, 0.66 times EBITDA.
Free Cash Flow: EUR6.2 million, impacted by higher working capital investments.
Adjusted EPS: EUR0.4806, at the upper end of Q3 guidance.
Operating Margin: Up 40 basis points.
Shareholder Returns: EUR36.7 million returned through share buybacks and dividends.
Living Landscapes Operating Profit: 14.2% of group operating profit, up from 12.2% in the prior year.
Capital Expenditure: EUR34.1 million on strategic investments.
Dividend: Proposed final dividend of EUR0.1365, full-year dividend of EUR0.168.
Volume Growth: 7.8%, particularly in H2 of the year.
Acquisitions Contribution: 1.2% of the movement year-on-year.
Latin America Volume Growth: Over 37% despite challenging market conditions.

Warning! GuruFocus has detected 4 Warning Sign with ORENF.

Release Date: September 24, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Origin Enterprises PLC (ORENF) reported strong performance in the final quarter, driving overall results to the upper end of expectations.
The company maintained a net debt to EBITDA ratio of less than one at year-end, showcasing strong financial discipline.
Free cash flow over the last three years grew by over 115%, significantly surpassing the target ratio of 80%.
Continued investment in strategic M&A activity and capital expenditure, including new facilities in Poland, Romania, and Brazil.
Living Landscapes division saw a 7% increase in earnings, contributing to 14% of group operating profit, up from 12% in the prior year.

Negative Points

The Ireland and UK segment experienced a decline in profitability due to challenging weather conditions and a difficult planting season.
Overall group revenue decreased by 18% year-on-year on a constant currency basis, driven by a 26% pricing impact.
Operating profit for the agriculture segment was down by 10.8% compared to the prior year.
The Latin American business saw a small dip in profitability, impacted by currency weakness and challenging market conditions.
Free cash flow for the year was lower than the prior year, affected by higher working capital investments and increased year-end receivables.

Q & A Highlights

Q: Can you provide an update on farmer sentiment across your markets, particularly in Brazil and the UK, and any insights on planting progress? A: Farmer sentiment is generally subdued due to low crop prices, particularly in the UK and Brazil. In the UK, winter wheat and barley drilling has started, with oilseed rape mostly planted. Progress over the next four to six weeks will be crucial. In Brazil, dry conditions are delaying planting.

Q: What is the outlook for M&A activity, especially within the Living Landscapes division? A: We see significant market opportunities in fragmented sectors like specialty distribution and applied services. We have an active deal flow and are targeting mid-single-digit EBITDA acquisitions annually. The focus will be on both the UK and specific Western European markets.

Q: How are inventory levels within your supply chain and on farms in the UK and Ireland? A: Inventory levels are relatively low across our agronomy, fertilizer, and feed businesses. This is due to strong demand and price reductions in fertilizer and feed prices over the past year.

Q: How are farmers responding to lower subsidies in the UK and Ireland? A: Despite initial concerns, only about 2% of arable land has moved into environmental schemes. This is mainly marginal land, so the impact on our business has been minimal.

Q: What are the margin expectations for your Latin American business in FY25, given the inflationary pressures and investment in Brazil? A: We expect a small further deterioration in operating margins due to currency depreciation and raw material cost increases. However, the mix of controlled-release fertilizers and specialty products should remain stable.

Q: Can you provide an update on the ramp-up of the new FoliQ plant and future CapEx expectations? A: The FoliQ plant is expected to ramp up over the next 12 months. Future CapEx will return to more normalized levels, around EUR20 million annually, following the completion of our ERP system rollout.

Q: Does the recent Chapter 11 filing by some Brazilian players present M&A opportunities for Origin Enterprises? A: We are cautious about expanding in Brazil due to market uncertainties and high multiples. Our focus will remain on opportunities in Central Europe and the Living Landscapes division.

Q: What is your target for operating profit split by division by FY26? A: We aim for Living Landscapes to contribute 30% of operating profit, with Latin America around 15-17%, Central Europe 17-20%, and the balance from Ireland and the UK.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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