Origin Enterprises last week announced improved financial results after a dismal run of financial performance. With increased policy pressures to reduce inputs such as fertiliser and sprays, where is the future for a business where this is part of the core business?

Origin plc is a publicly listed company and its core business is selling inputs to cereal and cropping farmers in six different countries.

Gouldings Fertilisers is one of its better known divisions in Ireland and it specifically deals with fertilisers for the grassland and cereal area.

Liam Dunphy heads up Gouldings for Origin, while Sean Coyle heads up the overall Origin business having recently taken over from Tom O’Mahoney. Last week, Origin Enterprises released full-year financial results so we sat down with Sean Coyle to get a feel for the business changes.

JK: What proportion of Origin business is cereal crop-related and what proportion is in the landscape amenity business?

SC: “We serve multiple markets in each region. In the UK, it’s mainly arable but also fruit, veg, potato and the grassland market. In Ireland, it’s grassland, but also the cropping sector. Poland, Ukraine and Romania are arable markets, and Brazil is mainly soya and maize crops, but coffee and sugar are important crops there also. Overall, the amenity side of the business is about 10% and that’s sports turf-related, golf and landscaping. We see that amenity business as a safety valve away from the influence of weather on group profit and turnover.”

You have an ownership interest in Masstock?

“Yes, just in the UK Masstock business, not the Saudi part of the business. We renamed our UK business which incorporates Dalgety, CSC, etc, and brought them under the Agrii brand.”

Is the ownership structure still heavily weighted on institutional investors?

“Yes, institutional investors, including Setanta Asset Management, FMR, Artemis and Invesco, remain the largest shareholders in Origin today. The group has significant scale and deals with about 50,000 farmer customers every year across these countries, who farm a combined 14m hectares of land.”

Will you diversify your business out of fertilisers given the EU and local government policies?

“We will continue to meet the needs of our farmers and customers. They have to meet environmental and regulatory demands, so we have to adapt and change products – yes.

“We are always changing blends and introducing new blends that are more nitrogen-efficient, more carbon-efficient and our Irish and UK technical teams are working on that. Inhibitors are changing but nitrogen, phosphorus and potassium will still be needed to feed the world. So, yes, we are adapting products to be more efficient, but still need to feed crops and the increasing population.”

You have a play in the biostimulant and microbial additive business?

“Yes, this adds more capability and yes we have a play in Brazil in this space. We also have a play in Poland on this. In Ireland, we are part of a UCD-led project on endophytes with Jimmy Burke and biologicals will be part of the future. The signs are that demand is picking up in this space.”

Will unavailability of fertilisers be an issue alongside increasing cost?

“I’d see unavailability as a temporary challenge driven by high gas prices in the EU but I don’t know when it’s going to end.

“All the indications we have on fertiliser prices is that they will stay firm into next year and that’s coming from dealing with our importers. Long-term unavailability is not high on the risk agenda at the moment.”

You are also growing in the ‘technology’ for farming space?

“Tools for precision agriculture, yes. We have a toolkit for arable farming and a new toolkit for grassland farming coming called ‘Grassmax’. That’s in the pilot stage but technology will be a part of our suite of products.”

Given your dependence on the UK, are you worried about the transition of agriculture over there following Brexit?

“In general, I feel Irish politicians have managed it well albeit that there are lots of challenges at the moment with truck drivers, fuel, etc.

“My sense is that the UK has a transition plan in place with subsidies for the next number of year to maintain payments and then a transition to more environmental payments.”

A shortage of food and fuel could change a lot very quickly?

“Yes, I agree agricultural and political pressure for agriculture is not as important over there as other countries and there seems to be an even greater disconnect between farming and production of food.”

Talk to me about the different international regions – did you buy out a controlling interest in the Brazil business?

“Brazil – no, we have another two years left to buy out if we want it. Ukraine is a challenging market and very competitive. It’s not one of our better markets. It will be a powerhouse of agri-food and they had a very good season.

“Poland also had a very good season and it is a good market for us and they had their best year yet for us last year. Romania had a good year.

“Brazil is after a couple of very dry years in a row but moisture was good in last year and, at the moment, dry and frost are impacting on the coffee bean crop but coffee is a very small part for us. Belgium we sold.”

Acquisitions drive Origin Enterprises plc, so where next?

“There is work to be done to get existing business back to profit. Our agri division in the UK for our full year 2020 financial results was tough as the autumn 2019 weather impact on crops was still present with a product overhang in the market.

“Adjuvants and micronutrients will be important and we are looking more in that space coming on stream.

“We want to expand the amenity business as we see that as a bit of a hedge to overall business.”

On the financials just released – the net debt to earnings – how would you rate where they are?

“We have stabilised the balance sheet again after the challenging earnings year in 2020, and would be comfortable looking at merger and acquisition activity again of full-year 2022.”

On profit levels, looking back on a five-year scale, how would you rate 2020 profit performance? And what are some of the key drivers/reasons behind this performance?

“We are certainly well off the profit performance of full-year 2018 and full-year 2019 which should be considered as ‘normal’.

“The principal reasons for the shortfall are, firstly, the performance of our UK agri business which had the issues of stock on farm last autumn and a cold spring to contend with last year and, secondly, our amenity business which while it recovered last year, is still some way off its optimum level of profit due to the COVID-19 restrictions seen for part of last year.”

What is the Origin view currently of the likely price prospects for grain for the 2022 harvest?

“I wouldn’t like to speculate on the price, but all the indications are that global stocks to use ratios continue to be low and I think that will continue to support firm prices in the coming 12 months.”

What is their view of the likely cost inflation level that will be experienced by farmers over the coming season(s)?

“Again, all the indications that we are getting from our fertiliser raw materials suppliers are that firm pricing will extend into next year. Recent gas price hikes are feeding into higher prices and there does not appear to be any price drop on the horizon.

“Crop protection and seed prices will see some inflation and animal feed prices are likely to stay firm in light of the support to global grain prices.

What is Origin?

Origin was originally established as a subsidiary company of the Irish Agricultural Wholesale Society (IAWS). IAWS no longer exists. In the early 2000s, IAWS was increasingly diversifying into the fresh food sector and it created a new entity to spin-off its legacy businesses. Origin was that company it listed on the Dublin and London stock exchanges in May 2007, with IAWS placing 32% of the shares in the company on the market. IAWS continued to hold 68% of the shares in Origin up to 2015, when the group sold its stake in the business to institutional investors.

Share price

On a one-year scale, share price is pretty much where it was this time last year at €3.45/share. On a five-year scale it is about half price compared with where it was when it reached its peak at €7.50 in mid-year 2017.

In short

  • All the indications are that fertiliser and grain price will remain firm into 2022.
  • Origin will be back in the acquisition market in 2022.
  • Origin is operating in six countries – Brazil, Poland, Ukraine, Romania, Ireland and the UK.
  • Origin is continuing to adapt products to cropping needs to meet new regulatory standards.