2021 UPL Investor Presentation
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To watch the video where I cover some of the highlights from this write up, check out this YouTube video:
Over the last few weeks I have been digging a bit more into some of the biological product dynamics within agriculture.
According to UPL they are largest biological provider globally while being the #5 ag chem manufacturer by revenue, so I dove a bit more into their sustainability initiatives and biological businesses. Through this, I ended up going through a couple analyst presentations that I hadn’t covered before that touch on their business and strategy, so I thought I’d highlight some of my take aways.
On the sustainability front, UPL talks about being the #1 in ag chem company by ESG standards, according to Sustainalytics:
For context, Bayer, BASF, Corteva etc ranged from 25-40.
UPL has announced carbon initiatives, partnering with Nori, Verra and Comet:
I haven’t heard much buzz from UPL on the USA based carbon initiative, though they announced it last year as a “gigaton challenge”:
UPL Ltd. has announced the launch of a new series of initiatives to be deployed globally which will leverage sustainable methods to reduce atmospheric carbon dioxide equivalent 1 Gigaton by 2040.
While also leveraging a Radicle Challenge to identify other organizations to help them and their Open Ag initiative:
Radicle Growth, a company-building platform for early-stage ag and food technologies, today announces its partnership with UPL, a global provider of sustainable agriculture products and solutions. The partners have come together to run “The Radicle Carbon and Soil Challenge by UPL”, which sets out to invest $1.25M USD in two start-up companies that can positively impact and reduce the carbon footprint and improve soil health of the food value chain.
I do see them be challenged in the USA and Canada on the carbon front. Their market share and relationships with the distribution network are weaker than their larger agribusiness competitors and their on the ground staff numbers tend to be smaller, along with a less robust product portfolio - this challenges the access to growers and the conversation with growers about the nuances of their farm.
But they still have big ambitions:
In its first phase, the project will aggregate 1 Million hectares. While in the scalingup phase, The Gigaton Challenge will end up impacting more than 100 million hectares around the world.
I suspect they will need to rely more heavily on their strength in the Asian market to have this sort of impact.
Where the intersection of biologicals and their sustainability initiative further intersect is with their target on sustainable solutions to be 50% of revenue:
This is a bit vague. And quite frankly, “differentiated” doesn’t actually have anything to do with “sustainable”, so I question why they are combined together outside marketing optics. For example, a Pronutiva (their biological + synthetic combination product line) product is differentiated and “more sustainable”, but then on the pure synthetic side, which is still their largest segment, how do you move the needle on sustainable products without moving almost entirely to a Pronutiva or pure biological approach?
There may be an aspect to combining the application method into this, which I think is compelling (aka not just what product you apply, but how it is applied…though measurement of this is challenging as the world stands today):
(Note: I do like the fact they are looking at drone application, I think this could be a novel route to market in numerous markets in the future).
They show that for 2021 almost 30% of their crop protection sales were “differentiated and sustainable”:
So essentially, they are lumping “sustainable” into proprietary (their patented products) which makes the “sustainable” sound larger and growing more rapidly, when the reality is that their revenue by biologicals (I suspect majority of “sustainable” products) is still just a fraction of their sales. In a 2021 announcement they stated they are creating a new business unit known as ‘NPP’ (Natural Plant Protection) where they mentioned their sales on the biological front are 7% (actually higher than I would have guessed). This put their rough biological revenue at $350,000,000 USD (~5Billion revenue * 7%). What’s notable is that given Pronutiva still has synthetics in it, the pure biological revenue is smaller (though that’s just semantics). This brings up an interesting point:
There are numbers out there stating that the market for biologicals is over $10 billion today. The seemingly largest player comprises just 3.5% of that. I know the market is disparate and biologicals can be a lot of things, but it raises some questions about the size of the market - or whether UPL really is the biggest.
Back to the UPL front, it would be nice to see them breakout their business by NPP (“sustainable”), Proprietary (or “novel”or “differentiated” if not proprietary from a legal stand point) and Post Patent. This suggestion isn’t ideal as you can have a proprietary biological product. Would give a better insight into if they are taking share from their competitors (Corteva, Bayer etc), or cannibalizing their post patent business by converting those acres (though not perfect insight either).
UPL emphasizes their Open Ag framework:
In looking at their definition of OpenAg, it makes a ton of sense. In this model, they are heavily reliant on the network effects this model is supposed to create by attracting from a wide, open talent pool. They need that to occur because their R&D spend is smaller than competitors by a large amount:
They spend like a post patent company (which is their legacy strategy), yet position themselves as a growing proprietary leader. So if they want to be a hybrid of sorts (which is unique) and grow their business, they need the OpenAg framework to work to be competitive long term by churning out strong, novel products and systems. If it does work well, they will have much higher margins and return on capital and will legitimately have a strong model that would be enviable.
Heck, Bayer is even taking a small page out of their book with a recent announcement on the chemistry front:
Through our newly-launched Testing4Ag program, we offer testing of your compounds against plant pathogens, weed species, insect and nematode pests or vectors using our state-of-the-art phenotypical biological assays on whole organisms.
Upon submission, our computational screens will confirm that your compounds are appropriate for evaluation. Selection will be based on novelty, PhysChem properties, and sustainability e.g., human or environmental safety alerts. To complete the initial screening steps we will request a sample of at least 5 mg. Free shipping of the compounds to Bayer as well as packaging materials will be provided. Results of biological tests will be shared with you and can be freely published. Any IP generated in the program will stay with you and your institution.
Where we are likely to see investment and focus from UPL can be extrapolated from here:
While imperfect to gauge exactly where UPL is focusing, if internally they suspect certain markets to grow at 3-5x, it makes sense that there is a priority to focus on those opportunities vs. others. From the wisdom of Peter Thiel, it’s better to target a small and fast growing market than a large, slow growing market.
They even shed light on some routes to market and future services, highlighting FinTech, which has a strong fit in their stronghold markets:
With their recent announcement of bringing in Mike Frank as COO, previously CEO of Nutrien Ag Solutions, there isn’t anyone in the industry as experienced as him at deploying an omnichannel strategy at scale.
Their digital revenue growth is ambitious itself:
And in my mind the digital aspects will be used to leverage into the sustainable product offerings as well. Not easy, but if they are building out a robust offering of digital systems, it is something to strive for.
For more UPL, here is the UPL 2020 Annual Report Upstream Analysis.
Link to UPL Presentations: