Jaidev Shroff, Global CEO, UPL, firmly believes that synergy points from the Arysta deal will flow in the next 23-36 months. He told ETNow that its presence in western Europe and eastern Europe both will be more balanced.
Could you just first start by the news flow that has been going around where Bayer did a concall, they spoke about the drought in the European market and of course, after the acquisition even Europe is a very big market for UPL now?
There is some miscommunication, Bayer’s call was about the last season when there was a drought which impacted the cereal fungicide business and it impacted companies who have a big presence in the cereal fungicide business. UPL does not have a significant presence in the cereal fungicide business so our business was not impacted last season.
About the next season, it is very difficult to predict the weather conditions which are going to come for the next growing season in Europe, which will be in May, June, July next year. So we do not understand the report, that is one aspect. The other aspect is we actually had a very good year in Europe in our business these first six months of the year. We had a 7 per cent growth and European business has been doing very well and we expect to do very well in Europe even as an integrated company.
Our presence in western Europe and eastern Europe both will be more balanced. Today, our presence is mostly in western Europe, but with the Arysta deal our presence through eastern Europe will improve significantly. So we will see a good growth.
Europe particularly you are saying is doing decently well and will continue to do well and I take your point that it is very difficult to predict weather conditions. Let us talk about the acquisition, how is the deal progressing, you have announced some management changes but the guidance that you have given for synergy benefits continue to occur over the next couple of years?
That is right. So the integration, we have put our integration team together of about 45 people from both the companies and they have been working non-stop for the last 90 days. We have announced a first set of new management teams across the world that has gone down very well. It is a mixed team of both UPL and Arysta and the next layers of management teams will also be announced soon. We are working on the synergy calculations. All that is on track to roll out in the next 23-36 months. We will have those in the bag which will really help us improve our earning as a joint company.
Let us just also particularly talk about the size it gives you and how it changes your dynamics in the business. Over the next two years, what is the size that you see UPL operating at and how does it change the synergy benefits, costing benefits, the negotiating power you have?
I think there is a lot of consolidation in the industry happening and size matters as we all know. Our presence through the crop lifecycles across different parts of the world and crops will increase. Your relationship with the farmer just would not be based on one or two products but it will be a whole portfolio.
And I think the whole industry is moving towards a portfolio approach, towards the relationship with the farmer and you amortise your cost of relationship over a whole portfolio of technology. With the market moving towards bio-solution, we get a huge portfolio of bio-solution products worldwide. We have a portfolio of climate smart technology that has really helped plants and become more resilient to climate change.
All these technologies we are bringing in will make us a very more modern company really ready for the future in agriculture.
Let us talk about the Latin American business which of course is key to growth of the company. So after a soft year, first six months have been very good but can you just tell us expectation of soya bean. Soya bean continues to be in a very sweet spot in Brazil even now?
That is right. Soya bean has been buoyant. They had some increase in acreage in Brazil because of the additional demand from China and so, Brazil is doing very well. The season is in progress there, we have seen a little higher incidence of Asian rust disease in Brazil this year, this should lead well to for our portfolio where we have launched two more products for the protecting segment in Brazil in the last year.
Both those products are patent protected and we expect substantial growth there. We will continue to track growth in South America as we have done for the first six months where we had a substantial growth.
South Brazilian market is something where you have seen increasing demand for your product or market share gains?
Yes, so Arysta has been traditionally very strong with the cooperative sector and that gives us a much bigger footprint in that area. Once the deal is done, that will help us gain market share there. We have a very strong presence in the large farm segment in Mato Grosso and the big southern area. This deal will just further strengthen our presence in other crops like vegetables and fruit growing areas including sugarcane which will give us a whole new portfolio and help us continue to grow.
If we look at the markets or investors of the company, they would be worried about two things; with the sort of global trade war that is going on, what can be an impact for a company like you and with the sort of currency moves that is going around the world. The way it is going, it could have a big impact, not on your business but on your margins. So how are you arresting that?
I think UPL is a global business, Arysta is also a global business, we have been doing business globally our presence around the world in 132 countries. We understand the risk management in terms of managing currency risks and we have been in Argentina for the last 25 years and they have had so many shocks. We always manage to adjust and deal with the challenges.
The farmers buy our products when they need them and they pay the value for what they need and eventually if you look at the production of all, agricultural chemicals are primarily dollar denominated markets or all the pricing is in dollars. Eventually all the suppliers adjust their prices in a crisis market. So in the short term, for a quarter, you could have an issue. But over a period or a year, you always adjust prices to deal with the currency impact and that is normally a pass-through in our industry. So we do not see that as a major impact. You always have an impact in one quarter or it depends when the currency hits in the middle of the season. You cannot change prices immediately but post that, you adjust and farmers understand that and farming companies too understand.
Your company’s mantra has been to give low price, good quality products which will make their ways and inroads towards various farmers across the world. That continues to be the growth mantra and is leading to market share gains.
Absolutely. I think when there is a crisis, farmers trade down a little bit and UPL is there to gain from that. We really offer value proposition with the best technology available and with a very strong manufacturing base, we are able to be competitive and give value to the farmers. Typically we have been able to gain market share in almost every market we have been present in the last 15-20 years. Why should we give that up?