The year under review was one of the most memorable in UPL Limiteds history.
The Company acquired Arysta LifeScience in an all-cash US$ 4.2 billion deal which wascompleted within a record six months.
This helped the combined entity emerge as the fifth-largest crop protection productscompany in the world with combined sales of US$ 4.7 billion in FY2019 (trailing twelvemonths basis).
Explaining the acquisition
Over the last few years the global crop protection products industry has undergoneconsolidation warranting a greater need for scale across serious players.
Scale enhances economies of scale ability to attract fresh talent ability to launchdifferentiated products and a stronger registration pipeline. UPL over the last 25 yearshas made 40+ acquisitions and been successful in accelerating growth in a profitablemanner.
The Arysta LifeScience acquisition represents the largest in our existence and possiblythe most important. Arysta LifeScience (formed in 2001) is present in the proprietarypost-patent space a segment growing faster than the mainstream sector.
As the pace of discovery of new active ingredients has declined and an increasingnumber of products are going off-patent Arysta LifeScience possesses one of theworlds best supply chain systems as well as a broad products portfolio comprisingherbicides fungicides insecticides bio-solutions and seed treatment targeted atspecialty crops and applications.
UPLs landmark acquisition bodes well for a number of reasons.
One UPL has a strong manufacturing presence with plants in 34 global locations (26for active ingredients / formulations and eight for seeds). On the other handArystas asset-light model outsources most manufacturing operations (with formulationplants in 14 locations) electing to focus largely on marketing. The coming together ofthe companies will empower UPL to provide strong manufacturing support to Arysta on theone hand and leverage the latters deep distribution capability on the other awin-win.
Two Arysta possesses a proven expertise in the realm of certain proprietarymolecules. Following the acquisition UPL will gain access to these proprietary molecules.
Three the two companies possess complementary portfolios: UPLs cropprotection products are go-to products for row crops while Arystas products arepreferred for the cultivation of specialty crops like horticulture. The complementaryproduct portfolios of the two entities have helped create a company with a larger andrelatively de-risked application presence. This was evident in the unconditional approvalfrom 40+ anti-trust regulators without requiring any portfolio divestments.
Four the two companies also enjoy a presence in complementary markets. Arystaenjoys a strong presence in Eastern Europe and CIS countries; UPL possesses a similarpresence in Western Europe and Latin America. Arysta enjoys a relatively large presence inAfrica Russia and Ukraine where UPL is less conspicuous. Following the acquisition UPLwill be able to tap deeper into these territories.
Five following the acquisition UPLs product registrations more than doubled- from ~6150 to more than 12400. Considering that it takes between two to five years toget a product registered this acquisition has strengthened the Companys long-termprospects.
Six both companies complement each other in managing risks and financialresources. One of the primary reasons for UPLs success in Latin America has been itsability to manage market volatility which holds true for Arystas performance insub-Saharan Africa where the Company dealt with currency and political risks. The comingtogether of UPL and Arysta provides a neat complement that will disproportionatelystrengthen the overall complement.
I am optimistic that this acquisition will broaden UPLs positioning as a globalcompany of Indian origin. More than 83% of UPL revenues are derived from global markets.UPL has recruited globally and locally strengthening its terrain familiarity and theability to take decisions closer to the ground. The result is that the Company reportedsustainable and profitable growth despite monetary political climatic regulatory andeconomic challenges.
Need for specialised solutions
Falling crop commodity prices over the past few years impacted the demand for cropprotection products resulting in industry consolidation and relevant counter-strategies.Urbanisation and climatic vagaries affected sectoral growth. Changing climatic conditionsare increasing pest disturbance increasing their population and enhancing their appetitethreatening global food security. The need of the hour is to provide specialised solutionsthat protect yields and minimize pre- and post-harvest losses.
Scientists have found that globally pathogens and pests have affected crop yields by10 to 40% for major food crops like wheat rice maize soybean and potato.
(Source: University of Californias Division of Agriculture and Natural Resources/ International Society for Plant Pathology).
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An open network for agriculture activating connections across the worldsagriculture system.
Powering new levels of sustainable growth for farmers for producers forcustomers and partners for societies everywhere.
Ours is a world of no borders and no limits. Not a hard-wired linear value chainbut an agile fluid network of relationships and interplays that leapfrog traditionalboundaries and jump to new opportunities. Where connections are more personal andsolutions more personalised.
From crop protection to biosolutions to innovative hybrid platforms andbeyond
We create more choice faster access greater value and sustainability. Weopen possibilities and shape the future in an interactive and synergistic way. Agriculturewith no borders growth for all. OpenAg.
Besides the global population of 7.6 billion is expected to grow to 8.6 billion by2030 and 9.8 billion by 2050 making it imperative for companies like UPL to come up withspecialised crop protection products with greater speed than ever.
This priority is also evident in India one of the largest agricultural markets of theworld. Around 70% of Indias rural households depend primarily on agriculture; around86% of Indias farmers are categorised as small and marginal and own lessthan 2 hectares which is the equivalent of two football fields. A number of measures wereundertaken by the Government of India including enhanced minimum support prices for anumber of crops. The Central Government also aims to double farmers income by 2022through measures like Pradhan Mantri Krishi Sinchayee Yojana Pradhan Mantri Fasal BimaYojana and National Food Security Mission among others.
At UPL we believe that crop protection products addressing pre- and post-harvestlosses play a pivotal role. The Indian Council of Agricultural Research estimated thataround 30%-35% of the annual crop yield in India is lost to pests. Indias pesticideconsumption is one of the lowest in the world; the average hectare in India consumes just0.6 kilograms of pesticide compared to 5-7 kilograms per hectare in the US and 11-12kilograms per hectare in Japan a large headroom. We believe that the sector has animportant role to play at a time when the country is engaged in strengtheningfarmers income.
Following the acquisition of Arysta LifeScience UPL has evolved from being just aproduct-based company to a solution-oriented organisation covering all major crops.
The new UPL is attractively positioned to address the existing and emerging needs offarmers across a wider global footprint with a larger basket of products.
We believe that the new UPL will enhance value for its stakeholders. I thank our largefamily of stakeholders for their trust and assure that we will continue to enhance valuefor our Company in the foreseeable future.