Ridley Corporation Limited (RIC) Earnings Call Transcript

Thank you for standing by, and welcome to the Ridley Corporation Limited Second Half Fiscal Year 2025 Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Quinton Hildebrand, Managing Director and CEO. Please go ahead.

Thank you, Wyatt, and good morning to you all. Thanks for your attendance today. Richard and I are pleased to provide you with Ridley's financial performance for the 2025 financial year, and a progress update on the strategy front. We'll be talking to the slides that were uploaded on the ASX website this morning. And starting with Slide 2, the FY '25 financial summary, the business delivered a record EBITDA of $97.8 million, a year-on-year increase of 8.6%. Both the Bulk Stockfeeds and the Packaged and Ingredients reporting segments increased their earnings in the year, and OMP exceeded acquisition expectations in our first full year of ownership of this business. I'll speak to the performance of each of the segments in the next few slides. Statutory net profit was $43.3 million, an 8.7% increase year-on-year. And our focus on disciplined capital management has continued with a healthy operating cash result of $93 million, a cash conversion of 97%. When excluding the cash from the capital raise, the underlying leverage of the business is 0.6x, and this is after funding both OMP and the Carrick Feedmill acquisitions. On the back of this performance, the strength of our balance sheet and the outlook for the business, the Board determined a dividend of $0.05 per share fully franked. Moving to Slide #3, the FY '25 strategic summary. As you can see, it's been a busy year for the business. In the second half, we undertook a significant restructuring of the organization to support the next phase of our growth. The reset, streamlined the business, exited lower returning operations, and resource priority growth areas. In total, the number of roles was reduced by 5%, which will deliver annual cost savings of $5 million EBITDA in FY '26. As announced in April, we sold the Wasleys Feedmill in South Australia to Baiada, who accounted for about 90% of the mill's production, and we sold the mill for a fair price of $22 million. We continued our organic growth with the completion of the Clifton expansion for $7.9 million; the Carrick Feedmill bolt-on, which cost $8.1 million, including inventory; and we commenced the construction of our new OMP facility in Timaru, New Zealand. We also secured contracts with key packaged pet food customers to fill the extrusion capacity vacated by the phaseout of our Aquafeed business. Then on the 12th of May, we announced the acquisition of Incitec Pivot Fertilisers for $300 million with the put and call options for $75 million on the Geelong property. And I'm pleased to advise that we are on track to deliver this at the end of the third quarter as previously advised. To partly fund this acquisition, we completed a Retail offer, Placement and Institutional offers, which netted $122 million. Moving to Slide 4, the Bulk Stockfeeds segment. This segment delivered an EBITDA of $47.8 million, up 8% year-on-year, which is a pleasing result achieved by 11% volume growth in Ruminant sales, including high-margin supplementary feeding of beef and sheep during the dry conditions in the second half of FY '25. We enjoyed a 3% volume growth in the Monogastric sales, including the recovery in layer feed sales in the second half following the Avian Influenza outbreaks. Ridley Direct has grown since we established this business 3 years ago and has made a meaningful contribution in this period. And the Carrick Feedmill, which was acquired in September last year, was scaled to a second shift, which has now been filled. All in all, a very sound performance in Bulk Stockfeeds. Moving to Slide 5, the Packaged and Ingredients segment. This segment delivered an EBITDA of $62.9 million, up 5% year-on-year, achieved by the full year contribution of OMP, which yielded margin growth and cost efficiencies. We also had volume growth in Ingredient Recovery with a 7% increase in raw material supply and also a 7% increase in Packaged dog sales produced at the extrusion plant. However, lower sales prices for tallow and meals when compared to the prior year have created a headwind, and we've also dealt with lower Aqua Nutrition volumes, reducing the Narangba operational efficiencies. So overall, this segment has delivered, thanks to the performance of OMP, offsetting the lower commodity prices in meals and tallow. I'll now hand over to Richard, who will go through the financial results in more detail.

Good morning, everyone, and thank you, Quinton. I'll now present the financial results for FY '25, beginning with the profit and loss summary on Slide 7. As Quinton has already taken you through, the operating segments delivered a combined EBITDA for the year of $110.7 million, representing an improvement on the previous corresponding period of $6.6 million or 6.3%. The corporate costs increased by $1.9 million to $13.2 million, with the increase primarily associated with the employee incentive schemes, which align with our business growth aspirations. The net significant items in the period were actually a gain of $200,000 versus an expense in the previous corresponding period of $2.8 million. The FY '25 balance included the gain on the sale of the Wasleys Feedmill of $7 million, which was largely offset by the IPF acquisition costs incurred up to 30 June of approximately $3 million and the business reset costs of $4.7 million, which, as Quinton indicated, are expected to deliver an annual benefit of $5 million for the year from FY '26 onwards. In the previous year, we incurred $2.8 million associated with the acquisition of OMP. Depreciation and amortization for the period was $30.3 million, a $4.2 million increase on FY '24. This mainly related to the depreciation and new amortization from the acquired OMP business, which totaled $2.3 million. The increase in underlying depreciation included several significant capital projects that were depreciated for the full 12-month period, including the Pakenham debottlenecking and the Narangba packing line. As anticipated, finance costs increased from $7.8 million to $9.7 million on the back of the higher interest rate environment and the increase in debt relating to the acquisitions of OMP and Carrick. This cost was partially offset in the last 2 months by the interest income on the cash received from the capital raise undertaken to fund the acquisition of the Incitec distribution business. The income tax expense decreased by $1.9 million as a result of the benefit received from the tax treatment of the various employee share schemes. The underlying effective tax rate was 28.4%, a decrease from prior periods. The net impact of the above was an increase in the net profit after tax of $3.4 million or 8.7%. Now turning to Slide 8. As set out on this slide, the group working capital increased by $10.9 million versus the previous year. However, this included a net increase of $7.8 million associated with the take-on balances from the acquisitions of both OMP and Carrick. The underlying business working capital increased by only $3.1 million, which includes the following components: a $6.9 million increase attributed to the net of the higher receivables and payables associated with the increase in volumes during the period. This was partially offset by a $3.7 million decrease in inventory associated with the exit from the Aqua business and the lower commodity pricing of poultry meal and tallow in the Ingredient Recovery business. Moving to Slide 9, the capital management net debt position. At 30 June, the business reported a net cash position of $64.7 million, contrasting the net debt of $50.8 million in the previous year. This movement is largely associated with the cash proceeds generated from the capital raising completed prior to 30 June, which contributed -- excluding the $120 million of proceeds from the capital raise, the net debt would have been $57 million, an underlying increase in net debt of $6.2 million, which related primarily to the funding in year of the payments for the acquisitions of OMP and Carrick. As expected, this strong cash position means that our gearing ratio and leverage -- our gearing and leverage ratios are well within our covenant requirements, with underlying leverage still only 0.6% well below our targeted range of 1x to 2x. To support the acquisition of IPF's distribution business, the available core debt facilities have been increased by $200 million. All debt has now been split between 3 (sic) [ 3-year ] and a new 5-year facility. The rollover of the 3-year facility and the introduction of the new 5-year facility provides much greater certainty regarding the long-term financial capacity of the company. Turning now to Slide 10 and the capital allocation framework. This was first implemented in FY '21 and has become pivotal in prioritizing of capital within our business by better aligning investment decisions to shareholder returns. During the period, the business delivered strongly against the model, including a focused approach to investing in our underlying asset base through the targeted allocation and prioritization of sustenance capital with spend aligning to 75% of depreciation, which is towards the higher end of our committed range. Continuing to operate below the targeted leverage range has provided the flexibility to support the increase in the interim dividend to $0.05 per share, up from $0.0465 in FY '24, and to enable the business to pursue and deliver on the acquisition opportunities of IPF's distribution business and the Carrick Feedmill. Pulling this all together, the business has delivered a shareholder return for the last 12 months of 42%, well above our targeted 15% and provided the shareholder confidence to support our successful $125 million capital raise in May 2025 to support the acquisition of the Incitec fertilizer distribution business. Slide 11 provides an update on our sustainability scorecard. We continue to make good progress in the delivery of milestones towards our 2030 sustainability commitments. Whilst our diversity targets are slightly behind, the organization understands the benefits of having a more diverse workforce and remains committed to achieving both the annual milestones and the 2030 vision in this area. Pleasingly, all other milestones are on track or ahead of expectations. That concludes the financial component of the presentation. I will now hand back to Quinton, who will take you through the remaining strategy slides.

Thanks, Richard. Picking up on Slide 13. We've now completed our FY '23 to '25 growth plan, and you can see that we've steadily increased the EBITDA over the period as is reflected by the numbers in the green boxes at the top of that slide. The traffic lights on the right-hand side show our scorecard against each of the key initiatives. And no doubt, many of you will be pleased that this is the last time you'll be seeing this slide as we've shown at every presentation for the last 3 years. But I'll show it to you one more time, and that's on Page 14, where we reflect our journey for the last 2 growth plans. doubling the EBITDA from $48 million in 2015 to $97.5 million in 2025. And we've done that whilst reducing our underlying net debt by threefold. Whilst we've done a lot of work on strategy over the last 12 months and are well advanced in our FY '26 to '28 growth plan, given that we ended up entering into the acquisition of Incitec Pivot before we publicly launched the growth plan, we've decided that it'd be better for us to complete the profit improvement plan for Incitec Pivot and then provide you with a consolidated plan, which we hope to have for you by the AGM. We move to the next slide. What you can expect from the FY '26 to '28 plan is that we will have an even more diversified Agricultural Services portfolio, which will be leading from fertilizer to feed. And on Page 16, we just reflect the 3 segments in which we are market leaders in our respective businesses. So we're #1 in Bulk Stockfeeds with circa 20% market share. We're #1 in rural Packaged Feed products with circa 25% market share. We're the largest renderer in the country with the benefit of having multiple species, and we're soon to be the #1 in Fertilizer Distribution with circa 46% market share. And each of these segments have their own plans for growth. And whilst we won't be presenting that in a consolidated form today, the next few slides are just a growth -- an update on the growth within each of the segments. So going to Slide 17. In Bulk Stockfeeds, we continue to grow with our existing Monogastric customers as the industry continues to consolidate. And within the Ruminant sector, we continue to expand our offering in this sector, and we've got some new capability coming online during the course of this coming year. Ridley Direct continues to access new customers and broaden our reach, and the Carrick Feedmill has provided capacity in Tasmania and relieved some capacity for growth in the Gippsland, Victoria region. So this combination of growth opportunities gives us the reason to be considering further debottlenecking and network expansion options for Bulk Stockfeeds. Moving to the next slide, the Packaged and Ingredients segment. We've just launched a new initiative, Oceania Petfood Solutions, and this is a one-stop shop for pet food customers, supplying our own products and also being a distributor for other products, along with some technical support. We've recruited a number of key staff with the capability from within the pet food sector and we think this has the potential to become a Ridley Direct equivalent for the pet food sector. The new OMP facility will be commissioned in Q2. And you'll recall that the business plan that we presented a year ago was this -- was a $9 million spend for a payback of less than 6 years. We've started having some success in Asian markets for the sale of our meals and frozen block products Direct to pet food customers in those countries. In Packaged products, from Q3, we will return the Narangba extrusion facility back to capacity. This will complete our withdrawal from the Aquafeed sector and replace that capacity with higher returning dog food sales. And lastly, we are making steady progress in NovaqPro with booster registration now attained in India, Indonesia and Thailand, paving the way for commercial sales in these countries. Moving to the next slide, and to provide you with an outline of our activity in regard to the acquisition of Incitec Pivot. We're viewing this in 3 distinct stages: Completion, which is really about Dyno Nobel separating the Fertilizer Distribution business into a new entity that we're acquiring, and we are on track to complete at the end of the third quarter. The next stage is Integration. Integrating Incitec Pivot into a single Ridley operating environment. And we've moved quickly in this regard to establish a project management office with a well-experienced lead person employed to spearhead this. And we've appointed a systems integration partner to plan the transition of Dyno Nobel's -- from the Dyno Nobel system onto our system with the objective of getting off the transitional services agreement as soon as possible. Within Integration, we are planning corporate cost savings, which we estimated back in May at $7 million per annum by the second year. Then the final stage is Transition, which is really moving the Incitec Pivot business from a manufacturing entity, which they have been, to a pure-play distribution business, which is efficient and responsive to customers. We've commenced a number of reviews, but we'll wait to get ownership to be able to progress this to the detail that we require. And once the performance improvement plan is sufficiently robust, we'll bring a summary through to you as part of the consolidated 3-year growth plan. And finally, that brings us to the outlook statement. In FY '26, Ridley expects earnings growth from its diversified business portfolio, driven by Packaged and Ingredients margin growth from continued premiumization in the pet food sector and efficiency gains. Bulk Stockfeeds volume growth from existing and new customers, which will help offset the impact of the Wasleys Feedmill sale. And in the Fertilizer segment, we'll have earnings from the acquisition, including initial efficiency gains through the integration and transition of this business. And importantly, for shareholders, Ridley intends to continue its capital allocation framework, targeting a 50% to 70% dividend payout ratio. Thanks for staying on the call to the end of this presentation, and I'll now hand back to the moderator to take your questions.

[Operator Instructions] And your first question will come from Apoorv Sehgal with UBS.

First question, if we go back to the AI event, the [ AI event driven ] back in January that saw those export restrictions get put in place. And my understanding is that left you with a bunch of excess poultry meal and oil inventory that had to be like diverted into the domestic market at some lower prices. And I think when we last spoke, you sort of said that was like maybe a $3 million or $4 million sort of EBITDA impact in the second half. My question is, does any of that impact extend further into first half '26? Like where are we at with those export restrictions? Are we still sitting on some kind of excess inventory that needs to get cleared for a couple of months? Is there any kind of lingering impact in the first half?

Thanks, AP. The brief answer is yes. The restrictions have been lifted into a number of the Asian countries, but that's just recently. And now there's a fair backlog of volumes. And so that's -- we've got limited volumes planned and moving, but it will take a while, and we still have depressed poultry meal prices as well as meat and bone meal prices at this stage. So there's a fair quantum in the country of meat protein meals around, and that's weighing on the pricing at this point.

I think just in terms of expectations in this financial year, AP, we would probably anticipate that the first half, the slowness in the first half will probably be very similar to what we saw in the second half last year with it picking up into second half of FY '26.

Got it. Okay. So basically, this half has yes, a substantial period where that impact sort of stays and then you kind of back to normal second half.

That's right.

Yes. Okay. Okay. Can we talk about tallow prices then? So I mean, across FY '25 as a full year, I think it is like -- it's been a headwind for you guys. It's down year-on-year. Are you able to quantify that impact for '25 at the EBITDA level, but also more importantly, looking into '26, it seems like tallow prices are a bit higher year-on-year over the last, so call it, 6 months. Is there like an EBITDA tailwind we can expect from current tallow prices if they hold into '26?

Yes. So you're absolutely correct. And in the first half, we obviously saw tallows get down to the lows of the cycle. And we called out that there was about a $3 million impact in that first half. You're right that we have seen tallows move back up to sort of from about $1,350 up to about $1,750 a tonne, which is certainly providing us with some off -- some opportunity on the high side to offset some of that poultry mill. So when we gave the guidance in relation to the second half of FY '25, that was a net position of the tallow versus the poultry mill. So we would certainly hope that in FY '26 with where tallow sits today, there is some upside to the FY '25 year.

With the -- so the $3 million impact in the first half, in the second half was it actually like a tailwind?

Yes.

Yes. Yes. But it was part of the net of the poultry mill down versus the tallow up.

Okay. We got you.

Yes. Yes.

Okay. In simple terms, though in '26, there might be a few million bucks of an EBITDA tailwind coming through if prices hold.

Yes. Yes, that's correct.

Okay. Actually, before I go back in the queue, maybe one just for Quinton. On the same topic of tallow prices, just maybe Quinton, like macro perspective, like just remind us sort of where are we at like current U.S. administration, the stance on biofuel policy. I think some of this -- there were a couple of biofuel plants in the U.S. that previously had some delays. Like where are sort of things at with the whole biofuel tallow demand story?

Yes. The U.S. industry is a little more bullish, although I would say they do feel the -- the recent experience where they climbed in on the back of the Biden government's support and then the incentives were capped out and there was that importation of used cooking oil that came in from Asia. So as a result, I think they're all a bit cautious, but returns are improving to the domestic players there, particularly in soy crushing. However, we're not seeing a significant demand for imported tallows at this stage. It is supporting the sentiment -- there is supporting what we see as the rally in the price that we've seen to get to $1,750 today. So the longer term is more favorable. But I think it's going to be a steadier build as opposed to the rapid rises that we saw 2 years ago.

And your next question will come from James Ferrier with Wilsons Advisory.

Could I ask you about the Bulk segment first? Because, I mean, a great result. And in particular, that Ruminant volume, huge uplift in the second half. I think first half growth was at 3%; full year growth, 11%, so a huge uplift. Was that just supplementary? Or did dairy have a particularly strong second half? We're just thinking about how dry it was in Victoria and milk price is pretty high and figured dairy might have had a nice run in the second half.

Yes. Volumes have been pretty good, both Monogastric and Ruminant in this second half, but definitely aided by the supplementary feeding and that is supplementary feeding into -- in the Victoria market predominantly, Victoria and TAS. So it's really the southern part of the country that's had the dry conditions. And we've been selling both to increased volumes into dairy due to those dry conditions, but also a fair bit into sheep feedlotting and a little bit into beef.

Historically, you've talked a bit about that could you -- given that supplementary demand profile is probably the most variable part of the Bulk business customer set. You've talked historically about what that sort of high, low range looks like from an EBITDA perspective. What sort of contribution do you think you got in the second half just in that Ruminant supplementary activity?

Yes. As you know, we've historically spoken about a sort of a $5 million EBITDA contribution in the second year of a draft. Much of that comes in our Queensland and New South Wales feed mills, which have latent capacity and able to swing. So those -- that region has had lots of rain. And so they haven't had the supplementary feeding. So it's probably a couple of million dollars worth of benefit that we've had in this half from supplementary feeding in the Southern states.

Yes. That's helpful. And then where I'm going with that is then just to look at your outlook statement, what impressed us about that in relation to the Bulk segment is you're sort of saying you expect underlying volume growth can offset the Wasleys exit. And essentially, if I read it right, deliver a sort of a stable EBITDA result in FY '26. So given you're cycling such a strong Ruminant result, you're essentially saying you can grow again on volumes on top of that?

Yes. We do see growth. I don't believe that we will replace the Wasleys volume in FY '26. But through a number of different initiatives, including bringing on some new product development, we are hoping to offset that as much of the $3.5 million reduction that we've had with not receiving Wasleys proceeds in '26.

Yes. Yes. No, that's helpful. And do you sort of -- do you assume that supplementary feeding activity repeats? Or do you sort of back it out when you give that outlook statement?

Well, we can't bank on it continuing for as [ longer ] period. We still had good July and August pricing. But I would say that if the Bulk Stockfeeds sector repeated its performance this year in '26, that would be a stellar result. So offsetting the $3.5 million, Wasleys is our ambition and our target. But we've -- a couple of things have to line up, and we have to get other growth and the new product development needs to materialize within this period.

Your next question will come from Paul Jensz with PAC Partners.

Just 2 questions on fertilizer, and again, I'll jump back in the queue. Just any indication, Quinton or Richard on, I suppose, the second half performance of Incitec Pivot Fertilisers. You reiterate the '24 number, obviously, but the '25 number?

Look, we don't have a clear line of sight on that, Paul, and I think it would be inappropriate for us to comment at this stage in terms of where Dyno is at in relation to fertilizer.

Okay. And you mentioned supply chain risk, I think back to Quinton on the Incitec Pivot Fertilisers group you're bringing in. Can you give us some -- sort of some indications as to where you might look at with supply chain risk across fertilizer and combining it with feed, just to give us a flavor, please?

Yes. So whilst the underlying businesses have the same skill set and requirements, it is a longer supply chain than we experience in, for example, our Bulk Stockfeeds business. So it's procurement of commodities, some supply chain management conversion, some value adding and then straight into the rural retail sector. What's different is that we're buying -- we can buy grains 4 weeks in advance and line it up through our mills and then deliver to customer within a few days, the other side. And so the supply chain is much shorter. And as a result, you can manage the price risk within that. When you look at fertilizer, a lot of the fertilizer is imported from the Middle East and bringing it on those supply chains means that we've got a much longer shipping period through to selling it and being able to pass on the price risk. So there are processes in place that Incitec use because they're obviously importing significant volumes currently. And those are quite effective at managing the risk. We are doing some further work on unpacking that to make sure that those systems and processes meet our requirements and dovetail with our risk profile. So there's a piece of work on that. But yes, we that will be the nature of this business. And -- but a little bit of volatility is where you make your money, both in Bulk Stockfeeds as well as in fertilizer. It's the big movements where there's a macro or a war-related disruption that we need to make sure we've got adequate processes to cater for.

And just a supplementary because the second half one fell flat. Just have you looked at the, I suppose, the combination of fert and feed and with leading motto that you now have, is there some crossover that you're potentially looking at?

There will be down the track, some opportunity to optimize transport. A fair amount of the grain comes into our feed mills and fertilizer out at different times of the year. So there's transport overlap. There could be ultimately funding models that we could deploy to finance fertilizer in and take delivery of grain on the other side. But I would cast those in the light of sort of 3 to 5 years as opposed to the immediate integration and transition that we're going to be focused on, which I think is much closer to -- more accessible to us in the short term.

Your next question will come from again Apoorv Sehgal with UBS.