ELD.AXELD.AXASX
Loading
Operator: Thank you for standing by, and welcome to the Elders Limited FY '25 Results Investor Briefing. [Operator Instructions]. I would now like to hand the conference over to Mr. Mark Allison CEO and Managing Director. Please go ahead.
Mark Allison: Thank you very much, and welcome to all for the Elders' full year results presentation for the FY '25 financial year. And thank you for joining Paul and myself for the session today. As an overview, the full year results today are solid on a year-to-year basis with EBIT up 12%, transformational projects on track, positive progress on leverage and strong cash generation. Throughout the year, Elders has demonstrated solid operational and financial resilience in the face of mixed seasonal conditions. Our diversified portfolio through its national geographic footprint and multiproduct and service offering played a key role in mitigating the dry conditions across key agricultural regions and the increased competitive activity in our retail business. Stronger activity in livestock and real estate and high financial discipline also supported the solid result. On the transformational project front, we've also made good progress on Wave 2 of our SysMod project with all states rolled out and bedded down by the end of this calendar year. We are also well progressed in the final components of this project with Wave 3, and the completion phase, Wave 4, advancing in full on time. Focusing now on the areas out of our control. The FY '25 season has been a problematic year from a seasonal viewpoint, with a drier than average and late start to the winter crop across Southern Australia, with credit to our highly diversified business model, this is offset by our agency business, our real estate services business, our financial services and our feed and processing services businesses. Rural products has seen some limitation with very dry conditions in Southern Australia and Western Australia. In this context, the performance of Elders with its clear and consistent strategy, multiple diversifications, high financial discipline, hard-working and committed team and enduring customer anchor as the most trusted brand in Australian agriculture on an unprompted basis has remained resilient. This result is strong in safety, sustainability and cash flow with the full year outcome approaching the midpoint of the EBIT guidance range provided earlier this year. Moving now to the Delta Agribusiness acquisition, which completed on November 3. This acquisition is fully aligned with the Elders acquisition rationale that delivered Titan Ag, AIRR and many other bolt-on acquisitions to Elders, with pre-synergies EPS accretion, enhancement of our technical and AgTech expertise and offerings, strengthening of our geographical diversification, particularly in New South Wales and Northwest Victoria, South Australia and Western Australia, building on our crop protection and animal health regulatory package portfolio to drive our backward integration strategy, providing an additional platform for retail segmentation, allowing greater customer centricity and providing further coverage for our real estate and financial service offerings. Moving on to the FY '26 outlook. We are very optimistic on the broad outlook for Australian agriculture at a seasonal and commodity level with the return to average conditions. In addition, we welcome Delta Agribusiness to our portfolio as a platform for significant growth. The outlook and fundamentals for livestock remains sound, with prices for sheep and cattle forecast to be supported by strong international demand against the backdrop of tightening supply. The combination of a positive seasonal and commodity outlook also provides a great backdrop for continued growth of our -- in our real estate and financial services businesses. It's worth noting at this point that our first 6 weeks of trading for FY '26 is tracking some 30% up on last year for the same time on an apples-to-apples basis. So this is without the inclusion of Delta that's come in on November 3. Our approach for today is that I'll provide an overview of the results. Paul will go to the detail of our financial performance, and I'll then provide an update of our outlook and growth and transformational initiatives as we deliver the final year of our Fourth Eight Point Plan. With this overview, I will now commence with the FY '25 full results presentation. So if we can move along to the next slide. The approach, as you see with the -- it's worth noting in the appendix that there's further detail and transparency on sensitivities, business model, et cetera. So why it's worth looking at. So kicking off on the executive overview on the slide committed to improving our safety performance. So from a safety viewpoint, at the core backward-looking metric of lost time injuries, there have been 6 lost time injuries this year, which is an increase from last year. Quite a disappointing result, predominantly in the livestock area. And so we have been able to significant reduce -- significantly reduce injuries across our manual handling and our rural products area. But a disappointing result. We continue to aim for zero injuries to anyone. I think it is worth noting that at the start of the Eight Point Plan process, there were 34 lost time injuries. So we've made significant progress over the Fourth Eight Point Plans, and the lost time injury frequency and the total recordable injury frequency, and you can see the trend on the second slide, are significantly below equivalent industry benchmark. Moving to the next slide, just a quick snapshot of the financial performance. You can see the underlying EBIT, some 12% up on last year. Our return on capital of 11.3%, holding stable and maintained strong cash conversion and the dividend per share payout. And moving to the next slide. So Paul will clearly go into the detail on the financials. Moving to the next slide, and this is over the Eight Point Plan years. And you can see significant return as committed in Eight Point Plan 1, 2 and 3. At the beginning of -- prior to Eight Point Plan -- the Fourth Eight Point Plan, we took the decision to invest heavily in our transformational projects. And there's some $100 million of cost and capital being spent through this period in order to drive our systems modernization project, our automated wool project and also our Crop Protection formulation project. So we knew that, that would drag on our cost of capital and resources and focus through that period, but critical transformational projects that we're at the process of completing, with the formulation process complete, the automated wool project complete and with SysMod running into Wave 3 and 4, which are the final 2 waves through next year. Moving to the next slide. And some of the work we're doing across -- with our people and communities. It's worth noting, again, 186 years of Elders in Australian -- regional rural Australia and agriculture. Unprompted remain the most trusted brands throughout all of these areas and with significant activity across -- with multiple activities across the business. From a safety viewpoint, very clear focus on safety from an engagement enablement viewpoint, as you can see, quite high engagement enablement, as have been for many years, and also a very high focus on safety throughout our people. Moving to the next slide. And just a quick look at the work we do from a sustainable responsible future viewpoint. Many of you are aware of our alignment across many environment, people and community projects and the work we've done with our sustainability report. And you'll note the very strong and aligned partnership with the Royal Flying Doctors. So from our viewpoint, this is who we are. This is core to our DNA, and we'll continue to invest and be highly engaged with our communities around Australia. Moving to sustainability. And our progress against the emissions targets with the next slide. And you can see the trend towards the emission targets we've set. We'll continue to work through these. As many of you will also be aware, there's been a reviewed methodology on emissions calculations from livestock. So we're working through that. But I think the point to note is that we're well on track. And if you take the time to read the sustainability report, I think you'll be very impressed with the progress we're making right across the board in this area. Moving to the next slide. And this is really to emphasize one of the changes that we've made this year. Historically, we've been diversified by product and service, and we've talked about that in our business model, and it's in the business model that appears in the appendix of this pack. But you'll see right through the supply chain from crop protection, through the wholesale with the Elders Rural Service, Delta Agribusiness and then real estate and feed and processing, there's a very solid diversification component that comes out of the business. And if you look through all the key investment drivers, and I think Paul will comment on many of these, very strong EPS growth, diversification. The industry fundamentals are looking very good. And I think it's one of the points that you'll hear us make a few times that we're at the stage now where we've moved through our transformational projects and the big cost of capital resource investment, and we've got an outlook of positive commodity conditions and also seasonal conditions. So we feel very, very optimistic about the next 3 to 5 years as we run through all of these. And finally, just as a quick recap before we jump into the deep dive into the financials. The next slide, just to recap on Delta Agribusiness that joined the group on the 3rd of November, a great business, well run, very complementary from a geographical viewpoint, and it fills many gaps that we did have, very strong in its technical expertise, which also complements Elders significantly. We're looking at $12 million of synergies at EBIT level over a 3-year period in the original business case. Now given that the ACCC have put on a 12-month delay, we're discussing around the Delta Board on how we can fast track this with regard to backward integration given the strong foundation of Four Seasons' brands or products at the moment. So that's a very positive opportunity to fast track those synergies, targeting greater than 15% post synergies from an ROC viewpoint and very much aligned to Elders -- across our approach to the business. And as we've said a number of times, as divisions, all the divisions are stand-alone. So with that, I'll pass over to Paul to go through the financials, and then I'll come back towards the end on strategy and outlook.
Paul Rossiter: Yes. Thanks, Mark, and welcome, everybody. I'll commence on Slide 14 of the pack, which summarizes progress against key financial objectives. Highlights include: double-digit growth in our agency real estate and feed and processing businesses; below inflation cost growth when adjusted for acquisition and transformation; strong momentum in SysMod, as Mark referenced, with all states now live on Wave 2 retail, and Wave 3 livestock to commence rollout in early 2026; product and geographic diversification, mitigating the impact of dry conditions in Southern states; Delta Ag acquisition to further enhance our geographic diversification from FY '26 and strengthen our technical capability in ag tech and precision agriculture; leverage to return to target in FY '26 through a renewed focus on capital allocation and client profitability. I'll now turn to Slide 15, which displays Elders' 5-year financial performance. I note the following progress from FY '24. Sales revenue increased $70.4 million, or 2.2% despite mixed seasonal conditions supported both by acquisition and organic growth. Gross margin increased 7.4%, up $47 million compared to the prior corresponding period or PCP. Comparatively, costs increased 6.2%, noting this includes the impact from acquisition and is therefore not comparable to inflation. Costs will be further discussed later in the presentation. Underlying EBIT increased $15.5 million compared to PCP, but has declined over the 5-year period, with FY '25 impacted by dry conditions. Moving to Slide 16 now, which contrasts FY '25 against PCP. In addition, this slide details the impact on key financial metrics from capital held on September 30 in preparation for the completion of the Delta Ag acquisition, which occurred on November 3. Elders has delivered a resilient result with the following highlights evident. Sales revenue, up $70.4 million despite dry conditions in some key cropping regions, which thankfully ended in June. Gross margin increased $47 million, to $684.6 million, up 7% year-on-year, with growth achieved across most products. Underlying EBIT increased $15.5 million, to $143.5 million, supported by a strong turnaround in agency services and continued growth in real estate. Return on capital was steady at 11.3%, notwithstanding the mixed seasonal conditions and systems modernization CapEx weighing on this metric as the capital outlay proceeds benefits. Improving this metric in FY '26 is a key priority. Cash conversion was broadly in line with expectations with a favorable outlook for FY '26. Net debt increased $20.5 million, to $457.3 million, excluding capital held for the Delta completion, broadly in line with sales growth and the impact of higher cattle prices. I'll discuss these key metrics further as we move through the pack. Moving to Slide 17, which displays Elders' gross margin diversification, a key defense against seasonal variability. As noted, gross margin increased $47 million, to $684.6 million, with growth across most products more than offsetting the impact on crop protection from dry conditions. The key drivers of this result include agency gross margin up $27.1 million, or 22%, following a strong recovery in livestock prices and increased cattle volumes. The outlook for agency services remains positive, driven by strong international demand for protein as well as some destocking in drier regions, limiting supply and supporting prices. Real estate services gross margin increased $22.5 million, or 27.2% with property management, residential, broadacre and commercial all improved on PCP, supported by both acquisition and organic growth. Feed and processing was another highlight with gross margin up $4.1 million or 23.8% due to productivity and efficiency benefits from the new feed mill commissioned in August 2024. Financial services gross margin increased $2.3 million, or 4.2%, supported by continued growth in our new broker model alongside improvement in the livestock warranty product. An increase in on-balance sheet lending was also achieved, partially because of the increased cattle prices. Collectively, the increase in gross margin across these products more than offset the reduced earnings from the exit of the Rural Bank exclusivity agreement in FY '24. Wholesale products delivered a steady result, notwithstanding lower crop protection sales from those dry regions. Growth in the above products significantly outweighed the negative impact from crop protection, which will be discussed further on the following slide. Moving to Slide 18, which analyzes product performance. This slide demonstrates the importance of our product and geographic diversification. The waterfall forward efficiency chart shows the extent of dry conditions, especially in South Australia and Western Victoria, which negatively impacted Elders' retail business with sales, gross margin percent and client confidence, all impacted. Fortunately, seasonal conditions improved from late June which caused for optimism for a recovery in these regions in FY '26. Turning now to Slide 19 to discuss costs, which increased $11.4 million, or 2.2% when adjusted for acquisitions and the impact of transformation. Part of this increase resulted from the inclusion of Elders Wool in base costs from transformation in FY '24, which added an additional $3 million, or 0.6% to base costs. Given this change in categorization, holding base costs below inflation was a pleasing outcome. Turning now to Slide 20 to discuss return on capital, which was steady in FY '24 despite mixed seasonal conditions. When adjusted for the impact of acquisitions and transformational projects, return on capital is 12.7%. Lifting return on capital is a priority for FY '26 through a renewed focus on capital allocation, client profitability and delivery of SysMod benefits. In terms of capital allocation, Mark will speak to the potential divestment of the Killara Feedlot in the strategy and outlook section. Moving now to Slide 21. And working capital, where we see an increase of $68 million from FY '24, mostly driven by higher cattle prices, which increased working capital in feed and processing and financial services. Resale inventory increased $12 million from FY '24, a pleasing result given the late start to winter crop in key cropping regions, which caused an uplift in carryover inventory. This carryover inventory is forecast to clear in the first half of FY '26. On to Slide 22. And cash flow, where we see an operating cash inflow of $117.9 million, a pleasing result considering the late start to winter crop, which pushed some receivables to the fourth quarter. The outlook for operating cash flow and cash conversion in FY '26 is positive with a focus on client profitability to result in some receivables being transitioned to third-party lenders away from Elders' balance sheet. I note that the physical payment of company tax for Elders Limited will recommence in 2026. We'll now move to Slide 23 to provide a detailed update on net debt and leverage. The waterfall charts display a normalized net debt and leverage position, adjusting for the benefit of capital held at balance date in preparation for the completion of Delta Ag. Breaking down the movement in net debt, we see an increase from $436.8 million at the end of FY '24, to $457.3 million at balance date, acknowledging this includes the benefit of $50 million of equity retained for flexibility in acquisitions, approximately 40% of which was deployed in FY '25. I note that the majority of net debt pertains to client receivables, which is self-liquidating in nature. Excluding receivables funded through debtor securitization, Elders' core debt is $161.9 million. Turning to leverage. We see a reduction from 3.1x at the end of FY '24, to 2.9x, normalized for Delta funds held. A return to our target range of 1.5 to 2x is forecast in FY '26 from a renewed focus on capital allocation and client profitability and increased referral of client loans to third-party lenders given trade receivables comprise almost 2/3 of net debt. I note that the return to target leverage is underpinned by but not dependent on the potential sale of Killara Feedlot. I'll now move to Slide 24, where we see significant headroom across banking covenants, noting that these calculations do not require adjustment for the capital held for the completion of Delta Ag. I also note that our bank leverage covenant excludes receivables funded through debtor securitization given their self-liquidating nature. I'll now move to Slide 25, which provides a macro overview of key growth pillars over the coming years. This slide has been included to demonstrate significant growth opportunities and focus areas over the coming years and is not meant to be exhaustive. Regarding systems modernization, Elders has now commenced the final wave of its SysMod program, which once completed, will provide Elders Rural Services with a modern technology platform in Microsoft Dynamics, which itself is evolving at pace. Delivering a return of at least 15% on the program spend is both a high priority and significant growth pillar in the coming years. The acquisition of Delta Ag represents a significant milestone for Elders, increasing points of presence and geographic diversification while enhancing Elders' technical expertise in ag tech and precision agriculture. Accelerating synergies from backward integration in crop protection and animal health are key priorities for FY '26, as Mark noted. The divisional structure is aimed at improving focus and accountability within significant business units. By way of example, real estate services gross margin has grown $45.6 million, or 77% since FY '23, but market share remains less than 5% nationally. We believe the divisional model will help accelerate growth in this and other business units. Acquisition will remain a growth pillar alongside organic growth, provided acquisition prospects meet our financial and values criteria. Finally, the new Elders' brokerage business is noted as a growth pillar, given success to date with our brokered loan book exceeding $1.3 billion from a near standing start in FY '24. Gross margin from loan brokerage has increased from $0.9 million in FY '23, to $6.1 million in FY '25 at a CAGR of 160% with our network of brokers expanded further in recent months. This concludes the financial section of the presentation. I'll pass back to Mark now, who will provide an update on strategy and outlook.
Mark Allison: Thanks, Paul. And really leading off from Paul's comments on the divisional structure, just going to Slide 27 as we look at the Fourth Eight Point Plan. And historically, we've expressed the Eight Point Plan in terms of the diversification of our products and services. And we're now looking at the Eight Point Plan in terms of the 6 divisions of Elders and how that diversification across the matrix of products and services adds further to our ability to work through difficult seasonal conditions. So when you look at the -- this is the final year of the Fourth Eight Point Plan, we've had the ambition of 5% to 10% growth in EBIT and EPS through the cycles over an Eight Point Plan. Clearly, as we -- at above 15% return on capital. Clearly, as we come into a taxpaying state in the next financial year, the EPS growth ambition will need to be adjusted accordingly. But -- and we've emphasized the impact that the transformational part of our agenda over these 3 years has had from a cost of capital and resource on the business. But we're setting us up now for a very solid platform with all the transformational projects coming to a close as we go forward for the next 3 to 5 years. Going on to the next slide. And we -- our view and our move to go to a divisional structure, effective the beginning of FY '26, was really around the fact that each of these areas of the businesses had largely been run as either stand-alone or with a particular focus and emphasis through the governing Board or management team. So as we've laid them out, we've laid them out in order of supply chain, starting with Elders Crop Protection. very experienced managers right across all of the divisions. So Elders Crop Protection with Nick Fazekas. This includes our Titan Crop Protection business and our formulation businesses in Eastern Australia and Western Australia with AgriToll and Eureka. And it's a specialist crop protection business as per Nufarm, Adama, et cetera, et cetera. Then we move the next step along the supply chain to our wholesale business, with Peter Lourey. And this has -- I think you're all aware of AIRR, with multiple touch points and membership base throughout Australia for the AIRR business, and its highly efficient and effective warehouse network throughout Australia. Next, as we go to retail, we have Elders Rural Services, which has a complete offering of retail products, agency products, real estate, financial, et cetera, right across the board. And that business at the moment, since the split of divisions, I've been acting as the divisional CEO for ERS. And very shortly, we'll have an upgrade to that appointment, and we'll announce that in the next few weeks. The next business, again, Gerard Hines running Delta Agri business, very experienced and competent manager and co-founder of the business and with an excellent executive team. So the Delta Agri business doesn't have -- sorry, has a much greater focus on cropping technical service with some additional services -- products and services, but very well run, and looking forward to a period of strong growth and profitability across the board. Elders Real Estate. So Tom Russo had previously run the product of real estate before he ran the Elders network. And so we thought it was appropriate for him to take control of the separate dedicated division. The idea here is that Elders Real Estate has grown significantly, and we'll talk about the growth profile, some slides coming up. Tom is a highly experienced professional in this area, across a number of areas as well, has been the guardian of the expansion of the property management component of Elders Real Estate and also our entry into commercial real estate, which we kicked off a big time in Tasmania. So lots of growth opportunity there, highly dedicated manager and executive team and pretty exciting. And then feed and processing, that, we talked about with Andrew Talbot, another highly experienced manager with a great team. He's grown the profitability of feed and processing fivefold since the First Eight Point Plan, have done an excellent job. The record profitability of this division this year is based on a number of the investments we've made historically with feed mill, center-pivot irrigation, shading, a bunch of investments that have enhanced well [indiscernible] productivity. And it's a very, very well-run business in the portfolio. The consideration we've had with feed and processing is actually if you look across that supply chain, feed and processing is a different business to the others. And our thinking is that it's been highly successful. It's grown significantly. We've invested significant capital and got good returns as we saw with record profitability this year. But we've reflected on whether feed and processing would do much better and go to the next level with under natural ownership. And so that's the reason we're considering a divestment of the feed and processing division. And if the moons align and there's an appropriate shareholder value-creating proposition put in front of us, we'll consider it strongly. And I'll just reiterate Paul's earlier comment that our pathway to back on leverage and to a lesser extent -- well, actually, on leverage is the key metric we're thinking about, is not dependent on the divestment of feed and processing. So if the exercise comes up with options that are not to enhance the shareholder value, then obviously, we're very happy, and it's a great business and a great team to be in the Elders Group. So moving to the next slide. And if we look at the modernizing of the platform, we've talked about SysMod. We gave a commitment from a transparency viewpoint to disclose each of the cost of capital components of each of the waves as the Board approved business cases, so when it was formally approved. And we've done that. But you can see -- and if we include Wave 1, there's some $100 million to $110 million investment over this period. And this is the period in that slide that we talked about upfront, where from '22 -- FY '22, where we have had considerable transformational investment. Now with all of these investments, as we've seen with Killara on the capital investment there, there is a lag. And so the benefits of these investments are coming through now, in FY '26. And as we close off SysMod at the end of FY -- calendar FY '26, we look forward to those investments coming through into the future. And I think it's worth noting that this does really set Elders up with a contemporary platform where we can take advantage of multiple AI opportunities that historically we haven't been able to. So just looking to the next slide and running through each of the waves and the different components of the waves. That's really for information. But as I mentioned, the plan is that we'll complete these. We're still running in full on time, which I know sounds amazing for an IT project, but we're still running in full on time, and it's -- we're looking for the finish line as we run out next year. Okay. Now moving to the next couple of slides. In the next 2 slides, we've wanted to showcase a couple of products and services just to put more of a spotlight on them. And for this presentation, we picked financial services and real estate, which we had covered in the half year. But really to emphasize, in terms of the balance of our portfolio, products and services, we've now -- clearly, we've strengthened our position across the whole supply chain and real products, from Elders Crop Protection, to wholesale, to retail, all the way through and technical service. And in our portfolio, we're looking at really strengthening and rebalancing our financial services, all capital and real estate. So the characteristics of both of these services, as we look at them, and it fits nicely in our portfolio management, a high return on capital. We have a relatively low market share in both, financial services and in real estate. The brand is important. So unprompted most trusted brand in Australian -- regional, rural Australian agriculture. So the Elders brand is critical. There's excellent market outlook in both areas. And obviously, there are links to livestock outlook and general commodity outlook, but a strong outlook, and it really does help us balance the portfolio. So just a quick a quick look at financial services. And you can see, in line with Paul's comments, solid growth, replacing the Rural Bank exclusivity agreement and growing in a capital-light manner. So -- and we can go to questions on that in detail. The next slide on real estate. Very, very similar profile. And I think the gems that are probably not as obvious for everyone. One is the product -- sorry, the property management business. We have some 20,000 properties that we're managing now across Australia, which is a very solid and reliable flow for us and also our entry into the commercial real estate only in regional, rural Australia. So very, very positive platforms. And in terms of portfolio balance, a bit -- quite nuanced, and this is how we run Elders as you -- many of you are very aware. So then going to the forecast and outlook across all of the areas on the next slide with -- without going through each one of them, and [indiscernible] each one of them on the next slide. You can see our thinking is that we've had a period of difficult market conditions and significant transformational investment. We've come through that period. We've lagged benefits from the transformational investment. Right now, we're confronted with the next 3 to 5 years, we're looking at completion of the transformational projects, the commodity outlook and the seasonal outlook being average to positive and our ability to really hone in division by division to grow, to drive the capital out, as Paul mentioned, from a leverage viewpoint and to enhance the business for strong growth against the backdrop of average to good seasons. So it feels very positive. For the first 6 weeks, as I mentioned, of this trading year, FY '26, apples-with-apples. So with that, Delta included, we're up some 30% on the previous year. So very early days. But I think it does fall into the -- our thinking and how we've been talking about our outlook for FY '26 going forward. So with that, I think I'll open up for questions. So we'll just leave that slide on the screen, and we'll open up for questions.
Operator: [Operator Instructions] Your first question comes from James Ferrier from Canaccord Genuity.
James Ferrier: First question I wanted to ask you about was just on your view on livestock volumes in the year ahead, just in the context of the volumes that were achieved in FY '25 as a baseline, herd sizes as they stand right now. I mean everyone can see the livestock prices, but what's your view on volumes in the year ahead?
Paul Rossiter: Yes. Thanks for the question, James. And it is one where there is a little bit of uncertainty going forward, I think particularly in sheep volumes. And just for those who don't know, we saw certainly higher cattle volumes in FY '25, up about 13%. Sheep volumes were down about 8.1%. So we do see that rebuild coming through SA and Western Vic, and that's likely to drag on sheep volumes into FY '26. Cattle is a little bit different just because of the geographical footprint. But it is one to watch. But what we do expect is that if volumes do taper off in sheep, we expect prices to offset because the international thematic for Australian protein remains very strong. And so we just see that price being flowing through the supply chain.
James Ferrier: Yes. That makes sense. Second question, on Slide 17. We can see there that crop protection gross profit declined 9% on PCP. What was the volume of product associated with that $129 million of gross profit?
Paul Rossiter: Yes, I don't have a volume number to hand, James. So I'll see if I can cover that post. But I will speak to the impact of dry conditions. So we did note a roughly $12 million impact from SA and Vic, [ Riv ] at the half. We saw that continue into the second half, mostly in Q3. We think the impact was roughly $19 million volumes. Yes, we're certainly up in Northern New South Wales, obviously down in SA and Vic, but I don't have the net numbers here.
Mark Allison: I think, James, the story is on margin compression as you've seen with other businesses and the sales that we experienced particularly in the dryer areas.
James Ferrier: Yes. Okay. Understood. And last one from me and probably one for Paul again. Just some thoughts on D&A, CapEx, interest and tax for the year ahead.
Paul Rossiter: Yes. Look, depreciation, well, will increase given the completion of Wave 2 and the commencement of the continued amortization of SysMod CapEx. In terms of CapEx outlook, once again, in FY '26, it is dominated by SysMod. Some of Wave 4 will fall into FY '27, as you can see on the SysMod slide. So it's a bit uncertain, but we think -- I'd say, sort of $20 million to $25 million will fall from SysMod into FY '26 and perhaps another $5 million to $10 million outside of that. In terms of tax, so we will pay a small amount of tax, about $1 million following the submission of the FY '25 tax return. So it will be in February 2026, and then we'll pay effectively pay-as-you-go company tax thereafter. I think your question may be referring to the statutory tax rate, which fell in FY '25. That was pertaining to a tax credit related to prior period for R&D. So that's likely to be nonrecurring.
Operator: Your next question comes from Richard Barwick from CLSA.
Richard Barwick: Can I just double check, when you're talking SysMod -- and obviously, it looks like some benefits from an EBIT perspective are expected in FY '26. Are you able to put some numbers around that? And then equally, what you would see as the non-underlying OpEx impact from SysMod in '26?
Paul Rossiter: Okay. So yes, thanks for the question, Richard. So in terms of benefits, the major tranche of benefits is through an uplift in retail margins. And we see that coming from better control of discounting and better categorization of clients. And just for context, a 1% uplift in retail gross margin percent is about $22 million. So 0.5% uplift there gets us fairly close to the benefits required. The other benefits we see coming from uplift in sales, and that comes from better client data over time, but probably longer dated than the retail margin benefits. In terms of non-underlying OpEx for FY '26, so if we work on roughly 60% CapEx, 40% non-underlying OpEx, over that sort of $20 million to $25 million in FY '25.
Richard Barwick: Okay. And my other question is to do with the -- there's quite a sizable impairment of goodwill obviously captured within this FY '25 result. Can you just give us a little bit more background exactly what that related to, please?
Paul Rossiter: Yes. So there's a couple of businesses that we impaired, both which were reported on during FY '25. So one was Currin Co, where we lost a number of agents in Victoria. The other was Esperance Rural. Yes, we had, I suppose, an unsuccessful transition post earnout.
Mark Allison: I think, Richard, it's -- one of the learnings is that, as you know, we've been highly successful with our acquisition -- bolt-on acquisition template in keeping the vendors in the business. And when we do our post-implementation reviews post earnout, it's been 95% plus positive. And we've identified in the last 12 months, whether it's through tougher conditions or whatever the driver is, that the 2 years post earnout is now an area that we need to really focus on in terms of potential loss of staff as we saw with -- actually, it was longer than 2 years with Currin Co, where the vendor leaves the business, the earnout is completed. Historically, we've seen that in business as usual within ERS. And we've now established a project a couple of months ago to identify how we ensure that we don't get a repetition of that situation because it had been a very high success rate of post earnout of keeping the people.
Richard Barwick: And well, I guess it's -- the obvious question is, what are the risks? I mean, obviously, you've got something in place here to try and to mitigate it, which would suggest you are a bit concerned that this could repeat with some -- because I mean you made a lot of acquisitions in the last few years. Yes, how do we think about that risk?
Mark Allison: Yes. Well, I think the -- a couple of points, is that if there is -- like something in the order of 100 bolt-on acquisitions, and we've had 2 or 3 like this. Clearly, the Currin Co was a larger one. If you like a sense of Shakespearean irony, the Esperance rural supply defection was to Delta. I'm sure you enjoy that. But the -- I think the materiality of it has dropped off because we aren't pursuing the same sort of strategy on bolt-on acquisitions that we had, as you're aware, given that the rural product supply chain is pretty complete and also given that the ACCC regime is hard to unscramble to do business. The -- our sense is that, that won't be where we'll be getting our growth from. It will be more organic. But I think the issue is that post earnout, the -- and we have time. We have 2 or 3 years each time. We have to have the business as usual hooks and retentions in place for these people. Because as you know, in regional, rural Australia, the personal relationship goes a long way.
Operator: Your next question comes from Ben Wedd from Macquarie.
Ben Wedd: Maybe just turning to your question -- your comments around capital allocation there and particularly with the potentially moving some of the receivables into third-party lenders there. I'd just be interested in sort of, I guess, any timeframes you can give around that and how that sort of looks from an operational standpoint.
Paul Rossiter: Yes. Thanks, Ben. Look, it is something -- and I think the way that I'd explain it firstly is that we are taking a return on capital approach. So where we're not seeing, I suppose, a deep relationship with clients that warrants the use of Elders' balance sheet, then we'll look to obviously do that business with the client that use third-party financiers. So we do see this as certainly something that has commenced already. It's a process that's commenced. And that will roll through FY '26 and beyond. But it won't be something that we seek to do hurriedly either. So it will be an incremental thing over a number of years with a significant start in FY '26, particularly in the fin services and seasonal finance areas.
Ben Wedd: Yes. Got it. And then maybe just any comments you can sort of give us around Delta's sort of performance over the last 12 months as it might compare to Elders as well in some of those key categories like ag chem and other cropping areas.
Paul Rossiter: Yes. Thanks, Ben. So I mean, just a couple of comments. I think the first thing to note is that Delta's financial year is June 30, and their footprint was very exposed to dry conditions that occurred in FY '25. So I think there are a couple of key distinctions between Delta and Elders. The other being, Elders obviously had an offset in livestock agency that doesn't exist to the same extent in Delta. Yes, so the Delta result was impacted certainly more than Elders by the dry conditions. Trading, since it started raining in July in Delta has been above -- certainly above PCP. So yes, that business is operating very well.
Operator: Your next question comes from Evan Karatzas from UBS.
Evan Karatzas: Maybe just to follow up on that one then, so sort of the ASIC accounts for Delta. So the EBITDA went from sort of the $53 million to $40 million. Can you sort of just give a bit more information around if you expect that original FY '24 earnings to be realized assuming, I guess, normal conditions? And then anything you can say around the synergy benefit we should expect in '26 for Delta as well?
Mark Allison: Yes. I think the key point for us is that what we experienced as the turnaround from these dry conditions was outside the Delta financial year. And so that's what we've experienced ourselves. Just as a note, prior to going to the next phase on the acquisition a few months ago, we -- so Paul, myself and the Chair of the time, Ian Wilton, sat down with the Delta management team to go through their FY '25 results, just to give ourselves comfort that our proposition and thesis on the acquisition remained on track. And after the presentations, discussions, I think, Paul, it's fair to say that we felt very, very comfortable. In terms of your question on the synergies, I think it's a key point for us. We've already had meetings with the team, with [ Jarred ] and Matt and Chris and the team around the synergies. We had planned for 12-month -- sorry, a 3-year development of the -- or extraction of the $12 million synergies. Our belief is that given the timing, given the November 3 timing and the proximity to the FY '26 winter crop that we do have time to do a lot of the work that we wouldn't have been able to do if it had been in the same period the previous year. So our sense is that we can fast track those synergies and bring them through. And as you know, they're largely crop protection. They're largely providing different crop protection supply chains out of Titan into the Four Seasons brand. And with Steve Hines, the person who runs that business within Delta, there's great alignment with Nick Fazekas, who runs the overall crop protection business. So we've established the governance structure, the Board structure, et cetera, around Delta and all the divisions. And again, I feel pretty comfortable and optimistic that we will get -- we will optimize the synergies in FY '26.
Evan Karatzas: Okay. And just final question. Just with the debt position, can you provide a number of -- to sort of normalize it if you remove the reduction in carryover inventory in SA, Vic and removing or transitioning some of the select client loans from Elders' balance sheet to third parties, just so we can sort of look for an adjusted or a like-for-like debt position, please?
Paul Rossiter: Yes. Look, just very high level and back of envelope, I would say the carryover inventory, I've put a number of around $30 million on that, which we expect to be resolved in the first half. In terms of -- I'll put another bucket in there, Evan, in terms of overdue debtors, we think there's a $20 million to $25 million opportunity there. You may have noted that we have had a $10 million increase in 90-day plus receivables. That is 2 clients -- 2 large clients, that we expect to be resolved in FY '26. So we feel that we're at a peak in terms of overdue receivables as well. And then you've got -- in terms of client receivables or client loans, seasonal finance and loans, I've put a number of sort of around -- a target of around $50 million across financial services and seasonal finance.
Evan Karatzas: Okay. That's super helpful. Maybe just a quick one, I'll just sneak it in. The 1Q comments you made, do we assume you're up 30%? Do we assume we're sort of back close to that? I think you previously mentioned, like, a through cycle 1Q average EBIT was around $37 million. Is that sort of where we're, I don't know, trending towards or run rating towards?
Paul Rossiter: Yes. And I think the -- in terms of tailwinds in the business, Evan -- so I think the -- certainly, livestock prices are up relative to year-on-year. I'd say that tailwind will moderate the further we get through the financial year. Obviously, livestock prices increased throughout FY '25. But I think in terms of the Q1, it goes back a couple of years, when we gave that number, obviously noting that's not audited. But yes, it's a fair comment.
Operator: Your next question comes from Paul Jensz from PAC Partners.
Paul Jensz: Just one at the top, Mark, if I can. You talk about the 5% market share you have in the wider farm input space. Can you see some additions to your business or the Elders business? Or is it a case of organic growth from where you are to get a larger part of that pie?
Mark Allison: Yes. Thanks, Paul. So when you say the larger rural products, are you referring to finance?
Paul Jensz: Right across the board. You had a chart there with the Delta acquisition where you're a small part of a very big pie in farm inputs. and you've got the new structure that you have. I'm just wondering where to from here if you're just such a small part of the pie?
Mark Allison: Okay. Yes. So that broader pie includes fuel, like all the finance, et cetera, et cetera. So a whole heap of services that we're not in. So I think our focus with -- well, I think it's -- the focus that Delta has had for a long time, will continue on, where it's a service-based customer-centric approach across the board. Delta is very small in Queensland and -- but ERS is also not that strong in Queensland. So there are geographical gaps, but it will largely be sticking to the knitting of what each of the divisions does best. And in that -- in the case of Delta, although it's got some broader offers, the focus is around that very technical rural products-based customer centricity.
Paul Jensz: And that's across the broader Elders business as well, if I look at the new structure that you have? It's really just sticking to the core business? You don't see another bolt-on there?
Mark Allison: No, I don't think so. I think our view is that the -- any deviations, slight deviations from where we are now, we've talked about in the Elders Real Estate business, it's around strengthening our commercial real estate in regional rural Australia area, continuing to build on our property management business, which is a really solid good business. I think in ERS, there's a lot of -- in the traditional pink-shirted DRS front end, there's a lot of efficiency. Because we've just put SysMod through ERS, they've got the front-end point of sale across all the branches across Australia. So it's really around all the efficiencies that we promised and controls. And again, customer understanding that Paul talked to in terms of data, that ERS hasn't been doing in the past. In terms of Elders Crop Protection, I think the focus will be some -- a little more on integration because the formulation businesses run stand-alone to the traditional Titan business. So we'll slowly move around integration there on systems. And then feed and processing, really, we're looking at ways of expanding efficiency with acquiring extra land with some increased backgrounding, many of the efficiency programs that we've had previously. So across each division -- and I guess it goes to the point of why having focused divisions makes so much sense. Because each of them have their own nuance, their own focus, and it allows the management teams to really drive the efficiency and profitability.
Paul Jensz: Okay. And then if I -- just a second question, if I can, if I build the building blocks towards, let's say, 2027, '28 numbers that consensus have, it doesn't seem to be a lot of, I suppose, underlying organic growth if you do the SysMod 250 staff that came across with the bolt-ons, Delta and the small free kit you get from '25, some of the earnings come into '26. So I'm interested in that organic growth number because I don't think consensus has got a big number in there for it and neither do I at the moment.
Mark Allison: Yes. Well, I'm not sure how the -- what the assumptions are on the models. But I do know from a -- I mean, if backward integration is organic growth, and we certainly see it that way, the backward integration opportunity for ERS still has 10-or-so percent to go of the available generic portfolio and the -- just in crop protection and in Delta, there's probably 40% to go. So I think from us doing things that we control, not relying on market conditions, there's a lot of -- and then you've got also the benefits, the lag benefits of the transformational projects. But yes, your observation is probably right, Paul.
Paul Jensz: And the final one, I thought others would ask this question, Mark, but I'll do it. The press -- I love talking about management transition, Mark, and your term comes up at the end of next year. I'm interested in whether you could return fire with what the press, like, talking with management change.
Mark Allison: Yes. No, I thought the comment in the Australian was relatively accurate. I said when we refreshed the Board and I stayed -- I decided to stay, I said the earliest that I'd leave would be at the end of this Eight Point Plan, so that's September next year. And that's still the case. And it's not a term in the contract. It's an ongoing contract. So basically, my position has been that as a minimum, I'll stay to the end of the Eight Point Plan.
Operator: Your next question comes from John Campbell from Jefferies.
John Campbell: Firstly, just for clarity, what's the dollar value of adjustments that you've made to arrive at adjusted EBIT?
Paul Rossiter: So you're -- in the investor presentation, John?
John Campbell: Yes. Yes, it just said $143 million, just for clarity. So I know what we're adjusting.
Paul Rossiter: Okay. I might just come back offline on that. So we do have -- we've got a list in the annual report, but yes, I'll come back on that offline.
John Campbell: Yes. I can see where you've got that in the accounts. I just wasn't 100% sure which is included in your adjustment calculations. But I think we've got a call on this afternoon, Paul, so we can maybe touch base then. And just Mark, around -- and you sort of touched on it, but I presume with the improving seasonal conditions in the Southern regions that impacted in FY '25, in terms of that competitive intensity in crop protection that you've been talking about, I presume you see FY '26, so that sort of level of intensity and price competition and the like abating over the course of '26?
Mark Allison: Yes. I think there are probably 2 components that leads us to think that way. One of them is around the seasonal conditions, as you just mentioned. And the second one is the stabilization of COGS out of Chinese factories. So the idea of lower priced cost of goods coming into Australia and then driving market price down, that doesn't seem to be where it was. Earlier, I think 6 months ago, we were concerned that tariffs on Chinese crop protection into North America may drive dumping of product in Australia and therefore, further drive prices down. If you're caught with high-cost inventory, you're obviously going to be screwed from a margin viewpoint. But our sense is that it's stabilized. And regardless, even a stabilized normal season environment, Australia has the lowest crop protection prices for all around the world. And it's not uncommon for multinational companies to divert product from Australia to Europe because they can make so much more money out of the same active ingredient.
John Campbell: Okay. So that all augurs pretty well for crop protection for '26?
Mark Allison: It looks like -- yes, as I said, I think we're pretty optimistic, both commodity season and the back of the transformational projects.
Operator: Your next question comes from Mark Topy from Select Equities.
Mark Topy: I just wanted to ask a question around the property side, the retail, the growth and both in the gross margin and the sort of volumes and some expectation around that and maybe some breakdown between what's organic and what's been achieved by acquisition because you clearly got a very strong growth rate. Can you give us some sense of how that looks going forward now?
Paul Rossiter: Yes. Thanks, Mark. So just for clarity, so that was for real estate services.
Mark Topy: Yes.
Paul Rossiter: Yes, yes. So look, we -- in terms of growth, we see roughly the split between acquisition and organic, about 60% acquisition in F '25, 40% organic. I do note that one of the significant benefits from the acquisition of Knight Frank was to substantially grow our commercial real estate business. It also introduced a valuations business to the group as well. So when we think about real estate growth, it is across residential properties under management, broadacre, commercial and now valuations. So there's a few strings to the bow there. I'd also just make a comment in regards to broadacre. It did grow, but very fractionally in F '25, that part of the book was held back by the dry conditions in South Australia and Victoria. We do expect sort of pent-up vendor demand as those regions improve.
Mark Topy: Right. Just thinking about the Tasmania market, kind of, say, how much growth opportunity do you see in that market going forward?
Mark Allison: Yes. I think with Tasmania per se, I think it's -- it would be incremental growth. But I think the big benefit of that acquisition, which is the old Knight Frank business, is the commercial real estate knowledge, networks, et cetera, in the Mainland. And we're already seeing that is very, very important. So there are many contacts and insights that we didn't have on commercial real estate that we've gained from that business that is really helpful in our approach to Mainland expansion in commercial real estate.
Mark Topy: Great. And just on the Delta side then, can you just talk to the systems and system harmonization in terms of what's being done in the Elders and whether any CapEx might be required if you like to harmonize Delta in line with Elders?
Mark Allison: Yes. So the SysMod project is predominantly Elders'. And our approach at the end of Wave 4 when we switched off the AS400, and we're completely on Microsoft Dynamics 360 -- 365, sorry, we might have got a discount. Definitely not. So from that point forward, each of the acquisitions or each of the other divisions, whether that be AIRR, Elders Crop Protection or Delta, will be business case-based. So if there's a business case from the Delta Board around aligning, enhancing systems, then it will be treated on a return on capital business case basis. And we want to take it to business as usual because it's not just an ideological, everything has to be on the same system. This is all around return to shareholders. And all the systems that they're all operating on are fine.
Mark Topy: They're all fine. Okay. I was going to say. And then in terms of -- I know you want to accelerate the Delta, but in terms of any risk areas, in terms of that integration, I noticed, for instance, they've got -- they're using different property managers. Do you perceive any sort of issues in migrating Delta across to Elders in that regard?
Mark Allison: No. Well, I mean, it's all going to stay the same. So there's -- in terms of backup and stuff, which I think you're talking about. So we've got a mandatory integration. We've got a [ might ], and then there's a light touch component of it. Each of those are being developed with project teams between the businesses. So the -- our view is that it's a well-run business. It's got good management. It's got a strong Board governance to set the direction, and we'll be making the right decisions for the right reasons rather than any kind of ideological control-based decision. Of course, the mandatories around safety, financial transparency, regulatory compliance and so they're mandatories, as you'd expect.
Operator: Unfortunately, that does conclude our time for questions. I'll now hand back to Mr. Allison for closing remarks.
Mark Allison: Okay. Well, thank you very much to everyone. I did note that we have a couple more in the queue. So apologies to those. Paul and I have a back-to-back with all Elders staff. So 2,000 or 3,000 people will be waiting on the line for 5 minutes. So we've had to call it there. So for those that we haven't been able to talk to, we look forward to talking to you in our one-to-one sessions. But I appreciate everyone coming in, and thank you very much.
Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.