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Edited Transcript of ELD.AX earnings conference call or presentation 10-Nov-19 11:00pm GMT

Full Year 2019 Elders Ltd Earnings Call

Adelaide Nov 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Elders Ltd earnings conference call or presentation Sunday, November 10, 2019 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mark Charles Allison

Elders Limited - CEO, MD & Executive Director

* Richard I. Davey

Elders Limited - CFO

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Conference Call Participants

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* James Ferrier

Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst

* Paul Jensz

PAC Partners Securities Pty Limited, Research Division - Executive Director of Research

* Philip Pepe

Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Elders Investor Teleconference. (Operator Instructions)

I would now like to hand the conference over to Mr. Mark Allison, Managing Director and CEO. Please go ahead.

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [2]

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Thank you very much. And welcome to everybody on the call. So just as a lead, and I think everyone's aware that this is the second year of our second Eight Point Plan. And we made a commitment at the end of the first Eight Point Plan of 5% to 10% growth, of -- and a return on capital above 20% through the cycle through to 2020. So from our perspective and as we run through the presentation, we're comfortable that we're on track to meet that commitment that we made at the beginning of this Eight Point Plan.

What you've seen out in the market over the last number of months have been multiple downgrades across a list of agricultural stocks, and that Elders share price has obviously been caught up in this sentiment.

The first and second of our Eight Point Plans have been focused on cost on -- developing a cost and capital position that allows good returns in bad seasons and excellent returns in good seasons. And I think many of you are aware that we've been highly focused on initially, back 5 years ago, establishing a cost base that allowed us to achieve good returns in bad seasons. And then with our portfolio management approach and our return on capital management approach on developing a capital base that also allows us to make good returns in bad seasons, and we see this as a critical component of being a publicly listed agricultural company.

So this has driven the last 5 years in line with our Eight Point Plan strategies. It's driven diversification across our business, our products, service, business model and geographical level and has also been underpinned, as I mentioned, by a significantly strong financial focus.

So when we look at that, and I think in life and in business, and particularly for agricultural companies, we have a very, very strong view that if you fail to plan, that you plan to fail. And over the last 12 to 18 months of poor seasons in Eastern Australia, where a number of companies have struggled under this -- under this environmental condition, we've been able to announce today a net profit after tax of equivalent to last year's record profit. And when I say record profit, record profit since 2000 -- end of 2013 when we return to be a pure-play agribusiness.

So all in all, a sound performance under tough market conditions. This does include a year-on-year apples and apples comparison of 16% reduction with acquisitions making up the rest that brings us to the same number as the previous year.

Our EBIT within 1% of last year's record and return on capital that has slipped under 20% but is still almost twice our weighted average cost of capital.

So as we approach the presentation, the positive -- the outlook -- FY '20 outlook looks quite positive and we've got multiple business development and business improvement and systems modernization projects that we'll be working on and also the integration of AIRR. The summer crop as you're aware has been forecast down, and we're already seeing the implications of that. And as always, we plan on an average season. And with those, we believe that we will be on track to hit that commitment from a few years ago.

So our approach to the presentation will be for me to start off with some high-level assessments. Richard will then run through the detail at a financial level and then we will look at outlook. The appendix of the pack has a number of quite insightful slides that may be helpful if there are questions during the presentation or for review after. So we've got commodity outlooks, we've got some -- the details and the different slides of our financial performance. But we can also take questions from those.

So moving to the financial performance summary. As you can see, the EBIT down 1% on last year flowing through to underlying profit after tax, flat with last year's record. The -- in terms of the net debt, the net debt has more layers to the story and Richard will go through the detail of the net debt. But clearly, we raised capital, but it includes capital we raised in the AIRR acquisition effectively increased by 31 -- $31 million. And as I mentioned, Richard will go through the detail.

In terms of return on capital, we're at 18.2%. so on a 3-year average, so the 3-year life of the Eight Point Plan, the return on capital is 22.8%, but we'll obviously be working with high discipline on our capital management over the next 12 months to align with the commitment that we made to the second Eight Point Plan.

Looking at the delivery against our priorities, and I'll just note a couple of points here on the next slide. Firstly, the -- we did have a cluster of lost time injuries in the last couple of months of the year which was quite disappointing. Although the injuries were not significant in terms of damage to or harm to individuals, it did refocus the business quite significantly.

Our pathway has been from 34 lost time injuries back 5 years ago to 4 in the last couple of years. So we will now reset our focus. And I think I've mentioned that, many times that certainly in my experience over 7 companies that I've run, a safe business is a highly profitable and high return business. Our target remains for 0 injuries.

When we look at our performance, I've made the comments on some of the financial metrics on the last slide. I'm just going to run to leverage ratio increased to 2.4 from 2. And I think it's worth noting that by the end of FY '20, our belief is that we'll be at or below that 2 number, as we've made the commitment earlier on the AIRR acquisition.

Running through -- jumping on to the key relationships, many initiatives in place. I think what's top of mind for Elders, having been around for 180 years now is the drought conditions earlier in the year, the flood conditions and our bushfires across our mainstream regional rural communities. We remain highly focused on supporting them as much as we can in many, many different ways and even if that's financial, nonfinancial, what happens -- whatever happens, our people are clearly deeply embedded in the local communities, and we're working with them in those major areas.

In terms of efficiency and growth, going to the second point, and I've already flagged that we see FY '20 as a year of consolidation for Elders. We have many BD, Business Development, projects. We've also introduced a new focus stream of business improvement, which we'll talk about a bit later on in the presentation, but we see significant capital reduction and EBIT benefit in the business improvement area.

We also have a platform modernization project that we're focusing on. And finally, we have the integration of AIRR and the backward integration components of that within the Elders business, so many, many initiatives. In our sense, this will be our focus to make Elders better and stronger as we continue to grow through these periods.

So I'd like now to hand over to Richard to run into the detail on our performance.

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Richard I. Davey, Elders Limited - CFO [3]

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Yes. Thanks, Mark. So now I'm on Slide 6. So just looking at the results from an underlying profit by product I said point of view. I said the waterfall graph that we've sort of got there on that slide just highlights the major movements when compared to last year. As Mark already mentioned, with the like for like business down by 16%. This is mainly from lower retail and mall activity, offset by acquisition earnings.

Just focusing for the moment on acquisitions. This added 10 million at the EBIT line for the year, with nearly 60% related to our tightened backward integration investment we made as in the prior -- year before that, an otherwise tough year in that segment.

Retail earnings were down by approximately 4% on the prior year versus the backdrop of reduced summer and winter cropping production. Agency Services margin was down pcp, mainly in the wool part of that division from lower wool volumes, about 22%, and that's in line with the overall market.

Livestock margin was up for both cattle and sheep with cattle upside mainly due to higher volumes from increased turn off activity and sheep up from strong prices.

Financial services performance, as outlined in the comments you'll note there, was consistent actually year-on-year because of the new arrangement as a reported margin is actually reported now, I said, lower with a corresponding reduction in costs.

When you exclude the lower financial services costs, as I just mentioned, costs were actually up by $0.9 million with increased insurance costs and technology investments being the key drivers of that increase.

So just moving now on to Slide 7 by geography. So looking at the result by current geographical structure, both the Northern and Southern zones were down on a like-for-like basis. In the North, persistent dry conditions has continued to impact activity, with most products down year-on-year, with retail and wool having the largest overall impacts in that zone. A major part of the downside was concentrated around our Northern New South Wales business, B&W for which we own 70 -- 75%.

Reduced wool volumes and higher costs were the main drivers of the lower earnings this year in the South, which did come off a record year in 2018.

Western Australia finished slightly up on last year, with higher cattle volumes and sheep prices, supporting increased livestock margin. Wool was down on lower volumes, whilst real estate had a reasonably good year with both broad acre and rural residential activity up. With a soft finish, however, to the winter cropping program in Western Australia, retail earnings were back slightly when you exclude acquisitions in that zone.

Corporate and other costs per savings was mainly a result of lower non-commission incentives partially offset by increases on Corporate insurance's IT.

Moving on to Slide 8, as said capital. Return on capital for the year finished at 18.2% or 22.8% on a rolling 3-year average, with higher retail working capital, mainly through debtors and lower wool earnings being the key drivers there.

Average working capital levels, which as said from the table lines, when compared to the prior year were up by $51.7 million. Acquisition-related increases made up half of this with higher debtor days in both livestock and retail making up the balance. Other capital increased by $37.8 million from the acquisition of Titan in the Rural Products division and livestock in transit product in financial services being [tested] for those key increases.

Balance date total capital was up by $79.6 million from increased working capital of $46 million increase in investments.

Turning now to Slide 9, as said the cash flow. Operating cash flow for the year was an inflow of $26 million before related party advances to StockCo. This number was lower than expected with the dry weather in September, or particularly in September, bringing livestock volumes forward, which was the main driver of the negative $19 million working capital movement, which we'll see in that waterfall provided under Agency Services. Other includes the payment of provisions and non-commission related incentives from last year, asset profitability and also a lower non product-related as said creditors.

Interest tax and dividends of $3.3 million includes outflows of approximately $10 million, which comprised interest costs of $6.6 million, and tax paid at $3 million. This was probably higher than sort of normal. We sort of normally pay that $2 million in tax, but we had also a $1 million asset tax billing [that was a major] we had to pay, with inflows of $7 million from dividends received from our insurance investment offsetting those outflows.

CapEx of $5.5 million was consistent with the prior year, with some spending on our New South Wales feedlot and some increased spending on digital and IT.

Turning now to Slide 10, net debt. Debt level as of the balance date, as said were -- as said down by $79 million on the back of proceeds received from the equity raised during the year, offset by working capital -- increased working capital held at year end. And circa about $55 million, as said I'm looking at, as said on prior year from investment activity.

Average debt levels were up which is probably the main as said piece that I would sort of look at when compared to the prior year through a combination of higher working capital on similar earnings and Titan-related capital increases that people may recall were sort of elevated at the first half of the year. And this was from both the initial investment and also from the increased working capital required for that investment.

Our key balance sheet ratios, with the exception of leverage, have improved year-on-year, and our banking covenants remain strong with significant headroom as said available. With the acquisition of AIRR and the significant capital raise we undertook in July this year to fund -- mostly to fund that, leverage is expected to come back to F '18 levels in the next 12 months.

So now turning on to Slide 11, the market outlook. And I'll hand back to Mark just to cover off the last couple of slides.

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [4]

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Okay. Thanks, Richard. So in terms of the market outlook, we've broken it up by product and service as you can see. But I think the broad picture, in terms of summer crops, summer crops forecast to be down around 30%. And we are disproportionately represented in some of the Northern New South Wales areas, as many of the listeners will be aware. So what we're seeing is average winter crop, which we tend to -- that's how we approach the market. The down -- the reduction in the summer crop will be offset in our mind by the return to an average winter crop. And we've continued to take the position that we'll plan for average seasons across Australia.

In terms of the controllables, we'll continue to drive the Titan strategy of backward integration. And that has been going -- moving quite successfully as we've worked through the last 12 months. We'll complete the AIRR integration; although it will be standalone, a significant part of the synergies of -- the average synergies of $8 million over 2 years are in our -- directly in our control with the transfer, particularly veterinary product registrations into the Elders network, and that's moving quite nicely. We expect by Wednesday this week that, that will be completed.

It's worth noting that we did put in place a structural change October 1 where we included a reporting line of rural supplies with one of the executive committee members, Richard Norton, managing AIRR, Titan and the Elders retail business. We believe this will allow for a very smooth transition and uptake of the integration benefits that we've talked about.

Across the other areas of the business, there are upsides and downsides, and obviously average rainfall changes dynamics within sheep and cattle. In terms of the herd rebuild, the cattle, and the sheep to an extent, the -- our sense is that at the -- in the appendix in the presentation, we have commodity outlooks. But our sense is that -- our view that we will hit the range we committed a 5% to 10% growth by the end of 2020 is consistent with the outlook for cattle prices, oil prices, share prices and the volume price impacts of breaking rain.

Okay. So in terms of the next slide, just quickly on the strategic priorities through the eight point -- second Eight Point Plan. I think everyone's -- is quite familiar with the Eight Point Plan process.

The next slide, the 3-year to FY '20 goal. Then what we do have is, clearly, we have AIRR on top of that now. And so [as] we have 10 months of AIRR and also 10 months of synergy benefits through FY '20.

Looking at the next slide in balanced growth, a couple of points to highlight. If you look in the organic part, you can see the benefits of the business improvement pipeline that I mentioned earlier with the last point on $3 million to $5 million of annualized earnings uplift through some of the business improvement projects and $10 million to $20 million capital reduction from the business improvement projects.

Again, with a October 1 realignment of structure, we appointed a general manager of business improvement Nick Clark, and he has a team driving these improvements in the business.

Across into acquisitions, although we see FY '20 as a year of consolidation with multiple projects that we are working on, you can see the $3 million to $5 million on that last point, uplift in annualized earnings from business development pipeline. And these are the bolt-on acquisitions that we had been doing, but we're being far more discerning with regard to our multiples and the size of the acquisitions.

So from our viewpoint, a small -- a much smaller acquisition has the same workload in implementing as a -- as 1 double the size, so for example, a $0.5 million EBIT to $1 million EBIT. And so we're putting a cut and trying to focus on the larger acquisitions, although it won't be the driver -- as you can see $3 million to $5 million EBIT -- it won't be the driver of our growth over the next 12 months.

And then finally, on the maintain cost is our platform modernization program, the last point, which is also -- will have significant focus through FY '20.

Moving to strategic opportunities, and you have seen this slide before. But I'll just paint a slightly different context to this slide. So we said in the byline including 20 new branches, so this was the FY '18 to FY '20 period. So at this point, at the beginning of FY '20, we've already added 35 branches within the business. And so, so as I say, in terms of delivering the second Eight Point Plan commitment, we're well internally on track.

The issue that we're focusing on with the strategic gaps and the opportunities in the market, and we're reassessing this in terms of our GAAP analysis is that we had our 220 branches and we had the gaps that we've identified. We've now added 245 AIRR members, and owned branches and an additional -- so that's in the agricultural landscape that we live in. In addition, 100 Tucker (sic) [Tuckers] branches in the produce and hobby farm geographies closer to metropolitan cities.

In terms of the combination of Landmark and Ruralco wholesale branches, so CRT and Landmark wholesale members. There's 326 across the country that are also throughout these gaps. And I think we've mentioned before that we see some fallout occurring from the wholesale branch network as well as the retail network. The -- in terms of the rebranding, et cetera, with Nutrien, that starts today. So we'll start now to see where these opportunities arise.

And then laid across that is that there are 150 towns through regional rural Australia where there are duplicated branches are under the new Nutrien network. So in terms of our strategic gap analysis, I think we'll take a deep breath. We're there completing the Nutrien starting their rebranding and do some detailed work around some hot spot opportunities that we will target.

So with that, I'd like to open up to questions, and I'll hand over to the operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Philip Pepe with Blue Ocean Equities.

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Philip Pepe, Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst [2]

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Well done on a good result in very, very challenging conditions. Just on the conditions, though, what is or can Elders do to sort of to help farmers in what's obviously a very, very trying -- so we see a lot of news about government assistance, but given that you're an important player in the region, what's Elders doing to sort of help out at the moment?

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [3]

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Yes. So it's pretty broad-ranging, Phil. So you're probably aware that we're -- we have a partnership with the Royal Flying Doctors service. And on top of that partnership, in February we ran national barbecues throughout regional rural Australia and raised another $60,000 to assist. And I think the nature of the markets we're in, in one of our North Queensland barbecue events, we needed to change the sign from raising money for drought to raising money for floods. So that's the nature of the market we're in.

We're partnering with Beyond Blue to provide assistance. We also provide our own internal mental health call service to our clients throughout regional rural Australia. At a grassroots level, we've got many, many initiatives across the Australian network in the last 12 months. We've provided or contributed just over $1.3 million to multiple local projects. And I think the other area, which is just, I guess due to our empathy and the nature of us being in regional rural Australia for 180 years where we have branches that are significantly impacted, we don't close them. So we just maintain the losses in those branches to ensure that the integrity of the local community is kept in track.

We also have a view of -- in terms of our account management in the same way. And I think it's -- for us, it's very, very important that we remain committed to regional rural Australia. On top of that, we've got other areas that we're working with the National Farmers' Federation. I'm Chair of Agribusiness Australia, and we're aligned with National Farmers' Federation. So there's a whole list of other things. But I guess, from our viewpoint, this is absolutely core to our business and Australia's regional rural communities.

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Philip Pepe, Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst [4]

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And if I can add a second question on the synergies from the AIRR acquisition. Do a -- any possibility to bring those forward given the current climate? Or do we divide by 2 over the 2-year period?

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [5]

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No, I think -- so if you say the midpoint is $8 million, so I think it will be given 10 months out of 12. I think it'd be fairer to look at maybe 3-5 split as an average. And if we get more, we'll get more. Richard, do you want to add to that or...

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Richard I. Davey, Elders Limited - CFO [6]

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Yes. And I think the other point that Mark mentioned already was just that focus now we have on the business improvement sort of piece, and that's really linked into that synergy piece as well in terms of making sure we can -- so make the most of this acquisition. And obviously, the benefits that can actually bring and that might flow through, either in the business improvement items or through those synergies. But I think what Mark mentioned is probably, as said, as good as estimate as any in terms of the splits.

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Operator [7]

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The next question comes from James Ferrier with Wilsons.

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James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [8]

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First question is on the $10 million or $10.2 million contribution from acquisitions in the year. Richard, what's the gross profit contribution that was the equivalent to that? I'm assuming that's an EBIT number. What's the gross profit that's equivalent to that?

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Richard I. Davey, Elders Limited - CFO [9]

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That would probably be -- it would have to be at $60 million, $70 million. I'll have to come back to you on that. I don't have that number off the top of my head, because most of the $10 million related to sort of Titan, so that's giving away the margin we have on Titan. That's sort of the majority of that -- 60% of that number. The other major piece of that number is the livestock in transit warranty product which makes up -- so given the different mixes, it probably doesn't just add out based on turning that EBIT into a gross margin sort of percentage because you've got different business [margin] there -- mixes in there as well.

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James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [10]

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Yes, yes, no, that's helpful. That $60 million to $70 million, that's helpful guidance. Second question is on operating costs. Richard, you talked about excluding the structural change in financial services around Rural Bank. You talked about a $1 million increase in costs driven by insurance and IT.

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Richard I. Davey, Elders Limited - CFO [11]

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Yes.

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James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [12]

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Back at the first half result, you gave an indication that it was likely that the STI would reduce by about $5 million this year. Is that the price?

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Richard I. Davey, Elders Limited - CFO [13]

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Yes, that's correct. So depending on which way -- which way, which view you're looking at, whether that's by product or by geography, obviously, the numbers will change given where those costs actually sit and that number was about where we sort of saw the reduction.

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James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [14]

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Yes, yes, understood. So I think at the first half, you talked about costs increasing $6 million around IT, people and marketing. So in the second half, some of that has unwound. Is that how we read it?

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Richard I. Davey, Elders Limited - CFO [15]

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That's not so much unwound, but certainly if you may recall, I did mention that it was probably mostly front-ended, certainly in relation to the IT costs, because there was a number of initiatives that were put in place to take out costs after we obviously embedded the -- as said, the transition we did from previous IT providers. So that definitely occurred in the second half. So that, I think, was about $3 million, $3.5 million up in the first half which held in the second half. We didn't see any increase in costs. And as I was saying the other costs we had in terms of marketing, et cetera, were down. But as you mentioned there, we had a large reduction in STI, which depending on what numbers you're looking at, obviously, year-on-year, were down.

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James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [16]

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Yes. Yes. Okay, makes sense. And then the last thing I wanted to ask about was cash flow. So with StockCo, first of all there's been a bit of money invested in there over the last few years, I think it was $4 million in FY '18 and $10 million FY '17. And then I think today, you talked about another $15 million going in. That's in addition to the 30% equity ownership that Elders has, and the business is still losing money. I mean, it's not a big number, but I'm just wondering what your thoughts are there? And how much more capital you intend to put into it and when you might expect to generate a positive return?

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Richard I. Davey, Elders Limited - CFO [17]

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Yes, sure. I think one of the areas I'll direct you to, we gave a bit more flavor this year in the annual report around -- in the related party section, just around the earnings we make out of StockCo just because, obviously, if you just purely look at that equity -- that investments note, you obviously come to that conclusion. But if you -- I direct you down to related party, now you'll see we actually included the other revenue pieces or the earnings flows we get from that sort of investment in terms of origination fees and also those interest earnings as well, which sort of cover off that equity piece. So -- but my understanding certainly from StockCo is that now they're fairly well-embedded. Their new, I said, funding, sort of package, which will mean that, that their earnings, as said will, I assume, will more likely be positive next year as that benefit of reduced, as said interest cost, et cetera, in that vehicle come down next year.

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [18]

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Yes, and I think, James, the market conditions of restocking with StockCo with the seasonal finance product are very, very positive but -- in terms of outlook for StockCo.

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James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [19]

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Yes. And so does that mean that you'd expect to be providing more funding in the event of a restocking uplift in the year ahead, a seasonal break, would you expect Elders to be providing more funding into StockCo?

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [20]

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No, I don't think so. I think they've got the stand-alone funding arrangements that they're bidding down. So I wouldn't see that being the case.

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Richard I. Davey, Elders Limited - CFO [21]

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Yes. Great. And I'll just back off down to that gross margin just in terms of that. So I think I was talking more on a sales sort of number to you. So in the gross margins, you're probably thinking numbers more like $10 to $12 as said million, because, I guess, the major investment in there, James, is Titan, which has quite a low cost base. It's quite an efficient model. So most of the gross margin does fall down to your EBIT line.

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James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [22]

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Yes, okay, that makes sense, yes. The other area of cash flow that I wanted to ask about was the other line, which I think it was $19 million outflow or negative impact in FY '19. It was about a similar amount, negative impact in FY '18. And it was only a $2 million negative impact in FY '17. So I get what -- you're referring to it there as payments around provisions of leave and incentives.

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [23]

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Yes.

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James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [24]

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But why is it only hitting the cash flow? Why is it not accounted for in EBITDA?

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Richard I. Davey, Elders Limited - CFO [25]

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Yes, I'll have to come back to that, James. But most of the -- so it's probably less to do with the provisions, even though there'll be from time to time some restructuring provisions or -- and I suggest there's a couple of million in there related to some of those costs associated with getting out of the Indonesian business in there as well. But most of it relates to paying those non-asset commission-based incentives, which obviously relates to earning [for] the profitability from the year before, sort of flows through.

So -- and there's some other as said, by other, what I refer to as non- sort of asset product-related sort of creditors that just depending on where the year ends in terms of creditors [and that's just] your payroll, et cetera, sort of as it comes in and out of that sort of number as well from time to time. But most of it does relate to those incentive which means next year when you look at that cash flow, I'd expect that number to be significantly lower given that we're provisioned for significantly lower STIs this year.

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James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [26]

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Yes, but your STI came down in FY '18 as well. So we would have thought that other line would have unwound in FY '19, if I follow your logic.

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Richard I. Davey, Elders Limited - CFO [27]

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Yes. I'm not quite sure that's -- I'll have to go back to what we sort of said. But I'm not quite sure that's the case, because within that line also, you've got your short-term incentives. You've also got, from time to time, [branchwide] sort of payments, which is now -- we'll obviously see the last payment of that because we're closing down that sort of program. So I'll have to come back to you on that, James, just to see as said from F '18 to '19, what we sort of said and what sort of came in. But my recollection is that F '18 and F '19 would have been relatively similar, although I think you're probably right, if not, it might have been a little bit higher and certainly, in terms of STIs, but not significantly from memory.

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James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [28]

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Yes. Okay. And then just the final thing on the cash flow I wanted to ask about -- well, actually, it's in the debtors. If you look at the debtors 1 to 30 days past due, that number's increased sort of $10 million to $15 million per annum over the last 2 years. And so it's creeping up as an increasingly larger share of the overall debtor profile. I mean, just what your thoughts are given where we are seasonally and the difficulties being experienced with your customer base. Is that something that you're just happy to let ride for now? Or is it something you want to try and address in a more rigid manner?

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Richard I. Davey, Elders Limited - CFO [29]

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I think just, so to answer that in 2 parts. So obviously, Mark mentioned around the support we're providing for our clients, et cetera, which means as said we're certainly very cognizant of that when it comes down to debtor collections, et cetera, certainly around that areas that are struggling along. So we have seen, as said, certainly in the book this year, overdue debtors increase particularly in that New South Wales sort of area, which obviously we manage very closely. Yes, certainly, in terms of our risk, et cetera, but obviously to support our clients where and when we can.

In terms of the overall book, you are probably saying, yes, certainly, the overdues have been sort of -- as said increasing sort of over time, certainly for the last 18 months. But most of that increase is actually occurring in those drought-related sort of areas. So we -- well, we certainly obviously a major focus certainly at the business of the Board, et cetera, around sort of our Board audit risk committee around how the health of our debtor book is going. And certainly, apart from those areas where we are seeing those overdues stretch out, it is actually in a pretty healthy position. Although saying that, I would say one thing: this year, we did raise about nearly $3 million in provisions, recognizing that, obviously, things are tough out there.

But it's worth saying that we did within that book recover nearly $600,000 or $700,000 of previously provided provisions. So I think our provisions, overall provisions, went up about $1.6 million -- $1.5 million, $1.6 million. However, yes, we did raise -- you'll notice the provisions, we did raise those this year just to as said counter or recognize the fact those overdues and that risk is rising a little bit, particularly in those drought-related areas.

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [30]

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Yes. And James, it's fair to say that we are watching them like a hawk. But Richard and I are on the B&W board where we're kind of very hands-on and very clear on these exposures. You'd also be aware that a number of these clients are asset-rich and cash-poor. And it's highly unlikely, apart from one of the bigger banks who may be funding taking hard-core action, it's highly unlikely that we would take that approach with their client base.

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James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [31]

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Yes. No, understood. It's a very challenging time for your customer base.

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Operator [32]

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(Operator Instructions) The next question comes from Paul Jensz with PAC Partners.

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Paul Jensz, PAC Partners Securities Pty Limited, Research Division - Executive Director of Research [33]

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Two questions are left. Certainly, with the livestock price normalization with your 3-year goal, can you just step through that? Because you've got a fairly sort of positive to neutral outlook there I think on volumes.

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [34]

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Yes. Yes, I think so the starting point in FY '18, and you'll recall the discussions, we said that because the cattle prices were they -- higher than we started this Eight Point Plan, we said we expect the price to go down, and we factored around $20 million of EBIT to come out of that with the price reductions. And then we thought there'd be a volume response. And we thought that would offset about, I think $5 million, in the order of $5 million. And so, although the dynamics are slightly different, I mean, the trend lines are similar. So Richard, you -- I mean, as you run out the final year, although it's unsure what a rain event would do to prices and volumes, it's unclear, I should say. Richard, do you want to give Paul some thinking on that?

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Richard I. Davey, Elders Limited - CFO [35]

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Yes, sure. So in terms of those outlook, I said, sort of analysis, those slides at the back, which we just pick up from sort of ABARES, both short-term and longer-term outlook, probably the more positive side of that is more on a longer-term sort of view, where obviously I think, as you probably know and highlighted there, certainly in the next sort of -- as said, certainly our F '20 sort of outlook, we'll be sort of reasonably challenged. And I guess, we're probably looking at that change in the market dynamics as going to occur when you get a reasonable rain event sort of coming through. So what we are seeing, certainly, in terms of the first sort of months we see, I guess, the prices will be staying relatively firm still and those volumes sort of up.

And I think that dovetailed into sort of the commentary I made around sort of cash flow that we did see those larger volumes sort of pull through a little bit earlier this year, particularly into September that otherwise would have been in October. So we are seeing those. That turnup could occur a little bit earlier. And then, I guess, as we all sort of know, really the producers are probably getting into their breeding herds a little bit more than we had anticipated, which means the build -- the rebuild is going to take a little bit longer given obviously the lack of sort of breeders around. So hopefully, that answers sort of your questions around that. Challenging sort of short term, but I think the longer-term thematics are as said reasonably, as said neutral to positive.

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Paul Jensz, PAC Partners Securities Pty Limited, Research Division - Executive Director of Research [36]

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And then the final one for Mark there is on AIRR. You talk about, I suppose, the opportunities with Nutrien and the fallout there. Can you maybe step through how Elders will ensure that the fallout with AIRR will be minimalized?

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [37]

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So I guess, the starting point, as you're aware, many of the AIRR members are AIRR shareholders. And so out of the 156 AIRR members and shareholders, 3 voted against the recommendation at the board 2 weeks ago, and those 3 are part of the 1 business as I understand it. So in terms of AIRR membership, the -- it's -- we're seeing a very positive bunch of members who -- a number of them now will be shareholders of Elders shortly. In terms of the trends we've had, I think there have been half a dozen members of either CRT or Landmark wholesale that have already come across to AIRR in the last month, actually, since we announced the acquisition. And so that's moving along. We're not seeing any signs at all, and we're being approached on the other side in a number of areas for -- by members, Landmark wholesale members and branch people and Ruralco members or CRT members and branch people who are interested in talking to us about potentially coming across as the transaction is finalized.

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Paul Jensz, PAC Partners Securities Pty Limited, Research Division - Executive Director of Research [38]

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And maybe just finally there on duplication. So what are the sort of the hot spots that we need to watch, just in case there are some AIRR groups that go across elsewhere? What -- where...

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [39]

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Well, I think there's the -- sorry, you said the Nutrien people? So...

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Paul Jensz, PAC Partners Securities Pty Limited, Research Division - Executive Director of Research [40]

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I'm more going the other way, Mark.

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [41]

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Oh, AIRR, okay. Okay.

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Paul Jensz, PAC Partners Securities Pty Limited, Research Division - Executive Director of Research [42]

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It's clear I think that there's an opportunity on Nutrien. It's just -- we're just trying to always look at the other side of the coin to sort of...

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [43]

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Yes. Okay. So for the 100 Tuckers brand members where there's no competing, so I guess you'd say that -- and we don't have a presence in hobby farm or their produce. So that 100 out of the 345, I guess, you'd quarantine because there's no question. Then across other areas where people may go, I mean, to be honest, it's really difficult to say because the -- in all of those, I can't think of 1 situation where there isn't either a Landmark wholesale, a Landmark branch, a Ruralco branch or a CRT member in a town, so I'm not sure where they're going to. Because as you're probably aware, there's no other wholesale capability across Australia, at any rate in terms of a regional warehouses with multiple StockCo products, et cetera, and breaking down the small to less than pellet sizes.

So I mean, it may sound like there's a bit of complacency there. But realistically, after -- since the period of the announcement, we have heard no concerns. Richard and I have sat on the AIRR board for -- well, since the acquisition was announced, and the 3 at the AGM who voted against the transaction were -- have been flagged from day 1, and they're just purely independent-thinking people. So they're going with it because they believe in peer rule, but they're not going anywhere. They just voted against it on principle, but the rest are -- have been happy with the progress.

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Operator [44]

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There are no further questions at this time. I'll now hand back to Mr. Allison for closing remarks.

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Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [45]

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Okay. Well, thanks, everybody, and a number of you we'll be talking to face-to-face over the next few days. So thanks again for coming onto the call today. Thanks very much.