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Edited Transcript of ELD.AX earnings conference call or presentation 15-Nov-20 11:00pm GMT

·61 min read

Full Year 2020 Elders Ltd Earnings Call Adelaide Nov 16, 2020 (Thomson StreetEvents) -- Edited Transcript of Elders Ltd earnings conference call or presentation Sunday, November 15, 2020 at 11:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Mark Charles Allison Elders Limited - CEO, MD & Executive Director * Richard I. Davey Elders Limited - CFO ================================================================================ Conference Call Participants ================================================================================ * Belinda Moore Morgans Financial Limited, Research Division - Senior Analyst * David Pobucky Macquarie Research - Analyst * James Ferrier Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst * Jonathan Snape Bell Potter Securities Limited, Research Division - Senior Industrials Analyst * Michael Peet Goldman Sachs Group, Inc., Research Division - Executive Director * Philip Pepe Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst * Piers Flanagan CLSA Limited, Research Division - Research Analyst * Tony Mitchell ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the Elders Full Year Financial Results Briefing Conference Call. (Operator Instructions) I would now like to hand the conference over to Mr. Mark Allison, CEO. Please go ahead. -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [2] -------------------------------------------------------------------------------- Thank you very much. So welcome to all to the Elders annual results presentation for the FY '20 year. Thank you for joining Richard Davey and myself for the session today. From an Elders' viewpoint, FY '20 is the final year of our second Eight Point Plan. The Elders' philosophy since the first Eight Point Plan was pulled together has been to control what we can control and not to dwell on what we can't control. And that has been critical for the year we've just seen. The philosophy is also to have a capital and cost structure to allow us to make good returns in bad years and make great returns in good years. Last year is an example of good returns in bad years, where we're close to meeting the record profit in a period of 100-year drought. And this year's results is an example of great returns in good years, where we've seen the drought break and move to an average season, and we've been able to deliver a very strong position. We use our multiple diversifications by product, service, geography, crop segment, commercial model and channel to market, and our financial discipline to deliver consistent and high returns for our stakeholders. In summary, we control what we can control. Now just to recap, the first Eight Point Plan was put together in FY '14, where we've got 40 of our senior managers together, we got in more consultants and externals from the business, and we're just focused on running the business properly. This was completed in FY '17. The commitment was to a $60 million EBIT over the 20% return on capital and the first payment of dividends of 10 years. All and this was from a position of a loss of some $0.5 million in the previous year and not paying dividends for 10 years. So at the end of the first half, on plan, all safety and financial metrics were exceeded. Now the second Eight Point Plan is put together following discussions with 40 of our -- would have been over 40 of our shareholders, with a view to establishing what's an acceptable outcome from a financial viewpoint and also from a social economic community viewpoint. And we developed the second Eight Point Plan based on this feedback, and we targeted 5% to 10% growth in EBIT through the agricultural cycles at above 20% return on capital. Now the numbers that Richard and I present today show that all safety and financial metrics were also exceeded in the second Eight Point Plan. During the second Eight Point Plan, we've experienced exceptional periods of floods, droughts and bushfires across various geographies and markets and finally, COVID-19 across our nation and the world. As such, the performance of Elders with its clear and consistent strategy, multiple diversifications, high financial discipline, hard work and a committed team and enduring customer anchor as the most trusted brand in Australian agriculture has been outstanding. As a result of strong and safety, strong sustainability, strong profit, strong in return on capital, strong in cash conversion and strong in strategic delivery of the Eight Point Plan. So the approach that we'll go to today to just go to the agenda is that I'll provide an overview of the results, Richard will go to the detail of our financial performance, and then I'll provide an update on the focus for the third Eight Point Plan and our outlook. So going to the first item of COVID-19 impacts, and I guess the headline there is that there's no material impacts so far. So as we run through all of the areas of supply chains, there was a mild disruption in live export into Indonesia and Vietnam which is the government markets. The wool market has been impacted, as we're aware with price and volume and real estate across -- particularly metropolitan franchise business had an impact. And then finally, the China Fine Foods business had a clear impact post-Chinese New Year, where our target market is high-end restaurants and hotels, but the materiality of this internal business is limited. We proactively put together a COVID-19 management committee based on our China experience. And so we had many of the items in place as we manage their way through this. And I think as we've gone through the early issues, we work closely with our agricultural industry cohort in order to establish agriculture as an essential industry, which allowed us to continue on and to provide service to regional rural communities and more importantly, the agricultural industries to run through the year. We did this without any government support. So Jobkeeper, et cetera, we didn't access any of this support. And we also maintained our workforce. So there were no forced terminations, redundancies or any employees that held us on the basis of COVID-19. So again, we did what we talked about a lot in controlling what we could control and with a positive outcome. When we look at the key highlights for the year. You can see from a safety viewpoint, 2 lost time injuries versus 9 in the previous year with a target of 0. And this is from the FY '13 -- pre-FY '13 period of 2 to 4 lost time injuries in the business. So great progress. And certainly, my experience of running a safe organizations that does -- so you do tend to run down and come back a little bit run down. I guess the key point is the behavior and the attitude of our people, which is overwhelmingly committed to contributing to a safe environment. When we look at the financial performance, an underlying EBIT of $119.4 million, up some 62% on the previous year. Very strong operating cash flow. A return on capital at 20.2% if we take the AIRR acquisition out. We knew that the AIRR acquisition would impact our return on capital. And so we've shown both ways. And then post-AIRR, 18.7% return on capital. And a return on capital over the 3-year period of the life of the second Eight Point Plan of above 20%, so quite solid. The leverage ratio is interesting one because many of you will recall that we made the commitment of a halfway back to our sweet spot with leverage, the 1.5 to 2x. The post the AIRR acquisition, we believe we've taken a couple of years to do that. And we've been able to get it to 1.6x in the first year of that acquisition. And then, obviously, strong growth in earnings per share for business. Strategically, for the second Eight Point Plan has been delivered above the 5% to 10% growth, so outside the top of the range. And as I say, the metrics being met multiple levels. The AIRR integration and the year 1 synergies realization have been positive. So our sense was that we would -- the midpoint of the synergies for the 2-year period was around $8 million. We thought the 10 months of AIRR 1 and 12 months of year 2, that will be split $3 million and $5 million, but we've exceeded that number, and we'll talk about that a little bit later on. And then in terms of our strategic coverage, the strategic gap analysis, filling those gaps, that's also been very, very positive. And then finally, and a critical point is the third Eight Point Plan, which is a little different from the first two but has allowed us to really focus in and be a lot more sophisticated around the strategic enablers and their strategic priorities. So moving to the next slide, our delivery against our FY '20 priorities. And on this slide on safety and operational performance, I made comment in the highlights about the key issues there. But I think one of focus on key relationships. And the, I guess, point 3 there on the most trusted Agri business brand. So Roy Morgan did some research this year that showed unprompted that our business is the most trusted brand in this space. And we're very, very proud of that in our year. And we're also very proud that we're able to live up to that very, very high standard within the business. Our -- the -- this actually acts in many ways. It makes in attracting people to the business, keeping people within the business, attracting clients and also just set the standard of a bar for us to live up to. In terms of the progress in diversity plans, over the first two Eight Point Plans, we've gone from 4% of management, women and management positions to 15%, so it's been wonderful progress. And in the last 12 months, it's also been great progress from 13% to 15%. So we have very high expectations of taking that up to 25%. And I guess given that all of these appointments have been highly capable women who have been appointed on merit, it's wonderful that culturally, this is increasingly an ingrained part of our culture. In terms of the sustainability function, another area that we're particularly proud of. Again, we established a sustainability function October 1 last year. And the sustainability report was released today. It's a wonderful summary of the outstanding work that Elders has done across communities and across all of our stakeholders. And also now with the strong measurements, we've set our targets for over the next 3 years. So I would ask you all to have a closer look at the sustainability report because it really does highlight some of the wonderful work in regional here in Australia and with agriculture. So moving to efficiency and growth. As I mentioned, the integration of AIRR has been very positive, and the AIRR team are part of the Elders' family in every way, as you could imagine. The Titan backward integration has also been very positive, and the decision to acquire Titan a couple of years ago, with the view that we will be able to significantly enhance the Titan Ag brand and the Pastoral Ag brand throughout Elders has been -- has moved along ahead of expectations. And I think finally, when we look down at the bottom point there, in terms of growing our footprint, the bolt-on acquisition pipeline has been enacted. We were -- with the outbreak of COVID, we did increase or implemented a $50 million additional facility. And we also slowed our bolt-on acquisition activity. But as we've gone through the year, we've been able to maintain the rate given that we're able to manage it to a reasonable level. Okay. So with that, I'll hand over to Richard for the financial performance slide, and he'll take you through the detail. -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [3] -------------------------------------------------------------------------------- Yes. Thanks, Mark. So just on Slide 7 now. So looking now to the key financial performance items for the year. In addition to the material asset benefit related to the Wholesale product acquisition this financial year, the business delivered a strong performance across most of our key metrics. Headwinds for the year included at summer crop, which was down 66% on the prior year. A weak wool market, which Mark already mentioned, then a significant investment in our new branch incentive program. In terms of tailwinds we experienced, livestock prices continued to remain high, with an increased winter crop also, particularly on the East Coast. Although it should be noted a lack of winter rain in late July and August meant low demand for post-emergent inputs. Sales revenue was up 29% to $2.1 billion, and this was mainly in our Rural Products area with Wholesale making up 50% of that increase. Underlying EBIT improved by $45.7 to $119.4 million which will be covered in more detail shortly, both by product and geography. Underlying profit after tax finished at $109 million while statutory profit for the year was $124.2 million. The difference mainly relates to the continued recognition of an off-balance sheet tax asset, which has been progressively brought on as the business has grown. And our net debt at balance date finished $134.1 million, up nearly $40 million on last year. As already mentioned, operating cash flow for the year was an inflow of $110.5 million, which is a significant improvement on the last couple of years. Underlying return on capital of 18.7% is a really strong number when you consider the material impact on the group, the Wholesale acquisition has had, which was known at the time of purchase. If you look at the performance over the past 3 years, being a second Eight Point Plan period, this has averaged out to 20.3%, which is above our 20% target. Underlying earnings per share improved by $0.182 or 35%, and leverage calculated on average debt for the year fell to 1.6x. Moving on to Slide 8. Our performance by product. So now looking at our performance by product at a gross margin level, and this was up 25% year-on-year as highlighted in that gray box in that slide. Key drivers included the Wholesale inclusion in that portfolio and positive gains across all the other products and services through a mixture of acquisition, organic and market benefits, which you can see sort of at the top of that slide, which was sort of outlined, and costs were up by 15%. Retail increased by 18% despite a slow start to the year with the impact of a very low summer crop. This turned around in March with a good seasonal break and improved winter crop, particularly on the East Coast. When you look at this growth a little closer, 2/3 was from increased sales activity with the balance for margin improvement, mainly from our backward integration initiative. Wholesale, which should be noted was only included for 10.5 months of the year, delivered a result above expectations. And I'll touch on the EBIT results of this major acquisition on the next slide. Our value drivers were mixed in our Agency Services business, positive in livestock from a mixture of higher prices across both species, cattle and sheep, partly offset by both negative volumes and prices in the wool area. Real Estate Services continued its improvement after a strong start in the first half of the year, particularly in the broadacre part of the business. Residential performance was the feature of the second half with gains from acquisitions. This was despite actually listings being down 10% year-on-year. Financial Services' growth mainly came from the new Livestock in Transit products, which has outperformed our expectations and prior years under old ownership. Branch Incentive is a new program, which commenced on the first of October. And unlike previous models, this is no longer discretionary and based on its own targets and directly aligned to individual branch performance. As noted already, costs are up by 15% on last year with acquisition-related costs making up nearly $25 million of that increase, with the balance being investment in geographic footprint growth and variable incentives expenses this year. Moving on to Slide 9. Now looking at the results by geography. All zones were up when compared to last year. For the purpose of this slide, we haven't split out the new Wholesale business by zone. Wholesale overall delivered an EBIT of $21.9 million for the 10.5 months under Elders' ownership. Key drivers to this included increased sales across all segments and included the benefits of first year synergies, which were captured both in our wholesale and retail products. One of the items to note though is this also includes an amortization charge of $3 million related to identified intangibles. In the north, high cattle prices lift the last result. Drought breaking rains across Eastern Australia happened in February and March, buoyed farmer confidence for the winter crop, offsetting the significant drop we saw in the summer crop already mentioned. Overall retail for the year was up by 15%. Across the other zones, we saw similar positive drivers, mainly improved Livestock results from higher prices and volumes. Retail sales and margin improvement and continued growth in our backward integration strategy with real estate activity also high. Southern Australia, which has the largest sheep business did experience lower volumes, which was offset by -- with higher prices, as I already mentioned. Corporate and other costs as you go across that -- the waterfall chart increased with investment in new initiatives, including strategy, business improvement and sustainability, as Mark has already alluded to, increases in corporate insurance costs and variable performance incentive accruals made at the balance of this year. Moving on to Slide 10, capital employed. As I've already mentioned, return on capital for the group finished at 18.7% for the year and 20.3% over the last 3 years, outperforming our 20% second Eight Point Plan target. Average over the past 3 years is particularly pleasing, given half of that period was in severe drought conditions. As highlighted in the graph above, the like-for-like business did improve to 20.2% for the year on the back of an improved return from our largest product asset retail through backward integration benefits and improved stock turns, with the Livestock product also improving year-on-year, and these were the 2 big drivers of this improvement. Wholesale Products finished -- returns finished of 14%, 16% when you exclude the $3 million amortization charge. Average working capital levels increased by $113.8 million with a new Wholesale Product making up over half of this increase. Retail Products made up the majority of the balance with high debtors in line with growth in sales activity. Increased feed and processing capital came mainly from higher costs of capital (sic) [cattle] which particularly -- which occurred through during the year. Other capital increased by $117 million, again, mainly from the Wholesale acquisition which made up 90% of that increase. Turning now to Slide 11. Cash flow. Cash -- operating cash flow. Cash conversion of 101% on underlying net profit after tax has rebounded from the underperformance of the past 2 years and includes approximately $45 million in additional retail working capital support growth. The improvement in operating cash flow to $110.5 million is being achieved through profit growth and the delivery of a number of working capital initiatives throughout the year. Key drivers of the increase in assets and liabilities of $28.6 million, which you can see in that red sort of box, included increased retail -- rural products working capital of $48 million, primarily from growth in debtors, supporting higher sales volumes, growth in Titan inventory as part of the backward integration expansion, and this was offset by higher creditors. Lower agency working capital of $31 million came from reduced year-end receivables with improved debtor collections as well as higher payables in part due to timing. As already mentioned, higher inventory in feed and processing was mainly due to higher cattle prices, and we did see some impact of some supply chain disruption from China in September. Turning now to Slide 12. Net debt. Debt levels at balance date on average have increased primarily due to the Wholesale acquisition settled in November last year and working capital supporting earnings growth. All of our key ratios have strengthened through a combination of improved earnings both organically and acquisition. We're also well placed within our banking covenants with significant headroom across our ratios, and we also have approximately $260 million in undrawn facilities. Turning now to Slide 13, and I'll hand back to Mark. -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [4] -------------------------------------------------------------------------------- Okay. Thanks, Richard. So on the AIRR acquisition, the -- as I mentioned in the introduction, it's been very, very positive for the first 10 months of being within the business. And we -- but we've been able to exceed the synergies that we targeted, and we're above the business case. As I mentioned, the midpoint for that was $8 million and the split of that would be $3 million first year and $5 million in second year, and we're above that. So it's highly likely that as we run out in the second full year of the AIRR acquisition that will exceed the business case synergies that we presented last year to the market. I think the other point is that the integration has been positive from a people viewpoint. Clearly, you have early tuning issues, but our light touch philosophy in running AIRR as a stand-alone entity, but with a bunch of linkages back through the business has been very, very positive and has given us a great outcome. It's been the platform for the expansion of our veterinary products on the Pastoral Ag through Titan and also the expansion of crop protection products under the brand Apparent through the AIRR network. The -- but I think the other point to note is that we're there being strong in New South Wales, and that was one of our points of added diversification in the business case, with the break of the dry conditions for New South Wales, we've been able to benefit in that through the AIRR independent network. We haven't lost any of the AIRR members, and we've gained a number of the CRT members and the old land Wholesale members. So all in all, it's really gone to plan quite nicely. And we've also been able to use the digital capability through AIRR to expand its own enterprises through Tatarstan and also the Elders networks. So when we look at the next slide, which is the market outlook. And we -- as I think many of you will know, we key off the [AIRR] numbers so that we're all speaking in the same language. Clearly, we've got different insights in different markets to AIRR there, but we plan for an average season. The outlook as we go through all of these areas, and I won't go one by one. But the outlook is relatively positive for a number of reasons. But I think the one cloud on the horizon has been geopolitical tensions and market access. And I think the announcement over the weekend of the Regional Comprehensive Economic agreement, which was the replacement for the Trans-Pacific Partnership agreement. The -- this has now been resolved, and this is a trading agreement that includes ASEAN, so there are 15 partners. But basically, it's the Trans-Pacific agreement minus the U.S. and minus India. So from our viewpoint, it's very, very positive for Australian agriculture. So it includes 15 countries, the ASEAN -- just broadly, the ASEAN countries, so North Asian countries in Japan and South Korea, China. And it opens up a very or set of very, very positive platforms for the diversification that we've talked about at Australian agriculture meeting, given the potential geopolitical issues on China. So I thought that was a very positive announcement and probably adds to the ABS' assessments of the market outlook as well. Going to the next slide and the completion of the second Eight Point Plan. And it's really basically putting in numbers, the comments that both Richard and I have made through the presentation. And that is the strategic focus of the first Eight Point Plan, as many of you will remember, was back-to-basics pure-play agricultural company, portfolio management, capital-light, return on capital focus, et cetera, et cetera. And the outcomes there were -- they exceeded the expectations with a $70.4 million EBIT and 27% return on capital at the end of that period, and the average return on capital at 26.3%. Second Eight Point Plan, we'll get a little bit more sophisticated in our approach because we felt we had to turn the business around, and we could -- there was more opportunity to increase our risk appetite while maintaining our financial discipline. We said that 5% to 10% runs through the cycles, 20% return on capital. And again, you can see the outcomes from a safety viewpoint, a profit view for a return on capital viewpoint and cash generation viewpoint. And I think during the -- the first Eight Point Plan was [of volume], and the second one was growth. During that period, we were also able to get back on the horse in terms of bolt-on acquisitions, in developing a financial template that gave a good financial outcome for Elders' shareholders and security around continuity of the employment and performance of the businesses we're buying. Now the third Eight Point Plan is being launched today, and we didn't preempt this to an extent of the half year. And in the first two, there was a fair bit of consultation in developing. But with this one, we did a survey, and many of you completed the survey of our stakeholders, investors clearly, and basically just asked you what a good outcome would be as we continue to grow and develop Elders in a more sophisticated way. So the ambition that we've come up with, based on those discussions, was 5% to 10%. This is through the 3-year period, 5% to 10% growth in EBIT and earnings per share at 15% return on capital. So we dropped the benchmark given that our cost of capital is around 7% or 8%. The -- we want to be industry-leading in that sustainability outcomes. And I think when you do look at the sustainability report, and we see the platform we've set, we've set ourselves well for that to be the most trusted agri business brand. And again, a very, very important aspect for us is the only listed Australian rural services company in the industry. In terms of our strategic priorities, focusing on winning market share across all products, services and geographies. Capturing more growth margin and more products and a large chunk of this is from our business improvement and our backward integration strategy. Strengthening and expanding our service offerings across a bunch of products, and we're working to the detail of these. Optimizing our Feed and Processing business in Killara and Elders Fine Foods. Killara has performed very well, and it should be noted that we normally have a trade-off between higher cattle prices, profitability in our agency business and lower profitability in our Killara business. They generally run against each other, but Killara has been managed to a level of great profitability and return on capital this year under that environment. And also, with the external impacts of our excellent markets are tightening up, particularly China given the various issues and the COVID impacts. Elders Fine Foods, on the other hand, not material to the whole business, but the story is consistent. We've had a number of months now of profitability in the Elders Fine Foods business after it was significantly hit by the shutdowns in Chinese New Year in February, given that our channel was that top end channel. We've diversified their channels into retail and e-commerce, and the business is performing quite strongly. As I say, not super material but is consistent with how we've grown the whole business. And then they develop a sustainability program that I've talked about significantly. On the sustainability front, when you look at the -- where we've got there, and you'll no doubt have a chance to read the sustainability report and some of the highlights, over $1.51 million in donation and sponsorships throughout our stakeholder communities. Over 350 local community sports teams that have been sponsored, 78% decrease in lost time injuries. We've reestablished our Safety 7 work health and safety system that's been launched with 470 new hires, 0 employees stood down during COVID-19. And something that's dear to my heart being one of the originators of the drumMUSTER program back then -- back a little while ago, 52 -- 42,600 -- or over 42,500 agricultural chemical containers diverted from landfill and brought into recycling practices. And we've also taken up the TCFD, which is the Task Force on Climate Financial reporting recommendations and targeting this reporting. It's also worth noting on the sustainability front, that with the materiality assessment we did with Ernst & Young to identify the areas of focus, we've identified the community impact and investment, health and safety, employee traction and retention, climate change, water availability, animal welfare, severe weather events, energy, waste management, corporate governance and innovation and technology areas to focus on. So again, a very exciting issue for us. And also, we're so well placed to be a leader in Australian agriculture as one of the very few Australian companies in this space. But what we tend to see with multinational companies in this space is that they tend to -- and I have experienced it firsthand, they tend to have much more of a home-based focus on this for all the international areas. It's more of a box-ticking exercise, if I can say from direct personal experience. Okay. So moving to the strategic -- sorry, to item 6 of our enablers on the Eight Point Plan. The systems modernization program, again, we've been preparing ourselves for the right time to do this. And many of you have been talking to Richard and myself over the last 6 years on when we press the button and we look at our systems. For the -- so we flagged in the half year that we would start to run this program. It's fully running now in terms of our service design period and our change management components of the program management as such with decisions being made over the next 12 months. So when we talk on our one-on-one meetings, we're happy to go into much more detail around this area. But I think the -- what gives me great comfort is being part of many of the discussions on this and throughout the whole business. These are very, very positive, whether it's from branch land to head office, to the product areas, in geographies, there's a very, very positive inclination towards this. And I think that puts us in a position to have a successful project at end of it. Item 7 in the Eight Point Plan in terms of our enablers, attracting, retaining and developing our best people in a safe and inclusive environment. We've talked to the safety issues, the diversity issues, the most trusted brand issues. And I think it's very, very important for Elders at this stage of our development, where we have a number of competitive people wanting to join Elders and to ensure that we keep the standards at the rapid standards for the best people and disfranchise our own people. And so that's been top of mind as we've gone through this period. And finally, maintaining financial discipline and commitment to cost and capital management. And I think you know that very clearly that Richard and my philosophy is that this is the core basis of running a successful agricultural company to consistent growth. And that's in the Eight Point Plan called the unflinching financial and capital management. On the strategic opportunities, still lots of opportunities. So I think we may have got to 17% or 18% market share across the -- across the country as a general market share, obviously, higher and lower in different areas, but massive opportunities to continue. We've got a pipeline of bolt-on acquisitions. We've also got a bunch of more corporate acquisitions. But these are very tight philosophies and templates means that a lot of them we look at, we know lots about, but whether we proceed or not proceed really comes down to the numbers and the cultural fit. So just to close off then to summarize the key highlights for the year. The reduction in lost time injuries, strong emphasis on safety and particularly through the COVID-19 period has been wonderful, but financial metrics are very strong. And I guess our thinking was the platform for these strong metrics was set with the first Eight Point Plan, and they'll remain to be a very solid platform for the third Eight Point Plan. And from a strategic viewpoint, the -- basically doing what we said we're going to do across the AIRR integration and the Titan backward integration and the growth through bolt-on acquisitions. And now we kick off after this week. We're fully focused on the third Eight Point Plan. So with that, I'll open to questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from Philip Pepe of Blue Ocean Equities. -------------------------------------------------------------------------------- Philip Pepe, Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst [2] -------------------------------------------------------------------------------- Well done on a great result in some pretty tough conditions, lots of variability in the last 12 months. A couple of quick questions, if I can. There's been a few varying press reports on sort of, I'll call it, the late winter season rain or lack of rain. I thought you mentioned earlier that lack of rain for -- some crop protection sales weren't as strong. Some parts of the country, obviously, reporting too much rain where the crops have been negatively impacted. So if you can clarify, was the late winter conditions are net positive or net negative for Elders? And then the second question, just on the next Eight Point Plan of 5% to 10% per annum growth. Presumably at the EBIT level and then at the NPAT level, whatever EBIT growth is, NPAT should be slightly higher. Could you just clarify that that's -- that the EBIT level and NPAT will be potentially a little more? -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [3] -------------------------------------------------------------------------------- Yes. So with that, an EBIT and earnings per share level is the commitment. In terms of the question on season, it's fair to say that our start to FY '21 which picks up your area of question has been solid. So I think the -- what -- with the dry or wet finish to a season, it can cut both ways. So basically the dry finishing areas. There was a concern that there may be inference in harvesting. And there was also a concern about a pinched grain. The -- I guess the yin and yang of this is that broadly, it's been okay. So we haven't seen any -- a material impact. And where there was additional rainfall towards the end of the season, this drives particularly some site activity in -- or funnel activity in broadly winter crops like chickpeas which is a positive. And the good -- the way -- talking through the northwestern, there are 1 or 2 properties that I'm aware of that had delays in the west, but there have been -- it's been fine. But I don't think there's any material impact. Richard, do you want to add to that? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [4] -------------------------------------------------------------------------------- Yes, sure. So the comment, as I feel when I was sort of speaking through. So you might recall at the half, we had a very, very strong start to the season. Obviously, there was a lot of hectares sort of planted. So we saw really strong February and March sales because the season broke quite, well, say quite early. What we -- that sort of continued on until about sort of mid- -- really mid-July when I think things started to slow down in those post-emergents. I think the expectations are a little bit high given some of the seasonal outlook, but we didn't sort of see that post-emergents pick up. And I think once again, the rain sort of came about, what, October, again, so but you really hadn't quite -- such lower rainfall but below -- I think if you look across Australia, and there was really winter rain was below average, I think across most of Australia really in that -- after mid-July to August. So that was where sort of that post-emergents sort of demand wasn't as strong as we otherwise would have thought of the half. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- Our next question is from Michael Peet of Goldman Sachs. -------------------------------------------------------------------------------- Michael Peet, Goldman Sachs Group, Inc., Research Division - Executive Director [6] -------------------------------------------------------------------------------- Just first question, just on the backward integration. Could you just give us a sense of -- I think you've quoted a number of about $20 million gross margin for Titan. But is there a revenue number you could give us a feel for? And maybe just where you are on a scale of 1 to 10 instead of getting that completed? -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [7] -------------------------------------------------------------------------------- Okay. Well, I'll do the easy part. I'll give the scale of 1 to 10 because I can just make that up, and Richard can talk to the detail. So I mean my sense is that we're maybe 35% along the pathway. I think there are a lot of other opportunities. And we're growing it as we go through this. It's a fluid process. We're growing and products are coming off at as well during the next 3 years. So I think we've got a little way to go. And it's one of the most exciting parts of the next 3 years, Michael, is that there's so much of what we're doing in this uplift is actually within our control. And the role of our business improvement area, in particular, with our state to [yen] in rolling this out with AIRR and Titan is great. So it's not actually market related. But Richard, do you want to put some more detail around Michael's question, first part of the question? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [8] -------------------------------------------------------------------------------- Yes, sure. So in terms of where we're sort of at the moment. So Titan sales, I think this year sort of lifted from that's $70-odd million up to about $130 million. So we saw a really good asset increase in that backward integration sort of strategy. And that was actually across the board from WA, which is one of the largest asset components before. I think there's some really nice take up across southern sort of Australia. And obviously, with the season sort of changing around, we did see that lift again in sort of the eastern sort of state. So yes, that's where that's sort of sitting in terms of overall sort of sales. -------------------------------------------------------------------------------- Michael Peet, Goldman Sachs Group, Inc., Research Division - Executive Director [9] -------------------------------------------------------------------------------- Right. And just on the vet animal health side, I mean, those synergies, the synergies, a fair chunk of them are captured in the AIRR numbers, I imagine. But could you give us a sense of how far through you are on that animal health backward integration piece? -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [10] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [11] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [12] -------------------------------------------------------------------------------- Oh, sorry. Richard, do you want to... -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [13] -------------------------------------------------------------------------------- Yes, I can cover this if you want. So so most of the animal health margin-related benefits do as it flow into the Elders sort of side of it or the retail side of it when you look at sort of the split. So -- and in terms of that, yes, probably this year, what we saw was, given the timing of the acquisition and really, as people sort of set up their agreements for the year, we probably missed a lot of that sort of, I said both going into this year in particular. So I would expect that to be probably one of the levers we've got coming into the F '21 year when we start to see more of those synergies, which we did expect at the time of the acquisition, although we didn't sort of anticipate, I said, really sort of missing that window sort of this year. -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [14] -------------------------------------------------------------------------------- Yes. I -- just with that, just to put a little bit more flavor around as well. But we -- you may recall that we took the decision to actually have the Pastoral-related products, which were the Titan veterinary products actually run by AIRR because they're specialists in that area. So we actually did a whole rebrand and a refocus, which was -- that was one of the thing that changed in that strategy. So -- and Richard's right, I think you'll see it flowing out much more strongly in FY '21. -------------------------------------------------------------------------------- Michael Peet, Goldman Sachs Group, Inc., Research Division - Executive Director [15] -------------------------------------------------------------------------------- Okay. And just finally, just on the branch networks between Wholesale and Retail. Could you just give us a sense of how many you added or the final numbers for the year roughly on those both your retail business and the wholesale? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [16] -------------------------------------------------------------------------------- Let me take that, Mark. -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [17] -------------------------------------------------------------------------------- Yes. Sorry, yes, you go for it. -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [18] -------------------------------------------------------------------------------- Yes. So this is sort of approximate number. So we -- from the acquisition, we obviously brought on about -- there was about 8 warehouses that we sort of brought on through the AIRR network in approximately 5 sort of retail, I said, sites. And then carrying on through the year, there was another 3, I said, acquisitions have sort of picked up varying, I said, times of the year. So there's about 3 there. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Our next question is from James Ferrier of Wilsons. -------------------------------------------------------------------------------- James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [20] -------------------------------------------------------------------------------- First question, perhaps for Richard, just can you give us a bit more detail around that branch network expense there? I would assume some of that $8.8 million relates to the sort of more traditional STI, LTI for the management team. And then there's probably some more on top in relation to that branch incentive program? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [21] -------------------------------------------------------------------------------- Yes, sure. So that's -- the $8.8 million is just purely the new branch incentive. So if you recall, last year, there was no incentives paid. So year-on-year, that's all of it. And I would expect that just to grow incrementally going sort of forward. So as mentioned, that's a new program that really we looked out into the -- into our competitors and other, as said, incentive programs, and that one we sort of chose, given that -- the belief that really, we thought that was going to actually drive the right performance and behavior at sort of the front end sort of business. So that's probably -- you'd really say a one-off sort of cost this year, bringing into the business to incentivize the branches to grow from the current levels and that was set based around use of capital, obviously, growth on sort of stretch target. So -- and in terms of your other question, there's also another $5 million to $6 million in short-term incentives that come through that corporate line. -------------------------------------------------------------------------------- James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [22] -------------------------------------------------------------------------------- Yes, okay. So $5 million to $6 million increase year-on-year or absolute $5 million to $6 million? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [23] -------------------------------------------------------------------------------- Because there was no branches, there was no incentives last year that both actually increases above last year. So you got the $8.8 million plus the $5.5 million, $6 million of the quarter as well. -------------------------------------------------------------------------------- James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [24] -------------------------------------------------------------------------------- Okay. That's helpful. And maybe while you're at the market, Richard, just looking in the accounts at the receivables and payables, there was, I think, a deferred livestock receivables, receivables, I should say. Can you just explain what that is? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [25] -------------------------------------------------------------------------------- Yes, sure. That's a new product that we've instigated sort of the back half sort of the year. You'll obviously recall we have the StockCo distribution arrangement, where we obviously distribute our products, but that mainly relates to loans or advances greater than $100,000. So these capture those 0 to $100,000 items that we've started to offer to our clients as another sort of product to health and livestock. -------------------------------------------------------------------------------- James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [26] -------------------------------------------------------------------------------- Yes. Okay. And it's just reported separately, the trade debt is for what reason? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [27] -------------------------------------------------------------------------------- I guess it's a specific product, I think, under the accounting, it's not really -- because it's more on the lines of an advance. I think that understands it requires you to separate that from your normal trade receivables because it can have varying periods between, I think, 6 to 12 months. -------------------------------------------------------------------------------- James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [28] -------------------------------------------------------------------------------- Okay. Yes, that sort of extended terms. I see. And a similar question then. On the payable side, there was about $8 million of payables associated with supplier financing, just the background to taking on a structure like that? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [29] -------------------------------------------------------------------------------- Yes. You might recall, certainly around last year in May when you certainly saw the impact of Titan coming through onto the balance sheet and cash flow, in particular, I mentioned that for in time, we were looking to -- at different -- the structures or whatever the word to get back those supply term. So really, that program is just to bring those credit terms back related to Chinese. So the Chinese factories when we're procuring those tech from all the formulated chemicals from China. -------------------------------------------------------------------------------- James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [30] -------------------------------------------------------------------------------- Yes, okay. Yes. Point of clarification to the income you're receiving from StockCo, does that get booked to agency or to financial services? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [31] -------------------------------------------------------------------------------- Financial services. -------------------------------------------------------------------------------- James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [32] -------------------------------------------------------------------------------- Yes. Okay. Now you answered to Philip's question earlier, it confused me a little bit just around the sort of the fact that sales slowed in effectively the fourth quarter of financial year '20. But on Slide 11 of the press, it talks about retail debtors increasing partly because of higher fourth quarter sales. Can you just reconcile those two? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [33] -------------------------------------------------------------------------------- Sure. It's a bit relative because if you look at last year, you might recall, obviously, we're just really in the deep -- depth of drought. So if you're comparing year-on-year, we have obviously done better year-on-year. But when you -- really, the point is around the expectations from a good seasonal break. Obviously, the break in sort of the drought, the expectation was that those winter rains sort of continued on but obviously, we didn't see that particularly in late July and August. So it's really around that demand we otherwise expected this year for post emergents. But when you're comparing year-on-year, obviously, given last year was in drought, we would have done -- we did better. -------------------------------------------------------------------------------- James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [34] -------------------------------------------------------------------------------- Yes. Okay. That makes sense with the year-on-year. And finally, just the other acquisitions. I think it was $18 million spent. Looking at the accounts, $18 million spent in FY '20 on other acquisitions, $14 million spent in FY '19. Can you just give us a feel for the earnings contribution that's coming through from that outlay? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [35] -------------------------------------------------------------------------------- Yes. I think for memory, it's about $4 million to $5 million sort of dollars, I think, when you're looking at that type of number. -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [36] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [37] -------------------------------------------------------------------------------- And when you just -- you just got to be careful also when you're looking at those investing cash flows, if that's where you were looking at. We're obviously going to start to see some of those deferred considerations now coming through. For example, next -- coming into F '21, we're going to have quite a large payment for Titan, for example, because it's now 3 years since we have made that acquisition. -------------------------------------------------------------------------------- James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [38] -------------------------------------------------------------------------------- Yes. No, that's fine. I was looking at the notes to the accounts rather than the cash flow. So that's sort of $4 million to $5 million in each of FY '19 and '20? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [39] -------------------------------------------------------------------------------- Yes. Yes, that sounds about right. -------------------------------------------------------------------------------- James Ferrier, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Industrial Analyst [40] -------------------------------------------------------------------------------- Yes. So in a cumulative sense, you've got sort of close to $10 million of EBIT this year from acquisitions you've made FY '20 and FY '19? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [41] -------------------------------------------------------------------------------- I'd have to go back and just sort of have a look at that. But it depends on also how you look at the investment. So for example, the Livestock in Transit acquisition. So we expected to make X, and we've made Y sort of this year. So when we look at what's the acquisition-related earnings, we take what we expected. And then our performance or organic growth, we actually look at it as organic growth above that original business case. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- Our next question is from David Pobucky of Macquarie. -------------------------------------------------------------------------------- David Pobucky, Macquarie Research - Analyst [43] -------------------------------------------------------------------------------- Congratulations on very strong results. Just firstly, just picking up on the backward integration piece. Can you provide a bit more color around what you think the size and price is and what the margin upside could be? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [44] -------------------------------------------------------------------------------- Yes. Can you take that, Mark? -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [45] -------------------------------------------------------------------------------- Yes, yes. I mean I think the -- what we've said is that from a pool of crop protection -- if we're talking about crop protection to start with, from that pool, that we meet -- some of our multinational suppliers are very, very important to us that they have generics as well as proprietary products. And so there will be a pool of the generic products that won't be accessible because we'll want to continue to support the non-financial partners that we've supported for many years. In terms of the rural available generic product, we thought at the beginning of this process, a couple of years ago, there's around $250 million. We think that on average, the upside of our backward integration is 10% to 15% margin. But that varies product by product, but these are just broad realm of calculating it. And if we think we are 35% of the way there or something like that, that gives you a sense of the next 3 years as we migrate products across to our own products. In animal health, it's a smaller pill. And we've only just started in the animal health with the veterinary product area. And -- but the margins, as animal health approaches much more to the pharmaceutical human health side, the margins tend to be higher. And they could be 20% to 25% additional margin for every dollar that we bring across to our own products then. -------------------------------------------------------------------------------- David Pobucky, Macquarie Research - Analyst [46] -------------------------------------------------------------------------------- That's great. And the second one is the past to summer crops were relatively poor. I mean what's the impact from those years that you think you can call back during the upcoming summer crop? -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [47] -------------------------------------------------------------------------------- Yes. So Richard, do you want to run that sort of A, B comparison that we did at the half year because we've updated that. So Richard can give you some good details around that. -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [48] -------------------------------------------------------------------------------- Yes. And I think I'll just back over what we sort of mentioned, certainly at the sort of the half year presentation. So at that point in time, we believe the impact of the below summer crop, which is down 66% year-on-year, which is, once again, last year was down on average. Really -- we really thought of that putting time and nothing sort of changed that cost us about $5 million to $6 million in sort of EBIT. So if you look forward into this year, obviously, it will be a combination of where we're strong at and what happens with sort of the irrigated cotton and any sort of -- even the dry land that sort of goes in. But I guess the expectations if continues -- conditions continue to obviously stay strong and improve, you would expect to get sort of most of that back this year just because of, obviously, what's even ABS and what we're sort of hearing on the ground, as Mark alluded to, at the moment. But I think one of the things that's a little bit unknown at the moment is how much dry land sort of cotton will go in, and I guess, sold them at the point in time when people get their crops off. -------------------------------------------------------------------------------- David Pobucky, Macquarie Research - Analyst [49] -------------------------------------------------------------------------------- And just one last one. If you wouldn't mind just providing a bit more color on that system modernization project, what's the time frame, the cost and the expected benefits there? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [50] -------------------------------------------------------------------------------- Sure, David. So as Mark sort of mentioned, at the moment, we're really going through a scoping/service design. We expect to finish that around about sort of as of February, March next year. So really, at the half year results, we'll have a much better clarity around what our expectations in terms of cost and time line. But I think we did some really back-of-the-hand type of asset estimates a while back, but it really just depends on what system you go with because I know from what I understand, if you pick a mid-tier system, it can be x, but if you actually go to an SAP or an Oracle, you may as well add, I said, a 25% to 50% on those costing. So -- but broadly, the expectation will be once we get into implementation, which would be the back half of next year, you're probably talking at least 2 years on from that. And then so the cost will be, once again, pretty more comfortable to firm them up sort of the half year next year. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- Our next question is from Piers Flanagan of CLSA. -------------------------------------------------------------------------------- Piers Flanagan, CLSA Limited, Research Division - Research Analyst [52] -------------------------------------------------------------------------------- Just a couple of quick ones for me. Firstly, just on the new Eight Point Plan, I guess, looking at that 5% to 10% growth through the cycle. I mean how we should think about that sort of organic versus inorganic? And maybe just referencing, I guess, sort of Slide 17 with some of those opportunities there by state? -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [53] -------------------------------------------------------------------------------- Yes. Yes. I think as I mentioned, for the third Eight Point Plan, the -- there is a lot of self-help involved in this with our backward integration and our business improvement initiatives. So I think although we're continuing to run our bolt-on acquisition strategy, filling the strategic gaps, the self-help component is quite sizable. So Richard, do you want to put some meat around that? I'd like the fact that it's much more reliant on what we're doing ourselves. And I also like the fact that the -- we're not forced to buy at multiples outside of our 3 to 5x for these bolt-ons because we've actually done a lot of controllables we're controlling. Sorry, Richard? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [54] -------------------------------------------------------------------------------- Yes. Thanks, Mark. So as Mark sort of mentioned there, really, as we sort of look at. Certainly the first a couple of years of that Eight Point Plan will really be focused around -- you'd say mostly around that organic sort of growth and really making sure we start to nail those benefits coming out of the AIRR acquisition and obviously, continuing the growth progress we made through the Titan backward integration sort of strategy. So yes that's where the focus. There's some other areas that Mark sort of mentioned that we certainly focusing around as well. In terms of -- just broadly, though, and probably from what I can see, really, we expect a lot of that sort of growth at the moment to sort of come around that sort of rural products. I said product with, I said other growth really and maybe some other growth coming out of financial services and the like. But really, when you look at sort of the -- where the drivers and the metrics are sitting in certainly around livestock, definitely at the moment, as prices are quite high, the expectation will be. And I think you can also read that through whether it's MLA and sort of ABS' expectation over the next sort of period that those prices will come off a little as the restocking actually happens and as sort of things that are down a little bit as well. But hopefully, at a point in time, we do see those volumes sort of offset that which is probably no different to where we were back when in F '17 when we're having the same conversation in terms of where prices were and therefore, where volumes were as well. So -- and the offset to that is we're really could see also -- will, at a point in time, will the assets start to turn around to being one of those sort of negative drivers of those headwinds we've seen, particularly in the last sort of couple of years. -------------------------------------------------------------------------------- Piers Flanagan, CLSA Limited, Research Division - Research Analyst [55] -------------------------------------------------------------------------------- Sure. And then just on the AIRR synergies, you talked about exceeding expectations at the moment. Is that both timing and I guess, the value, the midpoint of that $8 million you called out? -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [56] -------------------------------------------------------------------------------- Yes, in both aspects. -------------------------------------------------------------------------------- Operator [57] -------------------------------------------------------------------------------- Our next question is from Tony Mitchell of Ord Minett. -------------------------------------------------------------------------------- Tony Mitchell, [58] -------------------------------------------------------------------------------- I'd just like to ask you, Mark, you mentioned the new trade deal in Asia, which, obviously, includes China. Can you give us a detailed account of -- I mean all the concerns that people have got about barley and crop and all those things that the Chinese are threatening to implement. How does this agreement address those particular commodities? -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [59] -------------------------------------------------------------------------------- Well, I think the way to look at the agreement, Tony, is to look at non-China. So what it does for the ASEAN countries, which we're talking about, what, 800 million people and in China at 1.2 billion, 1.4 billion depending on how it's quoted. I mean what it does is actually provide a very solid and legitimate platform for our diversification strategies. On the barley issue, now with Vietnam included under this, so we've got a formal strong platform. So I see it more that way. And on the China front, as discussed many times, I actually feel quite optimistic about where we'll eventually get to with that relationship. But having said that, we control what we can control. We maintain our strong relationships, trading relationships with our ASEAN and Chinese partners and Northern Asia because it's very, very important from our meat and grain depot. And our producers control what they can control, which is to produce a high-quality ag commodity at a value price. And the geopolitical stuff is the third part, but it's not in our control. -------------------------------------------------------------------------------- Tony Mitchell, [60] -------------------------------------------------------------------------------- All right. And just one other question. The dividend payout ratio has fallen slightly this year. Given your very strong results, wouldn't you have thought the dividend payout ratio would have gone up? -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [61] -------------------------------------------------------------------------------- Yes. A good question and a very solid debate around the Board table. I think from the Board's viewpoint, we've landed in the right spot, but it's certainly an open discussion, Tony. -------------------------------------------------------------------------------- Operator [62] -------------------------------------------------------------------------------- Our next question is from Jonathan Snape of Bell Potter Securities. -------------------------------------------------------------------------------- Jonathan Snape, Bell Potter Securities Limited, Research Division - Senior Industrials Analyst [63] -------------------------------------------------------------------------------- Just a couple of questions, if I can. First of all, around AIRR. Look, I'm looking at the store numbers. And I think when you bought it, when it was in last year's number, I think it was somewhere around 340 stores. I think at the half, you said you'd added 10, and it looks like you closed it kind of 3 7, which would suggest the momentum in terms of members coming over accelerated in the second half. I'm just kind of interested in how you're seeing it at the moment. Does that momentum continue into the early stages of this year? And where do you think that store count could get because it's 10%, 15% higher than where it was when you initially did the numbers on these acquisitions? -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [64] -------------------------------------------------------------------------------- Yes. I think we're seeing the various phases of the Nutrien consolidation of Landmark and Ruralco to be honest. So we've seen -- and I think we've all been -- had experiences where there's been mergers and acquisitions, and it takes a little while. People take a little while, have a look see and -- before they make a call. And our thinking is that there is a -- there has been a second wave, and we suspect there will be a third wave of talented and quality members and people falling out of that position. We've just acquired one of the blue-chip CIC members in South Australia with multi-branch, high-quality business. And that will also prompt another bump in the momentum. So I think that's actually what's happening, Jon. And I think the -- I think for us, at a strategic level, we need to determine if these are acquisition targets and Elders-branded companies or whether they're AIRR member companies, and that's what we're spending a lot of time working through in the geographies. Northern Rivers is a great example where we have a bunch of opportunities there. And they could be Ace Ohlsson branches because of the horticultural plant, they could be Elders branches or they could be AIRR members, so depending on how that rolls out. So that's more of where we're focused on in that area. But the momentum is definitely coming with us. We're looking at putting an AIRR distribution facility or warehouse in [Mount] And with that, that will free up the capability to bring on more there in [Tasi] as well. -------------------------------------------------------------------------------- Jonathan Snape, Bell Potter Securities Limited, Research Division - Senior Industrials Analyst [65] -------------------------------------------------------------------------------- Now those 20 that came on in the second half, I'm just kind of interested in terms of when the timing of that would be, because if there weren't that early stage of the third quarter. I assume they probably wouldn't have been that material in terms of the purchases in this year's result? -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [66] -------------------------------------------------------------------------------- No, that wouldn't have been. No. You're right. -------------------------------------------------------------------------------- Jonathan Snape, Bell Potter Securities Limited, Research Division - Senior Industrials Analyst [67] -------------------------------------------------------------------------------- Okay. And look, just on to your market share, I'm referencing the heads of cattle sheep and the fertilizer volumes, in particular, and having a look at those. It looked like you went up in cattle, up in sheep in a market that was probably off 5%, 10% in terms of turn off of head this year. And if I had to look at fertilizer, it looks like you're up somewhere around about [8%] year-on-year, when if I looked at CSVP and IPL, they were more like 12% or 13%. So I'm just interested is, am I seeing that right that you seem to be picking up between 300, 500-odd basis points in market share in the last 12 months in those categories. And I'm kind of trying to get an idea of what's -- what's doing that. -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [68] -------------------------------------------------------------------------------- Well, I think category by category, we'll -- I mean we'll have the discussions on that. But I think to give that, it's just a case that we would've -- in cattle, in livestock, Richard, I'm thinking, Northern Australia. If there's 60,000 heads, there's Central Queensland in the New England area. I'm thinking of all of the fallout where we've gained, yes, there maybe 100,000, 120,000 head which equates to movement in market share points, apart from what we're doing with our own business. So these are new -- there's -- I think we've got the order of -- from memory, it's just under or close to 500 new customers across Australia in the last 12 months. And there may be, I think it's 25 or 26 new people who are all customer-facing and holding market share that have come across and joined us. So I think that you're picking the trend that we're seeing. -------------------------------------------------------------------------------- Operator [69] -------------------------------------------------------------------------------- Our next question is from Belinda Moore of Morgans. -------------------------------------------------------------------------------- Belinda Moore, Morgans Financial Limited, Research Division - Senior Analyst [70] -------------------------------------------------------------------------------- Congratulations on a great result today. Just a few questions. Richard, can you just remind me what the Titan deferred consideration is in '21? Also great cash flow results today. How should we think about sort of cash flow conversion going forward? Can you also remind us of what tax losses on an off-balance sheet you have left now? And then just lastly, how we should think about the sort of corporate costs in '21? -------------------------------------------------------------------------------- Richard I. Davey, Elders Limited - CFO [71] -------------------------------------------------------------------------------- All right, you've only got a quota of 2 questions, Belinda. But I'll try to cover them all actually quickly. So just to go again, just on the Titan. So really, that was just basically a facility to bring back creditor terms effectively that we lost when we consolidated sort of Titan into our portfolio. So really, as I said, as I mentioned before, that was about $9 million, that facility at the end of September. It actually goes up and down based on the cycles of purchasing from, I said, really, China, which is where most of the purchasing happening from Titan. So that next year, depending on where our purchasing patterns occur, could be high because we only started to bring on our suppliers really midway through the year when we established that facility. But really, all of us meant to do is to bring those supply turns back on that we lost through when we consolidated. In terms of the cash -- in terms of the off balance sheet, there's still about $42 million of that asset sitting off balance sheet. The rest is sitting on the balance sheet as of the end of the year. And I would expect that all be back -- all be on balance sheet within the next couple of years. And if we go to the next obvious question is what my current thinking around when we use up all those tax losses, it's probably now, I think, looking between 5 to 6 years, depending on what the trajectory of the earnings profile and where that comes from looks at. In terms of cash conversion, I think you would have noted that there's a little bit of timing. We got a benefit because of livestock this year, but we also are sitting on, I said, really some high sort of debtors or inventory, certainly in retail sort of products. But I'm pretty happy with the way the cash conversion went this year and some of the initiatives we put through. So the expectation was we could have another strong cash flow into next year as well. And in terms of corporate costs, that was your last one, wasn't it? In terms of corporate costs, really, the big lifts in corporate costs this year were really those incentives. So certainly, the short-term incentives, you might recall, we had sort of 0 last year. So once again, that's discretionary. So I always call that a variable cost. So depending on where -- obviously, where our budget sort of sits next year and what our target sits will depend on whether we have that accrual next year. And probably where I'm sort of seeing at the moment, in terms of looking forward. A couple of things I'm seeing will mean the corporate costs will be up next year. Corporate insurance, which is the insurance over sort of the whole of the group. Obviously, everybody would be aware that the insurance market is quite hard and prints been going up. So I'm looking at probably another a $1 million, $1.5 million increase in that cost next -- into next year. And we'll start to see some costs coming through, particularly around that system modernization, which you can't capitalize. Certainly, in the first parts of the program, they're able to capitalize a lot of that research and development sort of piece of it. So the expectation will be that potentially anywhere up to $4 million. And just to note on that, we've incurred about nearly up to $1 million this year and just setting up the program office and some initial costs associated with getting that program up and running. -------------------------------------------------------------------------------- Operator [72] -------------------------------------------------------------------------------- Mr. Allison, there are no further questions at this time. Would you like to make some closing comments? -------------------------------------------------------------------------------- Mark Charles Allison, Elders Limited - CEO, MD & Executive Director [73] -------------------------------------------------------------------------------- Yes. Thank you, and thanks for all coming on to the call and look forward to speaking with you over the next few days as we run through the results. So we'll talk to you then. Thank you very much. -------------------------------------------------------------------------------- Operator [74] -------------------------------------------------------------------------------- Thank you. That concludes today's call. You may now disconnect your lines.