Elders Limited

Thank you very much and welcome to all for the Elders full year results presentation for the FY24 year. Thank you for joining Paul and myself for this session today. As you will be aware from our two ASX announcements this morning and our trading hold, we will approach today's briefing in two distinct parts. Firstly, Paul and I will provide a review of the FY24 results We will then present our acquisition opportunity and the strategic alignment and benefits of this for our shareholders, communities, and people. And then finally, we'll have an extended period for questions on both areas at the end. So we will move through relatively quickly to ensure that there is time for questions. So starting off with our annual results, from an elders viewpoint, this is the first full year of our fourth eight-point plan. And a very difficult and particularly problematic first quarter of the first year. The Elders' philosophy since the first eight-point plan in 2014 has been to control what we can control and not to dwell on what we can't control. To have a capital and cost structure to allow us to make good returns in bad years and to make great returns in good years. The FY24 full-year result is an example of acceptable returns in a difficult market and cost conditions particularly in Q1, as we discussed at the hearty results presentation. 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 through the cycles. In summary, we aim to control what we can control. Over the first six months of our fourth April plan, we experienced an exceptionally difficult first quarter. steady second quarter with improving market conditions across Eastern Australia through the third and fourth quarters. Our view in November last year was that the average conditions in FY23 were declining in the first quarter of FY24 across rural products and agency services and would return to average outlook for the remainder of FY24 and into FY25. In this context, the performance of Elders with its clear and consistent strategy multiple diversifications, high financial discipline and hard working and committed team and the enduring customer rank we have of being the most trusted brand in Australian agriculture has delivered a result which is relatively resilient. Results are strong in safety, sustainability and cash flow with the full year outcome approaching the midpoint of EBIT guidance range that was provided earlier in the year. Our eight point plan commitment is to provide 5% to 10% growth in EBIT and earnings per share at a minimum of 15% return on capital in a sustainable manner through a safe and inclusive workplace. And we always refer to through the cycles. The outlook remains consistent with our 5% to 8% growth through the cycles through to the end of the eight point plan in FY26, albeit with a difficult year one of this three year strategy.

Moving now to the Delta Agribus acquisition.

At a high level, this acquisition is fully aligned with the Elders acquisition rationale that delivered Titan Ag, Air, and many other Bolton acquisitions to Elders. With its pre-synergies, EPS accretion, and that's always been a critical point, enhancement of our technical and ag tech expertise and offerings, strengthening of our geographical diversification, particularly in New South Wales and Northwest Victoria, but also South Australia and Western Australia, building on our crop protection and animal health regulatory package portfolio to drive our backward integration strategy, providing an additional platform for retail segmentation, allowing greater customer centricity. And that's an important point as we will leave the Delta network as it is intact to run as a standalone and providing further coverage for our real estate and financial service offerings across the enhanced platform. Our approach for today is that I'll provide an overview of the results, Paul will go to the detail of their financial performance and I'll then provide an update on our outlook and growth and transformation initiatives as we deliver our fourth eight point plan over the next two years. We will then present the details of the Delta Agribusiness Acquisition and Equity Raising and finally have an extended question and answer session. And I think given that we're doing two things at once, it's worth noting that we're also going live with our SISMO project today in Murray Bridge in South Australia. So that project, as we'll see through the presentation, is on track and moving along quite nicely. So with that overview, we'll now commence with the FY24 annual results presentation. And if we look to the agenda, I'll just make a note one slide back on the agenda, if I may. And that is in order to accommodate the extended Delta acquisition slides. We've moved a bunch of slides into the appendix and we pride ourselves on the transparency and insights we provide in the results presentations. So I just note that in there we have our business model, the sensitivity slide, capital framework slide, our KPI trends, the geographical diversification slide, the product performance slide, the cost driver slide, and also the return on capital input slide. So we're happy to take questions from the appendix either now or in our one-to-ones as we go through the week. So moving to the executive overview and to the key investment drivers in the next slide. And I think that we've, elders over the 8.0 plan period have been very focused on EPS growth through the cycles. We've used our diversification, multiple diversification to allow us to offset seasonal and commodity impacts. There has been significant room for growth, and we've shown that with some over 80 Bolton acquisitions and also our major acquisitions with Titan Air and now Delta, and there's room to move. I think the transformation initiatives of the business are quite important in context. And the context was that in the first April plan, we made a conscious decision to get ourselves up on our feet, strong balance sheet, and stable business before we tackle the big transformational issues like systems and other streamlining of the business. Significant pipeline opportunities, we'll talk about later. We've still got 12 active bolt-ons in our business development pipeline, and I'm sure there are others as we go through this process, and a robust balance sheet. Paul will talk to the FYQ1 implications of FY24 Q1 implications on our ROC and leverage and our pathway back to our targets in the slide. But clearly a very, very high focus for the business and the commencement of Q1 FY25 would indicate that we're returning to an appropriate run rate for the business. Going to the next slide. And it's really just to emphasise the resilience of the business through seasonal volatility. I think many on the call are aware of the very strong EBIT, EPS growth and ROC performance in the first three eight point plans, as noted in this slide. Fourth eight point plan, the first year, tough as we've talked about, but with confidence that we can still nail those metrics by the end of the eight point plan period. If we go to the next slide on people and customer highlights, again, good progress with our lost time injuries down to two from three last year. And favorably, we normally, we have no manual handling injuries, lost time injuries this year, and that was filling half of all the injuries prior to various investments and behavior changes that we put in place. Still got some work to do. We've still got two of our people being injured in a year with lost time injuries. So we've got more work to do to get to zero. On the recordable injuries, a good trend on the next slide, when we get to it, we'll show the trend there on the recordable injury frequency. But going back to the previous slide, the net promoter score is still positive. I jumped to women in senior positions. at 21% that is, again, we've got a long way to go, but it is a long way from 4% in the first eight point plan. And employee engagement still above high performing standards for Australian businesses. When we looked at the safety, health and wellbeing slide, the next slide, you can see the picture around our last time injuries. Remembering in the first eight point plan, we started with 34 last time injuries. for a workforce that's almost half the size of the current workforce. So there's been great progress there, and the trend line on recordable frequency is pretty clear. On sustainability performance, the next slide. Again, the flight path or trend line around our climate targets remains positive. lots of authentic and practical initiatives being taken place within the sustainability area and we we've the initiatives that we focus on are really the the practical one rather than the practical ones rather than trying to read wash your virtue signal we're really a business that It likes to focus on authentic initiatives, and you'll see that with the centralised waste control, ethical sourcing platform, big bank recovery, the solar and LED lighting upgrades, et cetera. So there's been good progress, and our sustainability report has got a number of very, very positive acknowledgements. Okay, moving to the financial outcome in the next overview, which is the next slide. And the results at 128, so slightly below the midpoint, as we've said. A head-on return on capital and leverage to which Paul will speak with the Q1 result. But we came home strongly across the second half, as we indicated at the half-year results presentations. And the cash conversion strong and the dividends per share maintained at 18 cents. So with that, I'll hand over to Paul.

Thanks, Mark, and welcome everybody. As Mark mentioned, we will focus on the key elements of the FY24 results to allow time for questions regarding the acquisition of Delta Ag. I'll commence on slide A12 of the pack, which summarises Elders' first half achievements, notwithstanding challenging seasonal conditions, especially in the first quarter. Elders gave a trading update on April 8th Notable forecast underlying EBIT range for FY24 of between 120 and 140 million, supported by a return to average seasonal conditions in the second half. The second half unfolded mostly as expected, with stability returning to livestock markets and the 2024 winter crop proceeding as expected, despite a very late start in Western and Southern Australia. Underlying EBIT finished at 128 million, just below the midpoint of guidance. Weakened forecast retail margins in the third quarter drove most of the delta between the upper end of guidance and the result. I'll now move to slide A13, which displays Elders five-year performance from FY20. Over this period, sales have increased at a five-year compound annual growth rate, or CAGR, of 10.5%, supported by acquisitions and organic growth. Gross margin has increased at a five-year CAGR of 9.8%, negatively impacted by tough trading conditions in the first quarter, responsible for a large portion of the 43 million EBIT decline from FY23. Comparatively, costs have increased at a five-year CAGR of 12.6%, but were held well below inflation, excluding additional costs from acquisition and transformation. Moving now to slide A14, which focuses on shareholder returns over the past five years. Over the period, underlying earnings per share decreased from 69.9 cents in FY20 to 53.4 cents in FY24, materially impacted by market conditions in the first quarter of FY24. A dividend payout ratio sorry, the dividend payout ratio is currently elevated above elders policy of 40 to 60% of underlying NPAT. It is considered maintainable when looking through the impact of the first quarter, given those conditions no longer prevail. Moving to slide A15, which contrasts FY24 against the prior period. Elders has been able to deliver a resilient result, with the second half surpassing the prior year period. Highlights include sales revenue, whilst decreased 190 million, down 6%, was offset by volume growth in products sold, negating the impact from lower crop protection input prices compared to prior period, which was most pronounced in the first half. Gross margin increased $18.6 million to $637.6 million, up 3% year on year, with recent acquisitions and new business outweighing the negative impact of trading conditions in the first half. Underlying EBIT decreased by $42.8 million to $128 million, with most of the delta attributed to the first quarter. The final dividend of $0.18 per share has been declared, ranked at 70%. Moving to slide A16, which displays eldest product diversification. Overall, gross margin increased by $18.6 million to $637.6 million. Key themes underpinning gross margin movement include the following. Real estate services gross margin increased $23.1 million, or 38.8%, with property management, residential, and broad acre sales, all showing significant growth supported by recent acquisitions. Agency gross margin increased 9.4 million or 8.3% following a strong recovery in livestock prices and the commencement of Elders Wall. Wholesale products increased 4 million or 5.6%, an excellent result given the challenges from animal health in the first quarter. Growth in the above products and others was sufficient to outweigh negative impacts across retail products from the impact of lower crop protection prices low demand for animal health products in the first quarter and some pressure on gross margin percent in the third quarter. Pleasingly, the pressure on gross margin percent did not desist into the fourth quarter or indeed into FY25 year to date. Turning to slide A17 to discuss costs, which have increased, but mostly due to growth-related initiatives, including acquisitions and new business. The chart below shows that excluding Growth related uplift. Costs have grown 7.9 million or 1.8% well below the rate of inflation. Builders continues to target below inflation cost growth in FY25, excluding costs from growth initiatives. Turning now to slide A18, we see the significant price volatility that has been experienced across crop protection and fertilizer. over the past 24 months. Whilst prices were comparatively stable through FY24, they remained significantly lower than the prior corresponding period. This delta has had a material impact on retail products, sales and gross margin in FY24, most pronounced in the first half. Pleasingly, some of this impact was offset by volume sales growth, as well as further progress in Elders Backward Integration Strategy. The following slide further explores volume growth within the business. The chart top left demonstrates that the volume of products sold continue to grow in FY24, notwithstanding challenging market conditions. The chart bottom left shows that this volume growth added approximately $199 million in sales, partially offsetting the impact of lower crop protection and fertilizer prices on the retail business. Moving now to slide A20 to take a closer look at sheep and cattle prices in recent times. The charts demonstrate the statistical materiality of price movements in sheep and cattle markets over the past 24 months. Sudden decline in livestock prices through the second half of FY2023 had a material impact on the Elders' first half result. Pleasingly, livestock prices firmed from the second quarter, underpinning a substantial improvement in Elders' financial performance in the second half. I'll now turn to slide A21 to discuss return on capital, which is below Elders' target due to the negative impact on the first quarter and the impact of business transformation where capital deployed receives benefits. Return on capital decreased from 16% to 11.3% in FY24 and remains below Elders' target of 15%. Key drivers of the decline in FY24 include even underperformance in the first quarter, which reduced return on capital by 2.8%. Capital expenditure and depreciation from transformation related initiatives accounted for another 1.4% of this decline. Return on capital is forecast to improve in FY25, assuming a normalised first quarter and return to average seasonal conditions. Moving now to slide A22 and cash flow, where we see an operating cash inflow of 82.9 million. The outlook for operating cash flow and cash conversion in F25 remains favourable, with a large quantum of debtors at FY24 balance date falling due in the first quarter of FY25. I note also that the physical payment of company tax for Elders Limited will not recommence until around February, 2026. Over to slide A23 in working capital where we see an increase in balance state, working capital of 42 million, notwithstanding a decrease in average working capital of 58 million. Underneath this result, I note a decrease in inventory of 94 million, offset by an increase in debtors of 157 million, which will be further discussed in the following slides. I'll now move to slide A24 where we see balanced state net debt, excluding AA's B16, increased by 177 million to 437 million. I'll explore that further in the next slide. Importantly, elders' debt covenants maintain significant headroom. I'll now move to slide A25, which details the key drivers of increased net debt and leverage. Counting leverage has been negatively impacted by the reduction in EBITDA and an increase in net debt. Adjusting leverage for a normalised first quarter would reduce it from 3.1 to 2.5 times. Breaking down the movement in net debt, we see an increase from acquisition and transformation of $140.9 million pursuant to growth objectives outlined in Elder's 8-point plan. Projects streamline. and a reduction in crop protection prices delivered a working capital improvement of 114.9 million from inventory and payables. This improvement in working capital is expected to persist into FY25. At balance date, this benefit was more than offset by an increase in debtors due to a later 2024 winter crop, increased demand for seasonal finance, and to a lesser extent, an increase in arrears over 90 days. over which there is a high degree of confidence in collection. The majority of these debtors are yet to fall due and expected to be collected over the coming months, lined with winter crop harvest. Assuming a normalised first quarter and average seasonal conditions, Elders expects accounting leverage to return to approximately two times by the first half of FY25. This concludes the financial section of the presentation. I'll now pass back to Mark, who will speak to strategy and outlook, and then the exciting announcement regarding the acquisition of Delta Ag.

Okay, thanks very much, Paul. So moving on to the eight-point plan, the next slide, you can see in terms of our compelling shareholder returns we talked about in the first three eight-point plans, we're targeting the 5% to 10% growth in EBIT and EPS through the cycles at above 15% return on capital, And Paul's outlined the pathway back with ROC and on the leverage front as we move through the last two years of this APON plan. We've maintained our position as most trusted agribusiness in Australia, so that's always a very solid anchor. But I really just want to focus on the transform and innovate and grow components. So in terms of... transforming the business. We have had many of you will be aware of the multiple projects that we've had in place between Slimline, Streamline and Sysmod and they've been moving along to plan and at a very solid rate. On the innovate and grow front, we've also been working very strongly in our business development portfolio with the smaller bolt-ons. We have reduced our emphasis to an extent over the last few months as we've been developing this bigger acquisition. But our sense is that we will also slightly hold that back as we go into FY25, as we're betting down the larger acquisition, and also ensuring that we're very prudent with our balance sheet management and our pathway back to our desired targets on those metrics. So if we look at the next slide on the Transform SysMod, as we've spoken about, It goes live today, the technical go live today in Murray Bridge and has largely been on track, on time, below budget. And we announced the quantum of the capital investment as each wave is approved by the board. And so you see those on this slide with the targeting of 15% return on capital for the benefits case. Now, for those of you that are coming to our Investor Day on Thursday in Melbourne, at our wool store. Each of the executives managing the various areas will be delivering the next level of detail around these across all areas of the business, and that will be put on the ASX, the presentation will be put on prior to that presentation. But good progress in that respect. If we go to the next slide of strategic priorities, innovate and grow. And we go to the right-hand growth enablers, larger acquisitions, organic growth bolt-ons, systems modernisation benefits, supply chain optimisation, backward integration, financial service expansion. All of those are largely on track. From a bolt-on viewpoint, we did 13 acquisitions in the FY24 period, annualised EBIT of 14.2 million, and we have 12 candidates in the current pipeline. So looking forward then in terms of outlook, and really I think our view, we always take an average view or average outlook, whether it be commodity or market, but the sense is probably the only thing that catches our mind is with the strengthened winter crop and chickpea plantings, there may be reduced summer crop, dryland summer crop coming into the tail end of this year. But all in all, the outlook is, we take an average view, but it's relatively positive for the next 12 months, two years. Okay, so with that, we'll leave the slides in the appendix and we'll move to the Delta slide now.

Okay. If we go to the contents, So there's lots of information in this pack, which I'm sure you've all got.

We'll focus on the first four points and, sorry, the first three points. And then we'll, after we've moved through this area, we'll go to an open question and answer session. So moving to the executive summary. So as has been announced, we've entered into agreement to buy 100% of Delta shares of $475 million. And I'll just go through each of the headers here, the transaction overview. On the basis of EBIT, pre-synergies, it's an 11.1 times multiple. The normalised EBIT is 43 million, with EBITDA at 53 million, as you'll see later in the slide. So post-synergies, and we'll talk to Synergy details shortly. That's an 8.7 times multiple. And it's also worth noting that there's 42 million of franking credits that comes with the transaction, which from a shareholder value point equates to roughly one term of that multiple of the 11.1 multiple. So this multiple is comparative with like transactions, obviously it's a small ecosystem. So there's only There's only been a few to benchmark on, but it's pre-synergies is always our requirement for EPS accretion and it is pre-synergies EPS accretion. When we look at the Delta business, very much rural products, technical advisory services business. So that component of Elders and very, very complimentary as we see as we get to that slide in the pack. And it really has strengths where we have weaknesses and vice versa. I mentioned the 53 million EBITDA. In terms of the acquisition rationale, it's fully aligned to all of the core strategy and acquisition principles that we've talked about for the last 10 years in terms of adding diversification, pre-synergies, EPS increase, creative, bringing in the particular IP, quality aligned business from values, feedback, et cetera. And so that has been quite positive and we've been in discussions for many years as comrades in the industry, but also as colleagues over many years. If we looked at the complimentary geographical footprint, It's quite nice in that respect with regard to New South Wales, Northwest Victoria, and parts of South Australia and West Australia. So that's nice. And in terms of our track record of being able to make these acquisitions, I think it's pretty clear. When we looked, we bought Titan Ag at 7 million EBITs, and it now does just under 50 million EBITs. We bought air doing 18 to 20 million EBIT and now it does just under 50 million EBIT. So our light touch, overarching governance and capital discipline has been a winning formula and we plan to apply exactly the same principles and approaches to Delta. In terms of the expertise, significantly enhanced expertise, technical expertise, ag tech and precision agriculture, particularly with the the people on one side, but also the 38% ownership of GoNRAG, a platform for backward integration. At this point, Delta is less advanced in its backward integration than Elders, and we see that as a great opportunity with their home brand Four Seasons to continue to progress that. in a smooth transitional low pulse rate way, and hence the 12 million synergies that we're talking about over a three year period. Retains management expertise through implementing the light touch approach. So in practical terms, this means basically everything stays the same at Delta. There may be slight uplift in resources on a couple of publicly listed areas, but it's not material. Paul and I go onto the board, I become chair. We maintain the executive directors and potentially one non-exec director. And we basically carry on as the business has been run historically in a very successful way.

Going to the next slide, the transaction costs and balance sheet flexibility.

So we're talking about 246 million fully underrated, accelerated and non-renounceable entitlement offer, 110 million increase in debt and 190 shares issued to Delta shareholders which will create obviously shared interest as we go through that 15 month escrow period. The additional 50 million on top of the acquisition capital is really to maintain that flexibility. We've talked about our strong desire to to pathway back to the appropriate ratios and leverage and and this is part of that but we also want to have flexibility because we do have a pipeline of Bolton acquisitions that that we may need to attend to depending on how they how they roll out in terms of financial impacts worth noting pre-synergies mid-digit EPS accretion, and that's one of our very important disciplines, that we don't make up synergies to make the numbers work. So pre-synergies, EPS accretive, and then when we look at the synergies, double-digit EPS accretive. So a great deal for shareholders and for, in fact, all stakeholders for this combination of businesses. The synergies we've spoken about, the $12 million is largely... It's largely around backward integration benefits through the Four Seasons brand. And you'll see later on in the slide pack, the additional IP brought to the Elders Limited Group through regulatory packages in crop protection and in animal health. And then not to mention the AgTech IP that comes along. So in terms of the targeting platform return on capital of 15%, performance balance sheet net debt to the metrics that we run by. Looking at timing and considerations, so one of the issues that we've needed to consider quite closely over the last couple of months or few months has been ACCC approvals, where there are branches of both Delta and Elders in towns. I think the key consideration is that I think many of you are aware that it's a highly competitive environment and particularly when we're talking about the rural products area where there's 75 to 80% of products are generic or off pattern and are supplied by multiple suppliers either direct to farm or through multiple providers, retailers in towns. So we'll await the advice from the ACCC Our feeling is that we have a solid case and we plan by having separate networks to ensure that the focus on our customer centricity remains very, very high as we go through this process. Okay, and the final point is, as I've indicated publicly previously, that my intention is to remain in the role of this role through to the eight point plan period at the end of 26 at a minimum. Okay, so looking at the Delta overview and I'll just pick the high points there, 68 locations, 40 independent wholesale customers at the right hand side, 450 staff and EBITDA last 12 months of 53 million. So a very strong and positive business, and very aligned with its rural products, digital tech services, and its financial services. So the complementarity of Delta on the next slide to Elders, you can see quite clearly, I mean, there really is nice alignment. And Delta's a highly respected brand, and Elders is a highly respected brand. with our customer basis. So this aligns very, very nicely. If you look at the financial performance in the next slide, and it's, I guess it parallels a little to Elder's journey, although obviously we had offsets, both upside and downside from our agency services, real estate, financial services, feed and processing, which are additional product and service categories in our portfolio.

Next slide.

You can see the diversification by product and geography. And probably the, I think the geography one is the important one when we look at the complementarity to elders where they're generally, Delta is stronger where we're weaker. You can see that with New South Wales in particular. And we have a slide later on comparing the two splits in geography and it comes out quite clearly. In terms of the leadership team, I think for for the next slide, Jared and Chris and I have known each other for 25 years or so back in the landmark days and actually would have been before. I think probably a Mallee's and Chandler's days with various suppliers and you know, a highly high quality team to highly experienced individuals who have been very, very successful in this ecosystem. And yeah, I've always had high regard and respect. I think with Matt, I've only got to know Matt recently, and I think we can say that, again, very highly regarded individual and great bunch of people, both leadership and across the whole business to welcome within the elders framework. Okay, so if we move to the acquisition rationale, 2016, yep. So just moving through these fully aligned to our core strategy and our corporate acquisition principles as you've seen and very, we've been talking with the Delta and many others for all of this since the start of the eight point plans and we just need to wait to alignment and I think that's where we've got to in today's announcement. Continue our successful track record through growing and and acquiring businesses, and I've referenced Titan Ag and Air as two bigger businesses, but there's over 80 other bolt-ons that have joined the group over the April plan period. Complementary geographical footprint, and I've mentioned the geographies before, where there's good coverage for Delta joining the group in New South Wales, North West Victoria, South Australia and West Australia. enhanced technical expertise, both in ag tech and the regulatory packages, the EPS accretion pre-synergies, EPS accretive and double digit EPS accretive post synergies over a three year period. And we've spoken about the 12 million synergies where it comes from. And I think the light touch approach where we have a segmentation at branch retail level as well as segmentation at product and service level as we do with our branding of crop protection and animal health products and OptiFERD products. There's a lot of positive upside where customers and communities will be better off for the listed governance approach and the capital availability for Delta to continue to serve them. and the eldest class will equally be better off through the better buying positions that we can gain through the group. So with that, I'll hand, sorry, still going on the consistent with corporate acquisition principles. I think I've probably covered most of these points in terms of the alignment and the diversification, the technical expertise, pre-synergy, EPS accretion, and the targeted ROC and leverage. Moving to the complementary geographical footprint, this is a slide I was referring to earlier, where you can see there are nice positions, and I think part of our view on ACCC is that this complementarity will minimize any of those potential issues. Okay, moving to the technical expertise and offering slide. My point about regulatory packages, so with the combination of 478 crop protection products, 140 animal health products, 322 agronomist consultants across the group, and there's also the precision ag specialists that Delta have been significantly stronger in. The next slide on meaningful synergies. And I think everyone's aware that we had a period three to five year period of moving from zero to 70% share of the off patent products within the elders portfolio. We've moved this year on a volume basis to 60% of that. And with the idea that At 70%, any multinational companies that have generic products and proprietary products, we can still service their needs in a bundling response to their proprietories and some of their generics. So that's what we flagged that very openly. We've been very transparent on that, and we've been able to move along quite nicely in doing that, both through the Titan Ag brand of crop protection products and also the Apparent brand through the Air Network. Delta has the Four Seasons brand, and so we'll move along in line with that synergy pitch or assessment of 12 million over three years, but we'll do it in a way which is respectful of suppliers and also the change management required as we go through increasing our amount of back-linked integrated product in Delta to a similar level over an extended period of time. Okay, and then on the light touch integration approach. And yeah, I think we really want to spend some time, particularly in the external market on this, to ensure that the light touch approach that we've talked about and we've employed for many years, it has financial, safety, environmental, sustainability, behavioural benefits, Heavy touch, so clearly that's non-negotiable. Financial transparency with Paul and myself joining the board from an elders viewpoint and overseeing the board as chair. But the rest of the running of the business is very much in line with as it's run now in terms of the branch structures, the procurement, et cetera, et cetera. So we don't see a need. Delta is a very successful business with very good people. And it's not to the benefit of anyone, our shareholders, our people, their people, for us to get in the way of a successful formula. This has worked well with Airtight and a bunch of others. And we've also found that at the end of escrow periods or road out periods, that the management tend to stay. So it's above 90% of management stay in a positive and productive environment. So I think that's where we'll leave the presentation on the business. And now I'll ask Paul just to run through the acquisition funding in terms. So I'll take questions.

Thank you, Mark. I'll commence on slide B23 of the PAC, which shows the acquisition of Delta and will be funded through approximately 60% cash consideration and 40% from new elders shares. issued to current Delta shareholders at the theoretical ex-rights price, or TERP, calculated at the close of business on November 15, 2024. The cash component will be funded through a combination of equity and debt. The debt component has been secured on a certain funds basis from ELDA's existing financier syndicate. An additional 50 mil of equity will be raised to provide balance sheet flexibility to pursue additional growth opportunities in the medium term. should they arise. Completion is subject to an ACCC inquiry process with mid 2025 being a reasonable estimate of timing based on the historic norms. I'll move now to slide B24 to provide an overview of the equity raise which commences today for institutional investors. Firstly, I'll note that the offer is fully underwritten by Macquarie Capital. It involves a 145.05 accelerated non-renounceable issue of new ordinary elder shares. All shares will be issued at a discount of 7.9% to TURP. They will rank equally with existing elder shares on issue and be eligible for the final dividend of 18 cents per share for the full year ended 30 September 2024. I note that elders directors who are eligible have confirmed their intention to participate in the entitlement offer. Moving now to slide B25 in the equity raising timetable, I note the institutional entitlement offer run throughout Monday, November 18, 2024 and the retail entitlement offer will open Monday, November 25, 2024 and close on Monday, December 9, 2024. All shares subscribed under the equity raising will be allotted on or before Monday, December 16, 2024, ahead of the revised ex-dividend date of Tuesday, December 17, 2024. With that, Mark, I'll pass back to you for final comments before we proceed to questions.

Yeah, okay. So I think from our viewpoint, this is another step in the development and growth of elders over the April plan period. providing significant geographical, enhanced geographical diversification, adding to our technical and regulatory capabilities. And with AIR, forms a very, very solid thesis on serving our regional rural Australia and agriculture. and being able to provide the best for our customers. So I think with that, we'll go to questions. So we've got a bit of time for questions. And I think we'll just take questions as you call them, whether they're from the results presentation or on the Delta acquisition.

Thank you. If you wish to ask a question via the phones, you will need to press the star key followed by number one on your telephone keypad. If you wish to ask a question via the webcast, please type it into the ask a question box. We'll take phone questions first and then move to any webcast questions. Your first question comes from William Park with Citi. Please go ahead.

Thanks Mark and Paul for taking my question. Firstly, could you please step through what you have seen in the last month and a half across your business units, and I think you talked to sort of that solid momentum emerging out of second half, continuing through to first quarter, but just around the grounds, what you're seeing across your businesses. Thank you.

Yeah, thanks, Will. I've described the start of FY25 as being in line with expectations and the forecast for a normalised first quarter. Very similar to how things played out in the last quarter of FY24 as well. So a continuation of recovery in livestock. In terms of crop protection, obviously, we're in the middle of winter crop harvest at the moment, so less activity there. But in terms of other products, wholesale, real estate, yeah, a continuation of themes from Q4.

Thank you. And just on the synergies you called out for Delta acquisition of 12 mil at the EBITDA level, can you, and you alluded to on the call that this is mostly to do with backward integration, can you just step through what sort of, and I guess this is subject to the completion of the actual acquisition itself, but How come it's across sort of three years and what sort of run rate you would expect in FY25?

Yeah, thanks, Will. I think the, I mean, with the completion requiring ACCC approval and any directions that ACCC may have, so we're thinking that the winter crop for FY25 may not be part of this, which is a bigger volume component for backward integration and the synergies that come from that. And so our thinking was that we need to, I mean, we don't, we haven't got a sense of where all the allocation of product fits within Delta with various suppliers. And we need to also be respectful of suppliers, particularly in the first year when all the forecasts, et cetera, would be starting to go to suppliers now for winter crop next year. So our thinking is to take quite a conservative view and just to move through as we did with Elders. Identify off-pattern products, identify where we can work with suppliers for current suppliers for home-branded products, identify where we can use the Titan backend to provide formulated active ingredient into the Four Seasons brand. And there's a bit of work to do behind that. So I think to answer your question, the reason the phasing is because, you know, it will end up being five years in the transition from 10% backward integration and elders to 70%. That will have taken five years by the time we get there. And with Delta, where we see a similar sort of managed methodical low pulse rate process.

Thank you. And just one last question from me. I know you don't have quantitative sort of guidance out there for FY25, but just in terms of, I mean, you alluded to sort of in line with your expectations around normalised first quarter at the moment. But if you look through for the entire year FY25, I know consensus expectation is around 170 mil. In terms of your comfort levels around that and excluding, I guess, the potential uplift from Delta acquisition, are you comfortable with this sort of level or what are some of the swing factors that you need to see in your favour between now and the end of the year to get to this sort of level?

Yeah, thanks. So, you know, we don't give annual guidance as such. We've got our 5% to 10% growth through the cycles. But if I was putting myself in the shoes of an analyst, I'd be saying, okay, well, there's greater chickpeas planted up north, so therefore that'll dilute the summer crop, dryland summer crop planting. In terms of, offtake of cattle and sheep. I mean, you've got all the chance to work that out yourself. In terms of the benefits from sysmide, we've said that they're towards the end of this year. Streamline benefits that we talked about last year, the capital benefits have come through, as we indicated, at half year. And we're saying there'll be some margin benefits coming through towards the second half of FY25. In terms of costs, We've talked about slimline and the costs we've taken out of the business. That's in the charts for you to see. And also the pathway back on ROC and leverage kind of gives you a big indicator. But from our viewpoint, we're assuming average season. And we're seeing, as we normally do, just high financial discipline to get our way through there while we're implementing Sysmart across the business. Paul, you may want to add.

Just note, obviously we're subject to continuous disclosures, so we're looking at current consensus and have made no remark in regards to FY25.

The next question comes from Richard Barwick with CLA. Please go ahead.

Hi guys. I'm just talking back to the ACCC concerns, Mark. You obviously mentioned that there is a bit of crossover, but equally, as you say, it's a competitive market. So is your expectation that you'll get approval across all sites for the Delta acquisition, or is there some risk in specific regions or specific locations that you might get some pushback from the ACCC?

Yeah, it's a good question. I think our assessment, our desire is to know overlap issues. We've obviously done lots of work, and we feel comfortable with these submissions, et cetera, that have been put together. But, you know, it's not really in our control. And if there are divestments, if there aren't divestments, it's not in our control. And we'll leave that to the authority to make their call. I guess from our viewpoint... and from the experience with AIR and with Ruralco and Landmark when they came together. I mean, the understanding, particularly the off-pattern generic component of inputs and how open it is where a farmer anywhere can have product delivered directly. And it's not like a consumer issue. It's not like a consumer competition issue. It's more of an industrial... input equation. But we feel comfortable with the ACCC from their previous experience and will be aware of the idiosyncrasies of the rural products market. So, yeah, we're confident the right decisions will be made.

Okay. And then just a quick one on synergies. I mean, the $12 million, which you're saying, is mostly driven by the backward integration. I'm a bit surprised you're not calling out more around some sort of operational or cost savings, given that... Yeah, the businesses are pretty complimentary, at least through a sort of a back of house or back office type setup, there might be additional savings.

Yeah, well, I think our highly successful light touch approach has shown that the concept of being a 101 strategy grant and saying you synergize everything and destroy the business doesn't work in agriculture. So we've seen, I mean, prior to when I was on the other side running Landmark, I saw Elders buy businesses, Domano's is a great example in South Wales, painted red and destroyed. So we've taken the approach of brand segmentation, retail segmentation. We bought Air because it was a well-run business with good people and highly customer-centric. We're looking to buy Delta for the same reason. We didn't change Air and we over-doubled its EBIT. So any benefit out of... cost synergies of getting rid of people. I can't imagine you would double your EBIT with all the harm and disarray that it causes within a business. And we have no intention of doing that at Delta.

Okay, I understood. And just one quick clarification. I think you, I just want to double check. You said AIRS now contributing just under 50 mil of EBIT and Titan, what was the number you said there? Was it 43 mil of EBIT?

I said between $45 and $50 in the end zones. Paul, make a comment.

$45 to $50 for Titan and just under $50 for air.

Yeah, just noting, Richard, that it's hard to distinguish between Titan and Elders in terms of, you know, Tom being one of the key suppliers to Elders, so just noting the transfer price in that discussion.

Yeah. Okay. All right. Understood. All right. Thank you both. Thank you.

Your next question comes from James Ferrier with Wilson's. Please go ahead.

Morning, Mark and Paul. Thanks for your time. Could I ask you about the real estate business, the real estate services business? First of all, I think that, you know, quite a significant uplift in gross profit there, $23 million. You described it as predominantly driven by the acquisitions. Can you provide some colour around the organic or the like-for-like performance across rural resi and property management, so just excluding the acquisition contribution?

Yeah, thanks, James. Look, we'll need to take that message offline and separate those numbers out. I don't have that information to hand in front of me.

Yep, sure. Okay. Second question is on slide 25 or in relation to slide 25. I'm just looking at the explanation there around the debtors towards the bottom where it describes the increase in debtors partly due to the delayed 2024 winter crop. And there's an itemisation on that reference at $127 million. And then there's two other issues that are noted there. Increased demand for seasonal finance and an increase in arrears. Can you add some colour to those two issues and if you can, quantify them?

Yes, certainly. So by far and away, the largest impact was increased demand for seasonal finance or finance that's aligned, where terms are aligned with, in this case, winter crop harvest. So I'd note between now and the 25th of March, it's approximately $220 million of seasonal finance or deferred terms that will fall due. So we've seen more demand for that year on year. The second biggest component is just the timing of the winter crop. So we know very, very late start in WA and SA. So just different procurement activity, I suppose, comparing FY23 to FY24, which culminated in a different quantum of debtors at balance date. It's as simple as that. In terms of arrears, we have seen an increase in our 90 days overdue category of about 17 million. So roughly 10% of the uplift is attributable to that, obviously has been assessed through our impairment process. We don't see any significant problem with that. I'd note that as a percentage of total debtors It's lower than what it was five years ago, but we have seen pockets of delay within the book, particularly at the larger end of town, I'd say.

Thanks, Paul. That's a great colour. And lastly, when we're looking at Delta's earnings FY23 into FY24, It looks like that business fared a lot better than Elders did in that December 23 quarter where the Elders business had a really difficult period around the season and the demand profile associated with it. So does that suggest that Delta probably doesn't have the same quantum of cyclical earnings recovery in this current quarter we're sitting in? Obviously, you've given some numbers around the Elders uplift. It's more like a 25, 30% uplift in EBIT when that first quarter normalizes. So is that information provided today sort of suggesting that Delta doesn't have the same quantum of cyclical earnings recovery?

Yeah, I think that's fair, James. And the primary reason is a much reduced exposure to livestock. So there are 13 livestock agents within Delta. But yeah, they're turning over, I think, 35,000 cattle 650,000 inch sheep. So I think it's livestock and probably animal health is the other category where there's not as much exposure in Delta as what there is in elders.

Makes sense.

Thanks for your time.

Next question comes from John Campbell with Jefferies. Please go ahead.

Hi guys, thanks for the opportunity. Just a couple of questions in relation to the acquisition. Firstly, is your return to target leverage by FY25, does that include the $50 million over raise with the Delta acquisition?

Yes, that does include that, yeah.

Yeah, but it assumes, does it assume Delta has been acquired and it's part of the business throughout 25 or at least? by the settlement date that you're talking about?

Yeah, so in the Delta pack, that's the case. So there is an assumption there that it, for example, completes on 31st of March, but that is with annualised earnings included.

Right, okay. So that's sort of like pro forma, assuming a full year of Delta. Yeah, got it. Thanks, Paul. And just the other question, It seems, and I might be wrong on this, but it seems like you paid around about seven times EBIT post synergies for AIR and nine times for Delta. Does that reflect the sort of size and market position of Delta vis-a-vis AIR, or is there something between the two businesses for that valuation uplift?

No, no, I think you're right. It reflects the size of the geographical coverage, the diversification, et cetera, et cetera. But really, for us, from a shareholder viewpoint, we're saying pre-senergy's EPA secretion is the answer to the question, not the multiple. We simplistically use the multiple approach with our bolt-ons, say three to five, and that's to give guidance, but obviously there's significant EPA secretion with them. But, you know, really from a shareholder viewpoint, pre-senergy's, it's a good deal.

Yep, got it. Yeah, it looks a great deal. But it's sensible in terms of all the criteria that you state. Look, just the last thing, Mark. I mean, I know that you say you don't expect any ACCC issues. I presume if there was some regional concentration concerns, you could easily solve them, carving out bits and pieces. I'm sure you don't want to do that at this stage but I presume that there's overall there's nothing that can't be solved here.

Well that's right and I didn't say we don't see any concerns at all because it's their call. We've done a lot of pre-work in assessing against their criteria where there may be concerns and we've also provided information and we'll obviously provide further information they'll do their consultation but you're right I mean the outcomes of these are divestments of branches or whatever it happens to be. And that's doable given that it's at a materiality level that's acceptable for the Elders Board.

Right, thanks for that.

The next question comes from Dean Wedd with Macquarie. Please go ahead.

Hi, Mark and Paul. Thanks for taking my question there. And just the first one on the gross margin slide, which you've put in there, which is helpful at the back of the pack, just around the reduction in gross margin in Q3, looks like that was sort of a larger magnitude to the Q1, which we know was fairly adversely impacted by the season trading there. Could you sort of step through some of the factors there and why that did not flow through into Q4?

Yeah, thanks, Ben. Look, I think I've described it this way that, Elders business is geographically biased towards Western Australia and South Australia. Not entirely, but that is collectively, I think they're over, you know, around 45% of EBIT. And what we saw in those two states was a very late winter crop period. So a lot of dry sowing through those states. And I think that gave time for a lot of competitive activity, a lot of tendering. There was no rainfall event that preempted winter crop to go full steam ahead. It just seemed to be a really competitive marketplace, particularly in those two states through that period.

Yeah, great. Thanks, Paul. I understand. And then just in terms of the working capital position and thanks for the detail around some of the debtors and the unwind there, I mean, the first half typically sees a working capital build. I think the historical average is around sort of 75 mil or so. Would you sort of expect that to be less this year considering the sort of increased quantum of debtor reductions?

Yeah, I think yeah, I think that's absolutely true. Yeah, so we will see and we are seeing already inventory starting to build in the early stages for winter crop. But yes, that will be moderated by the debtors as they come in from F24 or 2024 winter crop.

That's great, thank you both. OK, so we we we've got back to back as you do appreciate, so we might take one more if that's OK.

Yep, you've got one question from Evan Karatsis with UBS. Please go ahead.

Hi, okay, thanks. Just sort of two on the business and two on the acquisition as well. Can I just go back to that Q3 margin decline? Am I understanding this correct? Because I just thought you'd said at the 1H that the price decline impacts were sort of more isolated to 1H. So you're saying that the pricing took another leg down in that Q3 Is that the way to think about it for those retail products?

No, not quite, Evan. It was gross margin percent. So yeah, the PCP price impact was mostly in the first half, but we just saw a decline in GM percent in Q3 that didn't persist into Q4. Could be some product mix in there as well, but certainly it appeared to be quite a competitive quarter.

All right, so can you put a number on that? Because I mean, that should normalize into 25, I'm guessing, right?

Yeah, I don't have a number in front of me, but it was in terms of the delta from the 128 to the upper end of guidance, it was the most material element of that.

Okay, that's helpful. Thanks. Okay, and then just the cost base as well, because obviously I stepped up pretty materially in in 24 like how are you thinking about that just on like I guess an all-in basis as we go into FY25?

Yeah so I think the trajectory obviously we'll see the four-year impact of FY24 run through the cost base our focus is excluding growth and transformation costs and we do we do expect that that will be probably a similar result in terms of performance against CPI. We have recently taken some roles out of the business to underpin or reduce the growth of cost in FY25.

Okay, so I guess another 2% from a base growth. Like, can you put a number on how much the, you know, like the transformational, the acquisition annualized for cost-based? I don't know, even if it's rough.

So cost and a growth level, yeah, I might take that offline, Evan.

Okay, fine, yeah, no problem. All right, okay, just one more, if I can. Just with the shares issued to Delta, to management, can maybe just comment just on, I guess, how deep those shares, Is it just sort of the executive team, or does it go down to the 68-odd brands as well?

From memory, there are 147 shareholders. I think that's the number, and it applies to all of them.

Okay, so it's everyone. And then maybe just around the 40 independents as well, like just how you're thinking about the process to retain those branches now that they'll, I guess, be owned by, as a parent company, as elders.

Sorry, the independents. Oh, the wholesale customers.

Yeah, yeah. Yeah, yeah, wholesale branches.

Yeah, I think so that's predominantly in Western Australia. And our sense is very similar to the positioning we're there with their wholesale customers is that, well, what's happened is that there's a change of shareholder because the business is running the same. And that strategy and that approach was highly successful.

All right, cool. Thanks. Thank you, Tom.

Thank you, everyone. So I might wind up because we've got three minutes to the next engagement. Thank you, everyone, for coming on board. Pretty resilient results, slightly under the range that we provided. and clearly with work to do on ROC and leverage with a normalising Q1, FY25 Q1. So I think we're very mindful of that. Great news on the launch go live for Sysmod within the business. And then on the Delta acquisition, a wonderful fit, fully aligned to what we're wanting to achieve and quality business with quality people. joining the most trusted brand in agriculture. So we're all pretty excited and optimistic going forward and we'll look forward to all the one-on-one meetings that we have with many of you around the call now. So thank you very much for coming in.