Elders Limited

Thank you for standing by and welcome to the Elders Limited Half Year 26 in Breast Teller Conference. All participants are in a listen-only mode. There will be a presentation followed by a question-answer session. If you wish to ask a question via the phone, you will need to press the star key followed by the number 1 on your telephone keypad. If you wish to ask a question via the webcast, please enter it into the Ask a Question box and click Submit. I would now like to hand the conference over to Mr Mark Allison, CEO and Managing Director. Please go ahead.

Thank you and welcome to all to the Elders half year results presentation for the FY26 financial year. Thank you for joining Paul and myself for the session today. As an overview, the half year results today are solid on a year-to-year basis. with EBIT ups 33%, strong cash conversion, transformation and integration projects on track, and positive progress on leverage on ROC as we move to the end of the year. Throughout the half year, Elders demonstrated solid operational and financial resilience in the face of improved, although mixed, seasonal conditions. Our diversified portfolio through its national geographical footprint and multi-product and service offering played a key role in mitigating the dry conditions across some key agricultural regions and the increased competitive activity in our retail business. Stronger activity in livestock and real estate and high financial discipline also supported the solid result. On the transformational projects front, we have also made good progress on the final project components with wave three and four of our system of projects, with the targeted completion on track advancing to the end of this calendar year in full on time. Focusing now on the areas out of our control for the first half of this year, we've been dealing with the fertiliser fuel and crop protection supply chain disruptions implications of the Iran conflict. These risks have been largely mitigated with credit to our highly diversified business model They were also offset by agency, real estate and financial services businesses. In this context, the performance of Elders with its clear and consistent strategy, multiple diversifications, high financial discipline, a hard-working and committed team and our enduring customer anchor as, unprompted, the most trusted brand in Australian agriculture has remained strong. The result is strong in safety, sustainability and cash flow with the full year outlook remaining positive. Moving now to the Delta agribusiness integration, this has been a relatively smooth transition to elders ownership over the first five months of ownership. The fast track synergy target of 8 million is on track with the largest component being realised in the second half of FY26. The divestment of Kalara Feedlock is likely to complete in June to July, with all funds being applied to debt reduction, with the expected improvement in leverage and ROC coming through by year end. Moving on to the FY26 outlook, we are very optimistic on a broad outlook for Australian agriculture at a seasonal and commodity level, with a turn to average conditions. In addition, we welcome Delta Agribus to our portfolio as a platform for significant growth against this market backdrop. The outlook and fundamentals for livestock remain sound, with prices for sheep and cattle forecast to be supported by strong international demand across a backdrop of tightening supply. The combination of positive seasonal and commodity outlook also provides a great backdrop for continued growth in our real estate and financial services businesses. So 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 then I'll provide an update on our outlook and growth and transformational initiatives as we deliver the final six months of our fourth eight-point plan. With that overview, we'll now commence with the FY26 half-year results presentation. So if we go to the slide one, which is driving improvements on our sanction performance. You can see as we've done from the beginning of the eight point plan process, a very strong performance in terms of one lost time injury by half year and they're continually running down of their total recordable injury frequency rate. Now, when we put this in context, the first state point plan, we had 34 lost time injuries. We now have one. The first state point plan, we had some 1,500 employees. We've now got over 3,000. So it's a great result and well below all industry benchmarks. Our safety, the business's view towards safety is expressed each year in our employee survey, where it's seen as the number one issue of the business, keeping our people safe. Moving to the next slide. And we look at our underlying EBIT performance, and Paul will run through what's in and what's out because of the Delta and Calara inclusions in the reporting. So on an apples for apples, 33% up against last year at an EBIT level. So very solid performance, including Delta for five months, although Delta, well, heavily weighted to the second half. I think it's worth noting the very positive cash conversion results as well. And again, we'll go to the detail of that. But I think when we look at the return on capital, a couple of considerations that, again, we explain in detail in the slide towards the end, is that the number on return on capital includes a full year of Delta capital and only five months of capital. This slide is explained in detail on slide 18 later in the pack. And then the dividend offering of $0.18 per share. When we go to the next slide, and this is really referencing all of the eight-point plans, and you can see for the first three eight-point plans, we've been over this territory before, our commitment of 5% to 10% growth through cycles at EBIT and EPS level. We've delivered for the first three Act 1 plans and then in the fourth Act 1 plan we've set about major transformational projects that we're coming towards the end of this year and by the end of this year we will have our transformational projects largely done and dusted in full on time and then with the benefits flying forward. So I think looking at the results We've been able to continue to go through multiple seasonal and commodity cycles and also in the fourth April plan, reinvest in the business big time in terms of the transformational projects. Again, we'll talk more about this as we go through the presentation. Moving to the next slide. As we've moved to a divisional structure October 1st and the purpose of the divisional structure was to really focus each of the divisional CEOs on the business and each business has particular and unique idiosyncrasies in terms of its strategy and the components and capabilities of the business. So that move from October 1st has been very, very positive. You can see feed and processing still appearing in this slide with the development of Collara. This will come out for the next series of plans within ALDIS. I think it's also worth noting that each of the divisions runs as an independent division with shared corporate services at a number of functional levels. We want to continue to run with this model with functional excellence at a head office level but with the divisions basically running their own show. We've talked about it a lot with regard to how Air and Delta have been run. They all have divisional boards. I'm the chair, Paul's on each of the divisional boards with me And we really, all the functional excellence is done through head office and running the business in line with our customer centricity is done in the divisions. We have put a project across the whole of Elders that we're looking at the span of control, job role clarity, and we want to drive efficiencies in that manner. And initially this will be largely focused in ERS, but this project is in place. and to drive efficiencies and to remove duplication from within the divisions. When we go to the next slide, with the 12 month delay of the completion of Delta, we had a target of over three years to achieve 12 million of synergies and we fast tracked that to endeavour to achieve 8 million in year one. And so we're on track, largely on track for that with Delta in the first half, although it is worth noting that the majority of the benefits that come through in the second half, given that Delta's at roughly 30, 70 split, and it's probably even more so this year because of the five months of operating in the first half. So we're moving along nicely with those. As we've indicated in the... In the pitch document, when we acquired Delta, the majority of these synergies are coming through backward integration and finding or linking up supply chains that we currently have that have greater margin for the off-patent products through Delta's four Cs of brand. Okay, with that, I'll now hand over to Paul and he'll run to the detail on the financial side.

Well, thanks, Mark, and welcome everybody today. I'll commence on slide 11 of the pack, which summarises the basis of preparation for this first half result, noting temporary impacts to financial metrics from the prospective sale of Calara feedlot and the acquisition of Delta Ag, which has yet to contribute 12 months of earnings. The divestment of shares in Calara remains subject to regulatory approvals, but is expected to complete in the second half. Under accounting standards, Calara feedlot is treated as an asset held for sale. and Seaton Processing as a discontinued operation. Consequently, Calara's earnings and working capital have been treated as non-underlying with adjustments made to both current and prior years for comparability. The acquisition of shares in Delta Ag occurred in November 2025 with the business contributing five months of earnings in the first half, noting annual Delta earnings are seasonally weighted to the second half. Consequently, financial ratios will benefit in the second half as earnings from Delta better align with working capital and acquisition debt and equity. The table below sets out these temporary impacts in the interest of transparency and comparability. I'll now move to slide 12 to discuss highlights from what has been a very productive first half for Elders. Highlights include underlying EBIT of $76.6 million, up 33%, driven by solid growth across most divisions and products. Delta Ag has been welcomed to the group, improving Elda's geographic diversification with significant progress made on delivering year one synergies. Execution of a sale agreement for the Kalara feedlots. Implementation of a divisional model to improve accountability, focus and efficiency. Progress made on our strategy to transition Elders balance sheet lending to third party lenders and significant progress achieved on systems modernisation, noting the new ERS livestock system went live in April with the rollout to conclude over the coming month. I'll now turn to slide 13 which displays Elders financial performance in this fourth eight point plan period. Note the following progress from our baseline year of FY23. Sales revenue increased by $240 million at a compound annual growth rate, or CAGR, of 5%, supported by both acquisition and organic growth. Growth margin increased $99 million at a CAGR of 10%. Comparatively, costs increased $101 million, noting this period coincides with the transformation of Elder Systems, adding temporary cost and complexity to the business. Consequently, underlying EBIT has been flat over the period, noting SysMod is now in its fourth and final wave. Moving to slide 14, which contrasts the half against prior period. Looking at the numbers, we see a strong first-half performance with the following highlights evident. Sales revenue increased $426.4 million, up 32%, taking advantage of improved seasonal conditions in southern states. and five months of Delta Ag sales supporting growth. Growth margin increased $83.1 million to $396.6 million, up 27%, with broad growth across products and divisions. Underlying EBIT increased $19 million to $76.6 million, up 33%, supported by meaningful growth in crop protection, elders rural services and Delta Ag. Operating cash flow was positive $67 million with cash conversion of 176.6%, a strong result given the winter crop working capital build. As discussed on slide 11, return on capital, leverage, net debt and earnings per share are all impacted by the classification of Calara as non-underlying and Delta Ag which has yet to contribute 12 months of earnings. These metrics will be further discussed as we move through the pack. Moving to slide 15, which displays financial performance by division. As noted, underlying EBIT increased $19 million to $76.6 million, with solid growth across Elders Crop Protection up $8.1 million and Elders Rural Services up $18.5 million, with Delta Ag contributing $10.4 million in its first five months. Key points to note include Elders Rural Services delivered a strong half, taking advantage of improved seasonal conditions in southern states. which resulted in growth across all products. Elders Crop Protection benefited from the new tolling facility, Agritol, alongside a new internal trading agreement with rebased earnings with Elders Rural Services and AIR. This is a one-off change implemented with the divisional model to better reflect arms-length trading. The increase in corporate costs is driven mostly by IT, with Elders Rural Services businesses operating for a period across both the AS400 and D365 in parallel with peak activity for the project. Costs will be further discussed in this presentation. Moving to slide 16, which displays Elda's gross margin diversification across product geography and channel to market, a key defence against seasonal variability when it arises. In the half, gross margin increased 83.1 million to 396.6 million. with growth across all divisions and products. The key drivers of this result include Delta RAG, which contributed a gross margin of $45.8 million for the first five months of ownership. It should be noted that earnings from Delta RAG can be weighted up to 75% to the second half, in line with winter crop activity. Elders Crop Protection gross margin increased $10.4 million, or 53.6%, primarily from the commencement of Agritol formulation facility in Rockingham and changes to the internal trading agreement as discussed. ERS agency services gross margin increased 11.2 million or 14.3% following a strong recovery in sheep and cattle prices outweighing volume declines. Sheep volumes declined 25% with a reduction in numbers from South Australia and Victoria to recovering from recent dry conditions. The outlook for agency services, as Mark noted, remains positive, driven by strong international demand for protein. ERS fertiliser gross margin increased 1.5 million, or 8.1%, supported by earlier demand and rising prices because of supply constraints resulting from conflict in the Middle East. The outlook for fertiliser price and grower demand remains uncertain for the second half, largely dependent on international events. Real estate services gross margin increased $4.5 million or 8.3% driven by property management and residential growth primarily. Broadacre delivered a flat result against prior period. Commercial property slightly negative both basing material transactions in the prior period. I note the pipeline of pending settlements remains comparatively high against prior periods Air showed improvement in the second quarter culminating in record conference sales in February. Growth in the above products significantly outweighed a negative impact from lower cotton and rice plant in the Murray-Darling Basin due to high water prices. Turning to slide 19 to discuss underlying cost growth which increased $12 million or 4.7% when adjusted for acquisitions and the impact of transformation. As noted previously, FY26 is a time of peak activity for our system transformation project, with six deliverables progressing in parallel in the first half. Pleasingly, by the end of this quarter, four of those will be complete, reducing complexity and backfill resource in the business. I note maintaining cost growth below inflation in FY26 remains a priority for the second half. supported by the completion of core elements of the SysMod program. I'll now move to slide 18 to discuss return on capital, which was steady on FY25 when normalised for impacts from transformation and acquisitions. The chart demonstrates that normalised return on capital is approximately 12%, down 0.3% from FY25. Increasing return on capital remains a core priority through a renewed focus on capital allocation, the continued reduction of balance sheet lending and delivery of Sysmod benefits and Delta Ag synergies. Over to slide 19 and working capital where we see an increase of $147 million, mostly driven by the inclusion of Delta Ag working capital and the impact of higher livestock prices on agency net working capital. Working capital is forecast to reduce in the second half driven by a decrease in balance sheet lending and seasonal reductions in inventory and debtors. Over now to slide 20 in cash flow, where we see an operating cash inflow of $67 million, a pleasing result considering the seasonal working capital build for Winter Crop, but acknowledging the one-off benefit from the removal of Calara inventory. The outlook for operating cash flow and cash conversion in FY26 is positive, with additional receivables being transitioned to third-party lenders Considable progress has been achieved to date with third party limits now exceeding $75 million and balances drawn totalling $35 million. I note that the physical payment of company tax for Elders Limited is expected to recommence from June 2026. I'll now move to slide 21 to provide a detailed update on net debt and leverage. The waterfall charts provide a normalised view of net debt and leverage following completion of the Calara sale given earnings from Calara are treated as not underlying. Breaking down the movement in net debts on a post Calara completion basis, net debt increases to $425.8 million with further reductions to occur in the second half from the increase in third party client lending and the seasonal working capital reduction post winter crop. Excluding receivables funded through debtor securitisation, Elders' normalised core debt is $210 million. Turning to leverage and adjusted for Calara completion, we see normalised leverage at 2.6 times, with underlying reduction, with additional reduction to occur in the second half as rolling 12 months EBITDA progressively incorporates new Elders from Delta HAC. A return to our target range of 1.5 to 2 times, is forecast in FY26. I'll now move to slide 22 where we see significant headroom across banking covenants noting that leverage and interest cover will benefit in the second half from the completion of the CLARA sale and second half delta earnings. This concludes the financial section of the presentation. I'll pass back to Mark who will provide an update on strategy and outlook.

Okay, thanks, Paul. And just as I commence the strategy and outlook section, I'd like to provide a brief summary of our operating environment. So Australian agriculture enters the next six to 12 months from a positive position of relative strength. While volatility remains across global geopolitics, weather and commodity markets, the sector continues to benefit from strong global food demand, tight global protein supply, improving export market diversification, and Australia's reputation as a trusted supplier of premium food and fibre to the world. We look at the macro outlook. Australian agriculture production remains historically strong despite moderation from record peaks. Global food security concerns continue to underpin long-term demand for reliable exporters such as Australia. And Australia's diversified export exposure provides resilience against geopolitical disruptions. Looking at beef and livestock, global beef supply remains constrained due to US herd liquidation and lower cattle numbers globally. Australian beef exports continue to experience strong demand from the US, Japan, South Korea and emerging Asian markets. Land markets remain relatively strong, supported by demand from the Middle East, Europe and North America. Wool sentiment is gradually improving with best Chinese demand and reduced global supply. From a cropping outlook, Australia remains one of the world's most efficient grain exporters. Operational capability and agronomic sophistication continue to support our competitive position globally. Canola pulses and selected grain markets may strengthen later in the year as global inventories tighten as well. Looking at global fertiliser supply, global fertiliser markets have stabilised significantly since the strong volatility following the beginning of the Russian-Ukraine conflict. To today, nitrogen fertiliser supply has improved as global gas prices moderate and production capacity recovered. The phosphate and potash markets remain relatively balanced, although geopolitical risks continue to be present, as we're all quite aware. Australian growers expected to benefit from improved fertiliser availability and more predictable pricing over the next six to 12 months. Any major escalation in the Iran crisis conflict will graphically impact nitrogen fertilizer pricing as as we're very aware but when we look at crop protection the global crop protection supply chains crop protection supply chains have improved materially compared with disruptions over the last three to four years manufacturing capacity in china is largely normalized improved improving availability of key herbicides fungicides and insecticides freight costs and logistics had stabilized and are now being impacted by knock-on effects of the Iran conflict. Generic crop protection products continue to place downward pressure on pricing in many categories. An Australian agribusiness with strong supply chain management capabilities such as elders are well positioned to secure supply and to be able to maintain margins. And then finally, from a structural perspective, viewpoint for Australian agriculture. We continue to benefit from strong biosecurity systems, sophisticated supply chains and advanced farm management capability. Technology adoption, AI precision agriculture and digital systems are steadily improving productivity and import efficiency and it's one of the areas of the Australian economy where there have been productivity gains. So I think in the face of seasonal geopolitical volatility The outlook, given average seasons, for Australian acles remains quite positive. From an elders viewpoint, as we move into this period, with the completion of the fourth eight-point plan and the completion of our large transformational projects, we're seeing elders as very well set to take advantage of these in more of a steady-state business as we go forward over the next few years. So moving to slide 24, this is the fourth eight-point plan that completes in September this year. The three key strategic priorities are run, transform, innovate and grow and I think in the final year of this eight-point plan, we'll be able to move more to run, innovate and grow and getting the benefits of the business cases from our transformational projects. Moving to slide 25, just to showcase the strength of management leading the divisions of elders with each of the divisional CEOs highly experienced, high capability and a deep knowledge of the industry and the businesses they're running. So this move to the divisional structure has added significantly greater focus and we'll see the benefits again come out in the second half of FY26 and going forward. Moving to slide 26, which is the final wave, just outlining details of the final wave of our system-wide project. And as you can see, with wave 3 and wave 4 on the way now, and with a view that we'll be completing this project by calendar year 26, And the benefits that we see for this project from 26, so coming through in the second half of 26, being across the business case in the 15% category in terms of return on the investments. So it's been a long haul with the multiple transformational projects, but particularly with Sysmod. And we really do feel by the completion in full on time, by calendar year, we'll then be set up with a sound platform to extract the benefits, business case benefits and other benefits throughout the business. Moving to the next slide on 27, the growth driven by margin and cost and capital efficiency. So if we start at FY26 and the first item, systems modernisation, I've spoken to. The benefits and synergies from Delta agribusiness, we've also spoken to with those being largely on track in fast-tracking the first year of that. Divisional and regional alignment is point three. Again, we've spoken to. In terms of our accretive acquisitions, Although the pipeline for our business development activities is relatively solid, we are being quite discerning in the businesses that we're looking at for both on acquisitions, focusing largely into real estate and financial services, in particular broking businesses, and also being very mindful of our capital allocation to ensure that we're getting the highest or optimising returns for our shareholders. And the final point, focusing more on the finance broken model, which has been growing very strongly and is high return on capital. So we really do see ourselves set up to leading into a period of finishing the transformational projects and moving into a relatively positive average to positive market outlooks. scenario over a few years and spending the time and extracting the benefits, the efficiencies and the growth from the elders business. Moving to slide 28 and really just reiterating my comments of being well positioned as we've moved into a potential golden period with the internal projects being locked down, the businesses set in place with outstanding management. and average for good market conditions. So with that, I'll end the presentation and we can go to questions.

Thank you. If you wish to ask a question via the phone, you need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the Ask a Question box. Your first question comes from Ollie Ridge with Citi. Please go ahead.

Good morning, Mark and Paul. There's decent gross profit growth in fertiliser. Can you tell us how we should think about fertiliser sales in the second half, given the availability now that we are two months in? And also, do you carry any delivery risk? And if you touch maybe on the contract structure there, please.

Yeah, so just for background, elders sell fertiliser predominantly back-to-back, so we don't hold significant risk in terms of human free. There is some blending, and it would be that outside of that, we're not at risk. So I think in terms of your question, I'd just say that the outlook's a bit uncertain in terms of fertiliser. Not so much from a supply perspective, although that is relevant, but more so from an affordability perspective in terms of how much growers will choose to apply. But I would note that the window for application for side dress and top dress is quite long in terms of the winter crop. So there's a fair bit of time to play out here, but just an uncertain landscape.

I think from a financial viewpoint, what may be the scenario, given that we're back-to-back and it's a very low-margin business from our viewpoint, you may see tonnes flat or down, revenue significantly up, and gross margin may be flat, but the margin percentage will be significantly down.

Great. Thank you very much. I'm just wondering how you're approaching crop protection inventory decisions for 2027, given the inflation and upstream input costs. Just heard there's been delays in purchasing from other distributors.

Yeah, I think it's business as usual for us for crop protection. Obviously, we seek to hold inventory for as less time as possible. That doesn't really change. We have seen sort of an incremental increase in prices in recent months, which is obviously supportive to the current inventory position, but we seek to turn the inventory as fast as we can.

I think what we are also seeing is that the Out of China there's ample capacity in the manufacturing facilities from an active ingredient viewpoint. So supply chain implications for the Chinese manufacturers runs to the oil knock-on effect from the Middle East war and that will be reflected in resin prices which will be reflected in drum and packaging prices. It will also be reflected in solvent prices and potentially surfactant prices. So our thinking is that the core cost of active ingredient formulation, it may be slightly higher with energy costs, but the bigger impacts will be those components, and that may come through as cost of goods increases, as Paul's indicated, for the second half of the FY26 financial year. I think the key for us, given that we're invested in backward integration, where we hold the capital of the crop protection inventory stocks, The key for us is to pick the point where it will reduce again. One of the interesting insights that we got out of the Global Crop Protection Conference in Shanghai a month ago was that they believe a stopping of the Iran conflict, with that there will be a six to eight week recovery period in crop protection supply chains. So it's relatively quick and we'll just need to ensure that we're very nimble and clear towards the end of that period where prices might come off again.

Great, thank you. Just the last one. So will IT expense remain as high into 2027? Just give more colour on the timing there, please.

So the IT expense was your question, yeah. So certainly, yeah, there'll be periods of relief within the project. So the first step is to get the IRS, livestock and retail businesses operating on a single platform. And, you know, pleasingly, we're very close to that. So that will occur in this quarter, sort of around June 30. In terms of the next significant stage, when we fully get off the AS400, that will occur in early 2027. So there's certainly light at the end of the tunnel in terms of the cost on the business, you know, which comes from both the project but also the complexity in running the business and backfill resource. So... We're making very good progress in terms of delivering that as quickly as possible.

Thank you very much.

Thank you. This question is from James Ferrier with Carnical Genuity. Go ahead.

Good morning, James. Thanks for your time. Can I firstly ask you about slide 17 and a bit more colour on what's in that $13.5 million of transformation costs? Given that's a six-month number and I think FY25, the equivalent number for the full year was $4 million, so that's stepped up significantly. So first question, you had some extra colour on what's in that number and how long it repeats for, etc.? ?

Yeah, I think it's best explained, James, and thanks for the question around the number of ways or deliverables in flight at this point. So where we're at in the project, there's ongoing work in regards to Wave 2. Even though we've been operating on Wave 2 now, parts of the business since November 24, we're still delivering additional functionality for Wave 2, and recently in April, we migrated B&W Rural onto the retail platform and we've still got 3PL to occur in June. So there's ongoing spend there. We've just gone live with Wave 3 Livestock. So that's an addition on a separate set of resource that's delivering that and we're just in the throes of completing detailed design for Wave 4 Ancillary to that, we've got the wool integration at the same time and also the back-end real estate settlements project as well. So it's just the confluence of the amount of work in the project at this point in time in order for us to get off the AS400 in early 2027. So in terms of your question, when does the cost start to roll off, it's incrementally as these things are delivered and the spending ceases and there's four deliverables that will complete in the next quarter. Hence the line at the end of the tunnel comment.

So that $13.5K, just the way you've answered the question, it's pretty much all Sysmon related costs? Okay. I'm just confused because the note sort of talks about brokerage models and every toll and performance incentives and FX losses, so thanks for clarifying that. Maybe stepping back and looking at sort of the right-hand end of that chart, $320 million of costs for the first half. Is that a good proxy for the second half, plus a little bit of base growth, or is

some of those lines like the transformation projects are they going to go up or down materially yeah but i'd say um it's a it's a reasonable um approximation although noting um you know mark's comment around you know review of um a review within the business as well but um in terms of there will be some cost relief as noted at the end of the next quarter from sysmod but more meaningful from a CISNOD perspective when we get off the AS400 in early 2027. Yeah. OK.

And then last question, and it's probably still a CISNOD question, really. To date, it feels like the business has been quite good at articulating planned spend in relation to non-underlying OPEX. and capex and the slide further in the deck that sort of shows those numbers it's all sort of tracking to plan generally speaking then you've got this portion of sysmod spend that's running through underlying costs um i'm trying to reconcile where all those numbers are going with the the view the consistency that's been expressed and reiterated again today that um Wave 2 will generate its first full year of benefits in FY26 and obviously we're more than six months in now. So is that still the case? You're expecting a full benefit in FY26 from Wave 2 with that 15% plus return on capital hurdle?

I think the way I'd answer that, James, benefits from SysMod will be incremental. I'd say in terms of, and for those who don't know, most of that we see coming from gross margin uplift in retail, so Wave 2. Some of the functionality for Wave 2 has only recently been delivered around product segmentation and client categorisation. So that went live in April. So it is certainly weighted to the second half whether we capture all of the benefits in the second half, I think, remains to be seen. But certainly, you know, from a margin capture perspective, if you look through, you know, the outweighing to herbicides, sort of low-margin herbicides, I think there are green sheets coming through, you know, at the retail gross margin level. So cause for optimism.

I think, James, the other... The other cost transition management that we're applying ourselves to, there are a lot of contractors in this team, as you can imagine, and particularly in Adelaide, there's significant competition with other major IT projects for these specialties. But we're trying to be very careful on the exit period for B contractors in the project. because it may be best to overrun by three months to keep them on, because once their contract starts to come to an end... they'll be looking for another role, and that may slow the project. So it's a very fine line, and Paul and I have been, and Jay LaVista, who runs the project, have been watching it like a hawk to ensure that we have the competency to complete the project, but we don't have an overhang then of costs running on the other end of the project in order to keep them on the project. You might add to that as well, Paul. So it's a very fine line. It is a fine line.

The other thing I've noticed, James, Wave 2 is a great example of this, that from an accounting perspective, once you go live, you really stop that capitalising of the asset. The asset is created, but the spend doesn't stop immediately. As discussed previously with Wave 2, we're still delivering additional functionality to support benefits capture, but that's not being capitalised. So there's that dynamic as well, but it's all temporary in terms of the project and how it rolls out. Understood.

Thank you. Thank you. Your next question comes from Barwick with CLSA. Please go ahead.

Hi, Tim. Thanks for the question. Perhaps a little bit more micro. Just noticing on real estate in particular, pretty strong GDP growth up 8% but then EBIT was flat. Obviously the cost growth sort of evaporated any of the earnings growth potential. Is anything explicit going on there that you need to call out?

Yeah, thanks for the question Richard and I did touch on that in the commentary that we had a flat result from Broadacre and mostly because we're basing some large transactions in PCP and yeah, the commercial side of the business did go backwards a little bit. So that explains the difference between GP and EBIT where most of the growth was from acquisition and most from Rockhampton. So that's the anomaly there. I would say, just to add to that, the pending settlements pipeline is still very strong. So I'd put that sort of flat performance from those parts of real estate, you know, potentially in the timing bucket.

Okay. No worries. Just a more general, or much more general comment. How would you describe the morale of the team as it sits now? So you've got obviously Mark, you're set to leave relatively soon. You've got the new CEO coming in. There's a lot of change going on within the business, etc. Can you give some general comments about how you see, I guess, the senior management team and how they're thinking and feeling about things?

Yeah, I think a good question. If we go, I think, across the board, we're 33% up by half. We've got the big projects, transformational projects coming to an end. and the outlook's relatively positive. So I think as we go beyond the fourth eight-point plan, things are pretty much lined up as a platform for growth, but different growth, and not multiple acquisition or backward integration-driven growth, more efficiency and gaining benefits from the investment sort of growth, so more self-help, business-institutional growth. In terms of the team, I think if you look at the, if we start with the real estate business, I think Tom Rosso has his team quite fine up. He's grown very well. The focus of real estate, we had a real estate quality board last week. and it's very positive. Big pipeline of projects. The sort of jump back job that we've got, which is another big project. So I'd say for them, being a focused real estate business and not within ERS is quite positive. If we then go to Delta, I think you'd expect the normal transitional butts and bruises with a founder-based private business going into a listed corporation. We had the board at Young, Delta's head office, a couple of months ago. Again, very, very positive and really for Delta, they just want to deliver. In all the branches that we visited and certainly the quarterly board meetings, we've got a Delta quarterly board in two weeks' time. It's relatively positive and we really just want to deliver the growth because for them, lower impacts are significantly with the seasonal impacts last year and the growth against synergies. If you go to ERS, it's probably a refreshed ERS with Pete Lowry running that but I'm sorry, when I was speaking of Delta, of course, I'm referencing Gerard Hines and Chris Duffley who looks very, very close within leading that business. With ERS, there's a rework of the ERS strategy. Again, I don't think I've seen the ERS leadership team more focused and positive. They had their leadership meeting in Adelaide last week, and we also had the ERS quarterly board. So lots of issues to work through. The biggest upsides in elders are through ERS, and that's where this Spans and Layers project is going to have the major impact. But pretty positive. And then across to AIR, Corey Brown, who's the CEO since October 1st. He's born and bred in the business. And really, they had record attendance at their National Members' Convention in February. And I see the second half as strong as well. and then back to Ellis Crop Protection. A bit more integration to do there. We've got two formulation businesses, Eureka and Agri-Tile, on the side of Titan. But again, the issues we're dealing with there are the transition of the founders, and they'll be moving out at the end of September. And you see that in the cost, where we've had a doubled cost base in terms of the leadership for the first half of this year, but relatively positive. In terms of Rene coming across the CEO... We've had meetings with the executive committee and Rene already even though he's not enrolled and on Wednesday I'll be catching up with him again. We're making sure that we provide as much backdrop for Rene coming into the business and of course I'm in the business until February next year at any rate. So I'm not sure if that answers your question directly but there's not a lot of jumpiness and nervousness that I see.

Paul you might be able to add I'll just add a couple of comments just from a head office perspective I think there's growing optimism around having the system transformation piece in the rear view mirror and I think with every month that moves on there's growing optimism around that just because of the distraction it is to the business and the additional work and just the typical issues that come out of a an IT project. So, you know, certainly we're looking forward, not back.

Yeah. Okay. That's helpful. Thank you.

Thank you. Your next question comes from Jonathan Snape with Bell Potter. Please go ahead.

Hi, guys. Can you hear me okay? Yep. I'm clear. Yep. Where to start? So, look, I think The market and everyone's obviously looking for some guidance here on costs. I mean, stocks down 22% as we sit here. And a lot of it seems to be by corporate overheads that have jumped 15 million bucks year on year. And I think what people are looking for here and what they're kind of circling around and you're circling around is, where is that cost going to lie for the full year? Because you're talking about some dual running costs, but you're not giving us any idea on what the size or makeup of that is. because traditionally in the second half you'd be higher because of the way you accumulate incentives. So are you able to give us some clarity on where your corporate overheads are going to land for the year because they look like they're out of control and then how much of this stuff is non-recurring versus, you know, where it's going to be versus recurring because at the moment everyone's just going to double that number and knock 20 million bucks off your EBIT as it sits. And I think people press to getting reasons to why they shouldn't do that.

Yeah, understood, John. And I'll refer you to slide 17. So our view of base cost growth is that it's increased by 4.7%. So your question around how much continues into perpetuity, that's our estimate of that. And just noting just how much is going on in the business in regards to the project and our intent to... to finish the project as soon as possible. So I think the other option, Mark, is that we have lower costs but this goes on for longer and takes longer to deliver the benefits. So that's the approach that we've taken. We're absolutely focused on finishing this mostly this year with a go live early in 2027. And so I'd end there in terms of the base cost growth in the business is 4.7% against Inflation of 3.4.

But specifically the corporate costs from $42 to $58 billion is a big jump. How much of that is Sysmod? How much of that is double these you're running? Because I imagine you're taking some of this up in your base business as well. That's the number that's come in a lot higher than where everybody was sitting. GP, all those sorts of things kind of looked okay, but that number is higher. And you're not giving a lot of detail as to why that number is materially higher and how much of it's going to run off and how we should be thinking about it in the second half. And that's what I think people are looking for today. So are you able to give some granularity on what that jump is? How much of it's going to be there? Have you started accruing benefits already for the second half based on your short-term incentives? Is there some kind of clarity you can give on where that number is going to land for the full year? Because... That seems to be the number that's problematic today.

Yeah, and so we've got the $13.50 for transformational projects. The reality, I know, is that the busyness of the project continues certainly through this quarter and then starts to taper off in Q4. So we'll see some relief in the financial year from the overlapping waves of the project. and then more relief in 2027. But, yeah, as I note, our intent is to finish the project as soon as possible. That involves a temporary uplift in costs associated with the project, that $13.5 million on slide 17. Okay.

And, look, can I ask two other questions? One on livestock, being the volumes, particularly cattle, went backwards in a market where it was kind of up. if I looked at turn-off. Sheep, you were kind of down more than what the turn-off numbers were down. It kind of implies that there's some market share loss in that business. Is that what you were seeing at your end, or is there something else moving in there that, from the outside, we can't see?

Yeah, I think your instinct is correct. So we had a couple, three, I think, three branch companies walkouts in these key livestock areas. We also had lost some operatives to competitors in Queensland prior to going to the divisional structure and so we're in the process of rebuilding that but your intuition is right John.

Okay and just lastly on Delta, if I look at it I think you said you've got five months contribution. It's probably not linear, but let's assume it is. It seems like you're still running the baseline, still in that 40, 45 million, based on the switch you're kind of talking. Yeah. Is that kind of the way to think about it? It's still kind of at the base business case it was a couple of years ago?

Yeah, yeah. That's fine.

Okay.

Great. Thank you.

Thank you. Thank you. Your next question comes from Wes with Macquarie. Please go ahead.

Hi, Mark and Paul. Thanks for the question. I'm just looking at one of the comments you made, Mark, around sort of increased competition in retail there due to some guy conditions. Could you sort of, you know, sum that up, give us a little bit more colour and also noting, you know, crop protection and GP did increase versus PCP there?

Yeah, yeah. So I think the... The observation, well, what we've seen over the last couple of years, probably since 22, was these hotspots of competition and margin pressure, particularly in crop protection. And our thinking more recently is that, well, maybe it's a system reset in terms of trader impacts, et cetera. I think this year there have been hotspots down south, like through Victoria, and probably hotter than previously. So whether it's a complete reset, if you talk to crop protection operators around the world, they have seen an increase in competition as the percentage of the portfolio that is off-patent has increased. And we've seen that in Australia with the recent big AIs that were proprietary active ingredients that have come off-patent and the value has been taken out of the market. So I think that's basically what we're seeing.

Yeah, thanks, Mark. And then just another one on Delta there as well. So a full year's guide for $8 million of synergies retained there. Can you give us an idea of what sort of was delivered in the first half, if any, or this is sort of much that $8 million and so on?

Yeah, yeah. So I think first... So the majority is crop protection, backwood integration with their Four Seasons brand, as you're aware. and the first half would have been products that have been sold through the network as opposed to the bulk of their product being second half so it's largely crop protection there have been some other benefits we've got some other supply chain benefits around pallets and around some other costs but it's largely crop protection and they will wash out in the second half

Got it. Thanks, Mark. And then just one there for you, Paul, just depreciation. First half sort of looked like it was down a little bit versus the PCP. Any comments there sort of, you know, in context of the CISMO program sort of being fully recognised on the balance sheet?

Yeah, I'll come back offline on that, Ben. Yeah, I'm not sure what's driving that decrease. Yeah, I agree. It seems counterintuitive.

Yeah, no worries. Thanks, Paul. Thanks, Mark.

Thank you. Thank you. Your next question comes from William Park with UBS. Please go ahead.

Good morning, Mark and Paul. Thanks for taking my question. Firstly, can I just ask about, I guess, what you're hearing from your end customers, particularly in regions where you've seen some dryness emerge? Obviously, across, you know, the media, there's some chatter around sort of Super Onino and dryness persevering, particularly in New South Wales and South East Queensland. And just wondering how you're thinking about that. Obviously, we've seen the impact of dryness last year across South Australia and Western Victoria, but just wondering if you've seen any sort of headwinds emerge out of that or what if it's too early and some comments around, I guess, I think you touched on competitive dynamics as well, but just any changes if you observe anything. Thank you.

Yeah, so I think I saw Superlino playing in the European Cup final. He's a striker, isn't he? In terms of market, it's basically Northern Dry and New South Wales. And what we're seeing there is that it's tiling off. As you know, there's a strong capital base across agriculture, pre-combat agriculture in Australia. Deposits haven't been close to record. And so what we're seeing in the northern New South Wales area is there's a planting window for wheat, a lot of them are all winter cereal. We'll go past that in the next few weeks, although there's been rain coming through that area of late. But then the next option will be chickpeas, which is a short-season crop. that they can plant. The benefit of chickpeas is it's a legume, so it'll be putting nitrogen into the soil, so economically it'll be a nice rotation. The Indian markets look like they're okay from a chickpea viewpoint, and from an elders viewpoint, chickpeas is a high technical service and proprietary product, high margin crop. But we really haven't seen negative sentiment, if that's kind of what you're searching for. I think it's agriculture. So there's plan A, plan B, depending on the timing of a seasonal break. And in terms of capital and cash availability, it's okay. Paul, you might want to add as well.

Yeah, I think, Mark, you... You've put it well there. I think the thing to note, Will, is that they're still in the sowing window in this northern New South Wales area that has been dry. So at this stage, I think it's just a late start, whether the Bureau's right on Super El Nino or not. They got it wrong last time they said that. But we'll see, and the farmers will just adapt to how the season plays out.

Thank you. Thanks for the call. And just one last question I have is, I'm just wondering whether if you sort of look through, you know, previous cycles that you've been through, obviously the business looks a lot different to sort of the prior cycles, given the businesses that you've added and so forth. I'm just wondering, in terms of, you know, your definition or internal expectation of sort of recycle earnings, has that sort of... sort of been recalibrated as a result of, you know, the acquisitions and so forth, and also if it has, like whether, you know, how you think, how you're thinking about sort of the first and second half earnings split and then whether that's sort of evolved. Thank you.

Yeah, certainly it's different now, you know, given the weighting of Delta to the second half So, you know, where it's probably historically been, I'm going to say I haven't done the math, but where it's historically probably been averaged 45, 55, first half, second half, it's probably closer to 40 or even less first half and more second half.

It's something like that.

Thank you. And then, sorry, just one last one. Could you give us some colour around sort of the, whether there's been any sort of updates around backward integration? I know you pointed out sort of the targets that you want to get to, but have you been able to sort of identify new opportunities, particularly with respect to Delta, and whether that ceiling target's been sort of revised upwards internally? Thank you.

Yeah, so in terms of the Titan brand within Elders, it's been on track. It might be 65% and we've said we'd take it to 70% so we've got enough headroom for generic food proprietary supplies. So that's largely on track. As a parent brand, we're way high with that and we're at about 90% of back integration. So way high with Delta. From memory, they were at 25%. In the beginning, they'd be significantly higher than that. In order to fast-track the backward integration or the synergy benefits for this financial year, we'll make a bigger step with Delta's backward integration as a percentage of generics. So it's either on track or above. With Delta, it is above what we had for a three-year transition.

Thanks very much.

Thank you. That is all the time we have for questions today. Any further questions, we will take them offline and answer them separately. I'll now hand back to Mr. Allison for closing remarks.

Okay, thank you very much. Great session, and we look forward to the one-on-ones and the group discussions we'll be having over the next week. So thank you for all coming in.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.