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.