Select Harvests Limited

Morning everyone and welcome to the Select Harvest half year 2026 result. My name is Andrew Angus and I look after investor relations for the company. Joining me today is Select Harvest Manager Director and CEO David Zervaia and Select Harvest CFO Liam Nolan. David, over to you.

Good morning and welcome to our first half 2026 results presentation. I'm David Surveyor, the Chief Executive Officer and Managing Director of Select Harvests and I'm joined today by Liam Nolan, our City Authority. The first half 2026 results presentation will be delivered by a quick cast on the link displayed as advised to the ASX. After Liam and I have delivered the presentation, there will be time for questions before we commence our investor roadshow. To ask a question, simply raise your hand via the button on your screen. We'll progress you through the queue and you will be given the opportunity to ask your question. In the event that we have questions outstanding at the end of the allotted time, please contact Andrew Angus via the email on the screen and we'll deal with them subsequently. This next slide simply outlines the disclaimer and basis of preparation of the information contained in this presentation. Next slide. In terms of the agenda, I'll start with a business update before handing over to Liam who will discuss the financial results in detail. Following Liam, I'll close on strategy, transformation and the key takeaways before we try to take questions. Next slide. One more. So let's start with the results. Profit is increasing. Over the last three full-year results cycles, Select Harvests has delivered a significant turnaround in profit performance. With a first-half 2026 NPAT of $26.6 million, and more importantly, an underlying NPAT of $29.1 million, this is a 33% increase in profit. I note the underlying NPAT is a preferred internal metric of true performance, with the definition provided in the appendix to the presentation. With the benefits of the second half still to come, we expect the full year underlying and reported NBAT will be another substantial increase in profit for select harvests. The company is increasing profitability whilst absorbing inflationary input cost pressures confronting every Australian business, as well as cost pressures unique to almonds. We'll talk more about these costs and our response during the presentation. The revenue graph shows our growth and together the two charts on this page tell the story clearly. We are now a different business and at a different scale. And we've operated with financial discipline. That is capital investments that generate strong returns on investment and a continued focus on cost and debt. The company is delivering performance across every key dimension of its operational metrics. Record safety performance, a high performing crop, possibly a record crop driven by better farming practice, record capacity with step changes in processing scale and efficiency, record price capture flowing directly to profit and record external growing volumes. Importantly today marks a return to rewarding shareholders. This reflects the board's strategy and confidence. The company, through the CFO, presented the market with its capital allocation model, whereby we intend to pay between 25% to 50% of NPAT to shareholders each year in dividends. Select Harvests will pay an interim fully franked dividend of $0.035 per share, and a decision on the size of the full-year dividend will be made at the completion of the financial period. The company is also announcing share buyback of up to 10% of issued capital of 142 million shares. The board's view is the company is well undervalued and so this is an effective allocation of capital. The company will on any given day make an assessment of the buying opportunity relative to our assessment of intrinsic value, conservatively determined considering our future prospects. Now, if we move on to safety, people are critical to the success of select harvests. Our tripha for the first half was its lowest ever at 3.7 injuries per million hours worked. We've demonstrated a sustained step change in safety performance, and this connects directly to the improvements we've seen in operating performance. You cannot get great operating outcomes without great safety outcomes. And we're achieving this by driving a clear sense of deep and felt safety leadership. We're training people, we're strengthening safety accountability and behavioural ownership and ensuring compliance. The Bradley curve shown on the right-hand side of this slide measures the maturity of the organisation's safety culture and we still have opportunity. Our position on the curve evaluates how deeply safety is embedded in behaviours and attitudes across the workforce. As our safety culture matures, injuries and accidents will continue to decline and safety outcomes improve. Let's move to talk about the almond macro. The global demand and supply dynamic remains positive, with tailwinds in place. I think this is now well understood by the market, so I won't drain every point on this slide. On the demand side, the total global almond demand growth continues with a CAGR of 5% to 7%. Prices have been increasing as the long-term global almond economic macro has improved. and we continue to see this as recently as Wednesday this week, and Australian markets reported another increase in price. It's worth noting that this is also supported by industry expert Dr. Abe Padilla from Spectrum Data Analytics, using his price elasticity model to forecast yet another 2.8% increase in price, or in other words, another $0.30 per kilogram. Unit costs are shown on the bottom left of the slide. Australia has significant relative competitive advantage. for the U.S. are slightly more than 30%, this being a function of both operational costs and yield performance. The key point being we have structural and durable cost advantage. On the supply side, the U.S. 2025 crop is 2.69 billion pounds with in-shell effectively complete and limited high-grade kernel available to sell. California represents approximately 80% of global supply. Bearing the Almonacres had reduced by 15,000 acres, and this is the first drop in 31 years in California, while the total farming area has reduced for four consecutive years and declined this year by some 47,000 acres. It should also not be missed, California now has an ageing tree bus. Australia is about 10% of global supply, and forward volumes appear reasonably flat. and likely naturally constrained by water access. There are varying estimates, but it's worth noting that 30 to 40% of Australian almonds will require replacing from 2030 onwards. Select is about 1,000 to 1,500 acres of this over the next four to five years. The times of maturity for trees is six to seven years, so the supply side cannot quickly respond to an uptick in demand. U.S. new tree plantings are low and there are no indications that would suggest a change in this direction of travel. So in our view, despite inevitable fluctuations in price, we have a very positive almond macro. We think that's sustainable over at least a seven year horizon. We have relative competitive advantage in cost and Select is very well placed to benefit with good to medium term pricing. Moving to financial results, as previously mentioned, the company has delivered a first half underlying net profit after tax of $29.1 million based on recognition of 75% of the crop. The result is an improvement of 33% on the previous corresponding period. The transformation of Select Harvest has seen the earnings profile of the company both change shape and become more robust. The second half of the year will see the benefits of external grower volumes, wholesales and value-added sales contribute gains to P&L. This year is also seeing the company's strategy and execution overcome industry cost pressures, and we expect profitability will meaningfully increase year on year. Total production costs have been impacted by both uncontrollable cost increases and one-off costs, and we'll cover these later in the presentation. The crop size this year is positive as our horticultural strategy starts to pay off, with a forecast crop of some 29,500 tons and a crop range of 28,000 to 31,000 tons, despite the inevitable crop losses from the weather. We have 46% of the 2026 crop contracted, and the forecast price for the 2026 crop is $10.21. The pricing outlook remains positive and I'll provide more detail later in the presentation. Net debt for the first half of 2026 was broadly in line with our normal working capital cycle at $183 million and we have continued to invest and allocate capital where there are strong returns. Cash flows in the second half will be stronger. And you will recall me saying at the 2025 results announcement that there was still considerable upside for cash generation and the gains resided within inventories and receivables. This view remains, noting the delayed harvest this year. For the purpose of reinforcement, the company has confidence in performance and a fully frank first half dividend of 3.5 cents per share will be paid with a final dividend to be considered at the end of the year. This being supported with a share buyback of up to 10% of our issued capital of 142 million shares. Importantly, following our most recent strategy workshop, the Select Harvest Board has set a growth ambition of 65,000 tons and $700 million of revenue for the company. This is the next step forward in the transformation of Select Harvest and we'll talk about it further in the strategy section of this presentation. What I'd like to do now is to provide some more detail on each of our key results drivers, specifically volume, price and production costs. So let's start with volume. The 2026 crop was grown with generally good growing conditions, although the heat to finish the crop did rise somewhat later than normal. The big challenge for the Australian crop was the massive amount of rain we experienced during harvest, with our wettest area being a vulnerable farm that received some 200 mils during The weather has notionally put a month's delay in processing and sales. We are, however, thus far seeing outstanding yield results with a crop forecast of 29,500 tons, which is remarkable given the inevitable loss of some of the crop from the rain. It's almost certain our program would have delivered and still might deliver a record crop, but for the weather. For several years, the company's talked about its new horticultural strategy and the goal of increasing yield. We said it would take several full crop years for the yield gains to appear and it looks like the strategy is delivering results ahead of schedule. We're currently processing our non-ferral crop and have not yet commenced processing our pollinator varieties. In terms of determining crop size, the process this year is no different to prior years. Whilst it's a large crop there is always some uncertainty around total crop size at the first half results and hence we provide a range. Liam can talk to the detail of that. There has naturally been speculation about the quality of the crop given the wet weather. Thus far we are seeing excellent levels of in-shell when almond quality is high. To date an 8% increase. This reflects the work we have done at the Carina West processing facility with Optimus for age 3. This level of in-shell is positive for both price. It delivers an extra $1 per kilo for in-shell versus kernel at current prices, and it's also positive for catch velocity. We do, however, expect to see a wider range of quality this year as a result of the wet crop. It should, however, not be missed the company accelerated harvest to effectively a 24-7 operation, albeit at a cost, to protect the crop quality. and the company also had the foresight to invest to manage for these types of events and we are using our new $14 million prop dryer. We have the biggest drying capacity in Australia and this will limit damage and give us some quality advantage. The expected lower quality mix profile is already reflected in our forecast market price. Now as submitted, we have delivered a major increase in external grower volume. Our expanded capacity is being filled with these increased volumes that deliver substantive profit value at about $1 per kilogram. Our proposition is compelling as growers recognise our ability to get them better market prices, better yields for their crop and better operational capabilities. That is, they get their crop off the farm and onto our stockpets fast and, if necessary, dry their crop to protect their earnings and we get them faster cash. The 15,400 tonnes of contracted external grower volume is currently sitting on Select Harvest's stock pad, and as it's processed in the second half, it will contribute to revenue and earnings. We continue to attract and add new external growers through Select Harvest. Next slide, please. So moving on to market price. Last year, we gave the first glimpse of Select's work in getting a price premium for our product. The top chart shows our invoice price performance against data markets, which is our industry-recognized published price index. The data is based on price at the time of signing a contract, the FX rate of the day, and an adjustment for tariffs. So far this year on invoice sales, Select has taken a global commodity and delivered a price premium over the global market price of 6%. From a business perspective, the critical issue is the direction of travel and what gives me great heart is the premium has grown from the 2.4% the last time I shared this chart at the end of 2025. I think there's now enough evidence to say state harvest uniquely brings leverage to every horticultural and processing improvement and the leverage flows directly to the bottom line. Now the California crop receipts for 2025 at 2.69 billion pounds were within our forecast range and we see an implied carryout of some 480 to 520 million pounds at the end of the California crop year. The most recent Californian bloom has some trying conditions with wet and cold weather. We think the current 2026 crop size estimates as released by Terranova is the ag-wise for most a wonderful forecast, the blue diamond forecast, and of course the US subjective forecast, the range of crops these is from 2.64 to 2.7 billion pounds, and we think this seems like a reasonable number. With these crop volume forecasts, we have seen prices increase through April and May, and in its selects view, there will be more prices to come. Demand growth is being driven by China, India and Southeast Asia, underpinned by by increasing self-awareness. With China and India expected to double consumption by 2030, we see long-term demand and core organic growth for select harvests. Select has 77% of the 2026 crop hedged at 65.83 cents, and it remains our prognosis while prices may show fluctuations, we will see prices continue an upward trajectory over time, subject, of course, to effects. Next slide, please. So let's talk about production costs. Total production cost is the cost of growing, harvesting and processing. Now as we have done for the last several years, we normalise our cost per kilo to a 29,000 tonne crop, so you have effective comparative data. After three years of flat costs, this year you can see an increase in both inflationary and uncontrollable costs to $7.33 per kilogramme. We had previously signalled to shareholders at the November annual results and the February AGM that there is a shift in our cost base of up to $20 million from items such as water, feed, power and labour. Now that number has been compounded by one-off costs from the Middle East and wet weather. To manage this, we committed two actions. The first being to remain tight on the costs that we can control. and these have reduced by 14 cents per kilogram and are already contained within the $7.33 shown on the chart. They are not standing still on costs and have already identified the next $10 million of cost savings to be delivered over a couple of years. These savings have come from a program of work that's been driven from the ground up with our people identifying waste and costs that can be reduced. Each initiative, as per normal, is to be mapped to a project with profit and cash impacts and timelines, all managed in our project management office, with the same executional cadence that has been delivered over the last three years. The second commitment recognises the non-compressibility of some costs, and hence we've committed to deliver on other actions that expand margin, two examples being our investment in kernel recovery and investment in shakers, and these are captured in our PMO. So having covered off on the key drivers, I think I'll now hand over to Liam to discuss the financial results in detail, and you will give him some forgiveness, and he has an unfortunate thought.

Thank you, David. I'll set through the following areas. First, the drivers of earnings. Second, capital management and shareholder returns. And finally, cash flow and the balance sheet. As you'll see, the first half reflects strong underlying operating performance. with a full year of earnings to benefit in the second half from external growth volumes and an uplift in value-add margins. Earnings growth in the first half has been driven by recognition of 75% of the estimated crop profit. In determining the crop size estimate, we have captured data points from all regions to form a view of the most likely outcome. And as David mentioned, management has formed an estimated range of 28,000 to 31,000 metric tonnes. Crop profit has increased substantially, reflecting improved yields, stronger orchard performance, and our sales team achieving a market price premium. These results are all linked to strong strategy execution, specifically investments we've made in the horticulture program, investment in processing, specifically kernel recovery and Optimus III, which are now delivering tangible results in terms of both volume and quality. Our sales premium is coming from being in market, understanding our customers and delivering measurable outcomes. Against that, we've seen high production costs. As David mentioned, these are largely in line with what we've previously guided, namely across water, fertiliser, pollination, plus the impacts of wet harvest. The wet harvest alone contributed approximately $6.9 million of additional costs in the half. primarily in labour as we sought to expedite harvest and also the additional cost of drying. The important point is the shape of earnings for the full year. The earnings profile has now materially shifted with a much stronger weighting to the second half and this reflects the timing and scale of external grower volumes going from 7,329 metric tonnes in 2025 to 15,400 metric tonnes in 2026. The uplift in contribution from value-add sales, where we see full-year benefit of pricing and operational margin enhancements. And finally, the seasonality of wholesale. So while we've got a really strong first-half result, it should be noted that we expect to see a significant increase in second-half earnings compared to 2025. Turning now to capital management. Over the last three years, our focus has been very deliberate, strengthening the balance sheet and maintaining capital discipline. We've largely achieved that, and as a result, we're moving to the next phase of capital management, which is balancing three priorities, maintaining the strong balance sheet, continuing to invest in growth, and returning capital to shareholders. Importantly, these are not competing priorities. The business is now in a position where it can do all three. And you'll see that reflected in both the dividend and the buyback we've announced. Starting with dividends. We're reinstating dividends for the first time since February 2023. Our policies are distributed between 25% to 50% of net profit after tax. And for the half, we've declared a fully franked interim dividend of $0.35 per share. with approximately $18 million of franking credits available, which supports franking distribution through to 2028. We've also announced an on-market share buyback of up to 10% of issued capital. The rationale is straightforward. We believe the current share price does not reflect the intrinsic value of the business and we have the capacity to return capital to shareholders. The buyback gives us a flexible mechanism to return capital where we see value while still maintaining optionality. It will be conducted over a 12-month period. It will be opportunistic and it will sit alongside investment in the business. And this is a balanced capital management approach, supporting shareholder return without compromising growth or balance sheet strength. Turning now to our balance sheet, and the headline here is Select Harvest is in a strong financial position to support both growth and shareholder returns. Net debt at the half sits at $182.6 million, which reflects the normal seasonal working capital cycle as you'd expect at this point of the year. The cross-sales bills come through. Importantly, we expect this to reduce materially through the second half as sales cash flows come through. April and May are already tracking towards record sales volumes, so we're confident in that trajectory.