Cobram Estate Olives Limited (CBO) Earnings Call Transcript & Summary

Well, morning, ladies and gentlemen. Sincere thanks for joining us today. Welcome to all of you, and I hope you enjoy our half year results presentation. I'm Rob McGavin the current Chairman of your company. And I'm joined today by Co-CEOs, Leandro Ravetti and Sam Beaton, who you'll hear from soon, and also online is CFO and Company Secretary, Russell Dmytrenko. Before you hear from Sam first, I want to highlight 1 key point that is pretty important to, I suppose, understand or I'd like to just explain why our half year results is often a loss. And I get asked this a lot. And the answer is pretty simple. Under accounting standards, there's 2 ways -- we've got 2 choices on how we value the crop that's hanging on the trees, bearing in mind we're halfway through the season now, so the fruits on the trees, and we can either value it at cost or we can value it at market value. The choice -- if we decide to value at market value, we deliver a very material half year profit, but we choose to value the fruit at cost. And we do this to be conservative and because the crop is actually not completely known and it's still hanging in the groves, the oil accumulation in that fruit is unknown and it's not so secure either. So because our production year and our financial year line up perfectly, we finish harvest around the end of June, so all of our costs and all of our, I suppose, production line up perfectly for the financial year, we value this through at end of the year. So this means that the -- I suppose, the profitability driver or the main profitability driver of our business comes to fruition at 30 June when that crop's valued. And it also means that this approach results in our half year profit being largely irrelevant to or unrelated to the full year result. I'll hand over now to Sam and he'll speak for a little while, and the other Co-CEO, Leandro Ravetti will talk. I'll say a couple more things and we'll get into a Q&A session. So over to you, Sam.

Thank you very much, Rob, and thanks, everyone, for joining us. I'm going to take you through the financial overview. I'll give you -- also give you a commercial update, and then I'll hand to my Co-CEO, Leandro, who will take you through an operational update. I think that point Rob made is really critical before I go through the financial results, and just to reemphasize, none of the profit relating to our 2023 crop is recorded at this -- in this half. Also in addition to that, the oil that we've been selling over the last 6 months, the profit relating to that was recorded in prior periods. In terms of the highlights of our results, our EBITDA for the 6 months was recorded at $700,000 profit, which was down from $4.8 million in the corresponding period and our NPAT loss was $9.9 million from a $5.2 million loss in the corresponding period. In the next slide, I'll talk you through the drivers of this profitability change. Pleasingly, our operating cash flow was positive for the 6 months of $10.8 million before interest and tax, down from $18.2 million prior period. Our revenue and other income actually rose from $71.6 million up to $75.9 million. Across the group, both in Australia and the USA., our packaged goods sales increased. In Australia, we increased packaged goods sales by 6.3% and 6.2% in the U.S.A. In terms of our debt, our debt increased from $135 million to $170 million. The reason behind this, in December 2021, we raised equity to fund growth CapEx projects. We initially applied that against debt with the plan of redrawing on that debt as we fund our CapEx program. So this increase in debt is certainly known and was planned. Gearing is still only at 30% at 31 December. And of course, that increased from 30 June with the increased debt levels. In terms of our profitability by segment, and we report our results in 3 segments: the Australian olive oil segment, the USA olive oil segment and our innovation and value-add. Our Australian EBITDA dropped from $5.8 million down to $2.5 million. A couple of reasons for that, the first being we've returned to normal marketing activities following the COVID period. And secondly, we've seen a change in product mix towards Red Island. Red Island actually grew 25% during the period. And of course, that -- because of the price point, that's meant a slightly lower margin across our product mix. In terms of what we've done about that, we've actually implemented a price rise across our whole Red Island range and a 10% price rise on our Cobram Estate 3 liter tins. That price rise is effective on 1 February, 2023, so for the last 5 months of the financial year. Certainly, that will restore our margin. In terms of the U.S. operations, our loss of $200,000 EBITDA increased to $400,000 EBITDA. We did see, as we flagged in our previous presentations, we saw margin pressure in the USA in the first part of last calendar year. We implemented around a 20% price rise across all our packaged goods range. But because of the lag into the supermarkets and retailers, this wasn't effective until mid-October. So in November and December 2022, we certainly saw an increase or restoring of our gross profit margins, and we expect that to continue into the next 6 months. Innovation and value-add loss of $800,000 EBITDA, that increased to $1.4 million EBITDA. The big driver of that was a $1.5 million provision against slow moving Wellgrove stock. And as -- and the company continues to transition that division into biomass and ingredient products. Moving on to our cash flow. As I said on previous slides, we reported a positive operating cash flow from operations of $10.8 million. It was actually down in the period. There's 2 reasons for that. One, the cash impact of the profit variation and also around $3.4 million of increased working capital compared to the prior period. On operating cash flow, we're expecting a material increase in operating cash flow in the second 6 months of the full financial year. In terms of investing, we invested just over $26 million in, predominantly, growth CapEx projects, which is up from $18.5 million, growth projects around growth developments in both Australia and in the USA and an expansion of our processing plant at Boort. Leandro will cover off more on -- around the details of those projects. And during the period, we paid $11.7 million dividend, which is net of our dividend reinvestment. Moving on to our balance sheet. The company has got a very strong balance sheet. Our assets increased by $17.9 million, up to $568 million. We'll remind everyone that we don't -- we only -- we record our tree and irrigation infrastructure at cost, and there's a bit over $120 million of value that sits outside our balance sheet when you compare our book value to [ just 1 ] valuations we had done at 30 June, 2022. In terms of our brands, our brands sit on our balance sheet at cost. Cobram Estate and Red Island, we purchased them for just over around $6.7 million. And under accounting standards, you can't revalue brands. In terms of liabilities, just quickly to point out, there's a $70.8 million noncurrent tax liability. Of that, just under $65 million relates to a historical asset write-off. It's a deferred tax liability, and will only ever be payable if we sold the assets outside of our group. Our total equity dropped by just under $20 million, which was a result of, of course, our reported loss and the dividend we paid out. And I've touched on borrowings where we saw gearing ratio sitting at 30%. Moving on to sales. And this slide just shows the product mix between packaged goods and bulk and split by country and around 89% of our package -- of our total sales goes into packaged goods. As you can see here, the majority goes into -- is sold in Australia and the growing piece in the USA. Just around 11% of our total sales are bulk, which is split by low-value olive oil and also some high-value bulk that we sell to important recurring customers. In terms of looking at packaged goods, packaged goods in Australia, we saw a growth of 6.3% sales in packaged goods compared to the comparative period, which is a pleasing result. The growth here was driven by Red Island, where we saw Red Island up by 25.1%. Cobram sales were down slightly. We did deliberately promote less during the period. So our return per liter was higher. And certainly, the results really shown the benefit of having a multi-brand strategy and being able to capture customers at all different price points. In terms of the USA, again, similar growth in the USA for total packaged goods, up by 6.2%. I think the most pleasing result here was that our Cobram sales have grown significantly and up 70.8% compared to the comparative period. The drivers of this growth, really threefold, so increased distribution points, and we saw increased turn rates and also the start of the impact of the price rise, which came through in the last 2 months of this 6-months period. In terms of where we sit in the USA, we're now the #9 olive oil brand if you exclude private label. So really pleasing growth from the USA division. Moving on to costs, input costs on our grove are a big portion of our costs where, pleasingly, we've seen costs stabilize, if not lower than plan and budget. Certainly, costs, including fertilizer, fuel, electricity and rate less than expected. And we've seen a significant decrease in our water cost, which is sitting at 10-year lows, primarily, obviously, because of the rainfall events over the last 12 months, that the storage levels are sitting at record high levels for this time of the year. So we believe that the soft water prices will continue beyond this period. The cost -- the full cost impact will not be recognized until the crop's valued at 30 June. So as we said at the start, there's absolutely no profit in the 6 months recognized in relation to the 2023 crop. In terms of financial outlook, we're still seeing very strong demand for high-quality extra virgin olive oil both in Australia and in the USA. The Australian crop is going to be significantly higher than FY '22, and this will drive a materially higher EBITDA for the full year. As I touched on before, we've had a pleasing operating cash flow for the first 6 months, but the second 6 months will be materially -- we're forecasting to be materially higher. Again, costs -- we're pleased with where costs are at, particularly compared to where we were expecting them to go and they seem to have settled down and we've got some big wins on one of our major input costs being water. And Leandro will touch on our capital projects, but we continue to invest very heavily in our capital projects around increasing supply, both in Australia and in the USA, and of course, processing capacity, which we believe will continue to drive future growth. I'm going to now hand over to Leandro. Leandro will take you through an operational update. And of course, we'll have time for questions at the end. Thank you.

Thank you, Sam, and thank you all for joining us today for this update. Fortunately, Sam has already explained our [ sale ], and I don't need to report on any of the other accounting technicalities. So -- and just going, because of that, I'll be able to just answer a few simple questions that I'm sure you probably all have regarding our operations in Australia and California. Considering that supply has been largely constraining our sales in the past, I'll cover how our production for 2023 is looking. I'll also summarize the key investments that we are doing right now that will support future growth. And I'll tell you how we are performing relative to our obligations to [ society ]. So we can move to the next slide. The crop expectations that we adopt and probably it's a bit of explanation here, the crop expectations that we adopt in the annual budget defined back at the beginning of each financial year are largely based, of course, on the 3 conditions at the end of harvest, end of June and our long-term average yields. During the growing cycle that starts in September, there are 3 critical times when we conduct a number of measurements to potentially adjust those internal crop estimates. The first one is at full bloom, in early November, when the white flowers offer very good visual contrast as you can see on the top left photo. And consequently, it's a great opportunity to determine crop potential and any possible impact of negative events that would have occurred during winter like frost, for example. The second one is after [indiscernible] in January when we can evaluate and estimate the approximate number of fruit actually hanging from the tress. At that stage or at this stage, the fruit looks pretty much like the photo that you have on the bottom left-hand corner of the presentation, and they are approximately around half of the final harvest time. And obviously, ultimately, we can see at harvest time once the oil accumulation period is completed. As we have said a few times before, flowering levels in November were pleasingly in line with the company's earlier expectations. We had a cooler and wetter spring than normal in Victoria that determined that the full bloom period took place about 10 days later than historical averages. And fortunately, we didn't experience any material damage on any of our groves following the uncharacteristic rainfall events and subsequent flooding in different areas of Victoria. The January assessment that we just finished a few weeks ago confirmed now that fruit numbers were also pleasingly in line with expectation. However, they were actually slightly smaller than normal in terms of fruit size and that was observed as a consequence of the delay in the food development because of that cooler spring period that we mentioned before. As per our usual practice, over the coming couple of months, we will conduct oil accumulation measurements on a weekly basis, and that will let us better evaluate the plantation impact that the initial delay will have on the expected harvest time and also final oil yields. In any case, it's always important to highlight that all our forecasts, including the oil yields are based on long-term averages, and the final oil yield content in the fruit can show natural variations of up to plus or minus 15% from those historical average values, mainly linked to weather conditions during late summer and autumn, which are obviously quite outside our control. One more on this, due to the biannual nature of olive production, FY '23 will definitely deliver a significantly higher yield in olive crop when compared with financial year '22. And as Sam said, and we previously reported in the AGM in 2022, we are expecting EBITDA to increase materially in '23. I think it's also important to remind you of the expected organic growth in our supply over the coming years. Based on current and future new plantings and -- [ of some around ] 650 hectares that we will be planting at Boort and Wemen -- sorry, Rob, [ will you mind ] muting yourself, it's just echoing a little bit. The mature groves in Australia will increase from about 4,000 hectares that we have now to 7,000 hectares over the next 9 years. including the new plantings at Boort that I'm going to refer to in the next slide, less than 60% of our Australian groves are at full production, just under 30% are productive but still immature and 13% yet to be harvested. Another aspect related to supply that is sometimes lost in the scale of our production is the new third-party groves coming into production. Contracting supply from third-party groves in Australia will increase materially in the financial year 2023, with more than 6,000 tonnes of olives expected from those orchards. Cobram Estate Olives will receive toll-milling revenue at market rate from crushing the olives, and will receive also a margin on marketing the approximately 1 million liters of olive oil produced from that fruit. All this organic growth of fruit supply and oil supply may raise the question regarding the future marketing opportunities for that oil. And on this point, I think it's important to remember a few key stats that the Australian-grown extra virgin olive oil currently accounts for less than 50% of the Australian domestic consumption of olive oil. And that less than 5% of the total [ fats ] and olives consumed in Australia are actually linked to olive oil. This is when we consider all retail sales, foodservice and food manufacturing sectors. And on top of that, the relatively flat levels of olive oil production at global level over the past 10 years would enable us not only to drive further market share growth in the Australian market, but also to target key export market. Moving to the next slide. In terms of our groves in California -- as well -- I'll probably would indicate that we just came back from the U.S. on Tuesday, and it was very pleasing to see our groves over there in very, very good condition. Winter heavy rainfalls provided a welcome relief for water users across the state. And early indications suggest a material water allocation in our district for the year ahead. This allocation combined with our underground supply of water, will guarantee full irrigation to all our groves for this coming season. Sorry, we'll just go back to the previous slide. Although several areas of California suffered floods from the rainfall that I mentioned before, we didn't experience any material damage, and as previously announced, the company's 2022 California harvest that we completed in late November yielded around 1.7 million liters of oil, which is a very strong 59% improvement on the previous lower yielding crop year in 2020. The 2023 California harvest, it is expected to yield a record crop, and that is linked to the increase in age of our own groves with many hectares coming into production for the first time, additional third-party contracted groves and the maturing of these groves, which are largely also going to experience an [ on ] or high-yielding year this season. Looking now at our capital projects in the next slide, to support our future growth, we can mention that the preparation is well underway for a greenfield 415 hectare olive plant at our Boort grove in Victoria, and that will be increasing our total olive planted in this farm from 3,100 hectares to over 3,500 hectares. The planting will begin in March, so it's quite imminent, and we will -- it will take approximately 3 weeks to complete. I think sometimes it's easy to lose perspective of the scale of these new plantings. So I think it's worth highlighting, particularly for our long-term shareholders, that this new grove at Boort has an area larger than the 2 first joint ventures at Boundary Bend estate combined that started our journey back in 1999 and 2000, so quite a significant planting. The next slide, well, another large and very impressive capital project is our Boort olive mill upgrade. As you can see from the photos in this slide, the external building is nearly complete and the internal installation is also well in progress. Everything is tracking so that the new mill will be operational in late April for the beginning of our 2023 harvest. Again, this mill upgrade will deliver a crushing capacity growth from 30 tonnes to 80 tonnes of olives per hour, matching our future needs. Again, hopefully, this will help to put things into perspective and provide some context to the size of the operation. This mill, when operating at its full capacity, could process the entire current annual olive production of countries like Croatia or Albania or Libya or Israel and even from France or the United States. So we're talking about a huge amount of milling capacity there. The next slide. Well, in terms of the capital projects in California, the first stage of the Dunnigan Hills Ranch development that you can see in the photo on the top left will commence with planting of 194 hectares this coming April. And also, as a result of this development, our planting area in California will grow by more than 50%. The second stage of this grove is likely to be completed in April next year. And at the same time, we're also commencing the expansion of our mill in Woodland, doubling its capacity from 450 tonnes per day to 900 tonnes per day to accommodate the sharp growth in food supply that will happen in this coming season. The mill will be operational for the beginning of the next harvest in October this year. And finally, on my last slide, we have had a very busy 6-month period on the environmental and social responsibility matters. Key highlights that we have achieved a Net Zero Plus carbon certification for our growing and processing operations. We have completed Phase 1 of our reforestation project with over 160 hectares of Mallee seeding going on at Boundary Bend. We have commenced a partnership with the Victoria Mallee Fowl Recovery Group to support the protection of this bird, and we also have signed the United Nations Global Compact and now a business member of the network, amongst other initiatives. Quite recently, the work that we have done in this area has been independently recognized by the Australian Financial Review and the Boston Consulting Group, naming us sustainability leaders in agriculture and environment in 2022, and by Woolworths, making us the winner of the 2022 Woolworth's Better Tomorrow Award as the Sustainability Supplier of the Year. As always, I'd also like to sincerely thank all our staff for their hard work and dedication. So that's all for me today. I'm handing back to our Chair for some final remarks and questions.

Thanks very much, Leandro. As Leandro said, the Board has -- and you can get your questions ready because if you click on the hand, which is a symbol in the -- probably, I think it should be at the bottom of your screen, I'll see your hand, I'll ask you to ask your question individually by name and your mic will become live so you can do so. Just while you're getting your questions ready, a couple of comments. One is that, as Leandro said, we've just -- the whole Board went to California for a 5-day visit to -- we are really pleased with the progress of the business and more excited than ever about the immense opportunity there in that market as we move towards doubling our supply at the next harvest, which is in October. And this is coming from our own grove maturing and combined with increasing third-party fruit supply from growers. We're also really impressed with the team that Sam and Leandro sort of continue to build in the U.S. and what they've achieved. The other point I'd like to reiterate is that I'm often asked why don't we sell everything through Cobram? And it's a great question because it's high margin, very recognized brand. And the answer is pretty simple, and that is because over history, every retail brand almost [ bar none ] has ripped off their customers and slowly died and been replaced with something else. And Cobram has -- prides itself on being the best quality in the market and being consistently so and doing anything to ensure we protect the value proposition that's in our olive oil. So we have a, I suppose, an unwritten rule, that it's -- that our average production -- half of our average production, no more than half our production will go into Cobram estate. And that's because the fruit we're producing or the oil we're producing from the fruit is a natural product, it's of all different qualities. We crush every olives within 4 hours, and the olive oil is the juice of the olive and how the condition of the olive is, the variety of the patch and the temperature when you pick it, all these things make an impact. So if we can put the best half of oil into Cobram, it will be absolutely brilliant of what we produce. So we just can't keep growing that brand without growing our supply. And in fact, there's an argument to think that we should make that 30% or 40%. And even if we're charging more, we'd still be giving more value to the consumer because all of those health benefits and consumer value proposition come from the antioxidants and freshness and quality of the extra virgin olive oil. So Red Island plays a really important part in that, and we advertise that it's not as high quality as Cobram, it's slightly cheaper because it's not a higher quality. And we need all of those to ensure we don't disappoint customers and ever risk milking our brand. The retail sales, I would like to comment on for the last period to 31 December, obviously, this year, were really, really pleasing. We sell over 90% of our volume in retail, and we don't have -- we effectively, don't have a food service offering of any scale. And the way we shut down through COVID and most restaurants were closed or very limited food service throughout that comparable period to the 31 December '21 and we were getting a reasonable sugar hit, I would say, or very strong sales in branded because everyone was going to the supermarket to buy, they weren't eating out. And to think that we were able to beat branded sales in this period when retail was fully open is something that I'm really, really pleased with, and it just goes to show the strength of the brand and the consumer's understanding that high-quality olive oil is a really important part of the diet, so -- and I suppose the whole market growing or people buying extra virgin and not as much other products. Also, I hesitate to say this, but just don't underestimate the in-built growth in both Australia and the USA businesses. We've spent hundreds of millions of dollars of investment over the last 5 years, particularly in groves and many of them are fully to bear fruit [indiscernible]. Sincere thanks to Leandro and Sam, who are doing a wonderful job and their team underneath them. It's never about the business, it's about the people, and that's what these 2 guys are very compassionate and very honest and very modest and likable. So thanks, guys. I would now turn to questions. I've had a couple of brokers ask why my head is so shiny, and I'm going to say it's the olive oil and it makes your skin look really good, but it doesn't make your hair grow, by the looks of things.

Questions, I can't see any at the moment, but just click on that hand, and it will come up.

Rob, the first one up is Ian Munro.

Just the first one just on that first half sales result. Can you give us a sense of whether there's any discounting that is subtracted from that first half revenue and how to think about that heading into the second half?

Yes. Certainly, if I talk sort of both countries, certainly in the USA, no, but of course, I spoke about the margin pressure in the first 3 months or first 4 months of the half, which is -- which will be rectified before we start to see better margins in the last 2 months, and we'll continue on next year. In terms of the Australian operations, in terms of discounting, we have a promotional plan with the retailers around discounting program for both Cobram Estate and Red Island, and we saw really strong demand for Red Island during the period. And as I've touched on before, we've actually implemented a price rise on Red Island and across the whole product range has gone up 10%. That wasn't effective till 1 February, 2023.

And I guess just looking at the pricing strategy on Cobram [ at the moment ], we've seen many of the peers put their prices up, we've also seen international pricing benchmarks super strong in the last 6 months. Is there any reason that you're holding that back? And how do we sort of think about that on-shelf price relative to the wholesale price?

Yes. I think there's a couple of things. We actually have increased the price of our 3 liter tins, so that went up at the same time as Red Island. We make a really good return for -- on Cobram Estate and our net price, our net of discounting is still significantly higher than our peers. Of course, our imported competitors, as you're saying, have all put up prices multiple times over the last 12 to 18 months. So we think and we hope we can benefit from that comparative position.

It might be also worth adding in that our competitors, although the price might look higher on shelf, which it is, well over 90% of sales are usually on discount, whereas Cobram is way, way, way lower than that. So the average that the consumer pays, if you look at each [ scan ] and each price the consumer pays when you're taking discounts, Cobram is still at a massive premium, a massive premium. So we just felt that we didn't need to.

And just one final one. I appreciate your answers. Just on the U.S. harvest completion later this calendar year, so how are we thinking about -- just your comments around volume growth into that channel, I mean, how are we thinking about sort of breaking through into profitability in that year and any comments around that would be welcome.

In terms of profitability -- so the harvest volume in this year will be significantly higher than last year in the USA and more than double. In terms of profitability, as we continue to increase sales and volume, it will have an impact -- a positive impact on profitability. And we'd expect next full financial year, so FY '24 to report a positive EBITDA.

Jonathan Snape?

Look, can I just ask around the crop? And thanks for your comments before around the process. But if I look at some of your suppliers, I think they're talking yield deviations of anywhere from 6% to 13% relative to what they were expecting, say, back in October because of that smaller size through same issue, I think, that you're talking about, although they're a bit further south. Is that a reasonable assumption, say, we had a view back in October that it could be anywhere from that 6% to 13% on the southern acreage? And then I don't know how material it was up in the more northern aspects, but is there any reason to think that's not an unreasonable guide at the moment?

I think I touched on this before. I mean, first of all, I just would like to provide a bit of context. Even if I could count every single olive in the 2 groves -- 3 groves that we have, so we're talking about billions of olives. Even if I got that number absolutely right, from now until the end of harvest, the level of oil accumulation in the fruit could be going up or down 15%, and that's based on the historical records over the past 20 years. And that is largely based on the temperature conditions and the general weather conditions, fundamentally temperature for the coming 2 to 3 months, and of course, assuming good management and everything else, that variation, obviously, we're talking about several million liters of oil [indiscernible] that could happen. And that is very difficult to predict, almost impossible because obviously, I don't exactly know what the weather is going to be like. What we have done is today really trying to estimate that number of fruit that is hanging there, and that number is very much in line with our previous expectations. However, definitely, everything occurred with 10 days delay, and that is something we're going to keep an eye on to see how it evolves over the time because it could have an impact, but it's hard to know. Other years, we had a delay of flowering, perhaps not to this degree and without having an impact on the oil yield. So again, it's going to be strongly influenced by the weather conditions over the next few months.

Okay. So is it like you're waiting, in case the harvest, you push it back, say, 10 or 14 days, maybe you catch up the growth that you kind of lost?

Yes. We're actually closely looking at the oil accumulation and how it goes. And we use a number of points in the curve to define the starting of harvest. It's just essentially because we estimate roughly when the oil accumulation will finish or peak and that allow us to get going. So it could definitely be pushed about a week or 10 days rather than normal as well.

Okay. And then can I ask around the marketing expenditure? Obviously, it was up in the first half, and I think traditionally it's always been biased to that first half. Is this kind of a new level we should be thinking going forward, taking into account the normal splits we'd expect?

Yes. Look, I think depending on the program where our focus lies, but typically, it's not skewed to any one half and it may have been in the past. But yes, this level of marketing would be similar to what we're going to push going forward. But as you know, during that COVID period, we had such strong demand for our product that we really couldn't afford to market at all because we just didn't have the oil. So we actually had to ration oil in the end. So which is why we're returning to marketing the brand.

Okay. All right. And just on selling price, I mean, you've given the Red Island numbers in terms of what you've pushed through that 10%. I think you said on the bulk, you're up 10% in Cobram. How are you seeing some of that private label packaged product going at the moment because I think as someone alluded to earlier, the inflation that will be coming in from import parity would be pretty material? Do you have any flex on that private label-type package product you do?

Well, we do private label with the main retailers. And like any private label, it comes -- usually comes up for tender from time to time. And we put in a price that works for us. So we're happy with the price points. We have seen growth in private label as well, but it's a very -- it's a relatively small part of our business in Australia. In the USA, it's a much bigger part of our business.

But we -- but Sam, it's fair to say that we have seen and it could be just the economic times, we have seen pretty strong growth in Australian private label, stronger than I can remember, even though it's still pretty small. And that could be coming from people who are moving from -- they used to having imported oil, it's a lot higher, they're buying Australian, which is a great thing long term. I think that would be a fair comment.

Okay. And then just one last one for me. Just on the asset base. I know you do the valuations -- the independent valuations in the full year, not in the half. But if I'm looking at it right, the value per hectare of your U.S. orchards on those independent valuations is higher than the Australian orchards, which intuitively, if 60% of them are mature here and single-digit percent over there, doesn't kind of make a great deal or sense. Why is there such a difference? Or why is there a difference between having an immature orchard in the U.S. worth more than a mature orchard in Australia? I'm just trying to get my head around why that difference exists.

Yes. Look, the main difference is that, as you know, our Australian assets, we buy water on the temporary market, we don't own the permanent water rights. In the USA, all of our groves, you either have underground water and channel surface water or both in the case of most of them. So you're effectively getting -- we've got the groves and the access to water in the USA. In Australia, it's the groves and we have access to water, but we buy it on the temporary market. So that's the main difference. So I'm just going to say, when you add the 2 together, they're very similar in both countries.

And the rights come with the land, Jon. So it's like 2 acre feet or 3 acre feet or whatever it is, it's not like you can't trade and sell it off, but it's just not worth anything because it's not tradable at the moment, it's just worth that you can use it along with the water. So it is very different. You're getting 2 in 1 when you buy it whereas here, you're not.

But as they mature, the value should go up, right?

Yes.

And you would get that assessed every 2 years.

We've typically done it every 3 years.

[ Peter Parker ]?

You want the easy or the hard questions first?

Let's go with the hard.

Okay, we saw an actual record low this morning, I think, in the share price, $1.30 or thereabout since we hopped on this meeting. Does the market know something that I don't know or you don't know? Or is it just...

That's a very good question. I wouldn't be the first Chairman and major shareholder to say the market's wrong. But I'll just say that I personally think the market's wrong. But again, we haven't been listed very long. People I don't think understand how dominant our position is in the market. They don't probably realize those key benefits around Oliv.iQ, just how much olive oil we produce of such high quality at such a cheap price being the upper echelon globally for quality, the lower echelon globally for cost of production and being able to scale that is a very, very unique sort of position. So -- but again, it's a long-term deal. It's not a buy-now pay-later finance tech stock sort of thing, it's hard tangible assets, hard yards. So it takes a while to come but it's also very hard to lose, if that makes sense. So I often say that if we had sold the groves off and leased them, we'd probably still be trading at a similar price, even though we have, I don't know, at least $600 million worth of tangible assets on our balance sheet. So I think with the world moving towards a carbon-neutral future or as close as possible with us sinking 4 kilos of carbon for each liter of olive oil produced, it's again really unique. So yes, I think that just as our yields come through, as the market is used to our business and as the USA business continues to grow strongly, I think that there'll be a rewriting. But again, the market is the market and however, we don't argue.

Yes. A bit of an easier one, rains, like what is your main costs over this big rain event you had in Victoria? Have you been able to make more dams or increase your actual storage capacity?

No, we haven't. It's not sort of as easy as it sounds around just the volume of water you need, the evaporation rates, methodologies to reduce evaporation, there's something like [ major ] evaporation in Northern Victoria. So huge capital spend and there's probably -- I won't say there's nothing we can do, but we have been putting quite a lot of work into groundwater and desalination. And again, we're getting very close to having an allocation there that we have to announce. But at the moment, we haven't got that in writing. So [ one on that ] the whole time, but it's not really an easy feat. We just know that our business is more revenue per hectare than all the other mainstream crops per megaliter water used, which puts us in a very good position to be able to compete. But it's always going to be a cost that's reasonably volatile.

Yes, fair enough. Now you did a big MasterChef advertisement last year. Was that successful? Is it something you would repeat again?

It's certainly part of our marketing program as we were certainly successful in getting brand awareness. Again, it's really difficult to compare to the prior year because the prior year, we were in COVID lockdowns and olive oil was flying off the shelf. And it's difficult to know that if you didn't do that program, what sales would have done. But overall, we continue to assess the marketing programs that work, and we'll continue to invest in the right media assets.

And the final one for me, the Wellgrove and all that's probably been disappointing. What's the outlook there? And is it just [ similar to ] enter another division or [ something else ]?

I didn't quite get the question, it was about Wellgrove, maybe Wellgrove division?

It's around the wellness division. Look, Peter just asked if we are going to fold it up or what's the outlook look like? Maybe you can comment on that, but not as specific [indiscernible]. Certainly, the prospects are still very, very interesting and the fundamentals. What we have done over the course of the past 5 or 6 years was to invest quite heavily on exploring all the different opportunities that could come from that value-add revenue stream, including the development of branded sales. And certainly, that has not been a successful approach, it was part of a learning process and what Sam referred to about the impairment on some of that slow moving stock has to do with those branded sales. However, certain ingredients that we managed to develop on the biomass and renewable energy side around the pit and the pomace are doing extremely well. And we hope that as our production and volume continues to grow, we will see that flow-in effect. A similar situation was with the recovery of the oil that was left on the pomace, which is also quite successful business area at the moment. So definitely has been some learnings and some goods and bad things over the past 4, 5 years. But overall, we are still very confident that we will manage to convert this what used to be a cost center or still is a cost center for the company into a profit center over the coming few years. [ David McKenzie ]?

I appreciate the longer term, as I guess you'd appreciate. But my question was Peter has partially asked, that was around the byproducts business, which, as Leandro has clarified, has obviously been disappointing to date. What aspects of that, -- from a strategic point of view what do you now see is the real sort of potential avenues for economic benefit from the byproducts?

It is a very good question, one that we keep analyzing all the time. Certainly, in the current environment, renewable energies and that really is in the form of biomass fundamentally, either through cogeneration or pyrolysis is offering very good returns and opportunities. The recovery of the oil and some of our byproducts directly linked with the oil left in the pomace is also developing quite strongly. Certainly, the international context have helped us now to develop the area quite strongly. It was fundamentally the branded sales of some of those ingredients that has proven to be a lot more difficult than what we initially envisaged. Obviously, it was a very difficult environment, and we had quickly identified that a few years back, and we are seeing sort of kind of like the end of that period of investment in the development that we're sort of correcting towards the year they have shown more profit.

[ Michael Scully ]?

Okay. I was curious, can you tell us something about the market share? You just talked about it a lot, you mentioned that you're #9 in the U.S. What's the position in Australia?

Cobram Estate is the #1 olive oil brand by margin and the #1 extra virgin olive oil brand by a big margin. And Red Island hovers between third and fourth, but it's the #2 Australian extra virgin olive oil brand.

With the new planting that you're doing, I'm just curious, are they all the same trees or you have a variety of trees? And is there any sort of risk aspects associated with monoculture? Kind of what all of the trees get in terms of diseases and so forth, but I assume that some varieties are more disease-resistant than others?

Very good point, Michael. Certainly, all the new planting that we have been doing, particularly over the past 6, 7 years and a bit more in 7, 8 years, we've been consistently capitalizing on the learnings from the introduction of over 25 different varieties back in the late '90s by Rob and Paul and in the early 2000s when I moved to Australia. And part of those learnings were just not only yields in terms of quantity of fruit, quantity of oil, but also the quality of the oil and the ability of the different varieties to tolerate the most common diseases, in particular, and [ our pest -- abilities ] to manage these certain other diseases. And all these new planting have been reflecting a range of this newer varieties or varieties that we know more to make sure that we've got a good mix and that we are certainly [ spraying ] the horticultural risk from that point of view, not only for locations, and that's why there's quite a bit of a balanced distribution between the northern grove at Boundary Bend and the southern grove at Boort, but also of varieties within all those groves with not a single variety having more than 30% of our plantings.

That's really interesting. And you were talking about the size of the olives, and I wondered if there was any connection between -- correlation between the olive size and the oil content. Would larger olives have less oil content, or this one you're going to say we have smaller ones this time around, does that mean we expect lower or similar? Or is there any relationship?

It's difficult to know because part of the size of the fruit, especially in the early stage is strongly related to the pit and the pit has no oil content. So it could be that it could end up developing a relatively small pit and still the flesh development is normal. And again, as I highlighted during the presentation, weather conditions and temperature plays a big role in terms of how easily the trees will accumulate oil in the fruit or will actually make photosynthesis and generate enough sugars to then produce oil during that period. And that is what really, really end up determining the best yields. Usually -- and we have seen it over the past 20 years, it is a bit of a random relationship between fruit size and oil content. Some years, the fruit size was smaller on a back of a high oil -- high production and still was an above-average oil content year, and it sometimes happened the opposite. A larger fruit on an off year and the oil content was average or below average. So it is so weather-linked that, that's why it's actually quite random.

Fair enough. My final question is regarding the dividends. In the old days, if you lost money, you couldn't pay a dividend. I know there's ways out of doing that. But what was the rationale of paying a dividend at this time when you're still losing money and you had raised capital for these capital expenditures?

You might want to comment after this, Rob, but certainly, Michael, in terms of our dividend, we assess the full year profitability. And of course, over that 2-year cycle, given the off and the on-year, I mean we reported a significant 2-year EBITDA at 30 June. And we also assessed the operating cash flow in that and in our ability to pay. We're still investing a reasonable portion of our operating cash flow back into the business, into growth projects and then paying a dividend as well.

Thanks very much, Michael. It looks like there's no more questions. So yes, thank you very, very much, everyone, for attending today and for your interest in Cobram. And thanks to Sam and Leandro and Russell for being online and Sarah, who is running the administration side. So thanks, everyone. Cheers.

Thank you.

Thank you.