Elders Limited (ELD) Earnings Call Transcript & Summary

Thank you for standing by. Welcome to the Elders Limited Full Year '24 Results Investor Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Mark Allison, CEO and Managing Director. Please go ahead.

Thank you very much, and welcome to all for the Elders full year results presentation for the FY '24 year. Thank you for joining Paul and myself for this session today. As you will be aware from our two ASX announcements this morning and our trading halt, we'll approach today's briefing in two distinct parts. Firstly, Paul and I will provide a review of the FY '24 results. We will then present our acquisition opportunity and the strategic alignment and benefits of this for our shareholders, communities and people. And then finally, we'll have an extended period for questions on both areas at the end. So we will move through relatively quickly to ensure that there is time for questions. So starting off with our annual results. From an Elders viewpoint, this is the first full year of our fourth Eight Point Plan and a very difficult and particularly, problematic first quarter of the first year. The Elders' philosophy since the first Eight Point Plan in 2014 has been to control we can control and not to dwell on what we can't control, to have a capital and cost structure to allow us to make good returns in bad years and to make great returns in good years. The FY '24 full year result is an example of acceptable returns in the difficult market and cost conditions, particularly in Q1 as we discussed at the half year results presentation. We use our multiple diversifications by product, service, geography, crop segment, commercial model and channel to market and our financial discipline to deliver consistent and high returns for our stakeholders through the cycles. In summary, we aim to control what we can control. Over the first 6 months of our fourth Eight Point Plan, we experienced an exceptionally difficult first quarter, steady second quarter with improving market conditions across Eastern Australia through the third and fourth quarters. Our view in November last year was that the average conditions in FY '23 were declining in the first quarter of FY '24 across rural products and agency services and would return to average outlook for the remainder of FY '24 and into FY '25. In this context, the performance of Elders with its clear and consistent strategy, multiple diversifications, high financial discipline and hard-working and committed team and the enduring customer anchor we have of being the most trusted brand in Australian agriculture, has delivered a result which is relatively resilient. Results is strong in safety, sustainability and cash flow with the full year outcome approaching the midpoint of EBIT guidance that was provided earlier in the year. Our Eight Point Plan commitment is to provide 5% to 10% growth in EBIT and earnings per share at a minimum of 15% return on capital in a sustainable manner through a safe and inclusive workplace, and we always referred to through the cycles. The outlook remains consistent with our 5% to 8% growth through the cycles through to the end of the Eight Point plan in FY '26, albeit with a difficult year 1 of this 3-year strategy. Moving now to the Delta Agribusiness acquisition. At a high level, this acquisition is fully aligned with the Elders' acquisition rationale that delivered Titan Ag, AIRR and many other bolt-on acquisitions to Elders, with its pre-synergies EPS accretion, and that's always been a critical point, enhancement of our technical and AgTech expertise and offerings, strengthening of our geographical diversification, particularly in New South Wales and Northwest Victoria but also South Australia and Western Australia; building on our crop protection and animal health regulatory package portfolio to drive our backward integration strategy; providing an additional platform for retail segmentation, allowing greater customer centricity, and that's an important point as we will leave the Delta network as it is intact to run as a stand-alone and providing further coverage for our real estate and financial service offerings across the enhanced platform. Our approach for today is that I'll provide more view of the results. Paul will go to the detail of our financial performance, and I will then provide an update on our outlook and growth and transformation initiatives as we deliver our fourth Eight Point Plan over the next 2 years. We will then present the details of the Delta Agribusiness acquisition and equity raising and finally, have an extended question and answer session. And I think given that we're doing two things at once, it's worth noting that we're also going live with our SysMod project today in Murray Bridge in South Australia. So that project, as we'll see through the presentation, is on track and moving along quite nicely. So with that overview, we'll now commence with the FY '24 annual results presentation. And if we look to the agenda, I'll just make a note one slide back on the agenda, if I may. And that is in order to accommodate the extended Delta acquisition slides, we've moved a bunch of slides into the appendix. And we pride ourselves on the transparency and insights we provide in the results presentations. So I just note that in there, we have our business model, the sensitivity slide, capital framework slide, our KPI trends, the geographical diversification slide, the product performance slide, the cost driver slide and also the return on capital input slide. So we're happy to take questions from the Appendix either now or in our one-to-ones as we go through the week. So moving to the executive overview and to the key investment drivers in the next slide. And I think that we've -- Elders over the Eight Point Plan period have been very focused on EPS growth through the cycles. We've used our diversification, multiple diversification to allow us to offset seasonal and commodity impacts. There has been significant room for growth, and we've shown that with some over 80 bolt-on acquisitions and also our major acquisitions with Titan, AIRR and now Delta and there's room to move. I think the transformation initiatives of the business are quite important in context. And the context was that in the first Eight Point Plan, we made a conscious decision to get ourselves up in our feet, strong balance sheet and stable business before we tackle the big transformational issues like systems and other streamlining of the business. Significant pipeline opportunities we'll talk about later, we've still got 12 active bolt-ons in our business development pipeline, and I'm sure there are others as we go through this process and a robust balance sheet. Paul will talk to the FY Q1 implications of -- FY '24 Q1 implications on our ROC and leverage and our pathway back to our targets in the slide. But clearly, a very, very high focus for the business, and the commencement of Q1 FY '25 would indicate that we're returning to an appropriate run rate for the business. Going to the next slide, and it's really just to emphasize the resilience of the base business through seasonal volatility. I think many on the call are aware of the very strong EBIT, EPS growth and ROC performance in the first three Eight Point Plans. As noted in this slide, fourth Eight Point Plan, the first year, tough, as we've talked about, but we've confidence that we can still nail those metrics by the end of the Eight Point Plan period. If we go to the next slide on people and customer highlights. Again, good progress with our lost time injuries are down to 2 from 3 last year. And favorably, we normally -- we have no manual handling injuries -- lost time injuries this year. And that did -- that was filling half of all the injuries prior to various investments and behavior changes that we put in place. So still got some work to do. We've still got 2 of our people being injured in a year with lost time injury. So we've got more work to do to get to 0. On the recordable injuries, a good trend, on the next slide. When we get to it, we'll show the trend there on the recordable injury frequency. But going back to the previous slide, the Net Promoter Score is still positive. I jump to women in senior positions, at 21%, that, again, we've got a long way to go, but it is a long way from 4% in the first Eight Point Plan. And employee engagement, still above high performing standards for Australian businesses. When we look at the safety, health and well-being slide, the next slide, you can see the picture around our lost time injuries remembering in the first Eight Point Plan, we started with 34 lost time injuries for a workforce of almost half the size of the current workforce. So there's been great progress there and the trend line on recordable frequency is pretty clear. On sustainability performance, for the next slide. Again, the flight path or trend line around our climate targets remains positive with lots of authentic and practical initiatives being taken place within the sustainability area. And we've -- the initiatives that we focus on are really the practical one rather than the -- practical ones rather than trying to retrieve your virtue signal. We're really a business that likes to focus in on authentic initiatives. And you'll see that with the centralized waste control, ethical sourcing platform, Big Bag Recovery, the solar and LED lighting upgrades, et cetera. So there's been good progress and our sustainability report has got a number of very, very positive acknowledgments. Okay. Moving to the financial outcome in the next overview, which is the next slide. And the results at $128 million is slightly below the midpoint, as we've said. A head on return on capital and leverage to which Paul will speak with the Q1 result. But we came home strongly across the second half, as we indicated at the half year results presentations. And the cash conversion is strong and the dividend per share maintained at $0.18. So with that, I'll hand over to Paul.

Thanks, Mark, and welcome, everybody. As Mark mentioned, we will focus on the key elements of the FY '24 results to allow time for questions regarding the acquisition of Delta Ag. I'll commence on Slide A12 at the pack which summarizes Elders' first half achievements, notwithstanding challenging seasonal conditions, especially in the first quarter. Elders give a trading update on April 8, noting a forecast underlying EBIT range for FY '24 of between $120 million and $140 million, supported by a return to average seasonal conditions in the second half. Second half unfolded mostly as expected, with stability returning to livestock markets and the 2024 winter crop proceeding as expected, despite a very late start in Western and Southern Australia. Underlying EBIT finished at $128 million, just below the midpoint of guidance. Weaker than forecast retail margins in the third quarter drove most of the delta between the upper end of guidance and the results. I'll now move to Slide A13, which displays Elders' 5-year performance from FY '20. Over this period, sales have increased at a 5-year compound annual growth rate or CAGR of 10.5%, supported by acquisitions and organic growth. Gross margin has increased at a 5-year CAGR of 9.8%, negatively impacted by tough trading conditions in the first quarter, responsible for a large portion of the $43 million EBIT decline from FY '23. Comparatively, costs have increased at a 5-year CAGR of 12.6% but were held well below inflation, excluding additional costs from acquisition and transformation. Moving now to Slide A14, which focuses on shareholder returns over the past 5 years. Over the period, underlying earnings per share decreased from $0.699 in FY '20 to $0.534 in FY '24, materially impacted by market conditions in the first quarter of FY '24. The dividend payout ratio is -- sorry, the dividend payout ratio is currently elevated above Elders' policy of 40% to 60% of underlying NPAT but is considered maintainable when looking through the impact of the first quarter given those conditions no longer prevail. Moving to Slide A15, which contrasts FY '24 against the prior period. Elders has been able to deliver a resilient result with the second half surpassing the prior year period. Highlights include sales revenue, whilst decreased $190 million, down 6%, was offset by volume growth in products sold, negating the impact from lower crop protection input prices compared to prior period, which was most pronounced in the first half. Gross margin increased $18.6 million to $637.6 million, up 3% year-on-year with recent acquisitions and new business outweighing the negative impact of trading conditions in the first half. Underlying EBIT decreased by $42.8 million to $128 million, with most of the Delta attributable to the first quarter. Final dividend of $0.18 per share has been declared, ranked at 70%. Moving to Slide A16, which displays Elders product diversification. Overall, gross margin increased by $18.6 million to $637.6 million. Key themes underpinning gross margin movement include the following: Real Estate Services gross margin increased $23.1 million or 38.8% with property management, residential and broadacre sales all showing significant growth supported by recent acquisitions. Agency gross margin increased $9.4 million or 8.3%, following a strong recovery in livestock prices and the commencement of Elders Wool. Wholesale products increased $4 million or 5.6%, an excellent result given the challenges from Animal Health in the first quarter. Growth in the above products and others were sufficient to outweigh negative impacts across retail products from the impact of lower crop protection prices, low demand for animal health products in the first quarter and some pressure on gross margin percent in the third quarter. Pleasingly, the pressure on gross margin percent did not persist into the fourth quarter or indeed into FY '25 year-to-date. Turning to Slide A17 to discuss costs, which have increased, but mostly due to growth-related initiatives, including acquisitions and new business. The chart below shows that excluding growth-related uplifts, costs have grown $7.9 million or 1.8%, well below the rate of inflation. Elders continues to target below inflation cost growth in FY '25, excluding costs from growth initiatives. Turning now to Slide A18. We see the significant price volatility that has been experienced across crop protection and fertilizer over the past 24 months. Whilst prices were comparatively stable through FY '24, they remain significantly lower than the prior corresponding period. This delta has had a material impact on retail products sales and gross margin in FY '24, most pronounced in the first half. Pleasingly, some of this impact was offset by volume sales growth as well as further progress in Elders' backward integration strategy. Following slides further explores volume growth within the business. The chart top left demonstrates that the volume of products sold continue to grow in FY '24, notwithstanding challenging market conditions. The chart bottom left shows this volume growth added approximately $199 million in sales, partially offsetting the impact of lower crop protection and fertilizer prices on the retail business. Moving now to Slide A20 to take a closer look at sheep and cattle prices in recent times. The charts demonstrate the statistical materiality of price movements in sheep and cattle markets over the past 24 months. Sudden decline in livestock prices through the second half of FY '23 -- of 2023 had a material impact on Elders' first half result. Pleasingly, livestock prices firmed from the second quarter underpinning substantial improvement in Elders' financial performance in the second half. I'll now turn to Slide A21 to discuss return on capital, which is below Elders' target due to the negative impact from the first quarter and the impact of business transformation, where capital deployed receives benefits. Return on capital decreased from 16% to 11.3% in FY '24 and remains below Elders' target of 15%. Key drivers of the decline in FY '24 includes EBIT underperformance in the first quarter, which reduced return on capital by 2.8%. Capital expenditure and depreciation from transformation related initiatives accounted for another 1.4% of this decline. Return on capital is forecast to improve in FY '25, assuming a normalized first quarter and return to average seasonal conditions. Moving now to Slide A22 and cash flow, where we see an operating cash inflow of $82.9 million. The outlook for operating cash flow and cash conversion in F '25 remains favorable with a large quantum of debtors at FY '24 balance date falling due in the first quarter of FY '25. I note also that the fiscal payment of company tax for Elders Limited will not recommence until around February 2026. Over to Slide A23 and working capital where we see an increase in balance date working capital of $42 million, notwithstanding a decrease in average working capital of $58 million. Underneath this result, I note a decrease in inventory of $94 million, offset by an increase in debtors of $157 million, which will be further discussed in the following slides. I'll now move to Slide A24, where we see balance date net debt, excluding AASB 16, increased by $177 million to $437 million. I'll explore that further in the next slide. Importantly, Elders' debt covenants maintain significant headroom. I'll now move to Slide A25, which details the key drivers of increased net debt and leverage. Accounting leverage has been negatively impacted by the reduction in EBITDA and an increase in net debt. Adjusting leverage for a normalized first quarter would reduce it from 3.1 to 2.5x. Breaking down the movement in net debt, we see an increase from acquisition and transformation of $140.9 million pursuant to growth objectives outlined in Elders Eight Point Plan. Project Streamline and the reduction in crop protection prices delivered a working capital improvement of $114.9 million from inventory and payables. This improvement in working capital is expected to persist into FY '25. At balance date, this benefit was more than offset by an increase in debtors due to a later 2024 winter crop, increased demand for seasonal finance and to a lesser extent, an increase in arrears over 90 days, over which there is a high degree of confidence in collection. The majority of these debtors are yet to fall due and expected to be collected over the coming months aligned with winter crops' crop harvest. Assuming a normalized first quarter and average seasonal conditions, Elders expect the accounting leverage to return to approximately 2x by the first half of FY '25. This concludes the financial section of the presentation. I'll now pass back to Mark with respect to strategy and outlook and then the exciting announcement regarding the acquisition of Delta Ag.

Okay. Thanks very much, Paul. So moving on to the Eight Point Plan. The next slide, you can see in terms of our compelling shareholder returns we talked about in the first three Eight Point Plans that we're targeting the 5% to 10% growth in EBIT and EPS through the cycles at above 15% return on capital, and Paul's outlined pathway back with ROC and on the leverage front as we move through the last 2 years of this Eight Point Plan. We've maintained our position as most trusted agri business in Australia. So that's always a very solid anchor. But I really just want to focus on the transform and innovate and grow components. So in terms of transforming the business. So we have had -- many of you will be aware of the multiple projects that we've had in place between Slimline, Streamline and SysMod, and they've been moving along to plan at a very solid rate. On the innovate and growth front, we've also been working very strongly in our business development portfolio with the small bolt-ons. We have reduced our emphasis to an extend over the last few months as we've been developing this bigger acquisition. But our sense is that we will also slightly hold that back as we go into FY '25 as we're bedding down the larger acquisition and also ensuring that we're very prudent with our balance sheet management and our pathway back to our desired targets on those metrics. So if we look at the next slide on the transform SysMod, as we've spoken about, goes live today -- technical go live today at Murray Bridge and has largely been on track, on time, below budget. And we'll -- we announced the quantum of the capital investment as each wave is approved by the Board. And so you see those on this slide with the targeting of 15% return on capital for the benefits case. Now for those of you that are coming to our Investor Day on Thursday in Melbourne at our woolstore. Each of the executives managing the various areas will be delivering the next level of detail around these again across all areas of the business. And that will be put on the ASX -- the presentation will be put on prior to that presentation. But good progress in that respect. If we go to the next slide of strategic priorities: innovate and grow. And if we go to the right-hand growth enablers, larger acquisitions, organic growth, bolt-ons, systems modernization benefits, supply chain optimization, backward integration, financial service expansion, all of those are largely on track. From a bolt-on viewpoint, we did 13 acquisitions in the FY '24 period and annualized EBIT of $14.2 million, and we have 12 off-campus in the current pipeline. So looking forward then in terms of outlook, and really, I think our view, we always take an average view or an average outlook whether it be commodity or market. But the sense is probably the only thing that captures our mind is with the strengthened winter crop and chickpea planning, there may be reduced core summer crop -- dry land summer coming into the tail end of this year. But all in all, the outlook is -- we take an average view, but it's relatively positive for the next 12 months to 2 years. Okay. So with that, we'll leave the slides in the Appendix and we'll move to the Delta slide now, if that's okay. And if we go to the contents, so the -- there's lots of information in this pack, which I'm sure you've all got. We'll focus on the first 4 points and -- sorry, the first 3 points. And then we'll -- after we move through this area, we'll go to an open question-and-answer session. So moving to the executive summary. So has been announced, we've entered into an agreement to buy 100% of Delta shares of $475 million. And I'll just go through each of the headers here, the transaction overview. On the basis of EBIT pre-synergies, it's an 11.1x multiple. For the normalized EBIT is $43 million, with EBITDA at $53 million, as you'll see later in the slide. So post-synergies and we'll talk to synergy detail shortly, that's an 8.7x multiple. And it's also worth noting that there's $42 million of franking credits that comes with the transaction, which -- from a shareholder value point equates to roughly 1 turn of that multiple of the 11.1 multiple. So this multiple is comparative with like transactions. Obviously, it's a small ecosystem. So there's only been a few to benchmark on. But it's pre-synergies is always our requirement for EPS accretion and it is pre-synergies EPS accretion. But when we look at the Delta business, very much rural products, technical advisory services business. So that component of Elders and very, very complementary as we see, as we get to that slide in the pack. And it really has strength where we have weaknesses and vice versa. I mentioned the $53 million EBITDA. In terms of the acquisition rationale, it's fully aligned to all of the core strategy and acquisition principles that we've talked about for the last 10 years in terms of adding diversification, pre-synergies EPS accretive, bringing in particular IP, quality aligned business from values, people, et cetera. And so that has been quite positive, and we've been in discussions for many years as comrades in the industry, but also as colleagues over many years. If we look at the complementary geographical footprint, it's quite nice in that respect with regard to New South Wales, Northwest Victoria and parts of South Australia and Western Australia. So that's nice. And in terms of our track record of being able to make these acquisitions, I think it's pretty clear, when we look at we bought TitanAg at 7x -- at $7 million EBIT, sorry, and it now does just under $50 million EBIT. We bought AIRR doing $18 million to $20 million EBIT and now it does just under $50 million EBIT. So our light touch overarching governance and capital discipline has been a winning formula, and we plan to apply exactly the same principles and approaches to Delta. In terms of the expertise, significantly enhanced expertise, technical expertise, AgTech and precision agriculture, particularly with the people on one side, but also the 38% ownership of Goanna Ag, a platform for backward integration. To this point, Delta is less advanced in its backward integration than Elders. And we see that as a great opportunity with their home brand Four Seasons to continue to progress that in a smooth transitional low pulse rate way and hence, the $12 million synergies that we're talking about over a 3-year period. Retains management expertise through implementing the light touch approach. So in practical terms, this means basically everything stays the same at Delta. There may be a slight uplift in resources on a couple of publicly listed areas, but it's not material. Paul and I go on to the Board, I become Chair. We maintained the executive directors and potentially one nonexecutive director. And we basically carry on as the business has been run historically in a very, very successful way. Going to the next slide. The transaction costs and balance sheet flexibility. So we're talking about $246 million fully underwritten accelerated non-renounceable entitlement offer, $110 million increase in debt, at $190 million shares issued to Delta shareholders, which will create, obviously, shared interest as we go through that 15-month escrow period. The additional $50 million on top of the acquisition capital is really to maintain that flexibility. We've talked about our strong desire to pathway back to the appropriate ratios and leverage and this is part of that. But we also want to have flexibility because we do have pipeline of bolt-on acquisitions that we may need to attend to, depending on how they roll out. In terms of financial impacts, worth noting pre-synergies, mid-digit EPS accretion. That's one of our very important disciplines that we don't make up synergies to make the numbers work. So pre-synergies, EPS accretive. Then when we look at the synergies, double-digit EPS accretive. So a great deal for shareholders, and for, in fact, all stakeholders for this combination of businesses. The synergies we've spoken about, the $12 million is largely around backward integration benefits through the Four Seasons brand. And you'll see later on in the slide pack, the additional IP brought to the Elders Limited Group through regulatory packages in crop protection and in animal health. And then not to mention the AgTech IP that comes along. So in terms of the targeting pro forma return on capital of 15% pro forma balance sheet, net debt to the metrics that we run by. Looking at timing and considerations. So one of the issues that we need to consider quite closely over the last couple of months or a few months has been ACCC approvals where there are branches of both Delta and Elders in towns. I think the key consideration is that I think many of you are aware that it's a highly competitive environment, and particularly when we're talking about the Rural Products area where there's 75% to 80% of products are generic or are off patent and are supplied by multiple suppliers, either direct to farm or through multiple providers, retailers in town. So that we'll await the advice from the ACCC. Our feeling is that it's -- we have a solid case. And we plan by having separate networks to ensure that the focus on our customer centricity remains very, very high as we go through this process. Okay. And the final point is, as I've indicated publicly previously, that my intention is to remain in the role -- in this role through to the -- a period at the end of '26 at a minimum. Okay. So looking at the Delta overview, and I'll just pick the high points there, 68 locations, 40 independent wholesale customers at the right hand side, 450 staff and EBITDA last 12 months of $53 million. So a very strong, positive business and very aligned with its rural products, digital and tech services and a small agency and financial services. So the complementarity of Delta on the next slide to Elders, you can see quite clearly. I mean there really is nice alignment, and Delta is a highly respected brand and Elders is a highly respected brand with our customer base. So this aligns very, very nicely. If you look at the financial performance on the next slide, and it's -- I guess it parallels a little to Elders' journey, although obviously, we had offsets both upside and downside from our agency services, real estate, financial services, feed and processing, which are additional product and service categories in our portfolio. Next slide. You can see the diversification by product and geography. And probably the -- I think the geography one is the important one when we look at the complementary to where -- to Elders where generally Delta is strong where we're weaker. You can see that in New South Wales, in particular. And we have a slide later on comparing the two splits in geography and it comes out quite clearly. Okay. In terms of the leadership team, I think for the next slide, Gerard, Chris and I have known each other for 25 years or so back in the Landmark days and actually would have been before, I think, probably -- at least Jeminex days with various suppliers and a high-quality team, two highly experienced individuals who have been very, very successful in this ecosystem, and I've always had high regard and respect. I think with Matt, I've only got to know Matt recently, though I think we can say that, again, very highly regarded individual. And a great bunch of people, both at leadership and across the whole business to welcome within the Elders' framework. Okay. So if we move to the acquisition rationale, page 16. Yes. So just moving through these, fully aligned to our core strategy and our corporate acquisition principles as you've seen. And very -- we've been talking with the Delta and many others for all of this since the start of the Eight Point Plans, and we just need to wait to alignment. And I think that's where we've got to in today's announcement. Continue our successful track record growing and acquiring businesses, and I've referenced TitanAg and AIRR as two bigger businesses, but there's over 80 other bolt-ons that have joined the group over the Eight Point Plan period. Complementary geographical footprint, and I've mentioned the geographies before where there's good coverage for Delta joining the group in New South Wales, Northwest Victoria, South Australia and Western Australia. Enhanced technical expertise, both in AgTech and regulatory packages. The EPS accretion, pre-synergies EPS accretive, and double-digit EPS accretive post-synergies over a 3-year period, and we're expecting about the $12 million synergies where it comes from. And I think the light touch approach where we have a segmentation at branch retail level, as well as segmentation and product and service level as we do with our branding of crop protection and animal health products and OptiFi products. There's a lot of positive upside where customers and communities will be better off for the listed governance approach and the capital availability for Delta to continue to serve them and the Elders clients will equally be better off through the better buying positions that we can gain through the group. So with that, I'll hand to -- sorry, still going on the consistent with corporate acquisition principles. The -- I think I've probably covered most of these points in terms of the alignment and the diversification and the technical expertise, pre-synergies, EPS accretion and the targeted ROC and leverage. Moving to the complementary geographical footprint, this is the slide I was referring to earlier, where you can see there are nice positions. And I think part of our view on ACCC is that this complementarity will minimize any of those potential issues. Okay. Moving to the technical expertise and offering slide. My point about regulatory packages. So with the combination, there's 478 crop protection products, 140 animal health products, 322 agronomists, consultants across the group, and there's also the Precision Ag specialist that Delta have been significantly stronger in. The next slide on meaningful synergies, and I think everyone is aware that we had a period, 3- to 5-year period of moving from 0 to 70% share of the off-patent products within the Elders portfolio. We've moved this year on a volume basis to 60% of that. And with the idea that at 70%, any multinational companies that have generic products and proprietary products, we can still service their needs in a bundling response to their proprietary set, some of the generics. So that's what we flagged that very openly we've been very transparent on that, and we've been able to move along quite nicely in doing that, both through the TitanAg brand of crop protection products and also the Apparent brand through the AIRR network. Delta has their Four Seasons brand, and so we'll move along in line with that synergy picture of or assessment of $12 million over 3 years, but we'll do it in a way which is respectful of suppliers and also the change management required as we go through increasing amount of backward integrating the product, Delta to a similar level over an extended period of time. Okay. And then on the light touch integration approach. And yes, I think we really want to spend some time, particularly in the external market on this to ensure that the light touch approach that we've talked about, that we've employed for many years, it has financial safety, environmental, sustainability, behavioral, heavy touch. So clearly, that's non-negotiable. Financial transparency with Paul and myself joining the Board from an Elders viewpoint, and overseeing the Board as Chair, but the rest of the running of the business is very much in line with as it's run now in terms of the branch structures, the procurement, et cetera, et cetera. So we don't see a need -- Delta is a very successful business with very good people. And it's not to the benefit of anyone, our shareholders, our people, their people, for us to get in the way of a successful formula. This has worked well with the AIRR, Titan and a bunch of others. And we've also found that at the end of escrow periods or earn-out periods that the management tend to stay. So it's above of 90% of length of stay in a positive and productive environment. So I think that's where we'll leave the presentation on the business. And now I'll ask Paul just to run through the acquisition funding and terms prior to taking questions.

Thank you, Mark. I'll commence on Slide B23 of the pack, which shows the acquisition of Delta will be funded through approximately 60% cash consideration and 40% from new Elders shares issued to current Delta shareholders at the theoretical ex rights price or to calculated at the close of business on November 15, 2024. The cash component will be funded through a combination of equity and debt. The debt component has been secured on a certain funds basis from Elders' existing financial syndicate. An additional $50 million of equity will be raised to provide balance sheet flexibility to pursue additional growth opportunities in the medium term should they arise. Inflation is subject to an ACCC inquiry process with mid-2025 being a reasonable estimate of timing based on the historic norms. I'll move now to Slide B24 to provide an overview of the equity raise, which commences today for institutional investors. Firstly, I note that the offer is fully underwritten by Macquarie Capital, that involves a 1 for 5.05 accelerated non-renounceable issue of new ordinary Elders shares. All shares will be issued at a discount of 7.9% to TERP. They will rank equally with existing Elders shares on issue to be eligible for the final dividend of $0.18 per share for the full year ended 30 September 2024. I note that Elders directors who are eligible have confirmed their intention to participate in the entitlement offer. Moving now to Slide B25 and the equity raising timetable. I note the institutional entitlement offer will run throughout Monday, November 18, 2024, and the retail entitlement offer will open Monday, November 25, 2024, and close on Monday, December 9, 2024. All shares subscribed under the equity raising will be allotted on or before Monday, December 16, 2024, ahead of the revised ex-dividend date of Tuesday, December 17, 2024. With that, Mark, I'll pass back to you for final comments before we proceed to questions.

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

[Operator Instructions] Your first question comes from William Park with Citi.

Firstly, could you please step through what you have seen in the last 1.5 months across your business units? And I think you talked to sort of manage solid momentum emerging out of second half continuing through the first quarter. But just around the ground, what you're seeing across your businesses?

Yes. Thanks, Will. I've described the start of FY '25 as being in line with expectations and the forecast for a normalized first quarter, very similar to how that has played out in the last quarter of FY '24 as well. So a continuation of a recovery in livestock in terms of crop protection. Obviously, we're in the middle of winter crop harvest at the moment. So less activity there. But in terms of other products, wholesale, real estate, yes, continuation of themes from Q4.

And just on the synergies you called out for Delta acquisition of $12 million at the EBITDA level, can you -- and you alluded to on the call that this is mostly to do with backward integration. Can you just step through what sort of -- and I guess this is subject to the completion of the actual acquisition itself, but how come it's across sort of 3 years? And what sort of run rate you would expect in FY '23 -- FY '25, sorry?

Yes. Thanks, Will. The -- I think the -- I mean, with the completion requiring ACCC approval, and any directions that ACCC may have. So we're thinking that the winter crop for FY '25 may not be part of this, which is a bigger volume component for backward integration and the synergies that come from that. And so our thinking was that we need to -- I mean we don't -- we haven't got a sense of where all of the allocation of product fits within Delta with various suppliers, and we need to also be respectful of suppliers but particularly in the first year when all the forecasts, et cetera, would be starting to go to suppliers now for winter crop next year. So I thinking is to take quite a conservative view and to -- just to move through, as we did with Elders, identify off-patent products, identify where we can work with suppliers for -- current suppliers for home branded products, identify where we can use the Titan back end to provide active -- formulated active ingredient into the Four Seasons brand. And there's a bit of work to do behind that. So I think to answer your question, the reason for the phasing is because it will end up being 5 years in the transition from 10% backward integration at Elders to 70%, that will have taken 5 years by the time we get there. And with Delta, where we see a similar sort of managed, methodical low pulse rate process.

And just one last question from me. I know you don't have quantitative sort of guidance out there for FY '25. But just in terms of -- I mean, you alluded to sort of in line with your expectations around normalized first quarter at the moment. But if you look through the entire year, FY '25, I know consensus expectation is around $170 million. In terms of your comfort levels around that and excluding, I guess, the potential uplift from Delta acquisition, are you comfortable with this sort of level? Or what are some of the strength factors that you need to see in your favor between now and the end of the year to get to this sort of level?

Yes. Thanks, Will. So we don't give annual guidance as such. We've got out 5% to 10% growth through the cycles. But it's if I was putting myself into the shoes of an analyst, I'd be saying, okay, well, there's a greater chickpeas planted up north. So therefore, that will dilute the summer crop -- dry land summer crop planning. The -- in terms of offtake of cattle and sheep, I mean you've got all the chance to work that out yourself. In terms of the benefits from SysMod, we've said that there towards the end of this year, streamline benefits that we talked about last year, the capital benefits have come through as we indicated at half year, and we're saying there will be some margin benefits coming through towards the second half of FY '25. In terms of costs, we've talked about streamline and the costs we've taken out of the business. That's in the charts for you to see. And also the pathway back on ROIC and leverage kind of gives you a big indicator. But from our viewpoint, we're assuming average season. And we're seeing, as we normally do, just high financial discipline to get our way through there while we're finishing what we're implementing SysMod across the business. Paul, you may want to add something too?

Just a note, yes, obviously, we're subject to continuous disclosure. So we're looking at current consensus and have made a remark in regards to FY '25.

Next question comes from Richard Barwick with CLSA.

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

Yes. So it's a good question. I think our assessment -- our desire is to have no overlap issues. We've obviously done a lot of work, and we feel comfortable with these submissions, et cetera, that have been put together. But it's not really in our control. And if there are divestments, if there aren't divestments, it's not in our control. And we will leave that to the authority to make their call. I guess from our viewpoint, and from the experience with AIRR and with Ruralco and Landmark, when they came together, I mean, the understanding, particularly the off-patent generic component of inputs and how open it is where a farmer anywhere can have product delivered directly it's not like a consumer issue, it's not like consumer competition issue. It's more of an industrial input equation. But we feel comfortable with the ACCC from their previous experience. I will be aware of the idiosyncrasies of the rural products market. So yes, we're confident the right decisions will be made.

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

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

Okay. Understood. And just one quick clarification. I think you -- I just want to double check. You said AIRR is now contributing just under $50 million of EBIT and Titan also the number you said there was at $43 million of EBIT.

I said between $45 million and $50 million in the interim -- but Paul may comment...

$45 million to $50 million for Titan and just under $50 million for AIRR.

Yes. Just noting, Richard, that it's hard to distinguish between Titan and Elders in terms of time being one of the key suppliers to orders. So just noting the transfer price in that discussion.

Your next question comes from James Ferrier with Wilsons.

Can I ask you about the real estate business, the real estate services business, first of all? I think quite a significant uplift in gross profit there, $23 million. I mean you described it as predominantly driven by the acquisitions. Can you provide some color around the organic or the like-for-like performance across rural, resi and property management, so just excluding the acquisition contribution?

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

Yes, sure. Okay. Second question is on Slide 25, over in relation to Slide 25. I was just looking at the explanation there around the debtors towards the bottom where it describes the increase in debtors partly due to the delayed 2024 winter crop and there's an itemization on that referenced at $127 million. And then there's two other issues that are noted there, increased demand for seasonal finance and an increase in arrears. Can you add some color to those two issues and if you can, quantify them?

Yes, certainly. So by far and away, the largest in there was increased demand for seasonal finance or finance that's aligned where terms are aligned with, in this case, winter crop harvest. So I'd notice between now and the 25th of March is approximately $220 million of seasonal finance or deferred terms that will fall due. So we're seeing more demand for that year-on-year. The second biggest component is just the timing of the winter crop. So we know very, very late starts in WA and SA, and so just different procurement activity, I suppose, comparing FY '23 to FY '24, which culminated in a different quantum of debtors at balance date, is as simple as that. In terms of arrears, we have seen an increase in our 90 days overdue category of about $17 million, so roughly 10% of the uplift is attributable to that, obviously, has been assessed through our impairment process. We don't see any significant problem with that. I'd note that as a percentage of total debtors, it's lower than what it was 5 years ago, but we have seen pockets of delay within the book, particularly at the larger end of town, I'd say.

That's great color. And then lastly, when we're looking at Delta's earnings FY '23 into FY '24, it looks like that business fared a lot better than Elders did in that December '23 quarter where the Elders business had a really difficult period around the season and the demand profile associated with it. So does that suggest that Delta probably doesn't have the same quantum of cyclical earnings recovery in this current quarter we're sitting in? Obviously, you've given some numbers around the Elders' uplift. It's more like a 25%, 30% uplift in EBIT when that first quarter normalizes. So is that information provided today sort of suggesting that Delta doesn't have the same quantum of cyclical earnings recovery?

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

Your next question comes from John Campbell with Jefferies.

Just a couple of questions in relation to the acquisition. Firstly, is the -- is your return to target leverage by FY '25, does that include the $50 million overlays with the Delta acquisition?

Yes, that does include that. Yes.

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

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

Right. Okay. So yes, okay, that's sort of like pro forma, assuming a full year of Delta.

Yes.

Yes. Got it. And just the other question. It seems, and I might be wrong on this, but it seems like you paid around about 7x EBIT post synergies for AIRR and 9x for Delta. Does that reflect the sort of size and market position of Delta vis-a-vis AIRR? Or is there something between the two businesses for that valuation uplift?

No, no, I think you're right. It reflects the size and the geographical coverage, the diversification, et cetera, et cetera. But really, for us, from a shareholder view, we're saying pre-synergy EPS accretion is the answer to the question, not the multiple. But we simplistically use the multiple approach for their bolt-ons, like 3 to 5 and that's to give guidance, but obviously, there's significant EPS secretion with them. But really from a shareholder viewpoint, pre-synergies, it's a good deal.

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

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

Your next question comes from Ben Wedd with Macquarie.

Just the first one on the gross margin side, which you've put on here, which is helpful at the back of the pack, just around the reduction in gross margin in Q3. Looks like that was sort of a larger magnitude to the Q1, which we know was clearly adversely impacted by the seasonal trading there. Could you just sort of step through some of the factors there and why that did not flow through into Q4?

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

Yes. Great. Understand. And then just in terms of the working capital position and thanks for the detail around some of the debtors and the unwind there. I mean the first half typically sees a working capital build, I think that historic leverage is around sort of $75 million. So would you sort of expect that to be less this year considering the sort of increased quantum of debtor reduction?

Yes, yes, I think that's absolutely true, yes. So we will see and we are seeing already inventory starting to build in the early stages for winter crop. But yes, that will be moderated by the debtors as they come in from F '24 or 2024 winter crop.

Okay. So we've got back to back as you do all appreciate. So we might take one more if that's okay.

You've got one question from Evan Karatzas with UBS.

Okay. Just sort of two on the business and two on the acquisition as well. Can I just go back to that Q3 margin decline. My understanding is -- because I just thought you'd said at the 1H that the price decline impacts were sort of more isolated to 1H. So are you saying that the pricing took another leg down in that Q3 period? Is that the way to think about it for those range of products?

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

So can you put a number on that because I mean that should normalize into '25, I'm guessing, right?

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

Okay. That's helpful. And then just the cost base as well, and this obviously had stepped up pretty materially in '24. How are you thinking about that just on like, I guess, an all-in basis as we go into FY '25?

Yes. So I think the trajectory, obviously, we'll see the full year impact of FY '24 run through the cost base. Our focus is [ excluding ] growth and transformation costs. And we do expect that, that will be probably a similar result in terms of performance against CPI. We have recently taken some roles out of the business to underpin or reduce the growth of cost in FY '25.

Okay. So I guess another 2% from a base growth, can you put a number on how much the, like the transformation or the acquisition annualized to cost base, or I don't know, even if it's rough will be...

Cost at the growth level, I might take that offline.

Okay. Fine. All right. Okay. And just one more, if I can. Just with the shares issued to Delta to management. Can you maybe just comment just on, I guess, how deep those shares goes? It's just sort of the executive team or does it go down to the 68-odd branches as well? I guess...

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

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

Sorry, the independents or the wholesale customer...

Yes, yes, wholesale branches.

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

Thank you, everyone. So I might wind up because, as I said, we've got 3 minutes to the next engagement. Thank you, everyone, for coming on board. Pretty resilient results, slightly under the range that we provided. And clearly, with work to do on ROC and leverage with a normalizing Q1 -- FY '25 Q1. So I think we're very mindful of that. Great news on the launch go live for SysMod within the business. And then on the Delta acquisition, a wonderful fit, fully aligned to what we're wanting to achieve and quality business with quality people joining the most trusted brand in agriculture. So we're all pretty excited and optimistic going forward. And we'll look forward to all the one-on-one meetings that we have with many of you around the call now. So thank you very much for coming in.

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