Elders Limited ($ELD)

Thank you for standing by, and welcome to the Elders Limited Half Year '26 Investor teleconference. [Operator Instructions] I would now like to hand the conference over to Mr. Mark Allison, CEO and Managing Director. Please go ahead.

Thank you, and welcome to all to the Elders half year results presentation for the FY '26 financial year. Thank you for joining Paul and myself for the session today. As an overview, the half year results today are solid on a year-to-year basis with EBIT up 33%, strong cash conversion, transformation and integration projects on track and positive progress on leverage on our ROC as we move to the end of the year. Now throughout the half year, Elders has demonstrated solid operational and financial resilience in the face of improved, although mixed seasonal conditions. Our diversified portfolio through its national geographical footprint, and multi-product and service offering played a key role in mitigating the dry conditions across some key agricultural regions and the increased competitive activity in our retail business. Stronger activity in livestock and real estate and high financial discipline also supported the solid result. On the transformational projects front, we have also made good progress on the final project components with Wave 3 and 4 of our SysMod project with a targeted completion on track, advancing to the end of this calendar year in full on time. Focusing now on the areas out of our control for the first half of this year, we've been dealing with the fertilizer fuel and crop protection supply chain disruptions implications of the Iran conflict. These risks have been largely mitigated with credit to our highly diversified business model, they were also offset by agency, real estate and financial services businesses. In this context, the performance of Elders with its clear and consistent strategy, multiple diversifications, high financial discipline and hard-working and committed team and our enduring customer anchor has unprompted the most trusted brand in Australian agriculture has remained strong. The result is strong in safety, sustainability and cash flow with a full year outlook remaining positive. Moving now to the Delta Agribusiness integration. This has been a relatively smooth transition to Elders ownership over the first 5 months of ownership. The fast track synergy target of $8 million is on track with the largest component being realized in the second half of FY '26. The divestment of Killara feedlot is likely to complete in [ June to July ], with all funds being applied to debt reduction with the expected improvement in leverage and ROC coming through by year-end. Moving on to the FY '26 outlook. We are very optimistic on a broad outlook for Australian agriculture at a seasonal and commodity level with the return to average conditions. In addition, we welcome Delta Agribusiness to our portfolio as a platform for significant growth against this market backdrop. The outlook and fundamentals for livestock remain sound with prices for sheep and cattle forecast to be supported by strong international demand across a backdrop of tightening supply. The combination of positive seasonal and commodity outlook also provides a great backdrop for continued growth in our real estate and financial services businesses. So our approach for today is that I'll provide an overview of the results. Paul will go into the detail of our financial performance and then I'll provide an update on our outlook and growth and transformational initiatives as we deliver the final six months of our fourth Eight Point plan. With that overview, we'll now commence with the FY '26 half year results presentation. So if we go to the Slide 1, which is driving improvements on our safety performance Slide 5 and [indiscernible] as you can see, as we've done for -- from the beginning of the Eight Point Plan process, a very strong performance in terms of one lost time injury by half year, and we're continually running down of our total recordable injury frequency rate. Now when we put this in context, the first Eight Point Plan, we had 34 lost time injuries. We now have one, the first 8-point plan. We had some 1,500 employees. We've now got over 3,000. So it's a great result and well below all industry benchmarks. Our safety -- the business' view towards safety as expressed each year in our employee survey where it's seen as the #1 issue of the business, keeping our people safe. Moving to the next slide. And we look at our underlying EBIT performance, and Paul will run through what's in and what's out because of the Delta and Killara inclusions in the reporting. So on an apples for apples, 33% up against last year at an EBIT level. So very, very solid performance, including Delta for 5 months although Delta went well heavily weighed into the second half. I think it's worth noting the positive cash conversion result as well. And again, we'll go to the detail of that. But I think when we look at the return on capital, a couple of considerations that again, we explained in detail in the slide towards the end is that the number on return on capital includes full year of Delta Capital and 85 months of results in which this slide will explain in detail in Slide 18, later in the pack. And then the dividend offering of $0.18 per share. When we go to the next slide, and this is really referencing all of the Eight Point Plans. And as you can see for the first 3 Eight Point Plans, we've been over this territory before. Our commitment of 5% to 10% growth through the cycles at EBIT and EPS level. We've delivered for the first 3 Eight Point plans. And then we -- in the fourth Eight Point Plan, we've first set about a major transformational projects that we're coming towards the end of this year. And by the end of this year, we will have our transformational projects largely done and dusted in full on time and then with the benefits flowing forward. So I think looking at the results, we've been able to continue to grow through multiple seasonal and commodity cycles and also in the fourth Eight Point Plan, reinvest in the business, big time in terms of the transformational projects. Again, we'll talk more about this as we go through the presentation. Moving to the next slide. As we've moved to a divisional structure at October 1. And this -- the purpose of the divisional structure was to really focus each of the divisional CEOs on the business that each business has a particular and unique idiosyncrasy in terms of its strategy and the components [indiscernible] capabilities of the business. So that move from October 1 has been very, very positive. You can see feed and processing still appearing in this slide with the [indiscernible] from Killara, and this will come out for the next series of plans within Elders. I think it's also worth noting that each of the divisions runs as an independent division with shared corporate services at a number of functional levels. We want to continue to run with this model with functional excellence at a head office level, but with the divisions basically running their own show. We've talked about a lot with regard to how [ air ] and Delta have been run. They all have divisional boards on the chair, Paul's on each of the divisional boards with me. And we really -- all the functional excellence is done through head office and running the business in line with our customer centricity is done in the divisions. We have put a project across the whole of Elders that we're looking at the span of control, job role clarity, and we want to drive efficiencies in that manner. And initially, this will be largely focused in the ERS, but this project is in place and to drive efficiencies and to remove duplication from within the divisions. Moving over to the next slide. With the 12-month delay of the completion of Delta. We had a target of over 3 years to achieve $12 million of synergies, and we fast track that to endeavor to achieve $8 million in year 1. And so we're largely on track for that delta in the first half, although it is worth noting that the majority of the benefits come through in the second half, given that Delta is a roughly 30-70 split probably even more so this year because of the 5 months of operating in the first half. So we're moving along [indiscernible] with those. As we've indicated in the pitch document when we acquired Delta, the majority of these synergies are coming through backward integration and finding or linking up supply chains that we currently have that had greater margin for the off-patent products [indiscernible] Delta [indiscernible]. Okay. With that, I'll now hand over to Paul, and he'll run to the detail on the financial side.

Well, thanks, Mark, and welcome, everybody, today. I'll comment on Slide 11 of the pack, which summarizes the basis of preparation for this first half results, noting temporary impacts to financial metrics from the prospective sale of Killara Feedlot and the acquisition of Delta AG, which is yet to contribute 12 months of earnings. The divestment of shares in Killara remains subject to regulatory approvals that is expected to complete in the second half. Under accounting standards, Killara Feedlot is treated as an asset held for sale and feed and processing as a discontinued operations. Consequently, Killara's earnings and working capital have been treated as non-underlying with adjustments made to both current and prior years for comparability. The acquisition of shares in Delta Ag occurred in November 2025 with the business contributing 5 months of earnings in the first half noting annual Delta earnings are seasonally weighted to the second half. Consequently, financial ratios will benefit in the second half as [ earning some Delta ] better align with working capital and acquisition debt and equity. The table below sets out these temporary impacts in the interest of transparency and comparability. I'll now move to Slide 12 to discuss highlights in what has been a very productive first half for Elders. Highlights include underlying EBIT of $76.6 million, up 33%, driven by solid growth across most divisions and products. Delta AG has been welcomed to the group, improving Elder's geographic diversification with significant progress managed on delivering year one synergies, execution of the sale agreement for the Killara Feedlot, the implementation of a divisional model to improve accountability, focus and efficiency, progress made on our strategy to transition Elder's balance sheet lending to third-party vendors and significant progress achieved on systems modernization, noting a new ERS lifestyle system went live in April with the rollout to conclude over the coming months. I'll now turn to Slide 13, which displays Elder's financial performance in this fourth Eight Point Plan period. I'll note the following progress from our baseline year of [ FY '23 ]. Sales revenue increased by $240 million at a compound annual growth rate or CAGR of 5%, supported by both acquisition and organic growth. Gross margin increased $99 million at a CAGR of 10%. Comparatively, costs increased $101 million noting this period coincides with the transformation of Elders systems, adding temporary cost and complexity to the business. Consequently, underlying EBIT has been flat over the period, noting SysMod is now in its fourth and final wave. Moving to Slide 14, which contrasts the half against prior period. Looking at the numbers, we see a strong first half performance with the following highlights. Sales revenue increased $426.4 million, up 32% taking advantage of improved seasonal conditions in southern states and 5 months of Delta Ag sales supporting growth. Gross margin increased $83.1 million to $396.6 million, up 27% with broad growth across products and divisions. Underlying EBIT increased $19 million to $76.6 million, up 33%, supported by meaningful growth in Crop Protection, Elders Rural Services and Delta Ag. Operating cash flow was positive $67 million with cash conversion of 176.6%, a strong result given the winter crop working capital build. As discussed on Slide 11, return on capital leverage, net debt and earnings per share were all impacted by the classification of Killara as non-underlying and Delta Ag, which is yet to contribute 12 months of earnings. These metrics will be further discussed as we move through the pack. Moving to Slide 15, which displays financial performance by division. As noted, underlying EBIT increased $19 million to $76.6 million, with solid growth across Elders Crop Protection of $8.1 million, and Elders Rural Services up $18.5 million, with Delta Ag contributing $10.4 million in the first 5 months. Key points to note includes Elder Rural Services delivered a strong half taking advantage of improved seasonal conditions in southern states, which resulted in growth across all products. Elders Crop Protection benefited from the new tolling facility AgriToll alongside a new internal trading agreement with [ rebased ] earnings with Elder Rural Services at AIRR. This is a one-off change implemented with the divisional model to better reflect arm's-length trading. The increase in corporate costs is driven mostly by IT with Elders Rural Services businesses operating for a period across both the AS400 and D365 in parallel with peak activity for the project. Costs will be further discussed in this presentation. Moving to Slide 16, which displays Elders gross margin, diversification across product, geography and channel to market, a key defense against seasonal variability [ when these ] horizons. In the half, gross margin increased $83.1 million to $396.6 million with growth across all divisions and products. The key drivers of this result includes Delta Ag, which contributed gross margin of $45.8 million for the first 5 months of ownership. It should be noted that earnings from Delta Ag can be weighted up to 75% to the second half, in line with winter crop activity. Elders Crop Protection gross margin increased $10.4 million or 53.6% primarily from the commencement of AgriToll formulation facility in Rockingham and challenges to the internal trading agreements as discussed. The [indiscernible] Agency Services gross margin increased $11.2 million or 14.3%, following a strong recovery in sheep and cattle prices outweighing volume declines. Sheep volumes declined 25% with a reduction in numbers from South Australia and Victoria to recovering from recent dry conditions. The outlook for Agency Services as Mark noted, remains positive, driven by strong international demand for protein. Fertilizer gross margin increased $1.5 million or 8.1%, supported by earlier demand and rising prices because of supply constraints resulting from conflicts in the Middle East. The outlook for fertilizer price and growing demand remains uncertain for the second half, largely dependent on international events. Real Estate Services gross margin increased $4.5 million or 8.3%, driven by property management and residential growth primarily. Broadacre delivered a flat result against prior periods, commercial property is slightly negative, both [ basing ] material transactions in the prior period. I note the pipeline of pending settlements remains comparatively high against prior periods. Then it shows improvement in the second quarter and culminating in record [ conference ] sales in February. Growth in the above products significantly outweighs a negative impact from lower cotton and rice plants in the Murray-Darling Basin due to higher water prices. Turning to Slide 19 to discuss underlying cost growth, which increased $12 million or 4.7% when adjusted for acquisitions and the impact of transformation. As noted previously, FY '26 is the time of peak activity for our system transformation project with 6 deliverables progressing in parallel in the first half. Pleasingly, by the end of this quarter, four of those will be complete, reducing complexity and backfill resource in the business. I note maintaining cost growth below inflation in FY '26 remains a priority for the second half, supported by the completion of core elements of the SysMod program. I'll now move to Slide 18 to discuss the return on capital, which was steady on FY '25 when normalized to the impacts from transformation and acquisitions. The chart demonstrates that normalized return on capital is approximately 12%, down 0.3% from FY '25. Increasing return on capital remains a core priority through our renewed focus on capital allocation, the continued reduction of balance sheet lending and delivery of SysMod benefits and Delta Ag synergies. Over to Slide 19 and working capital, where we see an increase of $147 million, mostly driven by the inclusion of Delta Ag working capital and the impact of higher livestock prices on agency net working capital. Working capital is forecast to reduce in the second half driven by a decrease in balance sheet lending and seasonal reductions in inventory and debtors. Over now to Slide 20 and cash flow, where we see an operating cash inflow of $67 million, a pleasing result considering the seasonal working capital build for winter crops but acknowledging the one-off benefit from the removal of Killara inventory. The outlook for operating cash flow and cash conversion in FY '26 was positive with additional receivables being transitioned to third-party lenders, [indiscernible] balance sheet, considerable progress has been achieved to date with third-party limits now exceeding $75 million and balances drawn totaling $35 million. I note that the physical payment of company tax for Elders Limited is expected to recommence from June 2026. I'll now move to Slide 21 to provide a detailed update on net debt and leverage. The waterfall charts provide a normalized view of net debt leverage following completion of the Killara sale, given earnings from Killara are treated as not underlying. Breaking down the movement in net debt on a post-Killara completion basis, net debt decreases to $425.8 million with further reductions to occur in the second half from the increase in third-party client lending and the seasonal working capital reduction post winter crop. Excluding receivables, funded through debt securitization Elder's normalized core debt is $210 million. Turning to leverage and adjusted for Killara completion, we see normalized leverage at 2.6x, with underlying reduction -- with additional reduction to occur in the second half it's rolling 12 months EBITDA progressively incorporates new [ holders ] from Delta Ag. A return to our target range of 1.5 to 2x is forecast in FY '26. I'll now move to Slide 22, where we see significant headroom across banking covenants, noting that leverage and interest cover will benefit in the second half from the completion of the Killara sale, second half deal for earnings. This concludes the financial section of the presentation. I'll pass back to Mark, who will provide an update on strategy and outlook.

Okay. Thanks, Paul. And this slide commenced the strategy and outlook section, I'd like to provide a brief summary of our operating environment. So Australian agriculture in the next 6 to 12 months from a positive position of relevant strength while volatility remains across global geopolitics, whether in commodity markets, the sector continues to benefit from strong global food demand, tight global protein supply, improving export market diversification and Australia's reputation as a trusted supplier of premium food and fiber to the world. We look at the macro outlook, Australia Agriculture production remains historically strong despite moderation from record peaks. Global food security concerns continue to underpin long-term demand for reliable exporters such as Australia. Australia's diversified export exposure provides resilience against geopolitical disruptions. Look at beef and lifestyle. Global beef supply remains constrained into [indiscernible] liquidation and lower cattle numbers globally [indiscernible] exports continue to experience strong demand from the U.S., Japan, South Korean emerging Asian markets. [ Land ] markets remain relatively strong and supported by demand from the Middle East, Europe and North America. Our [indiscernible] is gradually improving with [indiscernible] Chinese demand and reduced global supply. From a cropping outlook, [indiscernible] makes one of the world's most efficient grain exporters, operational capability and economic sophistication continue to be -- support our competitive position globally. Canada -- sorry, canola, pulses and selected grain markets to make [indiscernible] later in the year as global inventories tightened as well. Looking at global fertilizer supply. Global fertilizer markets have stabilized significantly since the strong volatility following the beginning of the Russian-Ukraine conflict, to today, [indiscernible] fertilizer supply has improved its global gas price in moderating production [indiscernible] the phosphate and potash markets remain relatively balanced, although geopolitical risk continue to be present as we're all quite aware. [indiscernible] is expected the benefit from improved. Fertilizer availability and more predictable pricing over the next 6 to 12 months. Any major exclamation in the Iran conflict would radically impact [indiscernible] fertilizer pricing as we're very aware. When we look at Crop Protection, the Global Crop Protection supply chains, Crop Protection Supply chains have improved materially compared with disruptions over the last 3 to 4 years. Manufacturing capacity in China is largely normalized improving availability of key herbicides, fungicides and insects. Freight costs and logistics had stabilized and are now being impacted by knock-on effects of the Iran conflict. Genetic [indiscernible] products continue to place downward pressure on pricing in many categories and Australian Agribusiness with strong supply chain management capabilities such as Elders are well positioned to secure supply and to be able to maintain margins. And then finally, from a structural viewpoint for Australian Agriculture, we continue to benefit from strong buyers, security systems, sophisticated supply chains and advanced farm management capability. Technology adoption, AI precision agriculture in digital systems is steadily improving productivity and input efficiency. And it's one of the areas of the Australian economy where there have been productivity gains. So I think in the face of seasonal and geopolitical volatility, the outlook given average seasons for Australian agriculture remains quite positive and from an Elders viewpoint, as we move into this period with the completion of the fourth Eight Point Plan and the completion of our large transformational projects, we're seeing Elders is very well set to take advantage of these in more of a steady-state business as we go forward over the next few years. So moving to Slide 24. And this is the fourth Eight Point plan to be in September this year. The 3 key strategic priorities of run, transform, innovate and grow. And I think in the final year of this Eight Point plan, we'll be able to move more to run, innovate, grow and getting the benefits of the business cases from our transformational projects. Moving to Slide 25, just to showcase the strength of management leading the divisions of Elders with each of the divisional CEOs, some highly experienced, high capability and a deep knowledge of the industry and the businesses they're running. So this move to the divisional structure has added significantly greater focus, and we'll see the benefits again come out in the second half of FY '26 and going forward. Moving to Slide 26, which is the final way just outlining details of the final wave of our SysMod project. And as you can see, with Wave 3 and Wave 4 on the way now with a view that we'll be completing this project by calendar year '26. And the benefits that we see for this project from '26 so coming through in the second half of '26 being across the business case in the 15% category in terms of return on the investments. So it's been a long haul with the multiple transformational projects, but particularly with SysMod, and we really do feel by the completion in full on time by calendar year we'll then be set up with a sound platform for -- to extract the benefits of -- the business case benefits and other benefits throughout the business. Moving to the next slide, the growth driven by margin and cost and capital efficiency. So if we started FY '26 and the first item, SysMod's modernization I have spoken to, the benefits and synergies from Delta Agribusiness. We've also spoken to with those being lastly on track in fast tracking the first year of that. Divisional and regional alignment is [ 0.3 ]. Again, we've spoken to. In terms of our accretive acquisitions, although the pipeline for our business development activities is relatively solid, we are being quite discerning in the businesses that we're looking at for bolt-on acquisitions, focusing largely into real estate and financial services, in particular broking businesses and also being very mindful of our capital allocation to ensure that we're getting the highest or optimizing returns for our shareholders. And the final point, focusing more on the finance brokering model, which has been growing very strongly and is high return on capital. So we really do see ourselves set up to [indiscernible] period of finishing the transformational projects and moving into a relatively positive average to positive market outlook scenario over a few years and spending the time and extracting the benefits, the efficiencies and the growth from the Elders business. Moving to Slide 28. And really just reiterating my comments of being well positioned as we move into a potential goal in period with the internal projects being locked down. The business is set in place with outstanding management and average to good market conditions. So with that, I'll end the presentation, and we can go to questions.

[Operator Instructions] Your first question comes from Ollie Ridge with Citi.

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

Yes. So just the background, Elders' sales lines are predominantly back to back. So [indiscernible] hold significant risk in terms of inventory. There is some [indiscernible] that outside of that point we're not at risk. So I think in terms of your question, I'd just say that the outlook is a bit uncertain in terms of fertilizer, not so much from a supply perspective, although that is relevant but more so from an affordability perspective in terms of how much growers will choose to apply. But I would note that the window for application for sidedress and topdress is quite long in terms of the winter crop. So -- and there's a fair bit of time to play out here, but just an uncertain landscape.

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

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

Yes. I think it's business as usual for us for crop protection. Obviously, we seek to hold inventory for us less time as possible, and that doesn't really change. We have seen sort of an incremental increase in prices in recent months, which is obviously supportive to the current inventory position, but we seek to turn the inventory as fast as we can. I think what we are also saying is that the -- out of China, there's ample capacity in the manufacturing facilities from an active ingredient [indiscernible] so supply chain implications for the Chinese manufacturers runs to the oil knock on effect from the Middle East war, and that will be reflected in resin prices, which will be reflected in [ from ] and packaging prices. It will also be reflected in solvent prices and potentially surfactant prices. So our thinking is that the core cost of active ingredient of formulation, it may be slightly higher with energy costs, but the bigger impacts will be those components. And that may come through as cost of goods increases, as Paul has indicated for the second half of this the FY '26 financial year. I think the key for us, given that we're invested in backward integration where we hold the capital of the crop protection inventory stock, the key for us is to pick the point where it will reduce again. One of the interesting insights that we've got out of the global crop [indiscernible] in Shanghai a month ago was that they believe a stopping of the Iran conflict with that, there will be a 6- to 8-week recovery period in crop protection supply chains. So it's relatively quick. And we'll just need to ensure that we're very nimble and clear towards the end of that period where prices might come off again.

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

So the IT expense was your -- is that your question, yes. So certainly, yes, there will be periods of relief within the projects. So the first step is to get the [ RS ], livestock and retail businesses operating on a single platform. And [indiscernible] they were very close to that. So that will occur in this quarter sort of around June 30. In terms of the next significant stage when we fully get off the AS400 that will occur in early 2027. So there's certainly a light at the end of the tunnel in terms of the cost on the business, which comes to both the projects, but also the complexity of running the business and backfill resellers. So we're making very good progress in terms of delivering that as quickly as possible.

The next question comes from James Ferrier with Canaccord Genuity.

Can I firstly asked you about Slide 17 and a bit more color on what's in that $13.5 million of transformation costs given at the 6-month number and I think FY '25, the equivalent number for the full year was $4 million. So it's stepped up significantly. So the first question, you gave some extra color on what's in that number and how long it repeats for, et cetera?

Yes. I think it's best explained, James, and thanks for the question around the number of ways or deliverables in [indiscernible] point. So where we're at in the project, we're still -- there's ongoing work in regards to Wave 2. Even though we've been operating on Wave 2 now with parts of the business since November '24. We're still delivering additional functionality for Wave 2 and recently in April, migrated BMW rural onto the retail platform and we've still got [indiscernible] to appear in June. So there's ongoing spend there. We've just gone live with Wave 3 livestock. So that's an addition on a separate set of resource that's delivering that. And we're just in the throes of completing detailed design for Wave 4 ancillary to that, we've got the [indiscernible] integration at the same time and also in the back-end real estate settlements project as well. So it was just the confluence of the amount of work in the project at this point in time in order for us to get off the AS400s in early 2027. So in terms of your question, when does the cost start to roll off, is incrementally as these things are delivered and the spending ceases and there's 4 deliverables that we'll complete in the next quarter. So we're -- hence, the light of the end of the tunnel comment.

Okay. So that $13.5 million just the way you've answered the question, it's pretty much all SysMod related costs?

Yes.

Okay. I'm just confused of the note, sort of talked about brokerage models and every toll and performance incentives and FX losses. So thanks for clarifying that. Maybe stepping back and looking at sort of the right-hand end of that chart, $320 million of costs for the first half, is that a good proxy for the second half punt a little bit of base growth? Or is some of those lines like the transformation projects that are going to go up or down materially?

Yes. What I'd say, it's a reasonable approximation, although noting Mark's comment around review within the business as well. But in terms of -- there will be some cost relief, as noted at the end of the next quarter from SysMod but more meaningful from a SysMod perspective when we get off the AS400 in early 2027.

Yes. Okay. And then last question, and it's probably still a SysMod question really. To date, it feels like the business has been quite good at articulating planned spend in relation to non-underlying OpEx and CapEx. And you put the slide further in the deck that sort of shows those numbers, it's all sort of tracking to plan, generally speaking, then you've got this portion of SysMod spend that's running through underlying costs. I'm trying to reconcile where all those numbers are going with the consistent view it's been expressed and reiterated again today that Wave 2 will generate its first full year of benefits in FY '26. And we sort of -- obviously we're more than 6 months in now. So is that still the case you're expecting a full benefit in '26 from Wave 2 with that 15% plus return on capital hurdle?

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

I think, James, the other cost transition management that we're applying ourselves to, given that there are a lot of contractors in this team, as you can imagine, and particularly in Adelaide, there's significant competition with other major IT projects for these specialties. But we're trying to be very careful on the exit period for being contracted in the project because [indiscernible] it may be best to overrun by 3 months to keep them on because once their contract starts to come to an end, they'll be looking for another role, and that may slow the project. So it's a very fine line. And Paul and I have been -- and [indiscernible] especially who runs the project been watching it like a hawk to ensure that we have the competency to complete the project, but we don't have an overhang then of costs running on the other end of the project in order to keep them on the project. You might add to that [indiscernible] So it's a very fine line.

If it is a fine line. The other thing I'd note, James, Wave 2 is a great example of this that -- from an accounting perspective, once you go live, you really stopped that capitalizing on the asset. The asset is created, but the spend doesn't stop immediately. As discussed preciously, we plan to and we're still delivering additional functionality to support benefits capture, but that's not been capitalized. So there's that dynamic as well, but it's all temporary in terms of the project and how it rolls out.

Your next question comes from Barwick with CLSA.

Perhaps a little bit more micro, just noticing on real estate, in particular, a pretty strong GP growth up 8%, and then EBIT was flat. So obviously, the cost growth sort of evaporated any of the earnings growth potential. Is there anything explicit going on there that you need to call out?

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

Okay. And just a more general -- or much more general comment. How would you describe the morale of the team as it sits now. So you've got obviously -- Mark, you're set to leave relatively soon. You obviously got the new CEO coming in, there's a lot of change going on within the business, et cetera. Can you give some general comments about how you see, I guess, the senior management team and how they're thinking and feeling about things?

Yes. I think a good question. The -- if we go -- I think across the board, we are 33% up by half, we've got the big projects, transformational process coming to an end, and the outlook is relatively positive. So I think as we go beyond this 4 Eight Point Plan, things are pretty much lined up as a platform for the growth but different growth not [indiscernible] acquisition or backward integration driven growth, more efficiency and gaining benefits from the investments sort of growth [ assemble ] self-help business as usual growth. In terms of the team, I think if you look at the -- if we start with the real estate business, I think [ Tom Russo ] has his team quite [indiscernible]. I think they've grown very well, the focus of real estate, and we had a real estate quarterly board last week, and it's very positive, big pipeline of projects. You sort of jump back -- job that we've got, which is a big -- another big project. So I'd say for them, it's been a focused real estate business and not within ERS is quite positive. If we then go to Delta, I think you'd expect the normal transitional bucks and bruises with founder-based private business going into a listed corporation. We had the Board [indiscernible] head office a couple of months ago, again, very, very positive and really for Delta they just want to deliver in all the branches that we visited and certainly in the quarterly board meeting, we got a Delta Quality Board in 2 weeks' time. it's relatively positive. And we really just wanted to deliver the growth because for them, lower impacted significantly with the seasonal impact to last year and the grain synergies. If you go to ERS, it's probably a refreshed ERS with [indiscernible] running that. I'm sorry, without speaking Delta. Of course, I'm referencing [indiscernible] definitely works very, very closely in leading that business. But with ERS, there's a rework the ERS strategy. Again, I don't think I've seen the ERS leadership team more faces than positive. They had their leadership meeting in Adelaide last week, and we also had the ERS quarterly Board. So lots of issues to work through. The biggest upside in Elders are through ERS, and that's where this project [indiscernible] project is going to have the major impact, but pretty positive. And then that crossed to [indiscernible], who's new CEO since October 1, his board and [ breaded ] the business and really they had record attendance at their national member's convention in February. And as said the second half as strong as well. And then back to old crop protection. A bit more interaction to do there. We've got two formulation businesses, Eureka and AgriToll on the side of Titan. But again, the issue is we're dealing with there is the transition of the founders and they'll be moving out to the end of September. But we've -- and you see that in the cost where we've had a doubled cost base in terms of the leadership for the first half of this year, but relatively positive. In terms of Rene coming across as CEO, we've had meetings with the Executive Committee and Rene already even though he's not in role. And Wednesday, I'll be catching up with them again, like we're making sure that we provide as much backdrop Rene coming into the business. And of course, I'm in the business of February next year [indiscernible]. So I'm not sure if that answers your question directly. But there's not a lot of jumpiness in this [indiscernible] that I see since -- Paul, if you might be able to add?

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

Your next question comes from Jonathan Snape with Bell Potter.

So where to start? look, I think the market and everyone is obviously looking for some guidance to your costs and new stocks down 22%, as you sit here and a lot of it seems to be by corporate overheads that have jumped [indiscernible] year-on-year. I think what people are looking for here and what they're kind of circling around and you're circling around is where is that cost going [ live ] for the full year because you're talking about some dual running costs but not giving us any idea on what the size or make up of that is because you position second half would be higher because of the way you accumulate incentive. So are you able to give us some clarity on where your corporate overheads are going to land for the year because they look quite -- they're out of control? And then how much of this stuff is nonrecurring versus where it's going to be versus recurring? Because at the moment, everyone is just going to double that number and knock $20 million off your EBIT as [ a set ]. And I think people pressed us to getting reasons to why they shouldn't do that.

Yes. Understood, Jon. And I'd refer you to Slide 17. So our view of base cost growth is that it's increased by 4.7%. So your question around how much continues into perpetuity. That's our estimate of that. And just noting just how much is going on in the business in regards to the project and our intent to finish the project as soon as possible. So I think the other option, Mark, is that we have lower costs that this guide is on for longer and it takes longer to limit the benefit. So that's the approach that we've taken. We are absolutely focused on finishing this mostly this year with a go live early in 2027. And so [indiscernible] in terms of the base cost growth in the business is 4.7% against inflation of 3.4%.

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

Yes. So we've got the 13.5% or transformational projects. The reality -- so that the busyness of the project continues certainly through this quarter. and then start to taper off in Q4. So we'll see some relief in the financial year from the overlapping ways of the project and then more relief in 2027. But yes, as I note, our intent is to finish the project as soon as possible. That involves a temporary uplift in costs associated with the project $13.5 million on Slide 17.

Okay. And look, [indiscernible] two other questions. One on buy stock in the volumes, particularly in Cattle went backwards in a market where it was kind of up if I look at turnoff, sheep, you were kind of down more than what the turnoff numbers were down. It kind of implies that there's a market share loss in that business. Is that what you're seeing at your end? Or is there something else moving in there from the outside we can't see?

Yes. I think that's -- I think your [indiscernible] is correct. So we had a couple -- I think 3 branch walk out in these key livestock areas. We've also had lost some operatives [indiscernible] in Queensland prior to going to the divisional structure. And so we're in the process of rebuilding that. But your information is right, Jon.

Okay. And just lastly on Delta. If I look at it, I think you said your 5 months contribution it's probably not many but let's assume it is. It seems like you're still running and that the baseline is still at about $40 million, $45 million based on the splits you kind of talking. Is that kind of the way to think about it. Is it still kind of the base business case, it was a couple of years ago?

Yes. That's fine.

Your next question comes from Wedd with Macquarie.

Just looking at one of the comments you made, Mark, around sort of increased competition in retail there due to some dry conditions. Could you sort of [indiscernible] give us a little bit more color, having also noted crop protection in GP to increase versus PCP there.

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

And then just another one on Delta there as well. So full year guide for $8 million of synergies retained there. Can you give us an idea of what sort of was delivered in the first half, if any? Or is [indiscernible]?

Yes. So I think -- so the majority is just crop protection backward integration with their [indiscernible] brand, as you're aware. And the first half would have been products that have been sold through and [ therefore the network ] as opposed to the bulk of their product being second half. So largely, crop protection, there have been some other benefits. We've got some other supply chain benefits around pallets and around some other costs, but it's slightly in crop protection, and they will wash out in the second half.

Got it. And then just one there for you, Paul, just depreciation first half sort of looked like it was down a little bit versus the PCP. Any comments there sort of in context of the SysMod program sort of being delivering [ margins ] on the balance sheet?

Yes. I'll come back offline on that, Ben. I'm not sure what's driving that decrease [indiscernible] counter-intuitive.

Your next question comes from William Park with UBS.

Firstly, can I just ask about, I guess, what you're hearing from your end customers, particularly in regions where you've seen some sort of dryness emerge. Obviously, across the media, there's some chatter around sort of [indiscernible] and dryness persevering, particularly in new surplus and Southeast Queensland. I'm just wondering how you're thinking about that? Obviously, we've seen the impact of dryness last year across South Australia and Western Victoria, but just wondering if you've seen any sort of headwinds emerge out of that or would be if it's too early and some comments around, I guess, the -- I think you touched on competitive dynamics as well, but just any changes if you observe anything?

Yes. So I think [indiscernible] not playing in the European cup finally, Strikers, I think. But in terms of market, it's especially more than dry in New South Wales. And what we're seeing there is that they're just talking about, did you know there's a strong capital base across agriculture, [indiscernible] in Australia deposits haven't been close to record. And so what we're seeing in the Northern New South Wales area, is there's a planning window for wheat, a lot of them are [indiscernible] cereal that will go past over the next few weeks, although there's been rain coming through that area of late. But then the next option will be chippies, which is the short season crop that they can plant. The benefit of chippies is the [indiscernible] will be putting [indiscernible] in the [indiscernible] economically. It will be a nice rotation. The Indian markets look like they're okay from a chippie viewpoint and from an Elders viewpoint, chippies is a high technical service and proprietary product higher margin crop. But we really haven't seen negative sentiment if that's kind of what you were searching for. I think -- it's agriculture. And so there's plan A, plan B, depending on the timing of a seasonal break. And there's -- in terms of capital and cash availability, it's Okay. Paul, you might want to add as well.

Yes. I think, Mark, you've told it well there. I think the thing to note well is that they're still in the selling window in this northern -- New South Wales area that has been dry. So at this stage, I think it's just a late start, whether the bureau is right on [indiscernible] or not but got it wrong last time they said that. But we'll see and the farmers will just adapt to how the season plays out.

And just one last question I had is, I'm just wondering whether if you sort of look through previous cycles that you've been through, obviously, the business looks a lot different to sort of the prior cycles given the businesses that you've added and so forth. I'm just wondering, in terms of your definition or internal expectations sort of mid-cycle earnings. Has that sort of been recalibrated as a result of the acquisitions and so forth? And also if it has, like whether how you think -- how you're thinking about sort of the first and second half earnings split, and with it, that sort of evolved?

Yes. Certainly, it's different now given the weighting of delta to the second half will, so where it's probably historically been done the math, but we historically probably has been averaged [ 45, 55 ], first half, second half is probably closer to [ 40 ] or is less first half and second half is something like that.

And then -- sorry, just one last one. Could you give us some color around sort of the whether there's been any sort of updates around backward integration? I know you pointed out sort of the targets that you want to get to, but have you been able to sort of identify new opportunities, particularly with this for Delta and whether if that's selling targets in sort of revised outputs internally?

Yes. So in terms of the Titan brand within Elders, it's been on track. It might be 65%. And we said we'd take it to 70%. So we've got enough headroom for generics with proprietary suppliers. So that's largely on track. It's apparent brand. We're way high with that, and we're at about 90% of backward integration there so very high with Delta from memory, they were at 25% in the beginning that they did significantly higher than that in order to fast track the backward integration or the synergy benefits for this financial year, we'll make a bigger step with Delta's backward integration as a percentage of generics. So it's either on track or above. With delta, it is above what we had for our 3-year transition.

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

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

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