Ricegrowers Limited (7H0.F) Earnings Call Transcript & Summary

Thank you, Ian. Firstly, it's a pleasure to be here today and talk to you all on behalf of SunRice. Before I do begin, I just want to note that we are currently in a blackout period preparing for our half year results for financial year '25. So these will be shared closer to the end of December. So unfortunately, I can't provide any updates on performance, but we can certainly talk about the business and insights into the business. We move to the next slide. In terms of just an important disclaimer, this can be found on the ASX and is part of our AGM presentation, and it does contain some important information about our corporate structure. So if we move on to the next slide. Hopefully, we can get a video to work, which really explains a little bit more about what SunRice is before we start to deep dive into it, if we could try to click the video. [Presentation]

Okay. So I think we got some of the video in. But as you can see there from the video, it sort of does explain a little bit more about ourselves. So if we move to the next slide. We can move on. Thank you. So I'd like to think about SunRice in terms of the picture on the right-hand side. Really, at our heart, rice is who we are. It's where our business started. It's where we have our most differentiated business model. It's where we generate most of our revenues and most of our profits for the group. But we also have quite a diversified array of products in Australia, in particular, from animal feed to other consumer products, which we'll talk a little bit about. And really, we think of ourselves as a meal company. Food is a deeply emotional thing. It connects people. And we love to come up with innovative ways of how we can use rice as a vertically integrated business model to help connect consumers and connect people across the world. So as the video highlighted, we are a $1.8 billion company with a market cap of just north of $640 million, with $0.95 in basic earnings and last year, fully franked dividend of $0.60. So if we move forward. A little bit about our history. So the rice industry in Australia actually started back in the 1880s with a lot of Chinese prospectors bringing rice in to grow in Australia, but it wasn't until the 1920s and 1930s that commercial production of rice began in the Riverina districts of New South Wales. And SunRice was formed in 1950 out of the Ricegrowers' Association as a cooperative. And really between 1950 and 2007, the cooperative thrive, they consolidated and it grew through a number of acquisitions as well as organic growth through the sales of rice and rice products around the world. In 2007, we listed on the NSX, so corporatized and listed on the NSX. And then in 2019, listed on the ASX. And since then, we've really continued to expand both organically and inorganically through acquisitions here in Australia, but also abroad. So if we go to the next slide. Today, about 60% of our revenue is generated outside of Australia. That's growing year-on-year, depends slightly on what the Australian crop's doing. But in essence, most of our growth has been happening internationally. And we'll talk about some of the key markets in which that's happening, but it gives us exposure to many different markets and many different consumers at different stages of maturity to really target growth for the future. We now have over 70% of our sales branded, so direct-to-consumer packaged food goods across the world. We have over 1,500 products, 45 brands, 50 countries. And next year is our 75th year of being a company. We have operations in Australia, New Zealand, Papua New Guinea, Solomon's, Vietnam, Singapore through the Middle East as well as in the U.S. So operations in 10 countries globally and rapidly expanding. Next slide. If we think about our brands here in Australia, so rice in the top right is absolutely core to our business, and it's obviously where we started from. We've diversified away obviously from just the medium-grain rice, which is grown here in Australia to all kinds of different varietals and different blends of rices for cooking different meals and different occasions across what is increasingly a more multicultural Australia. We also have, in the bottom left, our SunRice snacking products, so a better-for-you snacking range with rice as the hero ingredient. This is something we continue to grow not just here in Australia, but into our international markets as well. And then we have convenience food, so everything from soups to meal preparation to microwave rice and to rice cups used predominantly for the lunch occasions. Moving on. Our international business is predominantly rice and value-added rice products. So our large markets are in, as I said earlier, in Papua New Guinea and the Middle East and the U.S., the 3 largest markets outside of Australia. And you can see on the top left, we have brands that are very specific for those markets. So we are very nuanced in how we talk to consumers. We don't try and talk to consumers in a one size fits all. The Saudi Arabian consumer is very different to the Papua New Guinea into the Australia into the California consumer. And so we are very nuanced in terms of the brand and the positioning of those brands. As I mentioned earlier, we have businesses outside of rice predominantly in Australia as a way of diversification as we grew. And one of those major business platforms is our animal and pet food businesses. This started out more as a bulk feed business using rice milling derivatives to feed to ruminant or dairy cows as well as other ruminant species. Over time, we've diversified that into a higher value-added pet food offering. So whether that be an ag retail through our work in dog and family dog range or whether it be through the recent acquisition of SavourLife, which is a premium pet specialty brand. We're continuing to transition that business to a higher value-added, higher-margin business through that focus in on companion animals. The bottom left, in the gourmet entertaining. If you haven't tried our Toscana range of pizza bases yet, you should. They're the #1 pizza base in Australia. And I think if you're going to have pizza on a Friday night, it's a better option than most takeaways, including gourmet takeaways. But we have everything from pickle olives to anchovies to dips in that gourmet entertaining range. And then finally, our foodservice and ingredients businesses supply obviously into the foodservice and into major manufacturers of food ingredients. So moving on. Last year, we achieved quite a solid year of growth, and this is off the back of quite a number of years of growth. So we were up 15% in revenue and 23% in EBITDA. And really, that came about by a focus on growing both our domestic and international businesses. We saw a really good growth in the Middle East. We saw the ability for us to pivot in different markets to higher value sales to offset inflation that was coming through and negate some of the headwinds that we saw from geopolitical conflict and the disruptions that caused to global supply chains. So overall, a very strong performance for the year, as I said, with revenue up 15%, EBITDA up 23%, net profit up 24%, and our highest ever fully franked dividend at $0.60. So a very good dividend yield there at the year-end closing share price for us. So moving on to the next page. Sustainability is core to what we do at SunRice. It always has been as a farmer community. The long-term sustainability of our environment is very important to our business model. And being a vertically integrated player, and what I mean by that is controlling all the way from our agronomics or our plant breeding material, all the way through to assisting growers to grow, harvesting, packaging and positioning that for the consumer. We're best able -- we are significantly able to drive sustainability and reduction, methane production. Rice is one of the largest methane production agricultural crops in the world. And so there's really been 6 key areas that we're focused on. There's water productivity, climate resilience, waste reduction, resilient communities and respecting human rights. And this year, we've made quite significant progress against a number of those particularly drill sowing, which is a form of growing rice, which has been shown to have significantly less carbon reduction. We're in collaboration with the Deakin University to validate the significance of that carbon reduction. But we've also done a number of different pilots of irrigation techniques across our businesses that have the opportunity to significantly reduce carbon emissions. In addition, we submitted our science-based targets this year for validation. And we were one of the first in Australia to submit a Scope 3 Forestry Land and Agricultural commitment, or FLAG commitment, as part of that SBTi framework that we've submitted for validation. Moving on to the next slide. So all businesses throughout the year grew quite significantly. And as I said, it was quite a pleasing result, really, given the macro trading conditions that we saw globally and the vastly changing consumer and the vastly changing dynamics of local supply chains as a result of geopolitical conflict. So our Rice Pool business, which is, in essence, the rice that we grow here in Australia, was up 15%, predominantly driven by increased sales into the Middle East. And whilst -- and the naturally determined paddy price was down slightly. It was really a combination of the California crop being very large and therefore, putting downward pressure into the medium-grain markets globally, as well as some of the costs that I mentioned around shipping and the surcharges that came through. But overall, really positive result. On the International Rice business, so this is, in essence, everything that we don't grow here in Australia, which is the majority of rice-related products that we do around the world, was up 22% and EBITDA was up 42%, so really driven by significant growth internationally. Obviously, the Middle East, the U.S. and in parts of the Pacific and Papua New Guinea showed some very strong growth for us. We're able to then manage our margin mix quite significantly, driving innovation, driving more high-value products and managing our cost base, we're able to show a very significant increase in both EBITDA and profit before tax. Moving to the Rice Food product, somewhat more modest growth at 7% here. So these are our -- in essence, our snacking products in Australia and internationally. And this is really driven by innovation. We saw obviously increased competition from private label here in Australia. We're seeing very significant shifts in terms of consumer trends towards healthier snacks, which is a tailwind, obviously, for this category. And we've been able to tap into that with some fantastic innovation. So overall, good growth, top line, again, a very good control of our margin mix, very good control of our cost line to show a good increase in EBITDA and profit before tax as well. Riviana Foods was essentially flat to 3% up. There was significant competition from private label here in Australia as well as some supply chain disruptions out of Europe where we saw some of this product based on the shipping issues as well as climatic issue. But overall, a good performance for that business unit, really driven by Toscana, as I said earlier, best pizza bases in Australia for sure. And then finally, into our animal feed, into our CopRice division. As I mentioned, the pivot away from bulk ruminant feed business into more branded companion animal or pet food has really driven an increase in profit. And you can see, on a 7% uplift in top line, we were able to deliver significant 39% increase in EBITDA and overall profit before tax. And then finally, in the corporate section, which houses the brand finance, asset finance charges for the group was up, respectively, with the sales for the rest of the group. So if we move on to the next slide. The history of performance really here is to say that our cycle -- traditionally, SunRice was exposed to the Australian crop cycle and its earnings. Over time, we've been able to diversify away from that by the growth of our international businesses. And you can see here a solid performance across many different metrics over a longer period of time. So really good track record. In particular, 313% TSR from 2017 up until the 27th of November this year, which is a long way in front of the ASX 300, so a very good performing business. Moving on to the last slide. So we have been working quite significantly in the last 6 months to refresh our growth strategy, and we have an ambition by 2030 to be a $3 billion AU revenue business, whilst increasing our profit margins. And really, we're planning to do this by continuing the diversification of our businesses internationally and really driving that consumer first CPG, FMCG-centric business model. We see fantastic growth opportunities across the Middle East, the U.S. and even here in Australia, to continue to grow while putting consumers at the center of everything we do and unlocking that with our vertically integrated business model. And although we haven't spoken around balance sheet, also on balance sheet. So thank you very much for time to talk today, and hopefully, I can take some questions.

We do have some questions for you, Paul. I'll get to those in a sec. Firstly, just a reminder to our audience, you will be able to view all of our presentations that you've seen today on the ASX website, including Paul's with the video. Apologies for the start of video, Paul. We got to it a little later in your presentation. But as I say, our attendees, or those coming to the website later, will be able to see the full version. I thought it was a very interesting start, the history. Ricegrowers effectively started from Chinese immigrants in the gulf fields in Australia. That's a nice way to start out. We have a good number of questions coming in, so we may not get through them all. Let me go with the first one. How are you future-proofing any negative outcomes that may result from the Trump trade war?

That's a great question. So most of what we do in America is actually growing in America. And so we feel like for us, that's a very limited potential exposure.

That was interesting because there's another question here, we saw a number on your global maps in Asia and [indiscernible] world operations. Are they producing or are they sales or are they internally...

There are combinations. So we have mills here in Australia. We have a mill in Papua New Guinea. We have a mill in Vietnam. We have a mill in California. Apart from that, there's sourcing operations and/or sale operations. So we obviously buy a lot of rice from countries such as India, Pakistan, China, Thailand, depending on the type of rice that we need.

Would you be planning to expand not just into Asia, but also in South America where there's a lot of rice consumed?

Yes. We're looking at South America, obviously, both in terms of supply source and consumption market. And medium-grain rice is not easy to grow. It requires a specific type of climatic conditions and certainly, South America, some of the best for that as well.

There's a question here about general dietary habits and carbohydrates. Is that affecting your business in any sense?

Yes, it's a great question. I think with the protein trends that you would think that it affects rice. Actually, rice is -- when you think about it, the gateway to so many different flavors and so many different types of meals. There's almost -- every culture on earth has rice in some form. And so you can have both high protein rice meals and also lower protein rice meals. So we don't see that impacting us at all.

Okay. There's a couple of coming here regarding the business performance. You've had a very strong performance over this year. You're indicating you can -- have to do better next year. What's going to be the driving force behind that?

The continual focus on consumers. So if we're giving product to consumers that are helping to solve a problem or providing value to their everyday lives. For example, here in Australia, there's microwave cups we've launched, doing exceptionally well for the lunch occasion. I used them frequently. So continuing to focus on that and obviously strong discipline of execution then behind it. So keeping control of our cost, making very smart decisions around where we're placing media innovation dollars, those kind of things. And then focusing that behind the markets that have the best opportunity to grow. We're one of few Australian companies in the FMCG space that has a significant international footprint. So we have that luxury of being able to choose which markets, which brands, which types of products we want to grow with.

That's great. And those Toscana pizza bases are going to do the job for you as well. I call it. I'm going to try them. Don't worry.

You have to try them. They're very good.