Ricegrowers Limited (SGLLV) Earnings Call Transcript & Summary

I'd like to welcome you to today's investor call and webcast. We appreciate you taking the time to join us following the release of our 2026 full year financial results. My name is Paul Serra. I'm the Group CEO and Managing Director of SunRice, and joined here in our Sydney office today is Dimitri Courtelis, our Group CFO. On today's call, we plan to take you through our full year results. I'll take you through some of our key achievements and strategy. Dimitri will step you through our key financials and segmental performance. I'll then come back to cover outlook, and we'll open to questions. You should all see the investor presentation on screen that was lodged on the ASX today. I'd like to highlight in our disclaimer on screen the paragraph in relation to the company's Non-Standard elements. In line with its obligation, SunRice disclosed in its FY '24 annual report that it was conducting a strategic review, including a review of its structure and operations and that this would include a review of the Non-Standard elements to assess whether the structure continues to be in the best interest of the company and its shareholders generally. As at the date of this report, the review of the Non-Standard elements is continuing, and the Board anticipates providing an update during FY '27. As we turn to who we are, I'd like to go through a quick brief overview of the SunRice Group, which is a leading globally branded rice food business with rice at its heart. We operate an integrated global business built around rice from sourcing and processing through distribution, which allows us to translate deep consumer insights into differentiated branded products across the global markets we operate in. In ANZ, while rice remains central to our business, we've continued to deliberately expand into adjacent categories such as bakery, condiments, pet food and animal feed. And importantly, the group's success is driven from a core set of consistent values, integrity, collaboration, innovation and community. And these help guide how we operate and how we invest for the future. Today, we operate with a diversified global footprint. Approximately 57% of our revenue is generated outside of Australia, with 68% of our sales coming from branded products across more than 50 global markets. We also source rice from over 12 countries. That diversification is deliberate. It reduces reliance on any single market or crop outcome and gives us flexibility to optimize our sourcing and market mix over time. This global sourcing model is a key driver of our core rice commercial strategy, which I'll further expand on shortly, and it forms a key part of our 2030 growth strategy, which you see on the screen. As we shared at the half year and again at our Investor Day in May, our 2030 growth strategy outlines key commercial strategies, what success looks like to us and the attributes that will help shape the success of the SunRice Group. While some of our targets are aspirational in nature, they represent the key areas the group remains focused on delivering through continued disciplined execution. At a high level, we are targeting growth in higher-margin branded segments, expansion into key markets, including -- or expansion of our key markets, including ANZ, the Middle East and the U.S. and continued development of adjacent categories. At the same time, we are investing in supply chain resilience and sustainability, both of which are critical to the long-term margin growth and continuity supply of the business. Importantly, growth has been pursued with discipline. We are prioritizing returns over volume and actively reallocating capital to higher-value opportunities across the group. Turning to our financials, which a snapshot you see here on the page, Dimitri will take us through more detail shortly. It has been a volatile operating environment. The group delivered a solid performance in light of this environment with revenue at $1.8 billion, which was slightly down on prior period. EBITDA was $143.6 million, again, slightly below the prior period. However, margins maintained at 8%. NPAT increased 4% to $73.3 million, and our final paddy price return to Australian growers was $400 per tonne for medium grain. We have also announced a $0.50 final dividend, which takes the overall annual fully franked dividend to $0.70, which is a record for the company. This result reflects 3 key dynamics: underlying growth in our core markets, a change in the geographic mix of our earnings and offsetting pressure from external factors in certain market segments and regions. Overall, whilst there has been some external pressures in our operating environment, we have been able to manage what is in our control. We have remained disciplined on cost and capital, allowing us to protect margins and earnings despite the slightly softer top line. Each market has had its drivers of success, particularly in branded markets as well as volume growth in animal feed. However, as noted, we also saw an increase in competition in some markets as well as FX pressure that offset some of the gains. We'll outline these in greater details as we walk through the segments. In noting the growth strategy earlier, we did want to call out some of the progress that we are making across some of the key elements of this strategy. In core rice, we strengthened distribution and branded execution, and we've continued to build out positions in the U.S. and the Middle East. In adjacent categories, we're seeing continued growth across bakery, premium pet, bulk rice and animal feed. And within the Australian rice business, we've continued to invest in grower solutions and long-term sustainability. More broadly, the portfolio continues to shift towards higher-margin branded products across the group and its core markets. Our global sourcing division has never been more important, particularly as we look to a dry outlook here in Australia. As mentioned earlier and as part of our 2030 strategy, we continue to diversify our global sourcing with nearly 2/3 of our demand now sourced outside of Australia. This strategy is driven by 2 key factors: the diversification away from any one region and enabling the company to source the highest quality rice at the best competitive prices for its global brands. A great recent example of this has been our continued focus on new regions in the group's successful harvest of the first commercial rice crop in South America in FY '26. This marks an important proof point for the group's multi-sourcing strategy and a further step in building resilience to the Australian climatic and policy conditions. Turning to sustainability. It remains central to how SunRice creates long-term value and builds resilience across our global markets. Our approach is guided by 4 key pillars: thriving people, planet and communities and inspiring products, which continue to shape our strategies and priorities. In FY '26, we made further progress, particularly under the thriving Planet banner. We advanced the group's net zero road map, reducing Scope 1 and 2 emissions by 26% from our FY '23 base and lowering emissions intensity in the Australian rice production by 9%. The road map provides a clear pathway to decarbonizing our operations and value chain with ongoing focus on research, grower engagement, water efficiency initiatives to support the long-term outcomes of our group. Today, we have also released our first sustainability report, which further details these strategies as well as material topics summarized here. I'll now hand you over to Dimitri to talk us through our segment performance in more detail.

Thank you, Paul, and good afternoon to everyone joining us on the call and the webcast today. As we stated at the half year, we have 4 key segments in the business, and that's International Consumer Packaged Goods, Australia and New Zealand Consumer Packaged Goods, Bulk Rice and Animal Feed as well as the Corporate segment. Here's an overview of the segments, which I'll go into a little bit more detail following slides. So let's start with International. This segment delivered revenue of $737 million with an EBITDA of $87 million, and that was with a margin improvement of 1 percentage point, up to 11.8% on the prior period. The margin expansion, that's been driven by a higher proportion of branded product mix. We also have lower input costs, particularly from sourcing U.S. rice, and we have the improved supply chain efficiency across our global scale. These gains offset a decline in revenue, which was largely driven by competitive pressures, particularly in our Pacific markets. We had a bit of disruption across parts of EMEA, particularly at the back end of our financial year with results to the Iran conflict as well as FX translation that impacted the business as we translate the U.S. dollars-denominated earnings overseas back into Australian dollars. So overall, while revenue softened, the quality of our earnings did improve. Turning to ANZ. Revenue was broadly flat at $735 million with EBITDA of $63 million, and performance here was mixed as we saw a change in consumer and supplier behavior over the year. Pleasingly, we saw continued growth in bakery, and that was particularly through our Toscano brand and also in the premium pet segment with SavourLife. However, margins were impacted by increased competition, primarily from private label, and that was particularly in core rice and condiments with the consumers trading down into lower-priced alternatives. There were also inflationary pressures and operational disruptions across the platform and continued investment in brand and capability right across the division. So while the segment remains strategically important, the near-term profitability reflects those costs and the market pressures. On our Bulk and Animal Feed segment, we did have a strong year, and this is demonstrated by the uplift in underlying earnings. Revenue increased to $328 million with an EBITDA of $18 million and a margin of 5.5%. This performance was driven by strong growth in our Animal Feed segment, in particular, with dry seasonal conditions. We did have improved global tender pricing as well as a favorable sourcing mix, and that represented a recovery from the low base experienced in FY '25. As noted in FY '26, at the group level, we did see revenue slightly lower than FY '25 and EBITDA margin in line as well as a lift in NPAT to $73.3 million to what Paul mentioned earlier. Now importantly, we saw continued strength in cash generation. Operating cash flow increased to $141.8 million, and that reflected a stable EBITDA margin of 8% as well as improved working capital outcomes. We also saw lower investing cash outflows with no acquisitions landed during the period. However, we do continue to explore a fulsome pipeline of M&A opportunities, both locally and internationally. Overall, and as can be seen in the group financial summary table and cash flow, we're ending FY '26 with a strong balance sheet and giving us increased flexibility. To build further on the performance drivers matrix, the FY '25 to FY '26 revenue bridge also illustrates these dynamics from a revenue perspective. This combines all of the factors mentioned in each segment at a group level to represent the revenue uplift and the offset as well as the FX impact experienced. The growth that was seen in North America, Papua New Guinea and ANZ adjacencies was offset by softer Pacific markets, timing impacts in the Middle East and increased competition in ANZ. And FX also negatively impacted reported revenue with the translation effect, as I mentioned previously. As we've outlined in prior results and the most recent Investor Day, our capital management framework is central to how we consider growth, both from a capital allocation internally as well as when we're looking at external opportunities. This sets out how we prioritize our capital allocation. Firstly, into organic growth, then selective M&A. We then look at maintaining balance sheet discipline and then finally, delivering returns to our shareholders. Importantly, this framework reinforces how we consider capital allocation as well as positioning the business to deliver long-term shareholder value. This is also evident with the Board electing to increase its dividend payout ratio to 68% to continue to return capital to shareholders after a strong year of earnings. The total fully franked dividend has more than doubled over the last 5 years, rewarding our B Class shareholders. So just expanding on our current capital management position. From a balance sheet perspective, our net debt reduced to $151 million from $208 million at the end of FY '25, and that was supported by debt capacity of $130 million in our core facilities and $434 million in seasonal facilities, providing significant headroom should we need that. Gearing improved to 19% from 26% in the prior period and leverage remains low at 1.1x, which is well under the target range of 2 to 3x. Overall, we are well below our target ranges with significant capacity to invest as opportunities arise. Reflecting on our use of capital, here, we can see on the top of the graph, the amount of capital employed in relation to the return on capital employed. ROCE remained steady at 13.5%, with capital employed down to $809 million from prior year's $853 million. The graph below showing net debt over EBITDA and the gearing ratio shows a reduction in the gearing ratio to 19% from 26% in the prior period and 34% at its peak back in FY '24. Net debt, as already noted, is low at 1.1x. So pleasingly, these results demonstrate the improved earnings quality and the more efficient use of capital over time. Now further to our balance sheet strength, our cash position, as noted, remains strong through the cycle. And here, you can see our free cash flows and net working capital through the various crop volumes over the past years. Through the cycles, it can be seen that our net working capital continues to remain high. Free cash flow increased to $105 million, which was driven by strong operating performance and the unwind of working capital. And as noted, this provides the company with flexibility as we continue to explore opportunities. To summarize our key financial performance this year and over the past decade, I wanted to discuss the following 4 key charts very quickly. The top left chart, this plots the crop and the revenue, highlighting the group revenue has grown strongly over the cycle despite the volatility in Australian crop volumes, demonstrating the resilience through fluctuating supply conditions. On the bottom left, we've got group EBITDA and NPAT. Earnings declined during the lower crop periods before recovering to recent highs, and this demonstrates the cyclicality, but an overall upward trend in profitability. The top right, that's our dividend yield and our payout ratios. Dividends have increased steadily over the time alongside stable and attractive yields, reflecting a consistent capital return despite earnings volatility. And finally, on the bottom right, that's our diluted EPS and P/E ratio. Our EPS has strengthened in recent years, while valuation multiples have fluctuated, indicating changing market expectations across the cycle. So in summary, over the last decade, we have demonstrated a strong return to shareholders, both in dividends and in TSR.

Thank you, Dimitri. Turning to the group's outlook for the rest of FY '27. I'll talk through this in a number of key areas: revenue, profitability, balance sheet and cash flow. As reflected in our outlook statement, the group is expecting underlying growth at top and bottom line to support -- that is supported by strategic execution and branded revenue growth in core categories and markets. However, we expect this underlying top line growth to be offset by the smaller-than-expected Australian crop, leading the group to pull back from lower value tender volumes and the expected FX translations. Importantly, the group expects to be able to support its core branded markets with the strength of our international sourcing business, which I mentioned earlier. As a result, the FY '27 revenue is overall expected to be slightly below FY '26. In relation to profitability, as experienced in prior cycles, the smaller crop in Australia is expected to result in cost inefficiencies and underabsorption in the group's Australian rice operations. This is expected to compress margins in FY '27 with NPAT also expected to be materially lower than FY '26. We also anticipate earnings to be heavily skewed towards the second half as we absorb the majority of the transitional costs associated with smaller crop in the first half. As we continue to work towards the 2030 growth strategy and invest in our brands, we also look to cost savings initiatives in all areas across the group, which is especially important in years like this. This includes our global sourcing. As Dimitri noted, we currently are in a strong balance sheet and cash position with lower inventory levels associated with the lower Australian rice crop expected to underpin positive cash flows in the year ahead. While there may be some external uncertainties, we continue to manage our business and what is in our control. As a group, SunRice continues to strengthen its global sourcing capability, positioning the business for greater resilience and long-term value creation. In closing, FY '26 was a year of disciplined execution in a challenging environment. We maintained earnings strength and cash flow and improved capital efficiency. While conditions may be challenging moving forward, the business is structurally strong with more diversified earnings base, stronger brands and a clear strategy. We also have the balance sheet flexibility to continue to invest for growth. More importantly, we have a highly capable Board and Executive team capable of executing globally. Thank you. Now open for questions.

[Operator Instructions] So first question comes from Jonathan Snape with Bell Potter.

Can you hear me [indiscernible]?

Yes.

I just around numbers first, just some cleaning up on our model here. Just first of all, around the corporate charges, there's quite a big jump in the second half relative to where in the first, and it was quite a big jump year-on-year as well. Can you just kind of let me tell me what's in there? Like it was like $6.5 million or something like that in the second half line. So is there something in there that was either nonrecurring? Or is that the new level with the new structure that we should be looking at?

Yes. Thanks, Jonathan. So it's more timing between first half and second half. But fundamentally, there were a few costs in the second half that are nonrecurring in nature. So for example, we did incur about $3 million of strategy costs in relation to our global sourcing expansion with some pretty targeted investments as we look for sourcing rice globally. We did have a one-off benefit in the prior period, which was a similar number as well. So that distorted the number in the second half of this year as well. And then we did have a little bit of friction in some insurance and workers' premium adjustments in the second half. So those 2 came through, the bulk of which are essentially one-off in nature, but net-net, all up, probably a good place to start for the corporate segment going forward.

Okay. Great. And I was looking through the annual report, I couldn't find it anywhere, maybe you can help me with the contribution you got this year from branded finance charges? I thought you're going to continue to kind of put those numbers out there. Are they in there somewhere? Or have they not been disclosed this time?

Yes, no longer as relevant as we're shifting away from the structure of a pool into a fixed price arrangement in the year that we've just commenced and then also going forward with the change in the -- no longer being the buyer of last resorts and the way that we're working with the industry, those charges are less relevant when you think of the construct of the business. So going forward, you'd expect to see fixed price arrangements and arguably no more pool. So that should simplify that dramatically.

So is there anything in this year's number? Because I suppose I got to try to think about how we take that out going forward.

No, we haven't called those out specifically in this year as we've moved away from that construct. But from a number perspective, similar to the prior period.

Yes. I think, Jonathan, the best way to think about it is it's embedded in the price we're paying for rice moving forward, which will come through in the profitability of the ANZ and International divisions. So that's sort of baked into this year's numbers, if you like.

Okay. That makes sense. All right. And look, this is around from global supply. I mean, obviously, you can see this year's C'26 crop is pretty low. Water entitlements are starting pretty low. So it's probably going to be CY '27 crop might be kind of similar. But if the Super El Niño hits, how are you thinking about sourcing rice globally? Because generally, that would have, I guess, a monsoon failure that would have a knock-on effect in Thailand and India as well. So how are you in terms of going out there? I mean you said you spend about $3 million, but how have you done in terms of getting forward supplies locked in say, the next 12 months? Or are you actively rolling the book forward to lay off that risk at the moment?

Yes. Look, we're actively managing 12 to 18 months out based on where we think the prevailing weather conditions will fall in each of the different growing regions that we're in. So you mentioned some of the tropics there they're predominantly long grain type of varietals, then there's also the medium-grain type complex that's grown more in the temperate climate. So on both of those, we're continuing to broaden our supply base. So for example, we've continued to increase the crops that we're looking to get from South America. Equally, we're also quite diverse now in terms of sourcing from most of the equatorial countries, either with our own assets or through a growing base of contacts and mills that we work with. So we're very confident we've got the diversified supply chains to be able to supply the rice we need at the competitive prices that we need for the upcoming foreseeable future.

Okay and just one last one for me. But if I'm thinking about the change no longer last buyer of resort, a couple of small crops, obviously, water prices that all plays out. How are you thinking about rightsizing the business in Riverina the footprint down there? Is there anything you can do to bring, I guess, the fixed overhead down so that these under recoveries become less of an issue going forward?

Look, I think at a very high level, mathematically, there's 2 ways to decrease your volatility. You either can reduce the cost base to what you're alluding to or you can have a more consistent supply. We are working on both in terms of just consistently getting more efficient year-on-year with our cost base. But more importantly, how we work with Australian growers moving forward. And I think that's where there's a real opportunity for us now coming out the grower of last resort to work in a contracted position through multi-years with growers to actually have less volatility from year-to-year. The pool system meant that growers didn't have a long-term signal on pricing and so couldn't actually position themselves well with water and so forth when the market was in the right places for that. So the way in which we're looking to work and have started to work with the industry, and we saw that this year with paying for quality, we do expect that to give us a somewhat more consistent supply. So we always work on obviously ensuring our cost base is in the right place. But equally as important is changing the way we work with growers and ensuring we are more competitive versus the competing crops that they're looking to grow. Both of those, we've got great initiatives in place.

[Operator Instructions] Your next question comes from John Burgess with RaaS Research. You have final crop size for CY '26. Are there any early indications for the crop outlook in CY '27?

Look, a great question, not as yet. As noted, there is this possibility of a Super El Niño being spoken about. Dam levels are very transparent and easily found. So we're monitoring it very carefully. The probability is it looks like being a dry year at this stage. However, it's very wet in the Riverina and in the catchment areas at the moment and can change quickly as we've seen. So we will continue to monitor that closely.

And then on your question with regards to the CY '26 crop size, the reason we haven't disclosed that is, again, no longer being the buyer of last resort. The volume is now commercially sensitive when you consider how much we're sourcing from not just Australia, but any market around the world that we source from, we no longer call out the specific volumes from those locations. So from that perspective, we run a matrix internally at the business, and we ensure that we can source the crop we need to service our globally branded markets.

We have a follow-up question from John Burgess. Is the increased investment in marketing and talent seen over the last 2 years complete?

I'm sorry, I missed the last part of that question.

Is the increased investment in marketing and talent seen over the last 2 years complete?

In terms of whether you would continue to see incremental increases off today's basis, I think we're at quite healthy levels, if you were to categorize that across the board. I think some of what we saw last year, particularly in ANZ was bringing to life the protein launches that we're not just doing here in Australia, but across the globe. And so there's always some front-end loading in disruptive innovation before it actually hits the market. And I think that's what you saw, particularly in ANZ last year or in FY '26.

[Operator Instructions] Your next question comes from Allan Franklin with Canaccord Genuity.

Just intrigued, you did make a mention of supply chain disruptions in the Middle East. Just noting revenue looked to be down $22 million half-on-half. Can you just flesh that out a little bit there in terms of timing, was there some slippage? And how you're feeling about the opportunity in the Middle East for FY '27?

So strategically still feeling strong about the opportunity in the Middle East. We had, I think, as we called out when we updated the outlook statement for FY '26, we had some timing, and Dimitri referenced this in his conversation. We had some timing disruptions based on when the conflict first broke out, the supply chains had to reroute and take the long way to the Middle East, if you like. So there were some timing issues that got caught up in our year-end essentially because of our year-end fell at around the same time as that very close to when that conflict was at its height. So that's really the disruptions that we call out. We expect strategically the Middle East to continue to be strong for us.

And then perhaps just on the -- in the Australian context, I appreciate you have to talk to upfront costs with brand building and talent. Just specifically marketing spend within ANZ, how are you sort of phasing that? Does that continue through FY '27? Is there any sort of level of seasonality in terms of how you're thinking of, sort of, staging the costs when you are doing these brand-building exercises?

Yes. So if we think about it in 2 broad buckets, there's the cost of developing a new campaign and then the ongoing execution of the campaign, the cost of developing the campaign was borne in FY '26, which is why some of those incremental spends were there. We launched new campaigns in -- as you saw in our Investor Day, we launched new campaigns in all of our 3 strategic growth drivers in Australia, so Rice, Bakery and SavourLife and the cost of developing those campaigns and rolling them out to begin with was borne in FY '26. As we come into FY '27, we're into more of that execution. We're not planning to obviously develop 3 massive campaigns from scratch. So we're now more into that sustaining marketing spend, and you would expect to see some of that moderate itself in terms of the amount of marketing per net sales as we move forward.

Helpful. And then just a quick one on FX, Dimitri, I think you did draw out the net revenue headwind, but just the extent to which that would have played an impact further down the P&L.

Yes. So on the revenue side, it was about $37 million, close to $40 million at the top line. Less noise at the bottom line, more single-digit related as a result of -- well, I suppose, 2 swings. One, as you're importing products, you had the stronger Aussie dollar, so that did help us at the bottom line. So it's more materially felt at the top line where you actually see that impact. But when you get down to the bottom line, the net effect of both the import book and the export book, far less material in the single-digit million.

Your next question comes from Simon Conn, private investor.

Can you hear me?

Yes.

Just on the revenue line, which has been sort of static for 3 years now. Can you just sort of -- you said the $3 billion aspiration in 2030. So you've got to hurry on. Can you just step us through how you're going to reach that ambition given and what the issues are in terms of holding you back in terms of growth the last couple of years?

Yes, it's a good question. So in essence, we've had a number of sort of competing factors for revenue growth over the last few years. So we've been very much focused on higher-value branded growth, and that's why we've been able to drive sort of profitability uplift in the group despite a fairly static top line. Part of that were translation pressures with our Papua New Guinean business as the Kina has continued to devaluate over the last couple of years. Our Pacific markets, which we've called out have been under competing pressure from very sort of cost-competitive inputs, if you like, and we've traditionally not made much profit in those spaces. On the flip side, we've continued to grow our core branded markets well, and we continue to expect that. Sorry, in the third down was the tender market. So as we've had less rice or there's been significant compression in the global price for those traded rice volumes that we don't sell in our branded products, it's provided some negative pressure. As we move forward, obviously, towards an ambitious target of $3 billion external acquisitions will hopefully play a role in that. And as we've noted, we have a very strong balance sheet to pursue options as they come our way. We have been very strategic and careful to ensure any potential acquisition target fits very well with our strategy and who we are as a business and that we can create good economic profit off the back of it. So those have really been some of the positives and some of the challenges over the past few years. The good news is our core branded markets continue to grow well and that mix, you see flowing positively through the results to drive a greater EBITDA margin over the past 3 years as well as a greater profit margin.

And cash flow presumably?

Yes, and cash flow, as you can see.

Yes. And just in terms of the balance sheet is obviously very strong. I mean, obviously, you've been looking for acquisitions for some time. When do you think about a buyback versus just buying something externally? -- opportunities.

Yes. We'll continue to look at opportunities and balance them accordingly in terms of where we would deploy capital for the -- to be in the best interest of the group. So all I can comment on is M&A is a key pillar of the strategy and continues to be the case. So we'll explore all opportunities accordingly.

There are no further questions. I'll now hand back to Mr. Serra for closing remarks.

Well, thank you all for joining us today, and we look forward to updating you as we go through FY '27. Thank you.