Ridley Corporation Limited (RIC) Earnings Call Transcript & Summary

Good morning. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ridley Corporation Final Year 2023 Results Conference Call. [Operator Instructions] Thank you. I will now turn the call over to Quinton Hildebrand, Managing Director and CEO. Please go ahead.

Good morning, everyone, and thank you for joining us for the Ridley FY '23 results. I'm joined here this morning by Richard Betts, CFO of Ridley. We'll be referring to the presentation that was uploaded today on the ASX and you can also follow it through the Open Briefing platform. I'm going to be starting at Slide 2, which is the FY '23 financial highlights. And you can see that we're pleased to report an EBITDA of $88.5 million, which is just over 10% up on the prior year, and pleasingly, good performance in both reporting sectors. If we look at the balance of what's made up the results, effective cash conversion, $105.3 million in operating cash flow and that is a much stronger position [ than ] last year as we were able to [Technical Difficulty]. Operator, can I just confirm that you can hear us okay?

Yes, go ahead.

Thank you. I was just saying effective cash conversion achieved through the orderly reduction in our inventory as supply chains across the globe have normalized and we were able to reduce the strategic inventory that we had carried previously. During the year, we deployed both maintenance and growth CapEx, totaling $34 million, and that is able to allow us to keep investing in the business and underpin the growth of our future earnings. Our balance sheets remain strong at 0.33x leverage, and we were able to do some capital management with the $7 million on-market share buyback. With the confidence of the performance of the business and the future outlook, the Board has declared a final dividend of $0.0425 per share fully franked, and that takes the dividend for the year up to 8.25%, again, an increase on the prior comparative period. If we move to the reporting segments, starting on Page 3, the Packaged Feeds and Ingredients segment, see the EBITDA result there of $65.8 million, up 13% on the prior year and an EBITDA ROFE of 34%. The biggest contributor to this performance is the ingredient recovery business unit. And as we had indicated that the first half, strong prices in tallow and oil and meals and in the second half, with some of those prices coming off, we did get the benefit of some increased volumes. And that, together with our ongoing premiumization initiatives have supported a strong performance in the second half. Our packaged products business unit had volume growth of 6% and pleasingly maintained margins through this period. The Aquafeed business unit did underperform in this 12-month period. And as a result, we were allocating more of our constrained extrusion capacity through to pet food production. So, you can see growth in packaged products to some degree offsetting the Aquafeed performance within FY '23. And then pleasing to say that Novacq delivered its first profit in this year, and that's achieved through the ongoing lowering of production costs and we also benefited by an increased level of sales into the domestic prawn market. Moving to Slide 4, which is the Bulk Stockfeeds segment, and EBITDA of $36 million, up 5% on the prior year. And this was the result of an improved second half performance. You will recall, we called out the delayed harvest impact in the first half, but a stronger performance in the second half, benefiting from the ongoing strategy we have with the flywheel and leveraging our procurement and nutrition expertise, getting the scale benefits, sharing some of that with the customers and growing our sales volumes. So in FY '23, we saw the monogastric sales up 3% and the ruminant sales up 11%, demonstrating the benefit of this growth strategy. And through the period, like all businesses, facing both wage and other inflationary costs, we were successful in being able to pass those costs through the supply chain. So that takes us to the end of the introduction. I'll hand over to Richard Betts to give you more detail on the financial results.

Thank you, Quinton, and good morning, everyone. Turning now to Page 6 and the profit and loss statement. As Quinton has already noted, the EBITDA of $88.5 million was up $8.4 million or 10.5% on the previous corresponding period. Both operating segments reported improved trading results and were up 10.2% on previous corresponding period with a particularly strong result for the Packaged Feed and Ingredients segment and the Bulk Stockfeeds business delivering the forecast efficiency benefits of our debottlenecking program in its half 2 result. Corporate costs were up by $1.1 million. This included $1 million for CEO retention arrangement. Excluding this one-off cost, corporate costs were in line with the prior year, even after absorbing the higher cost of inflation. There were no individually significant items in the period compared to an $8.9 million gain in the previous period, which related primarily to the sale of our surplus assets, including the Westbury extrusion facility and the old Bendigo and Mooroopna land assets. These were partially offset by the cost of Software-as-a-Service associated with the implementation of the D365 system rollout in that year. Depreciation was down on the previous period as the depreciation expense for the rendering assets acquired through the acquisition 10 years ago have now been fully depreciated. This reduction was partially offset by the depreciation associated with the reinvestment in our facilities and our core growth capital. As foreshadowed, finance costs increased on the back of higher interest rates and the slightly higher debt levels over the period. The effective tax rate of 28.7% was in line with the prior year. While the reported NPAT, although reduced slightly on the previous year, after eliminating the prior year significant items, represented an underlying growth of $5.6 million or 15.5%. Turning now to the balance sheet on Page 7 and inventory, which totaled $107 million at 30 June. This is a reduction of $10.1 million and while inventory values increased by the impact of higher raw material input costs, we reduced our physical hold as we trimmed inventory that was previously held to manage the challenging supply chain that existed during and post COVID. Whilst this was a successful strategy at the time, we have now regained greater control of our supply chain, which allows us to take the strategic decision to reduce our total inventory balance. Receivables were also well managed and in line with the prior year despite also increasing significantly on the back of higher raw material costs into those sales values. Improved collections were able to offset this effect, which resulted in a slight improvement in our debtors days. Property, plant and equipment grew as a result of the investment in our asset base, resulting from the funding of the capital to support the debottlenecking projects in our mills, the Project Boost capital and the prioritization of our maintenance capital. The movement in payables is in line with the movement in inventory and receivables associated with the higher raw material costs. Net debt was $29.9 million, an increase of $6.6 million. And whilst there were multiple factors driving the change, the primary reason related to the $7 million outlaid for the share buyback that was announced and completed in year. Turning now to Page 8 and the working capital summary. As noted on the previous page, the net movement in working capital was a positive $13.2 million, with the negative impact of rising raw material costs more than offset by the reduction in inventory and disciplined management of receivables. This is a very pleasing result given the challenging macro environment that was navigated during this financial year. On Page 9 of the presentation, we have identified the key items driving the strong cash result. Operating cash flow was $105.3 million or 119% of EBITDA. This was an increase on the previous period of $33 million and was delivered through the improved operating results and the disciplined working capital management as discussed above. CapEx during the period was $34 million and although slightly higher than the previous period, aligned to our capital allocation model with maintenance capital being prioritized to ensure the quality of our asset base is retained and consistently upgraded. Net tax payments over the period totaled $21.9 million, an increase of $11 million on prior period. This difference related primarily to the catch-up of tax payments from prior periods. Turning now to Page 10. The strong cash management resulted in net debt of $29.9 million, which enabled the business to drive the following initiatives; $23 million of growth capital, including debottlenecking and Boost projects to support the future profitability of the business, the $7 million on-market buyback of 3.66 million shares, $13 million to acquire LTI shares representing both the FY '22 and FY '23 schemes. These incentives aligned with our strong total shareholder return over the 3-year period of the FY '22 scheme, which totaled 177%. The payment of these LTI shares or the buying of these LTI shares in year is expected to halve in future years as only 1 year at the time will be purchased going forward. $25.2 million of dividend payments were paid during the period, representing a 47% increase in the amount paid on the previous year. The strong capital management resulted in a debt leverage ratio of 0.33x, which is well below our maximum desired range of 2x EBITDA. Turning now to Page 10 and an overview of Project Boost. Those unaware, this is a project to manage a series of smaller opportunities that require capital of approximately $15 million with paybacks of less than 3 years and an expected annualized earnings boost of $9 million when it's fully implemented. Good progress was made in relation to these projects with a total of $12 million spent to date and $5 million or 60% of the benefits already delivered to the P&L with the remainder largely expected in FY '24. On Page 11 is our capital allocation model, which outlines the behaviors, which prioritizes the management of our available capital and the ultimate aim of consistently delivering strong returning returns to shareholders, which are measured through total shareholder return or TSR. During the period, we continued to deliver against this model with the key highlights being maintenance capital was prioritized to ensure the reinvestment in our capital base, the buyback of $7 million was completed during the period despite the leverage ratio remaining at a very positive 0.33x, the strong cash flow and disciplined capital management enabled the dividend to be increased to $0.0825 or 62% of NPAT at the higher end of our desired range, the consolidation of the above being a TSR for the 12-month of 16%, which is above our targeted level of 15% and a combined return over the last 3 years of 177%. That concludes the overview of the key financial slides. I will now hand back to Quinton, who will run through the progress against our growth plan.

Thanks, Richard. If I could take you all to Slide 14, which is the FY '23 to FY '25 growth plan that we published in May last year. And just by way of update, I will just talk to both the Packaged and Ingredients segment as well as the Bulk Stockfeeds segment and the growth and optimization initiatives that we have advanced in this last year. But I'll also talk to Ridley's sustainability pathway, which is really a foundation to our growth plan and outline the progress that we've made there. So moving to Slide 15, which is the first of the Packaged and Ingredients updates. The ingredient recovery strategy is to climb the wall of value, i.e., premiumize the product that we're making out of the materials we're buying from the suppliers. And I'm very pleased to update you that in a competitive environment, we've been successful in renewing our key raw material supply contracts and have extended a number of those for multiyear agreements. So that underpins the runway and the investment cycle that we're in, as we continue collaborating with both pet food and Aquafeed customers to produce more premium products and some of those requiring some capital investment to make sure that we can deliver to their niche requirements and get the lift in value. So, underpinning the raw material supply gives us the runway to continue that investment cycle. As we all know, the growth in renewable diesel globally is driving and expected to drive the future demand for tallow. And so we've positioned ourselves with access to some export terminals so that we can participate further up the supply chain and are dealing directly with some of the producers of renewable diesel to see how we can supply directly through to them. On the energy initiatives, ongoing focus in this area to both reduce the cost of our production facilities, but also to lower the carbon intensity as clearly that becomes a greater focus as you participate in renewable diesel engagement. If we move to Slide 16, the Packaged Products business unit has made good progress with the Narangba packing line scheduled to be completed in this -- in the first half of FY '24. That's giving us both efficiency benefits as well as unlocking 10% of the extrusion capacity at the Narangba facility. We also launched 2 new brands that you can see the packaging on the slide there. The Aquafeed focus continues on looking to optimize returns from our extrusion facility and extract the benefits we have from our location in Queensland supplying into Northern Australia. So again, we continue to manage our Aquafeed business unit in conjunction with the other alternative products that we can produce out of the extrusion facility. And finally, as we reported a profit in FY '23 from NovacqPro, that ongoing progress in getting widespread adoption of the Propel product, which is a Novacq containing corn feed and we're getting extensive distribution through Australia and have just commenced exports of -- in a small way. If we move to Slide 17, which is the growth plan for the Bulk Stockfeeds business units, I think we've spent a bit of time talking about the flywheel impact and the virtuous cycle. So, if we move to the next slide, you can see the progress that we've made in FY '23 with the debottlenecking of 4 plants, which equated to a 10% increase in our Bulk Stockfeeds capacity. And that, we believe, will give us the runway for growth over the next 2 years in both monogastric, as well as ruminant. And if we move to the next slide, you can see that we have underway 2 further debottleneck projects and those 2 will give us an additional 5% increase in our Bulk Stockfeeds capacity. So, as we continue to get the benefits of the flywheel impact, making sure that we've got the capacity ahead of us to grow into. If we go to the sustainability update on Page 20, we have been going through the implementation process that's outlined in -- on Page 21 and we're moving into the last of those phases, Phase 5. Just as a refresher, on Page 22 is the outline of our 4 sustainability pillars, Smarter Ingredients, Optimized Production, Effective Solutions and Meaningful Partnerships. And against all of -- each of those pillars on Slide 23, we've outlined the areas against which we're going to make commitments. So, there are a total of 14 commitments that we are intending to make for and these are commitments of a defined baseline through to 2030. And against each of these, we've done a significant amount of work defining the baseline, working up the -- how can we make improvements against each of those. And those will be approved by the Board and published in our FY '23 annual report, which is due to come out next month. So, very pleasing to see the progress that we've made and we believe that for Ridley in our sector, this is an area of competitive advantage for us as we will be able to deliver solutions for our customers, which we believe are cost-effective and should enhance our competitive position in the marketplace. So that brings us through finally to the outlook. And Slide 25, we just summarize the Ridley investment proposition as we see it. We have a strong growth plan -- a well-defined growth plan, a strong balance sheet. We have a disciplined focus on capital management and have a number of potential opportunities, both organic and future inorganic opportunities that we think we would enable us to create further shareholder value. If we look at our position in the market as the market leader, we have a number of scale benefits, which give us the ability to employ specialists and adopt technology and through that provide a point of difference in both product offering, but also in margin and return to Ridley. As the expectations increase on sustainability, we think that Ridley is well-positioned to deliver solutions for our customers and this should give us a competitive advantage. And then given the sector in which we operate, we are fortunate to have a geographical spread, also multi-species offering, which through this process gives us significant earnings resilience despite weather and disease and market fluctuations. And then underpinning the business and underpinning the demand for our Ridley products, we have the thematics of demand for both human and pet food protein consumption increasing, as well as the growth in need for substrates for renewable fuels and so all of that is underpinning our product offering. So finally, to Slide 26, the outlook. Ridley expects ongoing growth earnings for the year ahead by delivering further premiumization for the pet food sector in the Packaged and Ingredients segment and volume increases in the Bulk Stockfeeds segment, enabled by our debottlenecking projects. Macroeconomic conditions are expected to remain challenging. However, the business continues to take steps to reduce adverse impacts from inflationary pressures and to be able to manage changes in commodity cycles. We anticipate the cash from our operations and the strong balance sheet that we have will support the ongoing investment in the business, the payment of progressive dividends and the potential for us to pursue growth opportunities. So that wraps up the slide presentation for this morning. I will just hand back to the operator, and we welcome any of your questions. Thank you.

[Operator Instructions] Your first question comes from the line of James Ferrier from Wilsons.

Quinton and Richard, congratulations on the results. Could I first of all, ask you about the Packaged result that's just been delivered. So, you referenced the volume growth, but the fact that margins were flat. And so what we're probably curious about is to the extent that there might have been a benefit in margins coming through in this result from the catch-up on pricing that's occurred over the past year or so?

James, can I just clarify, you are talking about the Packaged Products. So that was the...

Yes, Packaged Products, not the overall segment as such.

Thank you. So, we've got a 6% growth there. And as you say, we're calling out, we maintained margins. So, where we -- what we're supplying here is these are a combination of -- our biggest sectors are chook feed impacts, horse feed and dog pet food. So, different ingredients go into that as well as packaging costs and the like. In this period, we actually have put up our prices in FY '23. So, notwithstanding that there was quite significant increases in the prior year. And as you're indicating, that was to recoup raw material pricing. There has been a need on a lesser scale, but there's been a need to do that again within FY '23. So, maintained margins is what we've achieved.

Yes, James, just a bit further on that, one of the challenges with that segment versus particularly the Bulk where we're able to move product cost changes in almost immediately, within the Packaged segment, you're probably looking at about a 2- to 3-month lag all the time. So, what we saw -- as we still continue to see some price increase or some cost increases, particularly in the first half of the year, we were still trailing the lag in terms of putting through that price. What we did see was by the time we got to quarter 4, we had caught up and fully put through the impact of any raw materials and that sort of showed through in terms of some of the strength of the result in the second half.

That's helpful in terms of timing. So, we should be thinking about the year second half and even fourth quarter as a sort of a better run rate of margins going into FY '24?

Specific to that Packaged Products, yes.

Second question, with the Bulk Stockfeeds and the capacity increases in FY '24, Clifton is a part of that program. Can you give us the context as to what's happening around Clifton and that catchment area that sort of the demand rationale for executing capacity expansion project on that particular asset?

Yes. So, Clifton is a monogastric feed mill and we produce predominantly broiler feed there as well as some pig -- pig's customers are supplied out of Clifton. So, what we're seeing is there some of the produce -- the broiler customers in that area and we have 2 significant customers have their own milling capacity. But as they are growing, we're picking up an increasing amount of their overflow. And as they increase the production, that production is going further west of Brisbane and away from the built-up Brisbane, Greater Brisbane area. So, it's -- the expansion for both of those large customers is happening more towards where the Clifton mill is located and we're in a good position to pick up the benefit of that. So, we've locked in contracts which underpin for the medium term, the investment that we're making in Clifton, which will result in about a 35% increase in the capacity of Clifton.

Third question, maybe for Richard, just given we've sort of talked about some of these projects and you've sort of itemized some of the growth projects to execute in FY '24, could you update us on what your expectations are for CapEx from both maintenance and growth and also depreciation in [ FY '26 ]?

Yes. So, in terms of -- in terms of CapEx in total, we're expecting about $35 million of total CapEx. That would include maintenance in the range of sort of $12 million to $14 million with the remainder being the growth capital, which includes the remainder of the Boost capital, so -- and then the depreciation charge would be in line with what we've seen in the FY '23 year.

Your next question comes from the line of Apoorv Sehgal from UBS.

Quinton, Richard, first question for me. Just on the Project Boost, just trying to work out the exact sort of contributions there. So, you said at least 60% of the benefits have been realized. So, I think that would imply sort of, of the $9 million roughly $5.5 million so far. And I think from memory, about $500,000 came through in FY '22. So, would that imply kind of $5 million EBITDA contribution from Boost in the FY '23 result?

Yes, that's correct. I think yes.

And then into FY '24, that means there's another $3.5 million to go?

Yes. And we'd probably assume that the bulk of that will be in FY '24 with a very small overhang into the year after.

And then on the supply chain rationalization initiatives you've got with the freight providers and consolidating that freight base. Were there any cost saves that you were able to achieve in FY '23? I think from memory, it's meant to be a $3 million or $4 million type opportunity. And just any indications on what we can expect to see there in '24?

Yes. AP, there were some benefits as we consolidated some transport contracts together. And in some -- towards the back end of the financial year, we actually took responsibility for delivered feed to some customers as well, consolidating those into back-to-back arrangements we have with transport companies to deliver. So yes, there's some -- as we consolidate those, we're getting some scale benefits. Some of that is shared with the customer and the rest has come through. And then we've had a few benefits in other parts as well. For example, in the ingredient recovery business, we did some larger payloads and some rationalization there. I think in some -- to some degree, these benefits have gone to offset increased costs that we've faced in those areas. But nonetheless, a benefit in FY '23. And as you indicate, for some time now, we've spoken about greater opportunities to, to reduce costs within our supply chain. And we are slowly bringing those on. I think there will be opportunities in FY '24 and beyond as we just take these on at a sensible rate.

And then just on Novacq, good to see the positive EBITDA come through. Are you able to quantify what that number was in EBITDA terms of '23 and any indications on '24?

Well, it was just under $1 million at the EBITDA level for FY '23. And that was a fairly significant movement from the loss we had -- small loss we had made in the prior year. The rate of increase in performance for Novacq will be driven by our sales into the both domestic and export market. But increasingly, the internal sales of where we need to make the progress and as you know, it's pretty difficult to project that. But I think if we were improving our position by $1 million to $1.5 million a year, I would be happy with that. Hopefully, we can go faster in our export programs but that would be a fair indication from where we sit today.

And then just a question on the tallow price, please. In the end, what was the 6-month impact from that moderation in tallow prices we've seen in the second half?

So first half, we had those very strong tallow prices and those moderated. And we're saying there was a $3 million impact from the benefit in the first half shifting to being eroded in the second half.

Is that $3 million an annualized number? Or is that literally the $3 million half-on-half impact in that 6-month period?

No. That's an annualized number.

Okay, thought so. So I guess, all else equal, if the current tallow price kind of holds into FY '24, that's probably like an incremental 1.5 -- like very simplistically speaking, an incremental $1.5 million sort of EBITDA impact in '21, just from the next -- another 6 months, I guess, at these sort of levels?

No. We're saying it's a $3 million impact if all else remain. If we remain at today's levels, you'd probably have a $3 million impact. Now, it's hard to know what will happen. We're watching the developments in the tallow market going forward. And hopefully, there's a bit of strength in the back half. But if we make the assumption of today's pricing FY '23 versus FY '24, negative $3 million.

[Operator Instructions] Your next question comes from the line of Richard Amland from CLSA.

Just clarifying what your strategy around the tallow exports eases at? Trying to ship to the States? Or is that trying to explore markets that are closer to us?

The key demand areas are Singapore, which is -- has an operational renewable diesel facility. It's -- that's owned by Neste. So that's a good geography for us. And our product has already been supplied into that market. The growth, though, is coming through facilities that are under construction in the U.S. And so there will be increasing demand there. So, we're a bit agnostic as to which market the product goes to. And we're engaging with the owners of those facilities to see if there's a benefit in us having direct supply agreements and lining up the supply chains.

And just looking to follow-up on an earlier question on deployment of capital. So, you guys have flagged $35 million of CapEx based upon I think that's pretty close to what we saw in '23. There's a lot of dropouts of sort of one-off capital outlays in terms of retention bonuses, buybacks, just any, and the other LTIP. Do you have any comments that you'd like to make around sort of additional capital deployment anticipated in '24? Is there any -- are there any new -- you've outlined a couple of 2 feed mills that are going to receive capital. But is there anything further that you'd like to comment on? Is there any inorganic?

Is that the crux of the question, Richard.

Not solely.

Look, I think answering the first question in terms of the organic, we have a constant roster of projects coming through. We've always talked about the need to prioritize the maintenance spend. And then after that, it's a prioritization piece around the need and the capacity to spend. And that $35 million, we always think represents a level within the business that one, continues to ensure that we can drive forward and 2, ensure that we deliver maximum value from those projects. So we obviously, have the continuing focus on the debottleneck projects within the Bulk Stockfeeds business. In year, we have the finishing of the packaging line within the extrusion facility. And then we have a number of projects around the ingredient recovery that will support our process and our strategy around premiumization. So, I think that covers the organic piece. I don't know whether you want to comment on the inorganic, Quinton.

Well, Richard, we're always looking for opportunities that will add value and provided there within our wheelhouse and earnings accretive to Ridley. So, we're in a fortunate position to have a strong balance sheet. And we continue to explore acquisition opportunities. But I think we've been patient up till now and the discipline that the Board has is we need to make sure when we -- if we do buy something, we buy it at the right price and we're confident in the integration and earnings profile. So, we'll maintain that process. As we have often said in this FY '23 to '25 growth plan, there's enough for us to organically continue to grow earnings. If there's an acquisition opportunity on top of that, that fits the -- to all our thresholds, then that will be on top.

Do you feel like the environment is getting more friendly to opportunities, a potential vendor expectations starting to sort of become perhaps more realistic? Or is it still pretty challenging out there.

Well, I think that the cost of debt is up and so those kind of -- that would perhaps bring some vendors to the table a bit sooner. And yes, the uncertainty in the market, we are hopeful that expectations of vendors will be a bit more realistic going forward because we've obviously been looking for value in our criteria. So yes, I suppose we would expect the next couple of years to present opportunities that have been elusive in the last couple of years.

I think, Richard, the key for us is obviously the state of our balance sheet and the quality of our balance sheet will enable us to continue to look and explore those options. And if they give us an opportunity to drive better value than the inorganic than the organic, then we'll take advantage of that. But that's the logic around continuing to hold a strong balance sheet, particularly given the high interest rate environment.

No question on the strategy. Just trying to get a feel for -- environment shaping up like. That's it for me.

Your next question comes from the line of James Ferrier from Wilsons.

Can you remind us within Narangba packing line project, can you just remind us of the economics there? And I guess I'm asking that partly in relation to the fact that I think earlier there was a target for 2 private label dog food contracts. And you're obviously going forward with just one, whether that altered the economics of that particular project or not.

Thanks, James. The packing line has the 2 benefits to it. One is it gets removed from being in series with the extruder. And so you could only run as fast as the packing line and/or the extruder whichever was the limiting factor. So, this takes it out of series. So, we'll get some benefit in capacity there, which is welcome given that Narangba is operating 7 days a week at capacity. So, in terms of our -- that component of the benefits we're on track with that. As far as the pet food sales go that are produced on this extrusion line, you're right, we're only supplying one contract. We didn't get to -- whilst we won the tender, we stood our ground on the terms and we didn't end up getting that business. However, if we look at our total dog sales, relative to the budget that we put up at the time of making the decision, we're on track. So, we've got increased copper sales. We've picked up some other contract packing to specialists to specialty pet food distributors. And then we've got this underlying grocery contract. So yes, that's -- it's pretty robust and to expectations.

That's a pretty impressive outcome and sort of illustrates the natural tailwind you've had there through those efforts. Can you just remind us what the growth CapEx was for that particular project? And I'm assuming it probably straddles FY '23-'24?

Yes. And that's about -- the total is $6 million. And I'd just give you an indication that this wasn't a Boost Project. This was on a longer payback. I think I might have mentioned at the time, $6 million investment and probably a 6-year payback. But it gave us this enabling capacity. And the split, Richard, between [ this year and ].

Yes. So, about $4 million of it has already been incurred in year with the remaining $2 million to be spent in the first half of this year, this [ FY '24 ].

And then lastly, just the premiumization and I'm talking about the ingredients, the Packaging and Ingredients segment as a whole. The premiumization and downstream value capture, it's a big part of the growth ambitions there. Obviously, Bulk is more about volume growth, Packaging and Ingredients more about premiumization and downstream value capture. Can you just remind us of where you think you are on that journey and sort of how much opportunities ahead of you? It just seems a little bit harder for us to quantify that. Whereas the bulk capacity increase stories, a little bit more straightforward?

And James, I would say that we're still pretty immature in the premiumization journey. So, the raw materials that we're getting supplied from the abattoirs into our rendering plants. A lot of that -- the initial benefits have come through segregating the raws coming in and Laverton has got 6 plants and we operate in specific species, specific meals out of each of those. But the opportunities to produce for -- and it's predominantly in pet food and in Aquafeed, where we can have more specific products like low-ash products, higher protein products. So, we're doing those, but down the track and this is in that wall of -- climbing the wall of value slide, there's even fresh products that go from the abattoirs directly, sometimes in frozen form and sometimes direct into the pet food production facilities. So, I think there's opportunity for us to convert more and more of that. So, those are conversations we're having with our suppliers as to how we can try and position ourselves into those supply chains. So, if you look at what is happening with materials in the U.S. and Europe and those supply chains out of -- if we were -- we would only be 40% of our material would be premiumized relative to where they're at in those production -- in those supply chains. So, I think there's multiyear progress ahead of us to continue on this journey.

[Operator Instructions] We have no further questions in the queue at this time. I will turn the call back over to the presenters for closing remarks.

Well, just to thank you for those questions and for your interest in Ridley, and we look forward to seeing a number of our shareholders in the roadshow scheduled for a couple of weeks' time. So, thanks for your attention today and have a good morning. Thank you.

Thanks all.

This concludes today's conference call. Thank you for your participation and you may now disconnect.