Select Harvests Limited (SHV) Earnings Call Transcript & Summary

Good morning, and welcome to the Select Harvests' First Half FY 2024 Results Webcast. My name is Andrew Angus, and I look after Investor Relations for the company. Shortly, we'll begin the webcast. At the moment, we're just letting in participants into the room. When that completes, I'll hand over to the Managing Director, David Surveyor; and the Chief Financial Officer, Brad Crump. So if you'd just bear with me for a minute, please. All right, David. I think we're off to go. I'll hand it over to you.

Thank you, Andrew, and good morning, and welcome to the Select Harvests' 2024 First Half Results Presentation. My name is David Surveyor, and I am the Managing Director of Select Harvests. Joining me in delivering this presentation is our Chief Financial Officer, Brad Crump. The 2024 first half results presentation will be delivered by webcast on the link displayed below as advised to the ASX. After Brad and I have delivered the presentation, there will be time for questions before we commence our investor roadshow. [Operator Instructions] In the event that we have questions outstanding at the end of the allotted time, please contact Andrew Angus via e-mail on the screen, and we will deal with them subsequently. This next slide simply outlines the disclaimer and basis of preparation of the information contained in this presentation. So today, we are going to cover -- you've gone too far forward, Brad. Thank you. Today, we're going to cover 4 topics: The midyear performance, financial results, our transformation progress and business outlook. So I'll start by providing an overview of the business before handing it over to Brad, who will discuss the financial results in detail. Following Brad, I'll talk to the transformation strategy and the forward outlook before taking questions. Next slide, please, and let's move into the midyear performance, and we will start by talking about safety. Select Harvests has continued its strong focus and rapid improvement in safety and its journey into world-class performance. People are critical to Select Harvests and safety is our most important KPI. In the first half, we've made significant improvement in performance with our driver down to 5.3 injuries per million hours worked. That's a 21% improvement on the 2023 year. As you can see in the data, the severity of injuries is reducing, which is pleasing. And if our people get hurt, they are more often able to be at work in the following day. Within the business, we have a clear sense of deep and felt safety leadership to our people. We're building better systems and better processes, and we're measuring performance. We've commenced our first step into critical risk management and currently have a machine guarding review being done at our Carina West processing facility and across our 15 farms. We remain in a very positive sense, unsatisfied with our performance and continue to seek our sustainability goal of 0 harm. The 2024 first half results is a $2.1 million loss. This is a low number but is a substantial improvement on the first half of 2023. Furthermore, we are on track to both our budget and market consensus position. The second half brings the profit on external almond supply and also having in-shell sales. The net profit after tax is based on a slightly lower 29,000 tonne crop that had initially been forecast. However, since the half year, March 31 date, our view is there is upside towards the top end with a 29,500 tonnes to 3,000 tonne crop and also a shift from the midpoint of our last forecast to $7 to a price of $7.47, to which we need to add $0.10 for freight efficiencies to achieve a net price of $7.57. This creates upside to the full year. Now, I think as a side note, we've created some complexity probably in the way that we describe price. So after today's presentation, we will go back to a single number. The one that you need to focus on is a number of $7.57. Now, I think, there's no doubt, almonds are operating in a challenging environment. I thought the U.S. Mintec Global Report of 29 April summed it up pretty well. Prices have remained below the cost of production since the 2021 season. The point being, this makes it hard to see the operational improvements we are making in the numbers. So what I'll do today is I'll spend some time in this presentation to make this more obvious for you. Operating cash flows, although negative, were better than forecast. The company's debt level of $237.9 million remains consistent with the normal seasonal profile of the business, yet we continue to acknowledge the level of debt we have is higher than we would ideally want. And we expect debt to reduce with the 2024 crop and our PMO initiatives for a forecast debt level of around $165 million at the end of the second half 2024, and return to a 40% debt-to-equity ratio. The market value of our assets is $262.7 million above our book values as of the 30th of March, and the net asset value of Select Harvests is $5.75 per share. This is significantly above our current share price. And whilst it suggests we're undervalued, it also highlights the turnaround imperative we need to line as we rebuild Select Harvests. What I'd like to do now is to provide some more detail on 3 of our key results drivers . So let's start with volume. Firstly, the 2023 crop is now complete with any remaining product, either contracted or scheduled to be processed into value added. In terms of 2024, as committed, we have commenced the implementation of our new horticulture strategy, targeting yield improvements. We've improved our fertilizer execution and identified spraying efficiencies to improve yields as just 2 examples of this. The 2024 crop is a step change from 2023. In our midyear financials, we booked the result of 29,000 tonnes. Of course, the final crop number will be determined by the crack out rate. And as noted, there appears to be upside towards the top end of 29,500 to 30,000 tonnes, or in other words, we're closing the gap. The 2024 harvest commenced 2 weeks earlier than normal due to favorable growing conditions and with the strategic aim of maximizing farm hygiene and minimizing insect damage. This is a change in approach we intend to continue because, weather permitting, it optimizes our crop quality and crop yield. Across our funding base, we saw South Australia deliver crops above target. Victoria was on target, albeit with some variation by farm, but New South Wales was below our forecasts. The New South Wales farms was slower to recover from the impact of the prior year's wet weather, particularly given the heavier place on which they operate. We understand other farmers have experienced some similar issues. The crop quality for 2024 has been excellent. Our farming approach and weather conditions have seen low levels of insect damage, staining and mold. This is allowing us to maximize both in-shelf volumes and also sales to China. As New South Wales returns to budgeted yields for the 2025 crop, it is upside to the total Select Harvests volumes. Our forward strategy sees an increasing focus on new growth. Next slide, please. The market price in our midyear results is set at $7.52. This number comprises a market price of $7.42 and an additional $0.10 in revenue based on PMO changes to our logistics providers. On the 10th of May, the USDA published a subjective crop forecast of 3 billion pounds. This lists the wonderful nut company in the Terra Nova reports, which are simulating quantum have been neutral for price impacts. We are, however, seeing strengthening in prices on the back of stronger sales, and we're also seeing limited availability of quality products ex California. Select Harvests is currently expecting a U.S. carry-add volume of approximately 400 million pounds, but it could well be lower, which will be positive for price. The mix profile of the Select Harvests crop is positive. In-shell is shales about 32% of our volume; kernel, 45%; and manufacturing grade, 23%. The company sales strategy has a specific program to maximize price. And based on contracted year-to-date sales, will add a further $2.5 million for our profit result by maximizing country mix after benchmark pricing. The combined impacts of market strength and our own pricing initiatives are taking us back to the top end of our price broadcast $7.47 plus, of course, to $0.10 for the freight optimization and so the forecast price is now $7.57 per kg. Next slide, please. I think very pleasingly, for the first time in the last 5 years, we are seeing a reduction in the total production cost per kg. This is despite the fact that we have seen continued inflationary pressures and a further $5.2 million increase in lease costs. The primary reason for this is our focus on cost-out activities undertaken as part of our strategy. Particularly, I think it'd be disingenuous not to recognize these are also being supported, in some cases, by more favorable weather conditions and pleasing commodity prices. So for example, water costs reduced year-on-year, even though we used more water in dry conditions, but electricity costs were up as we pump more water around the farms and the cost rate increased by 5%. Labor and contracting cost savings were delivered. Centralization of procurement saw price reductions and improved terms in a number of areas and processing costs have reduced as we've increased throughput rates. As we move forward, we will progress further cost-out activities to keep our production cost per kilogram as low as possible. So let me now hand over to Brad to discuss in some more detail the financial results.

Thanks, David. Select Harvests' financial results have materially improved from what was presented for the first half last year. All key factors drove this. The 2024 volume recognized in the 2024 first half accounts is 65.5% -- 55.7% larger at 29,000 metric tons. The 2024 crop recognized price at the half of $7.52 is $0.07 higher than the 2023 price at the first half last year. Production costs decreased by $2.7 million or $0.09 a kilo as David covered -- as David touched on this earlier on. In the first half of FY '23, because of 2023 crops made a fair value loss, the whole loss was recognized at the half as required. This year, the 2024 crop is forecast to make a profit. And therefore, we are required to recognize that profit based on the percentage of crop ready for harvest. Given we commenced harvest early 2024 and we had favorable harvest conditions, a majority of the 2024 crop was harvested by the 31st of March. Therefore, Select has recognized 75% of the fair value profit of the 2024 crop at the half. This percentage will be reviewed annually and the recognition of first half profit will be dependent on the progress of harvest at that time. Based on this, Select has reported an $18.7 million positive EBITDA for the half. This compares to a loss of $178.7 million last year. After accounting for depreciation and amortization, which were lower as we've increased the lines of our orchards based on their current performance; interest costs, which were higher due to the debt profile and by interest rates, Select's after-tax loss for the half is $2.1 million. A key point here to recognize is that most of our third-party processing income and wholesale's in the second half. And this, with any potential upside in crop or price, will positively impact the second half profit results. The balance sheet has been closely managed this year. Inventory levels were higher due to the increased crop size and recognition of third-party grower inventory on our balance sheet. Property plant equipment remained stable as we controlled our capital expenditure, and this was offset by depreciation. Current liabilities are $65.4 million higher than the prior period due to the third party inventory acquired. And this, the opposite side of this is sitting in inventory. The market value of our noncurrent assets on our balance sheet are $188 million higher than book value as we record our assets at cost. The water assets were mark-to-market on the 31st of March and we sort market advice RE: our property valuations. Our replacement cost of our processing plant is also materially higher than the book value. Our net bank debt position is $237.9 million as at the 31st of March 2024, which was $48 million higher than the corresponding period last year. Bank debt increased because we had low volumes for the 2023 crop with a small portion flowing through into the second half of FY 2023. Our bank debt paid in May of this year and is steadily declining, in line with our forecasts. Additionally, due to the lower 2023 crop profile and low almond pricing, this made funding the 2024 crop reliant on additional debt. You can see that the work the company has done on sales velocity and improved terms positively benefited the company's net working capital position. On this slide, I've shown what the company's debt profile has been and where it is forecast to go. Note, this forecast only goes out to March 2025, so the 2025 crop size or price has no or minimal impact. This will be based on the 2024 crop volume and price as presented today. The notable takeout of this slide is that based on a 29,000 metric tonne crop at a price of $7.52, our debt profile starts to reduce, and we are forecast to be back to a net debt to equity ratio of 40% by September 2024. This will, again, increase on the first half of '25 as we invest in the growing and harvesting of the 2025 crop. Operating cash flows for the first half of 2024 were a negative $28.5 million. The key reason for this was the lower amount of available saleable material from the poor 2023 crop. What was saleable was at a lower-than-breakeven price. Select managed this by tightly managing expenditure, including on its capital. Capital that was essential or had a fast return profile was approved, while other planned CapEx was held back. It is important to note that the operating cash inflows for the second half will increase materially. Most of the 2024 crop will be sold at higher than last year's volumes and pricing and quality has improved. Steps had been put in place to receive cash quicker. Additionally, as I previously mentioned, the majority of the company's third-party processing revenue and wholesales will be made and the cash collected in the second half. Thanks, David, back to you.

Thanks, Brad. So as noted, global almond prices have been challenging for several years, and that's, of course, been compounded by 2 challenging growing seasons in 2022 and 2023. Of course, our response to that is our transformation strategy. So the Select Harvests Plan 1 has a clear path forwards. The company has got 4 very key priorities delivered over a 3 horizons, which we're simultaneously working on. The first is about substantially greater almond volume at the lowest possible cost. The second is leadership in processing scale and efficiency. Third is about maximizing returns from the crop. And the fourth is to innovate to drive step-out growth. Now I'm not going to try and fully drain every initiative on this slide, but I will talk to it to give flavor on initiatives, progress and try and connect it to our financial returns. And delivering each pillar with financial discipline is core to creating value for shareholders. Now whilst strategy discussion inevitably takes you to future opportunity, the reality is that 90% of our time is focused on today. That's maximizing the value that we get for the 2024 crop, driving a relentless focus on reducing costs and working capital, maximizing and processing the crop and selling it as efficiently as possible. And in doing so, we intend to maximize performance of the company and sensibly reduce debt. So the first strategic priority is to substantially increase almond volumes, but do so at low cost per kg. So earlier in the presentation, we have seen gains on total production costs per kilogram being inflation year-on-year. In other words, that's about producing more for less. 2025, I should see a further reduction in cost per kg through the continuation of our PMO projects, be that more labor optimization, transport gains, fielding technology gains, faster spray times and lower cost for our sustainability programs to reduce emissions. And we'll show you some of the numbers as we go forward. For growth in almond volumes, there are broadly 3 different options. The first is volume expansion with third-party growers and we've delivered some 10,000 tonnes of that this year, and so it's a material increase in volume. And third-party volumes now make up approximately 25% of sales. The second opportunity, of course, is by improving our own farming practices, and we've already seen some gains in costs and hygiene, but the big price will be yield, which we expect to see our first meaningful gains in 2025. And I think to give you one example of the yield gain is about moving to increased and smaller drop sizes for B locations in our New South Wales and Victorian Farms. We have previously sized the entire horticultural excellence program as a $10 million opportunity, and we hold to that view. The third opportunity for expansion is, of course, through farm acquisitions and leases. We've certainly reviewed some opportunities, but they will only be brought forward if compelling, and we do not see current almond prices supporting land premiums, and we would see substantive synergy gains in any opportunities. You'll also, of course, recall that we have completed our water strategy review. Water is strategic to Select Harvests, and we will sensibly look to rebalance our water portfolio over time to better align with farming locations and increase our portion of permanent water, and you will see some changes towards this in this financial year. The second priority is about leadership in processing. As with farms, we've executed a range of processing compressible cost-down initiatives. But the Carina West processing facility expansion to 40,000 tonnes is the key plank. As previously communicated, we're increasing our hulling and shelling capacity by 30% to an average of 10 tonnes per hour, and I'll show you the performance data on the next slide. But we also think there's another step available at the Carina West processing facility to get into perhaps 45,000 to 50,000 tonnes of capacity. This will be a low-cost CapEx program. And to deliver it, we're looking at automation such as variable speed drives on hulling and shelling, perhaps replacing or adding some [ hollowing ] shell decks, increasing our stock pad capacity, robotics for slip sheeting to remove bottlenecks and potentially some expansion of our packing capabilities. The third priority is about maximizing returns from the crop. In the immediate term, we've been focusing on driving more sales velocity. So let me use some data for comparison. As of the 24th of May 2022, we had contracted 20% of the crop. At the same date in 2023, we had contracted 21% of the crop. And as of the 24th of May 2024, we have contracted 45% of our total crop. This will accelerate cash, it will reduce risk and the volume of carryover inventory. There's more to be done, and we need to expand our channels and routes to market. But it also means we've got 55% of our volume remaining with potential upside to price. We're in the process of developing deeper customer relationships. We have, this year, added 7 new direct manufacturing customers for the 2024 season. They represent a total market opportunity of some 35,000 tonnes. We're targeting 3,500 tonnes of business this year, growing to 7,000 tonnes or 20% of their available business over the following years with a margin gain as we avoid paying a distribution fee. And the final priority is really about step-out growth. And we've certainly done quite a bit of background work against a number of opportunities, but it's early days. We've previously communicated there's an opportunity to create a real step change in processing capacity. And we certainly have growers wanting to work with Select Harvests. And whilst the opportunity remains, progress on that will be subject to a better debt position. Our shareholders want us focused on maximizing the current business, and that's exactly what we are doing. So the purpose of this slide is, really, to make our PMO activities more tangible for you. And the strategy behind capacity expansion is to make our midstream returns -- is to make midstream returns, sorry, at low risk, and we're doing this by leveraging our core capability in both processing and marketing. We're creating additional low-cost capacity and adding external volumes at market processing rates. We're reducing our processing costs across all of our kilos, and we're spreading our volumes over our existing fixed cost base. It also carries less price risk for our business and, therefore, improves the company risk profile and equally improves our approach, which is scalable because it leverages our core capabilities. So this chart shows the daily production volume increase of 30%, and we've delivered the additional capacity by doing things like optimizing our expiration, which removes leaves, twigs and other foreign waste from our production processes. That sometimes require a slow production lines. We've reduced planned and unplanned maintenance by improving our maintenance cycles. We've reduced product changeovers within the production plant to increase operating times. We've upskilled our people to ensure they're capable of running the plant at faster line speeds. We've updated our S&OPs to reflect changed processes. We've implemented hulling and shelling trading guidebooks for our seasonal employees, and we've conducted technical training courses for our team leaders. The result of all of this is there's a generation of some $11 million of incremental profit through a combination of lowering unit costs and, of course, increased volume. And you'll see most of that come through in the second half. Let's talk about our PMO strategy and execution discipline. And we're using the project management office to drive outcomes within the business, and it allows us to tie project performance to financial outcomes. We've added some 22 new initiatives so far this year. So I'll give you a flavor of those: 5 sales initiatives, some harvest timing work and some work on value-added labor optimization. We've completed 22 projects this year. This export logistics gain in the $0.10 that we've been talking about is part of that. A new power contract at Piangil is another example of those, and we have some 40 live projects. Each of these projects is tracked each week and reported to the Board monthly. In 2023, we generated $9 million of profit. And in the first half of 2024, we generated $11 million out of these projects. And you've seen some of these gains so far in the presentation. One of the obvious questions, of course, remains so how is that translating to the bottom line given the first half result. And so the right-hand side of this slide tries to direct you to the answer to that question. When you look at our growing costs this year, we've seen an increase of some $15 million on our base numbers. And that comes from lease cost increases of about $6 million, inflationary cost increases of about $9 million to give a total of about a $15 million increase in our baseline cost position. Those costs have been offset by our PMO improvements. So there is about $5 million in labor gains, $3 million in procurement gains and processing efficiencies of about $2 million, $10 million, consisting of a range of operating performance gains. And so you see a net result that has a $15 million increase in costs, offset by $20 million of gains to create a net benefit of $5 million, $3 million of which sits in our total production cost. And hence, you see a reduction earlier on in the presentation to a $6.85 cost per kilo in production. And there is $2 million of gains for the balance of that $5 million that goes to other overhead costs. I've also mentioned not too far, too fast, I've also mentioned in the presentation the sales price benchmark gains of $2.5 million. They are contracted that yet to hit the P&L. So they're not shown in this set of numbers. And the freight gains that we have referenced go to revenue. Conversion for that was only in April, so again, that's yet to arrive on the P&L in a meaningful sense. But we know the volume impact over our total volume will be $0.10 per kg. Now if we can move on to the forward outlook, please. So I think as you look at our crop, our outlook says all of our regions will return to historic baseline yield profiles. Our yield improvement performance programs will deliver gains for improvements in the way that we operate nitrogen application, bees, sprays and farm hygiene. The environment for input costs for water fertilizers and fungicides remains favorable. And improved and more disciplined sales approach will ensure the velocity of the crop. From a California perspective, the 2023 crop receipts will likely conclude at around 2.45 billion pounds. It may not quite even get to that point. The carryout crop levels we forecast at approximately 400 million pounds, and that will help support prices. The remaining 2023 crop volume is of low quality. And the 2024 subjective crop forecast is 3 billion pounds. I think there's a word of caution to add to that because there is a range to the extent farmers have been able to or willing to fertilize and maintain farm hygiene given the lack of profitability in the recent years, which may well impact crop sizes. Globally, prices are positive going forward and moving upwards. The Select Harvests sales strategy will look to optimize price and it'll do that through price achievement through benchmarking or versus benchmarks, tariff optimization, direct supply and making sure we get the right balance between our value-added production and optimizing our kernel sales. Our long-term view remains there's continued global growth in demand at 5% to 8% CAGR and over the longer-term, prices will continue to rise. So I think if we move into talk about our key messages, globally, I think clearly, it's been a tough several years for the almond industry. The first half 2024 performance is a substantial increase on the first half of 2023, but as the numbers demonstrate, profit remains low. Select Harvests' transformation is underway, and we're well positioned for an upturn when prices improve, and that is starting to happen. I think when you look at the business, you can see a series of operational gains. There's a large upshift in crop size and quality in 2024. Production costs per kg are reducing. And as promised, we've delivered the increase in processing capacity and prices are improving, as I've just noted. And business model is also improving and becoming more robust. Safety capability is improving, and that's code for our execution capability is also improving. Select Harvests is becoming more competitive with a lower cost base. The transformation program, whilst early days is progressing well. There is tangible economic value to be accessed. We've got a disciplined management approach, a pipeline of PMO improvement initiatives that will deliver an improved return on capital. Our program has a debt profile improving year-on-year, and our profit sales are driving more accountability and performance management. And it really brings me back to our focus is on the delivery, the highest quality growth at the lowest possible cost, processing it and maximizing the value we receive for it in the marketplace. So on that note, let me hand back to Andrew to run the process for questions.

Thanks, David. Look, we've got a number of parties here interested in asking questions, so I'll put them through sequentially.

So first, we've got Josh Kannourakis from Barrenjoey.

David and Brad, can you hear me okay?

Yes, sure.

Yes we can.

Guys, just wanted to -- just a query just around the sort of how we should be looking at the sort of first half, second half. So just to be clear, for the almond EBIT, effectively, we're expecting that sort of a 75% recognition of that is coming into the first half? Is that correct?

That's correct, yes.

Yes. And then just to sort of break it out for the remainder of sort of cost of movement. So we've got, in the first half, obviously, not much in the way the third-party processing and benefits. But just from a corporate cost and other costs outside of the almond EBIT, like, how should we be thinking about that across first half and into the second half, please?

Well, corporate costs and -- will be basically 50-50, so there's no movement on those. And interest costs will start -- will come down a bit because our debt profile will start dropping in the second half.

Got it. And sorry, Brad, what was the sort of corporate cost expectations for the full year, sorry?

That was around $14 million.

Yes. Okay. Copy. And so -- and then into the second half, obviously, you've got a fair bit of growth coming through the third-party expectations. Like, how should we be thinking about the sort of benefit into the second half in terms of EBIT for the business?

Well, between third-party processing and wholesales, I mean, that's -- we're looking at a sort of $8 million to $9 million benefit out of those in the second half.

Okay. Great. No, that's very helpful. And then just second one, obviously, just on the OpEx profile, it sounds like there's a lot of initiatives and moving parts going into both efficiency and also managing that down. On a sort of -- and I guess you've changed the theoretical to sort of 29,000 tonnes at the moment. But how should we sort of think about where -- maybe on that basis, where you think you can sort of get that down to, over the medium term, as you sort of implement some of these initiatives across the business?

Sorry, Josh. To clarify, you're seeking what do we think are forward-facing cost per kg is going to be?

Yes. Just in terms of -- you obviously talked about some of those initiatives like, assuming all else equal in terms of no big moving parts on water and other things like that, what do you think you should be able to manage that too in terms of some of the items within your control?

I think I'm reluctant to try and to give you a number on that. It will -- there would be 2 things that'll drive it, of course. One is the -- as the crop increases through our yield improvements, that will absolutely deliver some upside. And then as you point out, we have got a series of specific operational things that basically go to beating inflation and getting a bit more as you've seen this year. This -- I'll lay it to you this way, there remains a lot of opportunity within the business, Josh.

Okay. No, that's really helpful. And then just in terms of, guys, I guess, the debt profile looked a bit better than we'd sort of expected. In terms of some of the other moving parts of that, so that is expected to sort of come down. How should we look at that into the following year? And I guess, maybe in the context of that, you've given, I think, a chart there, not the exact number, but a broad chart. But how should we think about that in terms of the capital layout in the business over the next couple of years as well?

Can you just clarify, Josh, when you talked about the capital layer?

The CapEx of the business over the next couple of years? Yes.

Yes. So over the last 12 months, we -- as I mentioned earlier on, we have pulled back on our level of CapEx to essential and fast-payback return-related CapEx. So our CapEx profile is likely to go up, I would have thought, by circa $5-or-so million back to more normal sort of levels.

Okay. Great. And so because of that being down, just -- maybe just to round out where the D&A expectations are for this remainder of this year and into '25 if you've -- I don't know if you've got that handy, Brad.

I don't have that exactly handy at the moment. The D&A, I mean, we'll -- I mean just on our PP&E, our D&A will stay fairly constant. It's not going to go -- our CapEx is pretty much in line with our D&A profile.

David, we've got Mark Topy from Select Equities.

Just a question around the sort of demand that you're seeing at the moment. And particularly sort of in reference to China you alluded to there. Can you give us some expansion there in terms of how you're seeing demand going over the next 6 months?

Yes. Yes, thank you for the question. So I think China has actually been an interesting -- China and pricing has been an interesting journey to us. If you look sort of since September, October, we had seen this sort of slightly passed by our [indiscernible], but we've seen an increase in our pricing profile. And then we got to March, we saw a slight dip off in the profile when people were first starting to talk about the potential size of the U.S. crop. And I would suggest that there were some vested interest in the industry, [ jewel-binding ] what they thought the size of the crop was going to be and the quality of the crop and a few other things that put a little bit of downward pressure on market prices for sort of a 4- to 5-week period. I think economic reality has kicked in, and the obviousness of the numbers that I was quoting is kicked back into the market in a global sense. And so hence, we're now seeing substantive up movements in price again, and so -- and you can start to see that in the sort of external sources that you might go and look at full price. Then specifically to China, I think -- I was in China several weeks ago, and Select Harvests is looking to evolve its strategy in the China market, and I referenced some of that slightly obliquely in the presentation. So we've added a series of direct and large nut manufacturing companies to our profile. We've stepped away from some of the trading volumes that we have normally done. We've got -- in some cases, we've got very good trading relationships. We're absolutely hanging on to those. But those that were delivering the sort of value that we needed, we're stepping away from those, and we're increasingly going to direct supply. We think we've got, in those 7 individual manufacturers, people that want particularly unique relationships. They are looking for long-term relationships and they're looking for some of the attributes that Select Harvests can uniquely provide. So we think we've actually got a -- our opportunity in China, we think, is actually changing as the nature of our customer base is changing. And that hits -- at 1 level, supersedes what are some of the broader question marks that, I think, people have around -- globally, around the China economy. So I think you've got sort of various issues playing out, but it's primarily driven by the fact that, I think, being physically present in-market, getting some high-quality relationships is creating opportunity over and above the China market, sort of general economic view that's held by people.

Great. Because obviously, there are some softness in other sort of product sales into China, but also just as, I guess, a follow-on then, in terms of the quality that you're seeing in terms of the product and the comments around the poor quality of the remainder of the U.S. crop, how do you see that positioning yourself into selling into the China market, where they demand that quality?

Well, I think I mentioned earlier on in the presentation, the sort of in-shell mix that we've got. That is a substantial shift year-on-year upwards in terms of our own quality profile. And we have got a very -- we're increasingly, at the moment, waiting volumes into China because of the quality nature of the profile that we've got. So I think what you'll see is, I mean, in the short term will be overweighted to China relative to our historical position because there's more profit to be made in that market. I think when you look at the carryover volumes that are in the U.S. there's notionally about 1 point of -- let me round numbers here, but there's notionally about 1.1 billion pounds of inventory sitting available in that market at the moment. Of that, about 550 million pounds already presold, waiting to be shipped and invoice. So they've got a balance of about 550 pounds that they need to sell and transact. China sales at about 200 million pounds to 250 million pounds per month. And so therefore, it's very obvious to me that, that inbound or that carryover inventory is going to be very low. Hence, we used that 400 billion pound number. But I think the other thing that sits in that, that really should be considered, I can't quantify this, but if I use the Australian experience as a proxy for this when there was low quality in the crop, a big proportion of that carryover volume will be of such low quality that it will end up having to go into various value-added meal type products. So I think in practical terms, the real available supply out of the U.S. is going less than people realize, and that will all be positive for us.

Yes. Got it. And just to close off, so the India demand has also been pretty strong in the current year. Are you seeing that dynamic adding to demand equation?

Yes, I think that's exactly right, Mark. We are absolutely seeing strong demand out of India at the moment. And we have seen that for a period of time. And, essentially, what we're looking to do and I spoke about this in terms of some of that price optimization, though. We'll take the position that we will sell into either China or India, depending on where we can maximize price and return to shareholders.

David, we've got James Ferrier from Wilsons Advisory.

I think I'm coming through okay. David, Brad, can you hear me?

Yes, we can, James.

Yes, James.

Perhaps I'll start, I'll build on Josh's earlier question first. Brad, you touched on the wholesales income, the third-party processing income where the contribution there is expected to be more material in the second half. That's largely just a function of the timing. Where is the contribution sitting from the value-add or the manufacturing? And if you put all 3 of those together, cumulatively, what does that contribution look like in FY '24 versus FY '23?

Yes. So value-add in the first half was around about a breakeven position, and we're forecasting that to be around about $2 million to $3 million, the contribution to that next year, so.

When you say next year, you mean FY '24 or?

I'm sorry, next half. Sorry, next half, not next year. So with that -- and just bear in mind also that we -- in the half year numbers, we also roll off 2023 crop, which also won't be repeated in the second half as well. So we'll have our overall sort of non-crop contribution of sort of around $11 million to $12 million of profit.

Yes. And what was that last year?

Well, that was -- it was a lot lower than that because a, we didn't have as much external processing; and b, we had far less hold than we do this year. But bear in mind, last year we only had 19,000 tonnes of almonds, which quantifies the far less hold. Just -- what we have this year with our external processing, we've got over 40,000 tonnes of almonds. So we've got a lot of hold this year that we can -- that we will be selling into the feed lot market.

Yes. That's great. And probably also building on Josh's question. Just to clarify the CapEx expectations there, it was $26 million of CapEx in FY '23. It'll probably drop to around 20 million for FY '24, and then it goes back up by about $5 million in FY '25?

Going into '25, James, I mean, we haven't done any detailed work yet in terms of what our CapEx is. What I can say is at this stage, we don't have any major CapEx projects that we have on the horizon. So I would anticipate '25 going back to what our normal pre-'24 profile is.

And that FY '24 is slightly lower than that, so close to $20 million is essentially what you're implying?

Yes, that's right. Yes. We will start lifting it up a little bit in the second half as -- because our cash flow starts becoming positive. So some of the CapEx that we've held off in the first half, we will start spending in the second half. So I think it's fair to say second half CapEx will be a little bit higher than the first half.

Just to add, the single largest CapEx that we have is a previously -- which we've spoken about, actually, particularly before, but is a -- it was about a $10 million CapEx, $10 million to $11 million and related to putting increased drawing capacity to the Carina West facility. And so that there will be some outflows related to that in the back half of this financial year.

Understood. And last question for me. Just on the debt facilities that you have in place, during the course of FY '23, you had about $30 million of additional funding capacity added in from your finances. Just remind us where that sits, if it's still available to you or whether it's rolled off yet and if, in fact, it is rolling off out of the available facility?

So it's still sitting in our funding facilities. It's due for renewal later on this year. However, it's just part of our funding facilities, and we'll just continue to roll that forward. So debt file going forward will not change over on a minor adjustment and that will be no longer having a U.S. dollar overdraft facility. So that removes of $7 million off our debt facility. But as we've stated, we'll also -- because that, we'll also increase our Aussie dollar overdraft facility by $10 million. So going forward, our facility will be $270 million.

David, we've got call from Charlie Kingston, a family office, K Capital.

Can you hear me?

Yes, we can.

Just a quick question on the balance sheet. I understand it's seasonal, and that is likely to drop going forward. But it does still appear to be reasonably stretched and obviously, agriculture has plenty of uncontrollables. So even if you do return to a decent profit over time, I assume that it will take a long time to reduce debt purely through earnings. So just appreciate your thoughts on what other levers you can pull to reduce debt. Previously, you've sold assets. You've sold some water assets as well. Just hoping that you'd be able to confirm that these would be utilized before any consideration is given to potentially raising equity, given just where the stock trades, probably a 60% discount to NAV. But obviously, it'd be very dilutive to do so at the current level. So I just appreciate your thoughts on what other levers you can pull RE: debt to get that down to a more comfortable level.

Charlie, I think, historically, we've spoken about having some -- on this topic, we're spoken, really, about having some lines of defense should we need to address them, one of which would be selling water, but we haven't actually sold any water to now. And as you might heard me mention earlier on in the presentation, we're actually of a view that water's strategic, and we intend to increase the proportion of water that we have sensibly over time. But we do have some physical rebalancing of the locations where we choose to hold that water as part of our strategy going forward. To your question, we look at our debt profile. As we said, we absolutely agree that we have more debt than we would like. We see that debt profile improving this year and continuing to improve into the following years. So we don't look at the business and think that we have a specific need to raise capital. And in fact, what we've said and we would continue to say today is that if we have a great investment opportunity that we think will make great returns for our shareholders, then we would be very pleased to come and bring a capital raise opportunity through to the investors to create the opportunity to make more money and all be collectively wealthier. We would absolutely do that. That we think, in terms of the operational performance of the business, and you can see it from Brad's earlier chart that we operate within our facility base and yet we do see a reduction in debt sensibly over time.

Okay. And just, I suppose, a follow-up to that, looking back through the history of Select as a listed entity, the discount on NAV does appear reasonably cranking, and certainly, you're not the only agricultural type company to have that issue, and I appreciate, David, you are reasonably new company as is some of the Board members, but in 2017, there was a bid for Select that was rejected at $5.85. 7 years later, about 60% below that price. I think the company raised equity at $4.20 very soon thereafter, and then again at $5.20. Again, the company is trading here at $3.30 today for long term. It's been a pretty underwhelming performance from Select. But I suppose just the high-level question is should the company remain listed, given there a lot of private capital interest out there. The Canadians clearly like our agricultural assets, and I suppose it is a bit troubling that in the presentation, you've talked about potential further land acquisitions or leases, taking on more debt. I would have thought a buyback at the very minimum would be the absolute most sensible thing to do at the current share price, given where the stock trades today and, yes, just that -- your previous comment about potentially raising equity. Again, I think it's -- the debt is a bit of an overhang on the company and your cost of equity today is very high, so I just appreciate your thoughts on those issues of buyback, Select as a listed company, et cetera, because the long term isn't ideal.

Well, I think -- firstly, I think, to the issue of buying farms and the like, I think the point that I was really trying to make was if we saw an opportunity and you did not hear me announce that we think there's one, there, you heard me say, "Sure, we look at farms continually." But if we thought there was one, we would only bring it forward if it was compelling. We don't have one that's compelling and we haven't brought it forward, and we wouldn't think anything that we brought forward would be at any land premium given where the global almond macro is. I think in terms of the value of the business, I think, what I would say is we think there's a lot of upside in this company. And clearly, to where you started, we need to unlock that and bring that forward to the investor community, and that's the challenge that's sitting in front of us. Should we be -- should someone do a takeover offer or should we remain a publicly-listed company or any other version of that, that's a question for the owners of the company to decide and for the Board to opine on. It's probably not really something that management has a view on other than to say our job is to maximize the value that we create for the existing owners of the company, and that's what we're absolutely determined to do.

And the buyback, is that being considered where the current market is trading?

You could certainly create a logic for doing a share buyback. And no doubt that is one of the many topics that we talk about what the Board considers on a regular basis. But there is nothing to specifically comment on with in that regard.

Okay. And just to finally...

Charlie, Andrew here, we've got 2 more guys waiting for questions and we've got meetings to start very shortly, so I might, in the interest of the queue here…

That's fine.

We can take this off-line and reconvene and I might pass through to 1 of the other 2 questions to ask their questions. If it's okay. David, we've got Apoorv Sehgal from UBS, and then, I think, we might need to allow that -- finish questions at that point.

I wont to drag the call out to a long, but pretty quick sort of follow-up questions. Just on the third-party processing earnings, so you said $8 million to $9 million in the second half. Am I right in saying in the first half, that was pretty much close to 0?

Correct. That $8 million to $9 million, Apoorv, remember it's wholesales and external basis, not just external basis.

Yes, with the value add of $2 million to $3 million over and above?

Yes, correct.

Yes. Okay. And then just quickly, the $6.85 cost per kilo, that's -- my interpretation is that's based on the reported 29 crop sites.

That's correct.

Yes. So under a 29.5 to 30, are you -- would the number be just have seen the same sort of number, $6.85?

It would reduce proportionately with any increase in volume above that number.

So those costs -- if the crop goes up, those costs -- the gross costs will not change. They may slightly go up a little bit if there's additional -- some additional processing. But all in all, those costs will not change. So it's really just the volume into those gross costs, so you would see that number come down further.

Yes. Okay. So that's all fixed. That's good. And then just finally, I just wanted to double check, Brad. I didn't quite capture your answer before on the D&A for FY '24. What was the number you're expecting for '24 D&A?

The total D&A for '24 is around $33.5 million.

David, there were more questions, but I think I'll take them offline, and we probably need to wind up now.

Okay. All right. Well, thanks, Andrew, and thank you, everyone, for listening to us talk about where Select Harvests is that and, importantly, where we're going in terms of our forward prognosis.