Select Harvests Limited (SHV) Earnings Call Transcript & Summary

Well, thank you, and good morning. I'm David Surveyor, the Chief Executive Officer and Managing Director of Select Harvests. I'm here with Liam Nolan, our CFO. Welcome to our first half 2025 results presentation. The first half 2025 results presentation will be delivered via webcast on the link displayed below. Gone too fast. Thank you. Just on the link displayed below as advised to the ASX. After Liam and I have delivered the presentation, there will be time for questions before we commence our investor road show. [Operator Instructions] In the event that we have questions outstanding at the end of the allotted time, please contact Andrew Angus via the e-mail on the screen there, and we'll deal with them subsequently. This next slide simply outlines the disclaimer and basis of preparation of the information contained in this presentation. In terms of the agenda, I'll start by providing a business update before handing over to Liam, who will discuss the financial results in detail. And then following Liam, I'll discuss the strategy transformation and the forward outlook before we both take questions. Next slide. Thank you. So as always, the first topic we will cover is safety and sustainability. Safety remains a core focus of our operations and achieving continuous improvement is critical as we work towards 0 harm and care for our people. Our TRIFR at the full year was 7.1, and in fact, it's 6.3 as at today. So our injury rate continues to trend lower. Employee safety training and competency development remains a top priority for the company. We've held numerous training sessions this year, reinforcing our commitment to a skilled and safety-conscious workforce. We're also prioritizing risk assessment and contractor management as key initiatives for the remainder of the year. And while safety incidents still incur, the frequency is decreasing, driven by the development of safety leaders across the organization to foster a culture of accountability and proactive safety. Moving to ESG. The Australian Accounting Standards Board is introducing new reporting standards for sustainability, climate-related risk and financial disclosures. Select Harvests is a Group 2 entity, so we'll be required to report under these new standards starting 2027. To prepare, we're ensuring effective data management systems, completing climate analysis modeling and aligning financial reporting processes with the expanded standards. Now more broadly in the ESG space, we continue our approach to the circular economy. We use hull and shell for our own energy production with a cogeneration plant providing an alternative to fossil fuels. From an emissions perspective, we've engaged an industry-leading consultancy to assess the potential for implementing micro grids across our farm network by using renewable energy solutions, including battery technologies to enhance energy security and reduce emissions. We think we've got the potential to reduce emissions by some 30%. At our Carina West plant, we have a new drying facility, which will generate 5% to 10% fewer emissions compared to the current dryer once it's been commercialized. And from a people perspective, we remain committed to creating an inclusive culture with a suite of policies and programs. Our commitment to safety and sustainability remains central to our strategy as we pursue results that deliver value for all shareholders. Now moving to the almond macro. The global demand and supply dynamic is in great shape. This slide provides a sense of key data and key drivers. Prices have been increasing as the long-term global macroeconomic has improved. Total global demand continues to grow with a healthy CAGR of 5% to 7%. Food mega trends continue to favor healthy foods and convenience foods, both of which are positive for almonds. As a comment on the global zeitgeist, we're seeing positive global sentiment towards Australian supply and less enthusiasm for U.S. supply given political tensions around the world. In terms of unit production costs shown on the bottom left of the slide, Australia has a significant relative competitive advantage to the U.S., this being a function of operational costs and yield performance. We've used data from UC Davis in this analysis, but we've taken a very conservative approach to the size of this differential and note others have assigned high unit cost disadvantages to U.S. growers. Interestingly, North Americans at the recent International Nut Conference in Mallorca presented a position saying U.S. growers need at least $3 a pound or approximately AUD 10.30 per kg to be successful. On the supply side, California represents approximately 80% of global supply. Almond acres appear to have peaked, and plantings have reduced. Australia is about 10% of global supply, and our forward volumes are also reasonably flat. The time to maturity for trees is 6 to 7 years. So in other words, the supply side cannot respond quickly to an uptick in demand. So we have a very positive almond macro that is sustainable over at least the 7-year horizon, and we have a relative competitive advantage where Select Harvests is well placed to benefit with very good medium to long-term pricing. If we now move to talk about our financial performance. The company has delivered a first half net profit after tax of $28.7 million based on recognition of 75% of the crop at 25,250 metric tons and an additional profit on the sale of the 2024 crop. The result is an improvement of $31.1 million on the previous corresponding period. Whilst the Australian crop size was disappointing, Select Harvests was able to capture the value of rising prices by keeping our operating cost base tight, and I will touch on that a bit more later. As discussed at the full year 2024 results, there is a $5.8 million gain from the sale of water with a specific transaction completed in the 2025 financial year. And as part of a routine review of our payroll, we have uncovered a historic underpayment of Super of $3.5 million going back over 5 years. Whilst it's not a material amount to any given year, the auditor has advised that this should be restated in prior year results to align with the timing of the events. The CFO will provide further detail on this shortly. The Board has also determined that there will be no interim dividend paid with a decision on the full year to be made at the time of closing of the annual accounts. Pricing remains positive with the full year forecast price of $10.35 with 86% of the crop hedged at $0.6486. Operating cash flow has improved by $30.7 million year-on-year, and we've seen the benefit of collecting the money delayed from last year's logistics issue. This offset partially by the corresponding payments to third-party growers for that crop. It's also worth noting in the second half of 2025 will see the benefit of the current year crop sales, wholesales and third-party volumes. The first half CapEx increased with cash spent primarily on new shakers and the Optimus capacity expansion at the Carina West facility, noting, of course, that any water sales and purchases essentially offset each other in terms of dollar amounts. With respect to net debt, the company's balance sheet is in good shape with midyear debt reduced to $168 million and gearing at 32% versus 58% in the prior year. Operating cash flow was supported by higher prices. However, as previously described, we have, in a rising market, consciously slowed sales on the margin to maximize profitability. We are now back to full sales velocity, and debt will unwind further as sales receipts come in. We have no logistics issues. Banking refinancing is now in place with a $240 million facility with 3- and 5-year terms, and Liam will talk to you about that more fulsomely as we go forward. Move to the next slide. What I'd like to do is now talk to you about 3 of our key results drivers, and we'll start with volume. The Select Harvests crop forecast remains at 24,000 to 26,500 tonnes, and we've used the midpoint of 25,250 tonnes in our financial results. It's clearly a disappointing crop. Our situation is reflective of the broader Australian crop for the year, and we have seen the Australian Almond Board also published a similar reduction in crop size. The '25 crop was grown under the old horticulture strategy, and that may have seen tree resources overextended without enough fertilizer, resulting to nonpareil variety produced less fruit and a lower crack-out rate. We lost some 500 tonnes to frost and ultimately had a bloom that did not quite deliver. It's too early days to put a forecast number around the pollinated crop, but we do not expect the 2025 crop to have an impact on future years. Recent years has also seen volatility in crop volume. So defending our farming assets is also part of our strategy. During the '24, '25 crop year, we commenced improving the drainage at the Piangil Orchard, which had been suffering from wet feet. This need had been identified at the time of purchase of the farm, and we're now underway, and we have more drainage being done. The company has also decided to invest $2.2 million at Mountview to improve drainage and replant a small 12-hectare section of the farm, and we're similarly looking at Belvedere farm to see if an investment in further drainage makes sense, again, along with a small replant. We're also increasing our drying capacity at Carina West to ensure we maximize crop value and ultimately volume. With the 2025 crop -- whilst the 2025 crop has been an off year, the new horticulture strategy has largely been deployed. The tree health is positive, and 2026 is the first year when we should see the horticultural practice benefits manifest in a better crop yield. We move on to the next slide, please. Select Harvests full year price forecast, as mentioned, is $10.35. This remains current and is being sustained by the existing low levels of uncommitted inventory and a subjective USDA 2.8 billion pound crop forecast. Globally, U.S. and retaliatory tariffs are bouncing around a little bit. Where they exist, they are favorable for Select Harvests. For example, China currently sits at 45%, but we view these tariffs as a possible enrichment to existing prices, and they are not the cause of our high existing prices. We are right now experiencing the next surge in demand, particularly in our key India and China markets. In India, with tight U.S. supply, it means that Australian almonds will be essential for meeting the peak Diwali demand period. Prices for low-grade almonds have reached 5-year highs due to limited buyer positions and strong EU demand. We've also seen the bakery segment have robust growth in Southeast Asia and China, and that's driving demand for Select Harvests value-add products with some prices at the $14 per kg range, albeit on a lower volume. Select Harvests pricing is outperforming our tariff-adjusted strata market benchmark, as shown in the chart at the bottom of this page. This is underpinned by improvements in sales discipline and data to leverage tariff differentials and by using our enhanced direct relationship with customers. With tightening global supply and rising demand in China, India and Southeast Asia, pricing is expected to remain firm, now having several times in recent years made the comment that price will not always move in a straight line. But certainly, our view, the macro dynamics will, for the next several years, show a strong price environment for almonds. And it's our view there is more price to come. Let's move on to the next slide, please, and production costs. Total production costs are the cost of growing, harvesting and processing. An important part of the company's strategy has been driving productivity gains. To enable a fair year-on-year assessment of costs, we always normalize the data to a 29,000 tonne volume. And in 2025, this is running at $6.77 per kg. Or in other words, you can see that for the last 3 years, we have held cost discipline despite both inflation and ongoing investment in our horticulture program. There was some notable improvements in cost captured through our PMO in the year. To date, we've increased harvest -- we increased labor efficiency, lower harvest R&M, reduced processing costs and spray efficiencies. A negative impact is the increasing lease and amortization of capitalized development costs for trees, which is $4.3 million, and that has been more than offset by our cost savings. So now let me hand over to Liam for a more detailed run-through of the financials.

Thank you, David. The 2025 first half earnings with a net PAT -- NPAT of $28.7 million is a marked improvement from the prior corresponding period. First half earnings are based on 75% of the estimated 2025 crop, which is consistent with the approach in 2024. 75% is estimated to have been harvested, and the fair value is included in inventory in accordance with accounting standards. Driven by a 37.6% increase in almond price, PMO initiatives exceeding inflation headwinds, Select Harvests is well positioned to take advantage of the favorable macroeconomic conditions in 2025 and beyond. As you can see from the EBITDA bridge, the lower 2025 volume is more than offset by the higher almond price. The 2025 half also includes one-off items, including $5.8 million profit on sale of water rights and around $2 million of one-off costs relating to items, which include investment in areas such as our process redesign of order to cash, which is including automation, sales reporting uplift, activity-based costing study, recruitment and legal costs. As we move to the balance sheet, highlighted by a reduction in the gearing ratio from 58% to 32.7% following the 2024 capital raise. After adjusting for the capital raise, net debt is marginally higher than the prior corresponding period. This is largely due to higher capital expenditure in the first half following low 2024 capital spend. Key items include new harvest shakers, project Optimus, refurbishment of key horticulture equipment and improved drainage in our farms. Net debt at March is heading towards the seasonal peak. And with improved 2025 earnings, we expect our 30 September net debt number to improve as the 2025 crop receipts come in over the final quarter of 2025. I note that the market value of our land processing facility and water rights exceeds our book value by over $175 million. Our debt covenants have been met at March, and we expect them to be met over the next 12 months. Our operating cash flow for the first half has benefited from higher crop sales, lower borrowing costs as a result of lower debt post capital raise. And as previously mentioned, the higher investing cash flow is largely due to increased capital spend. We expect a strong second half cash flow driven by the higher earnings and improved supply chain performance. I'm pleased to announce that Select Harvests has finalized a binding agreement with our lenders regarding the renegotiation and extension of our debt facilities as part of the first half results. The refinancing involves an enhancement of the existing facilities with the following attributes: $240 million in funding with an additional -- with the addition of a third bank to the syndicate, 2 tranches of funding, $150 million for 3-year term and a second tranche of $90 million for a 5-year term. These 2 factors help mitigate refinancing risk and demonstrate strong support for Select Harvests from our lenders. Some additional highlights of the funding arrangement include improved pricing and more favorable covenant terms and conditions. And we'd like to express our appreciation for the continued support of our existing banking partners and the new banking partner. Following an internal payroll review, Select Harvests discovered an error in Superannuation payments that dates back to 2020. The expected cash impact of this underpayment is $3.5 million, which includes the underpayment, interest and penalties. The entire amount is expected to be nondeductible for tax purposes. The underpayment dates back to an error in 2020, and I note that prior internal audits have been undertaken to this change and have specifically tested payroll issues. Due to the materiality of the amount, the 2024 accounts have been restated with $2.9 million adjusted through opening retained earnings and $600,000 through the profit and loss in 2024 with the provision created on the balance sheet. While disappointed with the error, Select Harvests is committed to ensuring employees are appropriately remunerated and is undertaking an independent assessment, which will validate the amount and rectify amounts owed to impacted individuals as quickly as practical. Select Harvests has disclosed this matter to the Australian Taxation Office. During the preparation of the half year results, management also uncovered an error in the 2024 audited accounts. The error is a gross up of revenue and cost of goods sold of $43 million. The internal controls in place were not adequate to prevent this error from occurring. And while there is no impact on EBIT, EBITDA, NPAT, retained earnings or cash flow of the business, the error was preventable. Management has subsequently put in further controls around this specific issue. One of the company key strategic enablers to support the strategic pillars is technology. And both these issues that I've mentioned are examples of where we can use technology and improve processes to take out manual tasks. We are focused on investing in technology to improve efficiency and accuracy of our processes, and these include payroll and accounting tasks. David, over to you for the strategy and transformation.

Thank you. So I think if we move back to talk about strategy and strategy execution specifically. The company has got 4 very clear priorities. The first is about having substantially greater almond volumes. The second is leadership in processing scale and efficiency. The third is about maximizing return from the crop. And the fourth is about innovating to drive step-out growth. And the traffic lights show performance, and the white dots are areas that were not prior priorities. This year, we've continued, I think, to make substantial progress in execution. And the first strategic priority, of course, is increasing almond volumes. Now unfortunately, the 2025 Australian crop has not built off the 2024 success. We view that as a one-off. The strategy has us driving for increased crop productivity with better yields. We have, over the 2025 crop growing period, enacted better practices, more fertilizer, better bee placement and better foliate spray management. And you can see it in the trees. As you know, growing is a 2-year cycle. So our 2025 actions support growing the 2026 crop year, which has now commenced. We expect the first results of our horticultural strategy should come through the 2026 crop. As we benchmark our farm performance against others, we remain confident we'll get more yield. The price for improvement is substantial. Secondly, we've continued to increase our external volumes on a like-for-like growing basis. We added a small increase in third-party volumes in 2025, but of course, that's impacted by the smaller Australian crop size. And for 2026, we currently have existing supply of about 12,000 tonnes with more to be contracted. We're also using our farming scale to reduce costs as we improve on-farm efficiency for sprays, seasonal labor and simplify our organization design. Our midstream processing has changed scale and efficiency. As with farms, processing productivity gains are seeing costs down, less line stops, lower packaging costs, lower labor costs. Having successfully completed our first phase increase in the Carina West facility by 30% to 40,000 tonnes, we are running the plant at the target speed, which on a smaller 2025 crop will mean we run faster and keep the operating costs tight. We are now executing the next phase with a further 10,000 tonne increasing capacity to 50,000 tonnes, which will be available from 2026. What I don't want you to miss is that for around a total of $6 million over 2 expansion phases, Select Harvests will have added almost an entire plant's worth of capacity that greenfield would cost approximately $100 million to build. And whilst the focus of the Carina West process facility is on capacity, it should not be missed that we've also improved facility yield. So that means less damage on stock pads, less product on the floor, less chips and scratches, and we're experiencing fewer complaints with the year-to-date number sitting at 8 customer complaints. And we're getting positive customer feedback around our performance. Our sales organization is also changing to maximize returns from the crop. The improvements we have made in sales capability mean that we are confident around sales velocity. The changes, as we have previously discussed, include expanding our customer base so that it's broad enough to consume an increased volume of supply from Select Harvests. This is for not only the top end of the quality range but also at the bottom end of the quality range, which can be harder to place. And we have added customers in Spain and Turkey. For value-added, we're expanding into overseas markets. It's early days, but we are making sales into China, the U.K. and Thailand with sliced and meal products. We're also continuing to develop our value chains by selling more volume through direct supply with larger end customers. We've increased our direct supply again, and it's currently running at about 50% of our year-to-date total sales. These actions have created more space for Select Harvests to focus on maximizing price. And as you saw coming through on the pricing slide earlier, that's got real potential, and it's quite an exciting shift because it's showing some movement beyond Select Harvests and our industry being a price taker. But it does need more time for us to be confident it's embedded. Similarly, we also have work going on cost to serve so that we pass on and consider pricing elements that add cost in a way that we have not previously done. A simple example being charging for the extra cost of creating part or mixed pallet orders for domestic customers. I also mentioned logistics earlier, and it's a pleasing shift. We have improved end-to-end efficiency for managing logistics such that we range from 17% to 27% faster per shipment. We have low error rates on documents, and we have 0 document backlogs for any landed ships. We have no demurrage issues and no customer complaints. In fact, we have customers now complementing our documents, our efficiency and our communications. From a step-out growth perspective, we have no M&A activity happening, and we have no immediate plans for it. The focus is to maximize the existing operation, and we think there is substantial upside leverage in our base business. And finally, we've added the enabling pillar. We have previously communicated we have some legacy back-office issues to fix, and you can see the impact of that in Liam's section of the presentation. As part of our broader digital enablement strategy, we are investing in the automation of core back-office processes with a particular focus on streamlining the order to cash and procure to pay cycles. This includes the development of a proof-of-concept order entry application, enhancements to our export documentation by integration with our ERP and the automation in invoice processing. In parallel, we're undertaking an uplift in our operational performance -- sorry, we are undertaking an uplift in the operational reporting through a structured data capture, enabling more timely and accurate insights to support decision making and performance management. We move to talk about our PMO. We continue to use the project management office to drive outcomes and set cadence within the business. The PMO in 2025 has grown $20 million of value. That, of course, is offset against the challenges all Australian businesses faced with inflation. So the net gain is about $8 million. Our key forward-facing PMO activities are about the Carina West processing capacity expansion, our sales margin optimization and the 2026 crop. Let's move on to talk about the forward outlook. This year has once more proven crop forecasting is a [ full 0 ]. With the nonpareil essentially processed, we have commenced processing our pollinated varieties. We have only one weighbridge code completed for pollinators and it was within the expected rate. However, there is not enough data to form a view on trends. Therefore, our crop remains forecast in the 24,000 to 26,500 tonne range. Our view on the California crop remains consistent. We think they've reached peak acres. Existing inventory is tight. The forward subjective forecast is 2.8 billion pounds. We think that number is neutral for prices and suspect given some of the weather during bloom, bee colony deaths that occurred and some of the anecdotes we hear out of the U.S. that, that number is possibly at the top of the range. We'll need to see what actually happens with the 2025 crop, but we think the macro view is enduring, and it's positive. From a margin perspective, prices have been excellent with tight inventory and strong demand in India and China. We remain positive about pricing. Select continues to manage its costs and see gains through PMO, all of which leaves us with a positive sense of the second half of 2025. So I think to bring this together in terms of key messages, we're very pleased to report a meaningful increase in profitability despite the lower crop. We continue the momentum with our transformation strategy. Our focus is on growing, processing and selling as efficiently as we can. The balance sheet is in good shape, and it will stay strong. And with an enduring strong macro, it's a positive environment for Select to deliver high returns to shareholders. So let me now hand back over to Andrew to run the questions process for us.

Thanks, David. We've got a number of questions here. First is Josh Kannourakis from Barrenjoey.

Firstly, just wanted to ask just to help us bridge out a little bit around the first half and second half movements. So if we sort of take out a few of those one-offs and align for the corporate costs, align for the 75%, it sort of looks like almond results are looking around sort of low 80s or 80 for the full year. And then I guess the big delta is just understanding value-added third-party processing and the wholesales. Can you help us sort of understand a little bit around the timing of those in terms of first half, second half and how we should be thinking about those incrementally into the second half?

Liam, do you want to answer that? Or do you want me to...

Yes, I'm happy to have first go. So in terms of hull and shell sales, Josh, they are all weighted to the second half. As we progress through the season, yes, the sale of those occurs in the back end of our financial year. The second element in terms of our processing fees for third-party growers, they also are weighted towards the back end. We've previously provided guidance around $1 a kilo sort of in that space of earnings. And so that's why we see an improvement in the second half earnings.

And of course, then you've got the final thing to add to that, sorry, is you've got the back half of our crop sales for this year will obviously start to flow through. So things are on boats, things are landing, and then things are subsequently paid through in the back half.

Yes. No, that makes sense. So you've got all of that coming through in the second half. And in terms of sort of the corporate cost, I mean, obviously, you mentioned that they're about sort of on a half basis, about $3 million higher. What does that look like if you sort of normalize out for the sort of $3 million higher in the first half? What are you thinking broadly for sort of full year corporate cost, guys?

Yes. So in terms of items that are essentially one-offs, as I've alluded to, we've made some pretty serious investment in a few areas. And we talked about order to cash and procure to pay. And so there's been a heavier weighting to those in the first half. So we would expect to see those not repeat to the same level in the second half.

Okay. Got it. No, that's very helpful. Second question, just with regard to the new debt package as well. Could you give us a bit of context maybe just how you guys are sort of thinking about the scope of that sort of pricing improvement? If you could give us any sort of context on that and just how we should be thinking about the paydown of debt over the next sort of 12 to 24 months.

So there's 2 elements, I think, there that I'm hearing, Josh. One is in terms of the pricing of the debt. And the second is our approach to repayment of debt over the next 12 months. In terms of the pricing, we've got improved fee structure that's coming through that is material -- a lot lower than the existing arrangement. So the 3-year money specifically is much lower. The 5-year money was about the same. But the elements of that are that it provides a reduced refinance risk going forward and spreads the maturity, which is favorable for Select Harvests going forward. In terms of our debt repayments at the moment in terms of excess cash, we will be planning to manage and have a lower debt going forward as we have our cash coming in over the next 12 months. So that will -- that's part of the company strategy.

Perfect. And so into that second half, how should we sort of look about the sort of interest cost on the business, sort of 5.3% in the first? Should it be -- how different should that be into the second half?

So there's 2 elements that will be coming through. So it's a lower margin coming through, but also we've had interest rates drop. BBSY hasn't moved significantly, but it's down a little bit. But we should also see we're at our peak debt at the moment. So the final quarter should see our working capital improve as the cash receipts come in, and so I would expect interest expense to be lower than the first half.

David, we've got a question from Apoorv Sehgal from UBS.

David, first question. You've managed the cost base well this year, which is good to see that still looks pretty in line with our expectations. Looking sort of a bit more forward, looking at FY '26, I know you're really focused on getting yields up, getting volumes back to sort of 30,000 tonnes plus. That obviously involves kind of more fertilizer, more water usage, more bees on farm. Given those factors, if we are starting to look a bit ahead to sort of '26, should we expect a more material step-up in the cost base in terms of the total dollar cost just given some of those factors to drive yields up in '26?

Yes. It's an interesting question, Apoorv. There's no doubt we have, in any case, over the last year or so, been putting on more water, more bees. So that has created some additional costs. And our various activities have allowed us to sort of consume the cost increases of that. So our cost downs have equaled the upsides related to that. I mean the big question going forward is, you're right, there is probably a little bit more fertilizer to go on. So that's -- and that's -- we've got to find a solution to that problem as we look forward. And the other unknown -- and of course, there's where the fertilizer prices go going forward. And I don't think I can predict that number just yet. But the other one that will sit in people's mind will be the price of water because the price of water is actually increasing at the moment. It's probably gone up from what is about an average of $150 or thereabouts for this year. It's probably sitting today for -- spot water about $300 a mg. So that certainly is -- will be a cost pressure that we need to think about how we get on top of in terms of the forward-facing piece. And of course, none of that will greatly affect the 2025 financial result, but it could have some impact on '26 in terms of where your mind is going. But I think we're going to have to wait and see how much rain comes down over winter to see what that does to water levels because we've seen a few -- we've seen a lot of rain in New South Wales. That doesn't particularly flow down to the Murray-Darling Basin, but we are starting to see some -- also some wetter weather across Victoria over the last little period of time. So if we get, I think, some wet weather, I think you won't see that number increase. In fact, it could come down from $300. But if it's a dry period, it may well sit around $300 to $350 mark. And so that will be something that we'll have to think about as we think about our cost initiatives through the business.

Got it. Okay. Next question. The tariff situation has obviously been a tailwind for the almond price that you guys have received. If we get a bigger or a complete rollback in the tariff situation in China, do you think a scenario like that could see almond prices for Australian growers pull back in a meaningful way?

Well, I think if we take -- so not particularly is my immediate answer, but then let's just sort of pull the question apart. I think if you take China, there's a lot of flux in China in terms of where tariffs are at. So we've had for a long period of time a tariff that's been operating at about a 25% level. We then saw U.S. tariffs and retaliatory responses that took it up to about 160% for a short period of time and now sort of currently sitting back at about 45%. One of the things about the Australian almond industry, whether the number has been at 25% -- if I use 25% actually as the baseline for starting this, whilst that tariff might have been at 25%, the Australian almond industry has never been able to gather all of the value of that 25%. It's typically been able to get about half of it. And as we've seen with what's now at about sort of 40% -- 40%, 45%, there may be a smidgen more that we get, but it's not really material. I think what we do -- what we would say is the tariff issue so far has almost been, to quote somebody else's line, the icing on the top of the cherry on the top of the nut sundae. It hasn't been the driver of prices as we've seen them. We think the underlying macroeconomics are driving prices. There's potential a little bit of upside to come from tariffs, but I think China particularly has had so much up and down movement. We haven't really seen a lot of change because neither buyer nor seller knows quite where to pitch their price in their deals at the moment.

Okay. Interesting. My last question, David. Could you just remind us how your geographic sales mix looks at the moment? Like domestic versus exports but then within export specifically, just sort of split out what China is looking like at the moment and how that's changed.

So our sales mix is very much orientated towards export. If you went to last year, our sales mix was sort of 50% into China. And we, in fact, ramped up our China focus. And so this year, it will probably sit in that and sort of India in the sort of -- therefore is in the sort of about 30% range. As you go to this year, we may see -- we'll probably see that China percentage and India percentage being roughly the same, but it could be plus or minus sort of 5% in either direction.

Next question is from Paul Jensz at PAC Partners.

Firstly, just clarifying the 75% number that Liam mentioned. Is that 75% of products being sold and effectively FOB? And that's, I suppose, setting the 75%? Or is there something else setting that 75% for the first half of the almonds?

Paul, yes. So the 75% represents the accounting methodology that's used to determine the amount of inventory that we've recognized at its fair value. So it essentially takes the midpoint of the 25 -- of our crop estimate of 25,250 tonnes, which is the midpoint, and we determine a fair value of that inventory. So it's 75% of it. So with the remaining 25% we expect to recognize in the second half.

Okay. So with that in mind, how much have you physically sold?

Yes. So the 2025 crop sales, we've got committed sales at the moment of broadly 60% is essentially the current estimated of the 2025 crop. But that doesn't have a bearing to how the accounting requires us to value our inventory.

But it does affect your cash flow, obviously.

Absolutely, yes. Absolutely, yes.

Okay. I appreciate that. And supplementary question to what I told Andrew. With the cost base, and it might be in both your camps on Page 6, you talk about the $6.77 and the California one. I'm interested in how you account for the capital and whether you've got the operating leases in that because it does have a big bearing and the replanning costs.

So the Select Harvests number at $6.77 includes our lease costs and growing and harvesting and processing. With the Californian piece, if you go and look at the...

Yes, that's good. I can sort that one out.

Perfect. So what we have done is we've extracted from the UC Davis work. We've extracted some of the things that relate to the capital charges, cash capital charges that they have put on farming because they're not sort of in the operational costs. And from a Select Harvests perspective, they sit in our full P&L balance sheet. They don't sit as an operating comparison. So we pulled some things back to try and ensure that they line up reasonably between the U.S. cost base and the Select Harvests cost base. So in other words, we've been very gentle in the way that we've described the cost differential because if you use that you the UC Davis data that you're looking at, you will get a much, much bigger number in terms of their cost position.

Next question that we've got is from Mark Topy at Select Equities.

Just as a follow-up on -- and this might be a little unfair, but the courts in the U.S. has struck out Trump's tariffs. I'm just wondering, do we -- is there any likelihood this might lead to market disruption? How would you see that in terms of still some time to how this plays out? But is it possible the traders might pull back in terms of the buying? Or do you think the buying is pretty solid coming out of China?

I think first of all, we've seen a -- I mentioned it actually during my comments. We are absolutely seeing globally a preference for non-U.S. supply at the moment, which is an interesting comment, as I said, in terms of where the sort of population is around the politics around the world. So we've certainly seen that, which we think favors our position. I think when you saw that massive spike up in -- up to that sort of 160% tariff piece, we got a little bit of drawing breadth and pulls out of China as much of that is uncertainty around what's going on. And so I think where there's been uncertainty, there's possibly been a little bit of slowing. But actually, when we look at the rate that we are contracting and if I specifically thought about the rate that we have been selling over the last couple of weeks, we've got people taking orders at a real clip. We're seeing no slowdown in our sales. In fact, we've got a really good acceleration happening at the moment.

Right. And then do you detect any sensitivity to the prices around price increases, product substitution? And it doesn't sound like it, but is there a level where the price is where that might occur in markets like China and India?

I think in the -- there's a possibility, Mark, I think, on the margins that you can get a substitution effect where if someone is doing -- I'm making this up now, but someone's doing a chocolate bar and they were using almonds. And you can imagine at some point that might move to cashews or some other nut. But typically, for branded-based products, people are going to have limited ability to change the ingredients that sit within their product. So it's possible. I think on the margin, you could get a change over time. But I don't think actually there's any likelihood of material demand destruction in this environment.

Right. And just perhaps lastly then on that mix in, what's the sort of mix in between India and China? I think India has been in the market quite strongly in recent times.

Yes. In terms of demand, particularly out of India, we've seen a lot of -- we've seen probably more activity out of India than China because of this tariff issue and that pause that I was mentioning a moment ago. But we're seeing good volume and inquiry out of both. And the India issue, as I also mentioned, is you've got Diwali coming up, and there is not inventory sitting in the U.S. or not enough of it at least. And so India needs product to be supplied in Diwali October this year. And so the likelihood of getting the 2025 crop to India in time is limited. And so you see a real focus coming on Australian supply.

Sorry. And just lastly, so locking in that last 40%, how quickly -- or how do you envisage the timing on that now of forward sales? Yes.

Yes. So without giving you explicit number, we have a forecast rate that we run our sales cadence to. And we've been exceeding that for the last several weeks. And we've got a sales cadence that runs us out, and we look to have most of our product contracted by probably week 45 at the latest. So sort of end of July, start of August.

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

Can I ask you, first of all, Slide 19, where you were talking there about the sales velocity and the point about sort of consciously going a bit slower this year given the profile of the almond price market? How do you think that that's going to impact year-end net debt in FY '25 versus what might be expected under a normal crop sales timing cycle?

So it's a good question. I think when we've slowed -- one of the things that we've spoken about from a Select Harvests perspective is that it's important that we keep a good cadence and a rhythm to continually selling our crops. So we got the cash generation within the business. And then we'd say that if you've got a sudden opportunistic ability around price, which has obviously been the case in recent weeks and months, we might, on the margin, slow down our sales. So that slowdown has really been on the margin rather than in the main. And then in terms of what we think it will be impact on full year cash, I don't think it will impact full year cash. We should have sold everything in this back half that we were planning to sell and have the cash in the bank. That's our expectation. Certainly, it's the pressure that we're putting in ourselves to deliver. So I'm not expecting it to have any impact on full year.

Yes. Okay. No, that's helpful. Because I guess in a normal cycle, full year net debt is materially below the first half. And so just based on your earlier comments, I wasn't sure whether you are anticipating full year net debt to being sort of similar to that historical profile or whether you're only expecting a modest reduction in full year net debt versus the half year balance.

Yes. No, a good question, and it shouldn't impact the full year position.

Okay. Second question is just looking at the decision of the Board not to declare an interim dividend and why that would be given where the balance sheet is now, the almond price is going up well above cost of production, far better profitability on the P&L. So just some color on why the Board arrived at that decision.

Well, I think it just -- it doesn't reflect any hidden issue or hidden message in any of that. All it reflects is the company trying to be very prudent that we've got a half year position, which is great, and we're pleased around that. But we want to delay in making an actual decision on dividends until we get the final set of accounts.

Yes. Okay. Understood. When you think about the almond price, and I guess if we think about it on the equivalent crop mix in terms of variety, quality grade, et cetera, that you're assuming in that $10.35 almond price forecast, so on a like-for-like basis, where do you see the spot price now? And how have you seen that spot price move over the past couple of months?

Yes, that's a good question, too. I think, look, we've continued to see some increases in price over the last period of time. Look, it's perhaps slowed a little bit in the last week or 2. But if you went to -- the issue about conversations of price need to be within a couple of -- I'll give you a number in a minute, but a couple of things that you need to think about. One is we have to sell the entire tree. So there is a range from high quality to low quality as you're looking at prices. And so those different quality levels come at different price points. And the other issue is that when we're giving a $10.35 price, we're giving a view of our average price over the year. And you've got to remember that the year started at about $7.70 or thereabouts. Now that said, to answer your question, we have seen some nonpareil [ in-shell ] sales sort of at around the sort of $13 mark. So that's a pretty attractive and high price. We've seen some kernel sales also in the sort of mid-12s. So we've seen some pollinated supreme at that sort of 23, 25 size, the sort of $12.50, $12.70 numbers. And we're seeing some standard 5s also at the sort of the mid-11 type numbers. So there's no doubt we've seen some good strong prices in terms of today's current price.

Yes. That's helpful, David. Then the last question, maybe one for Liam, just on the fair value allocation between first half, second half. Can I confirm that that's effectively done at the EBITDA line? And then the D&A expense, as an example, is more of a 50-50 allocation in the first half, second half?

Yes, that's spot on. Yes, correct.

David, we are running out of time now. So I think we might wind that up. Any outstanding questions that we've got, I'll contact those people involved and deal with it separately. But thank you for your time and your participation in the Select Harvests First Half 2025 Results Webcast.

Yes. Thank you very much, everyone. We greatly appreciate you dialing in and being interested in where the company is at and your questions. Thank you.