Okay, let's get started. Good morning to everyone, and welcome to the results for the six months to 31 December 2023 for Cobram Estate Olives Limited. My name is Sam Beaton. I'm a Joint CEO of Cobram Estate Olives Limited. I'll be joined today by Leandro Ravetti, who's the other Joint CEO, and also Russell Dmytrenko, who's the CFO and Company Secretary. In terms of the agenda for today, I'll take you through the financial results. I'll also give you a commercial update. I'll then hand to Leandro. Leandro will take you through the business operational highlights and also an update on our growth pillars. At the end of the session, we'll have plenty of time for questions. Now, if you do wish to ask a question, there's a raise hand symbol at the bottom of your screen. Please press that.
When it gets time for questions, Russell will call your name when it's your turn and unmute you, and then you can verbally ask your questions. Again, we'll have plenty of time for questions. In terms of this six months, it's been a very pleasing one for the business. We've seen strong sales growth over the six months in both Australia and our U.S. markets. We continue to report strong operating cash flows. We reported an increase in profitability, which was driven by the increase in sales and an improved product mix. We continue to invest in capital projects, the majority of that being growth capital projects in both Australia and the U.S.A. As we announced prior to Christmas, we completed our harvest in the U.S.A. in November, yielding a record harvest. Our Australian harvest is due to commence in April this year.
Of course, all of these items we'll cover off in detail during the presentation. Before we get to the numbers, I just wanted to reemphasize a really important point, and that's how we account for the crop hanging on our tree. Under accounting standards, we record the fair value, or the expected net selling price of our olive oil we harvest. We then deduct the actual cost of selling it, and then that profit increment is taken to account. Now, at 31 December, even though there are olives on the tree, we don't take any of that profit to account. It's all taken into account in the second half. So our expected fair value gain for the Australian crop will all be in the second half of the financial year or the full year results.
Getting to the highlights of the numbers, our group sales revenue was up to AUD 113 million, which was up 59% compared to the prior period. Pleasingly, a lot of this growth came from packaged goods sales. Global packaged goods sales, AUD 91.7 million, up 50% compared to the prior period. We saw growth in both Australia and the U.S.A., with packaged goods sales up 41% in Australia to AUD 71 million and 100%, or doubled, in the U.S.A. to AUD 20.2 million. Our EBITDA, we report an improvement compared to the prior year, up to AUD 8.2 million, which was an increase of AUD 7.5 million. We did still report a loss at the half year of AUD 7.2 million, but it was better than last year. It's important to take into account the accounting for agricultural crop.
As a reminder, we don't take any profit increment relating to the 2024 Australian crop at half year. Cash flow from operations continued on a strong trend. We reported cash flow from operations before, which is cash flow before interest, and tax of AUD 32.1 million, which almost doubled the prior period. Our net debt increased up to AUD 201 million. This was expected and planned as we drew down existing facilities to fund future CapEx. If we move to our detailed profit and loss, we look at our business in three business segments: the Innovation Value Add, or Wellness Division, U.S.A. olive oil, and the Australian olive oil business. The Innovation and Value Add, we reported a small profit, up from a loss of AUD 1.4 million in the prior period.
We continue to focus that business on valuating our waste, and mainly in B2B transactions around selling our waste as biomass. As a biomass energy source, sorry. The U.S. olive oil business, small loss of $400,000 last year. For this six-month period, we reported a profit, an EBITDA profit of $1.4 million. This was driven by the increase in sales and also an increase in margin. The Australian olive oil business, our EBITDA grew to AUD 26.1 million from AUD 2.5 million in the prior corresponding period. Again, this was driven by an increase in sales and also a more profitable product mix. From a cash flow perspective, we continue to report strong operating cash flows. This six months, we reported a cash flow from operations of AUD 32.1 million. It was up AUD 21.3 million compared to the prior corresponding period. This increase was driven by increased sales and increased profitability.
After tax and interest, our cash from operations was AUD 22.7 million. As you can see from this table, we continue to invest in capital projects. We invested AUD 32 million for the half. The majority of that capital was spent on growth CapEx projects. Leandro will talk through those projects in his part, but investment in both Australia and in the U.S.A. During the six months, we paid our full year dividend. So the AUD 11.5 million is our dividend net of our dividend reinvestment plan. The chart on the right, or the graph on the right, shows the trend in operating cash flow over the last four half years. And also important to note that at 31 December, we had AUD 32.7 million in available debt and cash. From a balance sheet perspective, our balance sheet remained strong at gross assets of AUD 616 million at 31 December.
It's important to note that our trees and irrigation infrastructure are carried at written down cost under our accounting policies. If they were carried at fair value, then that value would be AUD 121 million higher than what's in our books. It's also important to note that our brands, so Cobram Estate and Red Island, are carried at cost. So what we spent to purchase the brands, not at fair value. So they are carried at just around AUD 6.5 million between the two. Other point on this page, there's a non-current tax liability of AUD 75 million. The majority of that relates to the historical write-up under the accounting standards of our olive groves. The tax liability would only be payable if we sold the assets outside of the group. Net debt ratio did increase, as explained.
We drew down on our debt facilities as expected to partially fund some of the growth, sorry, the CapEx. Also importantly, just to note, that same debt ratio was 37% back in June 2021. Group olive oil sales, our packaged goods sales, which is our main focus group, are 50% over the six-month period. The chart on the right shows the split between packaged goods in Australia, the big part of the pie chart, and then U.S. packaged goods sales, 18%. Then the other two smaller parts are U.S. and Australia bulk oil. The bulk oil that we sell is predominantly low-value bulk oil. We also do have a small amount of long-term customers that we sell some of our higher-grade olive oil. Moving on to just Australia. This chart is just packaged goods sales in Australia.
The bar chart shows the growth in sales over the last four half-year periods. It's split into branded sales, which is the bigger part of the bar charts, and private label sales. We reported a 41% in packaged goods sales compared to the first half, FY 2023. This was pleasingly driven by growth in all categories, both Cobram Estate, Red Island, and private label. Our total olive oil sales in Australia, so including bulk, grew by 41%. Moving on to the U.S.A., again showing the last four half-year periods. We had a very pleasing result in the U.S.A. We continue to see growth in packaged goods sales, which doubled the last period. You'll see that the growth in private label, this was more around the availability of oil. With the bigger harvest, we're allowed to start, or we started our private label program earlier in the year.
Whereas last year, a lot of our private label sales were in the second half. Moving on to the, so this chart shows the supermarket scan sales for the six months. What customers in the U.S.A. pay at supermarket checkout, it's external data. It does exclude a couple of the retailers, but includes most of the market. Our growth reported at 27.4% in the U.S.A. This is just Cobram Estate U.S.A. Our store count grew by 12.3%. For the 52-week period, we're the number nine brand in the U.S.A., number nine olive oil brand, and closing in on number eight. We're currently ranged in just over 17,300 retail stores. From a cost perspective, pleasingly, costs have stabilized, particularly our key input costs around fertilizer, energy, and diesel. We did see during the half an increase in water price in dollars per megaliter.
It's still well below long-term average. We paid AUD 135 for our water in the first half. We're seeing that the storages are at 88%, which is historically at a high level for this time of the year. Certainly, the short-term outlook looks positive. We did have a wetter period than expected around Christmastime, which has led to we'll use less water for the full year than what you normally would or what we have over the long-term average. This also has an impact on the associated costs around pumping. In terms of business update, so just a few things that we wanted to highlight. In January 2024, so post the balance date, we entered into a loan agreement with PGIM for a $15 million long-term loan. It's a 15-year loan. We're using that money to purchase Californian land to continue our grove expansion.
We've already utilized $7.3 million in U.S. dollar terms to purchase two properties, which Leandro will talk more about. It's around 156 plantable hectares that will be planted this year. We're also working with a third party on two large-scale renewable energy projects in Australia. I will point out both these projects are very early stage and highly uncertain. We're not funding these projects. So these projects will be funded, operated, developed by third parties and on vacant land that we own. Both the sites are very strategically good locations. They're close to transmission lines, electricity substations, and away from high-density living. In terms of if these projects are successful, then we'll generate income through long-term leases. And of course, we'll keep shareholders updated as they progress. Directors' loans, going back to March, April 2021, the company, Leandro and I, loaned to exercise options in the company.
At the time, it was AUD 10.4 million. We still have loans of AUD 7.6 million owing to the company. The interest rate on these loans is based on the ATO benchmark interest rate, which is currently 8.27%. As a result of this high interest rate, both Leandro and I have decided to sell some shares to reduce these loan balances. We are looking to sell approximately 2 million shares each. After this share sale, we'll still have approximately 10 million shares between the two of us. We certainly don't intend to sell any more shares in the foreseeable future. Independent of this, the non-exec directors resolved under the loan agreement to extend these loans for any balance that's still owing through to the 1st of April 2026. In terms of financial outlook, it is very positive for the business.
We're expecting sales profitability and operating cash flow to remain very strong into the second half. We're seeing very strong consumer demand and certainly seeing that in the first two months of this second half. There is no doubt that there's favorable trading conditions. We're seeing a shortage of global olive oil and the historically high global prices. In Australia, we last harvested in June 2023. So we only have a certain amount of oil to sell. Our second half growth will be constrained. We'll have new oil available to sell in late May 2024. Leandro will touch on our crop, but certainly, Australian crop is within expectations. From a pricing perspective, at the moment, we're reviewing our pricing across all our packaged goods range in Australia. We do expect pricing to increase in the coming months. I'm now going to hand over to Leandro.
And of course, we'll have time for questions at the end. Thank you.
Thank you, Sam. And thank you very much to all of you joining us live today. Over the next slide, I'll try to provide a summary of the key updates from our operations and a brief overview of the important actions linked to the ongoing implementation of our growth pillars. Move to the next slide. As we have previously announced, our 2023 California harvest was completed on time between October and the end of November, very early December last year. We achieved a record high production of 3.2 million liters of olive oil. And this is a production level 89% higher than what we achieved in 2022 and still 48% higher than in our previous on year in 2021.
This growth in production was fundamentally driven by increased fruit supply from the larger area of third-party groves under contract, together with the maturing profile of our own groves and very good levels of extraction efficiencies in our new mill. Now, at some point today, we welcomed this increased oil availability to enable us to continue growing domestic sales in the U.S.A. We can move to the next slide. In this slide, we just see some photos of the first harvest of our 116-hectare Esparto South Ranch, which was planted in 2021. It's a beautiful property, foothills of the Southern Sacramento Valley, with a great initial crop showing the productive potential of the area. Move to the next slide.
So staying still in the U.S., we have experienced excellent weather conditions since the end of harvest with over 400 millimeters of accumulated rain and no damaging frost events recorded today. All the reservoirs delivering water to our groves have above-average levels for this time of the year. And this led to full district water allocation already announced for the upcoming 2024 growing season. If we move to Australia, we have also, sorry, we'll stay on the previous slide. If we move to Australia, we have also experienced positive normal weather conditions during winter and spring. Significantly above-average rainfall during the three weeks between the end of December and early January had limited negative impact on the groves as this time of the year is not a critical period for oil. We've been lucky with that.
But having said that, the extra rainfall did have a clear positive impact on reducing our water requirements, as Sam pointed out. All arrangements are on track for harvest to begin by mid to late April in Australia. Precisely linked to the start of harvest, we are excited to invite you all to the official opening of our new mill at Boort on Sunday, the 28th of April. For more details, please check the invitations that we will be sending you soon via email and posted mail. Reach out to our staff to confirm your presence helping us with the organization of the event. We sincerely look forward to seeing you all at Boort because it has been a great project. We're very proud to show it. We'll move to the next slide.
In terms of these upcoming harvest expectations, the season is shaping up well with no damaging events to date that could impact the 2024 crop. Unlike last year, this season of flowering took place between late October and early November, just a few days earlier than long-term average, which is always a pleasing thing to see. Flowering levels and distribution were largely in line with the company's expectations. Slightly lower than expected flowering levels on limited areas of the Boort grove linked to the wetter than average conditions during the 2022-2023 season have been offset by above-average fruit set levels across all groves and good fruit development to date, which has been confirmed with the latest direct measurements performed just weeks ago. It's obviously subject to normal risks associated with farming and the natural variability. Crop projections for the 2024 Australian olive harvest are within the range of our regional expectations.
While the crop yield is projected to decrease in the financial year 2024 compared with financial year 2023 in most areas of our groves, the current market conditions, as Sam pointed out, suggest that the value per liter is expected to be materially higher than in the previous financial year. We move to the next slide. To finalize our presentation, I'll touch on the key developments related to our growth pillars. These pillars are quite simple and focus on producing more oil from our Australian olive groves through maturing trees and efficiency gains, growing our fully vertically integrated business in the United States, growing branded product sales with a focus on improving the net return per liter, and capitalizing on our sustainable position and upcycling of our olive oil byproducts.
In terms of Australia and more oil production, the company is in the final stages of completing the replant of 271 hectares at its Wemen Grove, just a few kilometers to the northwest of our Boundary Bend grove. This is the last of the replants related to the replacement of the underperforming Barnea variety, with that program commencing all the way back to 2010. So we are very pleased that we got to this final stage here. We move to the next slide. This planting that I have just described, and that is indicated in the graph to the right of your screen as zero years old, you have the full age profile of our trees in Australia represented by each of those bars, while the dark green line describes the oil production levels per year of age of the tree.
As you can see, some 10% of our groves here in Australia have not reached productive age yet, being less than three years old, 25% still immature, being between three and eight years old, and 65% of the fully productive trees are still quite young in the expected life cycle of olives, with most being 20 years old or younger, having at least another estimated 20 productive years in front of them. Without any new further plantings and associated CapEx in Australia, we will see the mature area grow by 53% over the next eight years. Now, we move to this slide on the U.S. side, in California. As part of our second growth pillar, these past six months have seen the completion of two significant growth capital projects and also some additional important acquisitions for further development.
The first project was the planting of our 354-hectare Dunnigan Hills Ranch grove. This first-class development was completed in two phases between May and November 2023. In this slide, you can see some of the photos of this beautiful site that has access both to underground water and surface district water. Move to the next slide. In this slide, we have a visual in shaded blue of the new farms purchased over the past 12 months and that we are intending to develop this calendar year. The first one, right at the left of your screen, to the northwest of our recently developed Dunnigan Hills Ranch. And the third one, to the right of your screen, to the southeast of our Esparto South Ranch, have been purchased only last month, as described by Sam before.
I actually wanted to show them together with our existing farms, which are obviously shaded in green, because one of the most important aspects of these 221 hectares is the fact that all blocks of land are in prime locations and right next to our existing groves. This, for obvious reasons, allows us for a larger scale and more efficient horticultural practices across all those sites, as well as more cost-effective overhead management. Another relevant feature that I don't want to forget is that all new blocks have additional wells, access to district water, housing, and/or workshops that add to the value and functionality of the overall development. Move to the next slide. Here, I'm utilizing a very similar graph for our groves in California than what we showed in Australia.
Including the plantings that are going to take place over the coming 12 months as age 0, we can clearly see the significantly younger profile of our orchards in America, with only 11% of our trees being of a young mature age, 29% are still immature, so between three and eight years old, and staggering 60% of our farms are yet to come into production with plenty of organic growth to come. Move to the next slide. The second important growth capital project in California has been the first phase of the Woodlands site expansion, which was successfully completed in time for the 2023 California harvest. This investment doubled our milling capacity from 32-64 tons an hour. And you can see sort of all the lines there in the photo to the left, and increased our olive oil storage from 2.9-4.5 million liters.
The expansion of the finished goods warehouse and the installation of a new bottling line to handle the current and forecasted growth in production and sales is being implemented right now. We move to the final of my slides on the sustainability, innovation, and value-add pillar. We are pleased to see that since these half-year results, as Sam had shown, this pillar has become a profit center for the company. As part of the zero-waste strategy, we continue to add value to the byproducts of our operations, keeping our focus on the internal use and business-to-business sale of olive biomass and ingredients to food manufacturers, nutraceutical companies, agricultural operations, hospitals, nurseries, and so on, mainly as a renewable energy source for heat and electricity, but also as organic soil amendment, among other uses.
It is also pleasing to see that those efforts continue to be externally recognized through a number of awards and also the accreditation of our California operations under the Leading Harvest Farmland Management Standard for sustainability. This brings me to the end of our half-year results presentation. We will be happy to take any questions that you may have. Russell may join us and help us coordinate your questions and the answers.
Thanks, Leandro. The first question we have from Taylor from Barrenjoey. Taylor, I'll just be able to talk now.
Hi. Are you able to hear me okay?
Yes.
All right. Perfect. Thanks for taking my questions. Just in terms of the current growing conditions and weather in Australia, that's been okay to date. But could you talk through what we should be looking out for over the next couple of months that could positively or negatively impact yields between now and harvest?
Sure. The main process that is taking place at the moment is what we describe as Oil Accumulation. So essentially, the fruit is growing and building up the amount of oil in the fruit. So what we are seeing over the next two-three months is the final definition of how much oil will be in the fruit, which obviously can have an impact on the final yields. What we are looking after are average weather conditions. The closer to the average weather conditions, the better it will be for the trees. We are hoping to avoid extreme heat temperatures for prolonged periods of time or seeing a very early onset of cold temperatures in autumn. Provided that conditions stay average, that's what we normally look for, especially because this year, things have started a little bit earlier. So we're getting a tiny bit of head start.
We just hope that to continue throughout this period.
Okay. Great. Thanks for that. And then just also on Australia, so sales growth was pretty strong in the half. Can you just comment on what you're seeing in terms of the consumer backdrop at the moment in purchasing habits and if you're seeing any signs of customers trading down?
No. Look, we aren't. I think the backdrop to this is the global shortage of olive oil has really led to a significant increase in pricing, particularly for imported products. We've certainly been a beneficiary of that. We've seen consumers switch to our product. We have taken market share. And what we typically find in the past is that when consumers try high-quality extra virgin olive oil like ours, they'll typically stick. But yeah, there's certainly the volumes and the sales rates remain strong.
Okay. Perfect. Thank you. And then just last one for me. On the U.S., and now that we have that 3.2 million liters of olive oil, how should we think about the strategy there in terms of sales and profitability growth? And will you be reinvesting any of the U.S. profits back into the brand profile there?
Yeah, absolutely. I think the first point is that as a business, both in Australia and the U.S.A., we only put around the best half of our oil into Cobram Estate. So private label in the U.S.A. and Red Island in Australia play an important role in that. We continue to and will continue to educate consumers around the amazing quality of both Californian and Australian olive oil, the freshness of it, and the taste. So that's really part of our ongoing marketing strategy, absolutely.
Okay. Perfect. Thanks very much for that.
Next, we have Jonathan Snape. Go ahead, Jonathan.
Can't hear you, Jonathan.
No.
Why don't we go to the next, Russell, and then we can come back maybe to Jono?
Next, we have Ian Munro.
Good morning, gentlemen. Thanks for taking my questions. One, just on the production profile, if we look at some boards, obviously got quite an immature grove profile relative to Boundary Bend. Are we still sort of 70/30, 65/35 in terms of the split between the two sites on sort of high-level assumptions?
It depends on the year. Obviously, I agree with you. I mean, in terms of overall area, both sites have very similar area, with both being much younger. But Boundary Bend, remember, has more of an alternancy pattern. And so in off-years, particularly this coming off-year, probably the proportion would be much closer between the two groves. And we expect that, obviously, over the years to get and consolidate around that 50/50 split. But in on-years, particularly the past on-years, that distribution was around the percentage that you gave.
Yep. Thank you. So what we're saying is, even with the rainfall in Boort, essentially, it's come at a time when it hasn't disrupted oil accumulation. And you feel as though with a dry autumn, it'll probably make up for some of that excess rainfall because I note that the actual millimeters fallen at Boort is comparable to the prior year. So just trying to get my head around any kind of risks to volume into the second half.
Yeah. The significant difference that happened between this year and the past was that last year, a lot of the excess rainfall occurred during springtime, linked to pre-cold temperature conditions, and that affected flowering and fruit set. This year, the excess rain happened over a shorter period of time and after flowering and fruit set, which is a period where the trees are a lot less susceptible to exposure to these conditions and with temperatures that remain relatively normal. So they didn't drop below long-term averages for temperature.
Excellent. Thanks, Leandro. Just looking at the commentary around some constraints to olive oil availability into the second half just in Australia, sort of just trying to get a sense of whether there's any skew to volume in the first half. Obviously, you got sort of the seasonal strength around Christmastime, etc. But is there any sort of unusual skew to the first half that we should be thinking about?
A little bit. Christmas is always a little bit bigger. I think last year, we had a skew towards the second half for a number of reasons, availability of Californian oil, and we sold a lot of our low-value bulk in the second half. This year, it'll be more consistent, half one compared to half two. The comment around constraint is that we've got so much demand at the moment for our olive oil that, unfortunately, we can't supply all that demand. So we're carefully managing it. We've got enough oil in our tanks, obviously, for all our customers. But yeah, we wish we had another couple of million liters.
Yes, exactly. Very valuable at this point in time. Just to follow up on the CapEx, perhaps just into the second half. So we've got replacement at Weeman, the new groves or land acquisition in California, plus BAU CapEx, plus upgrade of the bottling facility at Woodlands. So we're thinking sort of CapEx in the second half similar to the first half, or is there any other adjustments that we're thinking about?
Yeah, I think that's a fair comment. And obviously, depending on land acquisition in the U.S.A., we secured that funding, which we've used around half of it. But yeah, most of the CapEx going forward outside of what we'd call maintenance CapEx will be channeled to the U.S and around increasing supply of Californian olive oil.
Just, I guess, taking into consideration Leandro's comments, this is kind of are we thinking FY 2024 is, I guess, a peak CapEx year for Australia once this replacement work is done at Weeman, that then really the incremental CapEx is more skewed to the U.S.?
Yeah, that's right. I think FY 2023, in terms of the split between Australia and the U.S., was probably the peak for Australia. And this is the last of our redevelopment projects. And we've developed the mill to the mill and now has capacity for full maturity. So yeah, that's a fair comment.
Thanks again for taking the questions, and congrats on the result. Cheers.
Thanks, Ian.
All right. We'll try Jonathan again.
Hey, guys. Have you got me this time?
Yes.
Great. All right. Thank you. Could I just ask you a quick one? Sorry if this was asked. I jumped off and jumped back in again. Around the pricing comments, and particularly around the crop valuation, because obviously, that's one of the biggest drivers for the second half in how you're going to bring this stuff to account. But you pushed up pricing in Red Island in February last year. You pushed up the Cobram package formats earlier. I remember it was early 2024. So you're talking about another round of shelf price increases in excess of what you've already done over the last 12 months. And then should we expect to see the benefit of that brought to account at Farmgate, kind of when you're doing the crop this year, if that's the case?
Yeah. So the second question's probably easier. But yes, you would say the benefit of any price increase. The valuation of the crop is based on what price we expect to sell that oil for over the next circa 12 months. Obviously, less selling costs. In terms of pricing at the moment, it wouldn't be appropriate to comment on it, but it is under review. And yes, it is in addition to what we did last calendar year.
Okay. Because you've used the word the materially higher crop valuation, which implies that you must already have, I guess, a clue in terms of what the uplift would be. When you're looking at, I know you don't disclose the crop valuation, but you kind of backcalculate it. Would it be a similar kind of step change to what we saw last year, or would it be bigger?
Look, I think we don't make forecasts on crop size and crop valuation. But as you pointed out, we did increase our pricing in Cobram in October. And then the impact of what we're doing now would be reflected in the crop.
Combined with a higher proportion of high-value products that has been selling. So it's a combination of previous price increases and the combination of the type of product that we're selling now that certainly is an improved position in comparison with the previous year.
Okay. Okay. And look, on the intercompany sales, they've been quite large the last two halves. It looks like you've probably moved about AUD 16 million of product over the last 12 months from, I'm guessing, the Australian over to the U.S. business. And then that's probably going out in a branded format. How should I be thinking about that going forward? I mean, historically, it seems like it's been a bit of a tool for clearing positions, particularly if there's low-value stuff. But how should I be thinking about it in those outward years, and particularly into the second half? Is it something that's going to be ongoing, or is it kind of just that clearing of last year's lower-quality stuff?
Yeah. Look, certainly, we have a big customer base in the U.S., and particularly in relation to our low-value oil, which is always around at least 5% of our oil that we don't put in bottles. It's really about the highest price we can achieve. As I said, we've got a strong customer base. It's all B2B transactions. We would expect an ongoing program of selling bulk oil in the U.S. We did do a small trial of Australian oil, and we have some smaller private label contracts in the U.S. It's not a material part of the sales in the U.S. Yeah, we continue to work on strategies to move some of our oil in the U.S.
All right. Great. Thanks, guys.
Thanks, Jon.
Next, we have Larry Gandler.
Hi, Larry.
We're not hearing you, Larry. Seems to be unmuted, but now it's muted. We may probably have some more volume.
Yeah. Let's move to the next. We'll come back to you, Larry.
We've got Peter Parker.
Hi, Peter.
Hi, Peter. Sorry, we're not hearing you either. Let's move to the next one then.
We'll try Larry again.
Can you hear me now?
Yes.
Yes.
Oh, great. Okay. Thanks, guys. Well done on the result. I guess a few questions from me, obviously. So with regards to this constraint around the second half, I'd like to explore that a bit further. Looking at the balance sheet, oil inventories were down about 25% year-over-year, not versus the end of the financial year. So looking year-over-year, down 25%. I guess with California being a good harvest, values up. I would have to think liters are down more than 25% for Australia. So when I'm looking at your package sales last year in the second half, the June half, it was something like, I don't know, AUD 65 million. I know you don't want to give a forecast, but you guys may not be able to surpass that given your inventory constraints. Is that how constrained things are?
I don't know if you can maybe put some more color on how constrained things are. Maybe you're scraping.
Yeah. No, we're saying it. We're saying really strong demand. Going back to this time last year, we did sell a lot of our lower-value oil in the second half of the financial year. So that would explain some of the difference. In terms of inventory in our tanks, we've got enough inventory for all of our customers. Like we said, we wish we had more because we've got unprecedented demand. And we have a lot of tools to be able to manage that supply in terms of depth and frequency of promotions. But I think, as I said earlier, the comment is more around that we won't see the skew in sales towards the second half like we did last financial year, that half one and half two across the group will be more consistent.
Okay. That's actually good. I guess that's helpful there in terms of working out how to predict that. I guess, Leandro, one question I've got for you. I'm sure you watch what's going on in Europe very closely and how that's going to drive tactics and strategies for you guys. Looking at Spain, the weather in January has been very warm. And I'm very much a newbie here. My understanding is that the olive trees need to hibernate. They need cold weather in the northern hemisphere winter. I'm just wondering what your observations are as we come out of the Spanish harvest for their next on-year. What are you thinking there?
I've learned one thing over the past 25 years, and that oil is so difficult to predict. But certainly, the temperature can play a role. As you pointed out, rainfall is another thing that normally is very closely looked at. In Spain, so far, they had below-average rainfall for the winter period. February picked up a bit with about 50 mm in the main area. But so far, they got only 100 mm accumulated since November, which is not great news. But they're coming from an off year. So the expectations are that trees should have good potential for the following year. It's all come down to see how much the temperature or the low rainfall can potentially shave off from that higher potential in an on-year. Probably time will tell. Still a long way to go for them. Flowering is in May. Temperatures can impact.
We almost hope that conditions improve a bit in Europe just to normalize the market a bit. We still don't worry too much about that. Obviously, with our strategy, we just always try to focus on growing our branded sales and remove ourselves from that sort of commodity and currency risk that usually agriculture has. And obviously, we are not directly benefiting from the high prices in Europe or what might happen if there's a bad crop. We're just trying to really strategically capitalize on the positive environment that Sam mentioned just to improve the penetration size of our brands and really looking after medium and long-term contracts with those partners that really value quality and security of supply. I think that if anything, the world probably has to realize that it's not that secure, the supply of olive oil from the Mediterranean.
Okay. Great. I get that. Thank you very much. And one last financial question from me, Sam. Just in terms of payables, they're up about AUD 15 million in the period. Just wondering if that's anything anomalous and whether it's going to reverse in the next half.
Yeah. Good question. The majority of that, so trade payables, if you like, there's been no material change. The majority of that relates to the U.S. expansion, where basically big milestone payments were due in January. So it won't reverse through operating cash flow, but it'll be recognized, obviously, in CapEx cash flow.
Great. Fantastic. Thanks.
All right. Next, we have Michael Johnston. Go ahead, Michael. Are you ready?
Looks like it's still muted, Russell.
It's still muted.
Yeah. All right, Michael. We'll move to Mark Topy.
We'll come back to you, Michael.
Mark?
Go ahead, Mark.
Good morning. Hear me right?
Yes.
Yes, Mark.
Terrific. Thanks. Just first question, I suppose, with the pressure on supply. Sam, I'm just wondering about product mix. And you've got the picture in front of us there of higher-value products. I'm just wondering how you're thinking about allocating the oil to higher-value products versus perhaps Red Island. Is there a bit of thinking around moving the oil into and getting a better margin on those higher-value products as you go forward?
We've certainly never, and we will never, compromise on quality. So obviously, the Cobram Estate Range has our highest quality oil, then Red Island, and then private label. So it's certainly nothing. It's something that we wouldn't do. Of course, it's more around frequency and depth of promotions, which you can somewhat control demand.
Right. Just on that bulk side, what's happening in terms of third-party contracts? What's the sort of level of production? Is there planning going on? Can you see more ability to trade in some of that third-party production?
In Australia or the U.S.A.?
In Australia predominantly, yeah.
Not that we're seeing not significant amounts, but I'm sure in this environment, it may stimulate plantings. And we always work with parties in terms of cooperation around processing and marketing partnerships like we have in the past. But no, we're not seeing any material plantings going on the ground.
And Mark, I mean, we obviously, as we communicated before, we have some long-term evergreen agreements with important growing partners in Australia. Most of the trees are sort of immature, but obviously, their production is going to be growing over the next few years, roughly in line with our own production as well. And certainly, that will contribute in 2024 to increase the amount of oil available for us for selling.
Yeah. Got it. And just then on the cost side, can you comment? A lot of food companies are seeing a lot of cost pressures. You've obviously got benefit on the water side, but can you maybe touch on the pressure on the cost side and how you're managing that?
I think like any business, there's cost pressures with items such as wages and some of the admin-type costs, service costs. But our major input costs, such as energy, and particularly energy and fertilizer, have stabilized, if not at lower levels. And yeah, so we're pretty comfortable with where that's sitting across the group. Like we said, water has increased, but it's still well below long-term average. And our water cost for the full year will be roughly in line with what we'd expected.
Great. And then just lastly, in terms of the U.S. market and maybe shortages in oil out of Europe, can you give us a bit more insight as to what's happening in the U.S. market? And I think in Australia, over time, we saw the sort of foodies in the market embrace the Cobram brand. How do you see that progression in the U.S. of, if you like, the consumers embracing the local brands and making that shift to higher quality product?
Yeah. I think, as most of us know, that in the U.S., the shelf's dominated by lower-quality imported oil. And certainly, over the last 5-10 years, there's been a trend towards higher quality, locally produced. All in all, we're obviously a beneficiary of that. I think in terms of what's happening on shelf, similar to in Australia, that the imported brands are having to increase their prices multiple times. And so we're, again, in a favorable trading environment in the U.S.A.
I think just to add to that question, Mark, if we analyze probably the global trend to what happened over the past 24 months and we checked on the price elasticity, the world has seen a very different behavior in Mediterranean countries like in Spain, where the consumption obviously fell more sharply over 25% as opposed to countries like Australia, Canada, Japan, or the U.S.A., where consumption, particularly at retail level, did not really change much. So it surprised many about the relative inelasticity of the olive oil in those countries outside Europe. So it changed really a bit. And to put you in perspective, if we looked at 25 years ago, three-quarters of the olive oil in the world was consumed around the Mediterranean. And now, two-thirds of the olive oil is consumed outside the Mediterranean.
That obviously created a big shift and change in terms of how the industry reacts. That was a bit one of the reasons driving the higher prices.
Yeah. Great. And just to close off on that, then what do you feel you need to spend in terms of brand promotion in the U.S. going forward, or how do you see that in terms of building the brand?
Well, we've been building it for a number of years now. Obviously, marketing in the U.S.A. is quite different because of the scale. So it's cost-prohibitive to do a national campaign. We're focused more around public relations. We do a lot of work in digital. But we also spend a high proportion of our marketing spend in store, so trade marketing, so where we're promoting the product through promotions or discounting in store. So there's a slight difference in our marketing approach, but we're marketing the same messaging around high-quality, locally produced, fresh, great-tasting, extra virgin olive oil.
Great. Okay. Thanks for that. Thanks for your time today.
Thank you, Mark.
Thanks, Mark.
We'll try Michael again. Michael, if you just unmute. Yep.
Good morning. Can you hear me?
Yes.
Okay. I've been busily pressing unmute consistently for a while, so I'm glad it's got through. Anyway, Sam, Leandro, and Russell, thank you very much for the continued performance and presentation. Just very quickly on the $15 million land loan, is there anything significantly different in the conditions of that loan apart from the length of it? And obviously, that's included within the roughly 30% gearing level. And allied to that, on a go-forward basis, in as much as fundings require and excess of that that comes from operations, are you seeing sort of bank debt as being the normal source of that funding?
I think we're, as a board, comfortable with the debt levels. We obviously assess that based on the increasing asset base, increased profitability, and cash flow. In terms of your question around the new loan, yeah, as you said, it's a 15-year loan, fixed interest rate that amortizes over that period. The main difference is there's no link back to the Australian assets. It's purely secured against the land in the USA and the operations in the USA. Very much a standalone funding that we'll use for the purchase land.
Okay. Thank you.
Thank you.
And then we have Lindsay Stubbs as our last question. Just unmute, please, Lindsay.
Yeah. Good morning. I had two questions. You referred to Wemen Grove, and I think you said you were replacing trees. Is that because of their age or because of their variety? My second question was, I seem to remember from the annual report you had land in Argentina. Do you still have that, and what were your plans? And my third question, I think Deb, you've just answered. So just the two questions.
I'll let you cover that, Leandro.
Thank you. Yeah, I'll cover them. The replacement of the trees in Australia is mainly driven by a varietal issue. So very early on, 20-odd years ago, when the company started and there was not a lot of data in Australia, a number of different varieties were planted. Between those varieties, there was one variety called Barnea that then, over the years, has proven to be underperforming other varieties that were sort of next to it for a number of reasons, particularly higher susceptibility to pests and diseases. And it became a logical financial decision to gradually replace those underperforming trees. And that was the main driver for that, not the age, but the performance of the variety versus other varieties doing much better. In terms of the land in Argentina, we haven't done anything with that land yet.
Although we continue to be of the view that finding large-scale land to develop projects similar to what we have in Australia around the world, it's very difficult with the right climates and the right water. We hope that at some point, we're able to capitalize on that in some shape or form.
Thank you, Leandro. Just going back to your first answer. I see you're planting varieties Picual, Coratina, and Hojiblanca. How long before they'll be sort of producing? Is it 5 years or 7 years, or?
In the system that we use, the first harvest happens at year three. It's a limited harvest, barely covers the harvesting cost. Then that increases over time until the tree reaches maturity at about year eight. It's a fairly linear growth in production between year three and year eight where the trees reach maturity.
Thank you very much for your answers.
You're welcome.
We have Peter Parker back. Hopefully, this works. Just want to unmute, please, Peter.
Hi, Peter.
Hi, Peter. Sorry, we cannot hear you. Still not able to hear you. You seem to be muted now. No, no. But we still cannot hear you, Peter. Sorry.
I think what we might do is we'll try and we'll contact Peter directly and answer his question, I think. Or Peter, if you could email the investor email with your contact details, and then we can answer you directly because it looks like your line's not working.
Yeah, we just wrapped up an hour of presentation.
That was it for questions, Sam and Leandro.
Fantastic. Thanks, everyone, for joining us. Really appreciate everyone for staying on for the questions. As always, please reach out directly if there's anything else.
Thank you, Russell, for the support. See you.
Bye.