I would now like to hand the conference over to Mr. Mark Allison, CEO and Managing Director. Please go ahead.
Thank you and welcome to all to the Elders' half year results presentation for the FY 2026 financial year. Thank you for joining Paul and myself for the session today. As an overview, the half year results today are solid on a year-over-year basis with EBIT up 33%, strong cash conversion, transformation and integration projects on track, and positive progress on leverage on ROC as we move to the end of the year. Throughout the half year, Elders demonstrated solid operational and financial resilience in the face of improved, although mixed seasonal conditions. Our diversified portfolio through its national geographical footprint and multi-product and service offering played a key role in mitigating the dry conditions across some key agricultural regions and the increased competitive activity in our retail business. Stronger activity in livestock and real estate and high financial discipline also supported the solid result.
On the transformational projects front, we have also made good progress on the final project components, with wave three and four of our SysMod project, with the targeted completion on track advancing to the end of this calendar year in full on time. Focusing now on the areas out of our control for the first half of this year, we've been dealing with the fertilizer, fuel, and crop protection supply chain disruptions implications of the Iran conflict. These risks have been largely mitigated, with credit to our highly diversified business model. They were also offset by agency, real estate, and financial services businesses. In this context, the performance of Elders with its clear and consistent strategy, multiple diversifications, high financial discipline, a hardworking and committed team, and our enduring customer anchor as unprompted, the most trusted brand in Australian agriculture, has remained strong.
The result is strong in safety, sustainability and cash flow with the full year outlook remaining positive. Moving now to the Delta Agribusiness integration. This has been a relatively smooth transition to Elders' ownership over the first five months of ownership. The fast-track synergy target of AUD 8 million is on track, with the largest component being realized in the second half of FY 2026. The divestment of Killara Feedlot is likely to complete in June to July, with all funds being applied to debt reduction with the expected improvement in leverage and ROC coming through by year-end. Moving on to the FY 2026 outlook, we are very optimistic on a broad outlook for Australian agriculture at a seasonal and commodity level with a turn to average conditions.
In addition, we welcome Delta Agribusiness to our portfolio as a platform for significant growth against this market backdrop. The outlook and fundamentals for livestock remain sound, with prices for sheep and cattle forecast to be supported by strong international demand across a backdrop of tightening supply. The combination of positive seasonal and commodity outlook also provides a great backdrop for continued growth in our Real Estate and financial services businesses. Our approach for today is that I'll provide an overview of the results. Paul will go to the detail of our financial performance, and then I'll provide an update on our outlook and growth and transformational initiatives as we deliver the final six months of our fourth Eight Point Plan. With that overview, we'll now commence with the FY 2026 half year results presentation.
If we go to the slide one, which is driving improvements on our safety performance. Slide five. Slide five. You can see, as we've done for from the beginning of the Eight Point Plan process, a very strong performance in terms of one lost time injury by half year, and they're continually running down of our total recordable injury frequency rate. Now, when we put this in context, the first Eight Point Plan, we had 34 lost time injuries. We now have one. The first Eight Point Plan, we had some 1,500 employees. We've now got over 3,000. It's a great result and well below all industry benchmarks.
Our safety, the business' view towards safety is expressed each year in our employee survey, where it's seen as the number one issue of the business, keeping our people safe. Moving to the next slide. We look at our underlying EBIT performance, and Paul will run through what's in and what's out because of the Delta and Killara inclusions in the reporting. On an apples for apples, 33% up against last year, at an EBIT level. Very solid, very solid performance, including Delta for five months, although Delta, well, heavily weighed into the second half. I think it's worth noting the very positive cash conversion result as well. Again, we'll go to the detail of that.
I think when we look at the return on capital, a couple of considerations that again, we explain in detail in in a slide towards the end, is that the number on return on capital includes a full year of Delta Capital and only five months of results. This slide's explained in detail in on slide 18 later in the pack. Then the dividend offering of AUD 0.18 per share. When we go to the next slide, and this is really referencing all of the Eight Point Plan.
You can see for the first three Eight Point Plans, we've been over this territory before, our commitment of 5%-10% growth through the cycles at EBIT and EPS level, we've delivered for the first three Eight Point Plans, in the fourth Eight Point Plan, we've set about major transformational projects that we're coming towards the end of this year. By the end of this year, we will have our transformational projects largely done and dusted in full on time and then with the benefits flowing forward.
I think, looking at the results, we've been able to continue to grow through multiple seasonal and commodity cycles and also in the fourth Eight Point Plan, reinvest in the business big time in terms of the transformational projects. Again, we'll talk more about this as we go through the presentation. Moving to the next slide. As we've moved to a divisional structure October 1, and this, the purpose of the divisional structure was to really focus each of the divisional CEOs on the business, and each business has a particular and unique idiosyncrasies in terms of its strategy and the components and capabilities of the business. That's that move from October 1 has been very positive.
You can see Feed and Processing still appearing in this slide, with the divestment of Killara. This will come out for the next series of plans within Elders. I think it's also worth noting that each of the divisions runs as an independent division, with shared corporate services at a number of functional levels. We wanna continue to run with this model with functional excellence at a head office level, but with the divisions basically running their own show. We've talked about a lot with regard to how AIRR and Delta have been run. They all have divisional boards. I'm the chair. Paul's on each of the divisional boards with me.
We really, all the functional excellence is done through head office and running the business, in line with our customer centricity is done in the divisions. We have put a project across the whole of Elders that we're looking at the span of control, job role clarity, and we wanna drive efficiencies in that manner. Initially, this will be largely focused in ERS, but this project is in place and to drive efficiencies and to remove duplication from within the divisions.
When we go to the next slide, with the 12-month delay of the completion of Delta, we had a target of over three years to achieve AUD 12 million of synergies, and we fast-tracked that to endeavor to achieve AUD 8 million in year one. We're on track, largely on track for that, with Delta in the first half, although it is worth noting that the majority of the benefits come through in the second half, given that Delta's at roughly 30/70 split, and it's probably even more so this year because of the five months of operating in the 1st half. We're moving along nicely with those.
As we'd indicated, in the, in the pitch document, when we acquired, Delta, the majority of these synergies are coming through backward integration and finding or linking up supply chains that we currently have that have greater margin for the off-patent products through Delta's Four Seasons brand. Okay. With that, I'll now hand over to Paul, and he'll run through the detail on the financial side.
Well, thanks, Mark, and welcome everybody today. I'll commence on slide 11 of the pack, which summarizes the basis of preparation for this first half result, noting temporary impacts to financial metrics from the prospective sale of Killara Feedlot and the acquisition of Delta Ag, which is yet to contribute 12 months of earnings. The divestment of shares in Killara remains subject to regulatory approvals but is expected to complete in the second half. Under accounting standards, Killara Feedlot is treated as an asset held for sale and Feed and Processing Services as a discontinued operation. Consequently, Killara's earnings and working capital have been treated as non-underlying, with adjustments made to both current and prior years for comparability.
The acquisition of shares in Delta Ag occurred in November 2025, with the business contributing five months of earnings in the first half, noting annual Delta earnings are seasonally weighted to the second half. Consequently, financial ratios will benefit in the second half as earnings from Delta better align with working capital and acquisition debt and equity. The table below sets out these temporary impacts in the interest of transparency and comparability. I'll now move to slide 12 to discuss highlights from what has been a very productive first half for Elders. Highlights include underlying EBIT of AUD 76.6 million, up 33%, driven by solid growth across most divisions and products. Delta Ag has been welcomed to the group, improving Elders' geographic diversification, with significant progress made on delivering year one synergies. Execution of a sale agreement for the Killara Feedlots.
Implementation of a divisional model to improve accountability, focus and efficiency. Progress made on our strategy to transition Elders' balance sheet lending to third-party lenders. Significant progress achieved on systems modernization, noting the new ERS livestock system went live in April, with the rollout to conclude over the coming month. I'll now turn to slide 13, which displays Elders financial performance in this fourth Eight-Point Plan period. I note the following progress from our baseline year of FY 2023. Sales revenue increased by AUD 240 million at a compound annual growth rate or CAGR of 5%, supported by both acquisition and organic growth. Gross margin increased AUD 99 million at a CAGR of 10%. Comparatively, costs increased AUD 101 million, noting this period coincides with the transformation of Elders systems, adding temporary cost and complexity to the business.
Consequently, underlying EBIT has been flat over the period, noting SysMod is now in its fourth and final wave. Moving to slide 14, which contrasts the half against prior period. Looking at the numbers, we see a strong for first half performance with the following highlights evident. Sales revenue increased AUD 426.4 million, up 32%, taking advantage of improved seasonal conditions in southern states and 5 months of Delta Ag sales supporting growth. Gross margin increased AUD 83.1 million - AUD 396.6 million, up 27%, with broad growth across products and divisions. Underlying EBIT increased AUD 19 million - AUD 76.6 million, up 33%, supported by meaningful growth in Crop Protection, Elders Rural Services and Delta Ag. Operating cash flow was positive AUD 67 million, with cash conversion of 176.6%.
A strong result given the winter crop working capital build. As discussed on Slide 11, return on capital leverage, net debt, and earnings per share are all impacted by the classification of Killara as non-underlying and Delta Ag, which is yet to contribute 12 months of earnings. These metrics will be further discussed as we move through the pack. Moving to Slide 15, which displays financial performance by division. As noted, underlying EBIT increased AUD 19 million - AUD 76.6 million, with solid growth across Elders Crop Protection up AUD 8.1 million and Elders Rural Services up AUD 18.5 million, with Delta Ag contributing AUD 10.4 million in its first five months. Key points to note include Elders Rural Services delivered a strong half, taking advantage of improved seasonal conditions in southern states, which resulted in growth across all products.
Elders Crop Protection benefited from the new tolling facility, AgriToll, alongside a new internal trading agreement with rebased earnings with Elders Rural Services and AIRR. This is a one-off change implemented with the divisional model to better reflect arm's length trading. The increase in corporate costs is driven mostly by IT, with Elders Rural Services businesses operating for a period across both the AS/400 and D365 in parallel with peak activity for the project. Costs will be further discussed in this presentation. Moving to slide 16, which displays Elders gross margin diversification across product geography and channel to market, a key defense against seasonal variability when it arises. In the half, gross margin increased AUD 83.1 million - AUD 396.6 million, with growth across all divisions and products.
The key drivers of this result include Delta Ag, which contributed gross margin of AUD 45.8 million for the first five months of ownership. It should be noted that earnings from Delta Ag can be weighted up to 75% to the second half, in line with winter crop activity. Elders Crop Protection gross margin increased AUD 10.4 million or 53.6%, primarily from the commencement of AgriToll formulation facility in Rockingham and changes to internal trading agreements, as discussed. ERS Agency Services gross margin increased AUD 11.2 million or 14.3% following a strong recovery in sheep and cattle prices, outweighing volume declines. Sheep volumes declined 25%, with a reduction in numbers from South Australia and Victoria through recovering from recent dry conditions.
The outlook for Agency Services, as Mark noted, remains positive, driven by strong international demand for protein. ERS Fertilizer gross margin increased AUD 1.5 million or 8.1%, supported by earlier demand and rising prices because of supply constraints resulting from conflict in the Middle East. The outlook for fertilizer price and grower demand remains uncertain for the second half, largely dependent on international events. Real Estate Services gross margin increased AUD 4.5 million or 8.3%, driven by property management and residential growth, primarily. Broadacre delivered a flat result against prior period, commercial property slightly negative, both basing material transactions in the prior period. I note the pipeline of pending settlements remains comparatively high against prior periods. AIRR showed improvement in the second quarter, culminating in record conference sales in February.
Growth in the above products significantly outweighs a negative impact from lower cotton and rice plant in the Murray-Darling Basin due to high water prices. Turning to slide 19 to discuss underlying cost growth, which increased AUD 12 million or 4.7%. When adjusted for acquisitions and the impact of transformation. As noted previously, FY 2026 is a time of peak activity for our system transformation project, with six deliverables progressing in parallel in the first half. Pleasingly, by the end of this quarter, four of those will be complete, reducing complexity and backfill resource in the business. I note maintaining cost growth below inflation in FY 2026 remains a priority for the second half, supported by the completion of core elements of the SysMod program.
I'll now move to slide 18 to discuss return on capital, which was steady on FY 2025 when normalized for the impacts from transformation and acquisitions. The chart demonstrates that normalized return on capital is approximately 12%, down 0.3% from FY 2025. Increasing return on capital remains a core priority through a renewed focus on capital allocation, the continued reduction of balance sheet lending, and delivery of SysMod benefits and Delta Ag synergies. Over to slide 19 and working capital, where we see an increase of AUD 147 million, mostly driven by the inclusion of Delta Ag working capital and the impact of higher livestock prices on agency net working capital. Working capital is forecast to reduce in the second half, driven by a decrease in balance sheet lending and seasonal reductions in inventory and debtors.
Over now to slide 20 in cash flow, where we see an operating cash inflow of AUD 67 million, a pleasing result considering the seasonal working capital build for winter crop, but acknowledging the one-off benefit from the removal of Killara inventory. The outlook for operating cash flow and cash conversion in FY 2026 is positive, with additional receivables being transitioned to third-party lenders via Elders' balance sheet. Considerable progress has been achieved to date, with third-party limits now exceeding AUD 75 million and balances drawn totaling AUD 35 million. I note that the physical payment of company tax for Elders Limited is expected to recommence from June 2026.
I'll now move to slide 21 to provide a detailed update on net debt and leverage. The waterfall charts provide a normalized view of net debt and leverage following completion of the Killara sale, given earnings from Killara are treated as non-underlying.
Breaking down the movement in net debt on a post-Killara completion basis, net debt decreases to AUD 425.8 million, with further reductions to occur in the second half from the increase in third-party client lending and the seasonal working capital reduction post-winter crop. Excluding receivables funded through debtor securitization, Elders' normalized core debt is AUD 210 million. Turning to leverage and adjusted for Killara completion, we see normalized leverage at 2.6 x, with additional reduction to occur in the second half as rolling 12 months EBITDA progressively incorporates new orders from Delta Ag. A return to our target range of 1.5 x- 2 x is forecast in FY 2026.
I'll now move to slide 22, where we see significant headroom across banking covenants, noting that leverage and interest cover will benefit in the second half from the completion of the Killara sale and second half Delta earnings. This concludes the financial section of the presentation. I'll pass back to Mark, who'll provide an update on strategy and outlook.
Okay, thanks, Paul. Just as I commence the strategy and outlook section, I'd like to provide a brief summary of our operating environment. Australian agriculture enters the next 6 - 12 months from a positive position of relative strength. While volatility remains across global geopolitics, weather and commodity markets, the sector continues to benefit from strong global food demand, tight global protein supply, improving export market diversification, and Australia's reputation as a trusted supplier of premium food and fiber to the world. If we look at the macro outlook, Australian agriculture production remains historically strong despite moderation from record peaks. Global food security concerns continue to underpin long-term demand for reliable exporters such as Australia. Australia's diversified export exposure provides resilience against geopolitical disruptions.
Looking at beef and livestock, global beef supply remains constrained due to U.S. herd liquidation and lower cattle numbers globally. Australian beef exports continue to experience strong demand from the U.S., Japan, South Korea, and emerging Asian markets. Lamb markets remain relatively strong, supported by demand from the Middle East, Europe, and North America. Our wool sentiment is gradually improving with better Chinese demand and reduced global supply. From a cropping outlook, Australia remains one of the world's most efficient grain exporters. Operational capability and agronomic sophistication continue to be support our competitive position globally. Canada, sorry, canola, pulses, and selected grain markets may strengthen later in the year as global inventories tighten as well. Looking at global fertilizer supply, global fertilizer markets have stabilized significantly since the strong volatility following the beginning of the Russian-Ukraine conflict.
To today, nitrogen fertilizer supply has improved as global gas prices moderated production capacity recovered. The phosphate and potash markets remain relatively balanced, although geopolitical risks continue to be present as we're all quite aware. Australian growers are expected to benefit from improved fertilizer availability and more predictable pricing over the next 6 to 12 months. Any major escalation in the Iran conflict would rapidly impact nitrogen fertilizer pricing as we're very aware. When we look at crop protection, the global crop protection supply chains, crop protection supply chains have improved materially compared with disruptions over the last three to four years. Manufacturing capacity in China has largely normalized, improved, improving availability of key herbicides, fungicides, and insecticides.
Freight costs and logistics had stabilized and are now being impacted on by knock-on effects of the Iran conflict. Generic crop protection products continue to place downward pressure on pricing in many categories. Australian agribusiness with strong supply chain management capabilities such as Elders are well-positioned to secure supply and to be able to maintain margins. Finally, from a structural viewpoint for Australian agriculture, we continue to benefit from strong biosecurity systems, sophisticated supply chains, and advanced farm management capability. Technology adoption, AI, precision agriculture, and digital systems are steadily improving productivity and input efficiency, and it's one of the areas of the Australian economy where there have been productivity gains.
I think in the face of seasonal and geopolitical volatility, the outlook, given average seasons, for Australian agriculture remains quite positive. From an Elders viewpoint, as we move into this period, with the completion of the fourth Eight Point Plan and the completion of our large transformational projects, we're seeing Elders as very well set to take advantage of these in more of a steady state business as we go forward over the next few years. Moving to slide 24. This is the fourth Eight Point Plan that completes in September this year. The three key strategic priorities are run, transform, innovate and grow.
I think in the final year of this Eight Point Plan, we'll be able to move more to run, innovate and grow and getting the benefits of the business cases from our transformational projects. I'm moving to slide 25 just to showcase the strength of management leading the divisions of Elders, with each of the divisional CEOs highly experienced, high capability, and a deep knowledge of the industry and the businesses they're running. This move to the divisional structure has added significantly greater focus, and we'll see the benefits again come out in the second half of FY 2026 and going forward.
Moving to slide 26, which is the final wave, just outlining details of the final wave of our SysMod project. As you can see, with wave three and wave four on the way now, and with a view that we'll be completing this project by calendar year 2026. The benefits that we see for this project from 2026, so coming through in the second half of 2026, being across the business case in the 15% category in terms of return on the investments.
It's been a long haul with the multiple transformational projects, but particularly with SysMod, and we really do feel by the completion in full on time by calendar year, we'll then be set up with a sound platform for to extract the benefits, business case benefits and other benefits throughout the business. Moving to the next slide on 27. The growth driven by margin and cost and capital efficiency. If we started FY 2026 on the first item systems modernization I've spoken to, the benefits and synergies from Delta Agribusiness, we've also spoken to with those being largely on track in fast-tracking the first year of that. Divisional and regional alignment is point three, again, we've spoken to.
In terms of our accretive acquisitions, although the pipeline for our business development activities is relatively solid, we are being quite discerning in the businesses that we're looking at for bolt-on acquisitions, focusing largely into real estate and financial services, in particular, broking businesses, and also being very mindful of our capital allocation to ensure that we're getting the highest, or optimizing returns for our shareholders. The final point, focusing more on the finance broker model, which has been growing very strongly and is high return on capital.
We really do see ourselves set up to leading into a period of finishing the transformational projects and moving into a relatively positive average to positive market outlook scenario over a few years, and spending the time and extracting the benefits, the efficiencies, and the growth from the Elders business. Moving to slide 28, really just reiterating my comments of being well-positioned as we've moved into a potential golden period with the internal projects being locked down, the businesses set in place with outstanding management and an average to good market conditions. With that, I'll end the presentation, and we can go to questions.
Thank you. Your first question comes from Ollie Ridge with Citi. Please go ahead.
Good morning, Mark and Paul. You said there was decent gross profit growth in fertilizer. Can you tell us how we should think about fertilizer sales in the second half, given the availability now that we are two months in? Also, do you carry any delivery risks? If you'd touch maybe on the contract structure there, please.
Just for background, Elders sells fertilizer predominantly back to back, so we don't hold significant risk in terms of inventory. There is, you know, some blending and specialty, but outside of that, we're not at risk. I think in terms of your question, I'd just say that, you know, the outlook's a bit uncertain in terms of fertilizer. Not so much from a supply perspective, although that is relevant, but more so from an affordability perspective in terms of how much growers will choose to apply. I would note that the window for application for sidedress and topdress is quite long in terms of the winter crop. You know, there's a fair bit of time to play out here, but just an uncertain landscape.
Yeah. I think from a financial viewpoint, what may be the scenario, given that we're back to back and it's a very low margin, business from our viewpoint, you may see tons flat or down, revenue significantly up, and gross margin may be flat, but the margin percentage will be significantly down.
Great. Thank you very much. I'm just wondering how you're approaching crop inventory, crop protection inventory decisions for 2027, given the inflation and upstream input costs? Just heard there's been delays in purchasing from other distributors.
Yeah, I think, you know, it's business as usual for us, for crop protection. Obviously, we seek to hold inventory for as less time as possible. That doesn't really change. We have seen sort of an incremental increase in prices in recent months, which is obviously supportive to the current inventory position, but, you know, we seek to turn the inventory as fast as we can.
I think what we are also seeing is that out of China, there's ample capacity in the manufacturing facilities from an active ingredient viewpoint. Supply chain implications for the Chinese manufacturers runs to the oil knock-on effect from the Middle East war. That will be reflected in resin prices, which will be reflected in drum and packaging prices. It'll also be reflected in solvent prices and potentially surfactant prices. Our thinking is that the core cost of active ingredient or formulation, it may be slightly higher with energy costs, but the bigger impacts will be those components, and that may come through as cost of goods increases, as Paul indicated, for the second half of this, of the FY 2026 financial year.
I think the key for us, given that we're invested in backward integration where we hold the capital of the crop protection inventory, stock, the key for us is to pick the point where it will reduce again. One of the interesting insights that we got out of the global crop protection conference in Shanghai one month ago was that they believe a stopping of the Iran conflict, with that there will be a six to eight-week recovery period in crop protection supply chains. It's relatively quick and we'll just need to ensure that we're very nimble and clear towards the end of that period where prices might come off again.
Great. Thank you. Just the last one. Will IT expense remain as high into 2027? Can you just give more color on the timing there, please?
The IT expense was that your question? Yeah. Certainly, you know, periods of relief within the project. The first step is to get ERS, Livestock and Retail businesses operating on a single platform. You know, pleasingly we're very close to that. That will occur in this quarter, sort of around June 30. In terms of the next significant stage, when we fully get off the AS/400s, that will occur in early 2027. There's certainly light at the end of the tunnel in terms of the cost on the business, you know, which comes from both the projects, but also the complexity in running the business and backfill resource.
Yeah, we're making, you know, very good progress in terms of delivering that as quickly as possible.
Thank you very much.
Thank you. Question comes from James Ferrier with Canaccord Genuity. Go ahead.
Good morning, James. Thanks for your time. Can I firstly ask you about slide 17 and a bit more color on what's in that AUD 13.5 million of transformation costs, given that's a six-month number and I think FY 2025, the equivalent number for the full year was AUD 4 million, so it's stepped up significantly. First question, yeah, just some extra color on what's in that number and how long it repeats for, et cetera.
Yeah. I think it's best explained, James, and then thanks for the question around, you know, the number of waves or deliverables in flight at this point. You know, where we're at in the project, there's ongoing work in regards to wave two. Even though we've been operating on wave two parts of the business since November 24. We're still delivering additional functionality for wave two, and recently in April, migrated B&W Rural onto the retail platform, and we've still got 3PL to occur in June. There's ongoing spend there. We've just gone live with wave 3 livestock. That's an addition on a separate, you know, set of resource that's delivering that.
We're just in the throes of completing detailed design for wave four. Ancillary to that, we've got the wool integration at the same time and also the back-end real estate settlements project as well. It's just that the confluence of the amount of work in the project at this point in time in order for us to get off the AS/400 in early 2027. In terms of your question, when does the cost start to roll off? It's incrementally as these things are delivered and the spending ceases and there's four deliverables that we'll complete in the next quarter. We're hence the light at the end of the tunnel comment.
Okay. That AUD 13.5, just the way you've answered the question, it's pretty much all SysMod related costs.
Yes.
Okay. Righto. Just I'm just confused 'cause the note sort of talks about brokerage models and AgriToll and performance incentives and FX losses. Thanks for clarifying that. Maybe stepping back and looking at sort of the right-hand end of that chart, AUD 320 million of costs for the first half. Is that a good proxy for the second half plus a little bit of base growth? Or is some of those lines, like the transformation projects, are they gonna go up or down materially?
Yeah. Look, I'd say, it's a reasonable approximation, although noting, you know, Mark's comment around, you know, review of a review within the business as well. In terms of there will be some cost relief, as noted at the end of the next quarter, from SysMod, but more meaningful from a SysMod perspective, when we get off the AS/400 in early 2027.
Yeah. Okay. Last question, it is probably still a SysMod question really. To date, it feels like the business has been quite good at articulating planned spend in relation to non-underlying OpEx and CapEx. The slide further in the deck that sort of shows those numbers, it's all sort of tracking to plan, generally speaking. You've got this portion of SysMod spend that's running through underlying costs. I'm trying to reconcile where all those numbers are going with the view, the consistent view that's been expressed and reiterated again today that wave two will generate its first full year of benefits in FY 2026, we're sort of obviously more than six months in now. Is that still the case?
You're expecting a full benefit in FY 2026 from wave two with that 15% + return on capital hurdle?
Look, I think, the way I'd answer that, James, I think, you know, benefits from SysMod will be incremental. You know, I'd say in terms of, you know, for those who don't know, most of that we see coming from gross margin uplift in retail, so wave two. Some of the functionality for wave two has only recently been delivered around product segmentation and client categorization. That went live in April. It is certainly weighted to the second half. Whether we capture all of the benefits in the second half, I think remains to be seen.
Certainly, you know, from a margin capture perspective, if you look through, you know, the outwaiting to herbicides, sort of low-margin herbicides, I think there are green shoots, coming through, you know, the retail gross margin level. Cause for optimism.
I think, James, the other cost transition management that we're applying ourselves to, given the there are a lot of contractors in this team, as you can imagine, and particularly in Adelaide, there's significant competition with other major IT projects for these specialties. We're trying to be very careful on the exit period for any contractors in the project because You know, it may be best to overrun by three months to keep them on, because once their contract starts to come to an end, they'll be looking for another role, and that may slow the project.
It's a very fine line and Paul and I have been, and Joe LaVigna, who runs the project, have been watching it like a hawk to ensure that we have the competency to complete the project, but we don't have an overhang then of costs running on the other end of the project in order to keep them on the project. You might add to that as well, Paul. It's a very fine line.
It is a fine line. The other thing I'd note, James, you know, Wave Two is a great example of this that, you know, from an accounting perspective, you know, once you go live, you really stop that capitalizing of the asset. You know, the asset is created, but the spend doesn't stop immediately. You know, as discussed previously with Wave Two, you know, we're still delivering additional functionality to support benefits capture. That's, you know, that's not being capitalized. There's that dynamic as well, but it's all, you know, temporary in terms of, you know, the project and how it rolls out.
Understood. Thank you.
Thank you. Your next question comes from Barwick with CLSA. Please go ahead.
Oh, hi, team. Thanks for the question. Perhaps a little bit more micro. Just noticing on real estate in particular, pretty strong GP growth, up 8%, but then EBIT was flat. Obviously the cost growth, sort of, you know, evaporated any of the earnings growth potential. Is there anything explicit going on there that you need to call out?
Yeah. Thanks for the question, Richard. I did sort of touch on that in the commentary that we had a flat result from Broadacre and mostly because we're basing some large transactions in PCP and yeah, the commercial side of the business did go backwards a little bit. That's explains the difference between GP and EBIT, where, you know, most of the growth was from acquisition and most from Rockhampton.
Yeah.
That's the anomaly there. I would say, just to add to that, the pending settlements pipeline is still very strong. I'd put that sort of flat performance from those parts of real estate, you know, potentially in the timing bucket.
Okay. No worries. Just a more general or much more general comment, how would you describe the morale of the team as it sits now? You've got obviously, Mark, you're set to leave relatively soon. You obviously got the new CEO coming in. There's a lot of change going on within the business, et cetera. Can you give some general comments about how you see, I guess the senior management team and how they're thinking and feeling about things?
Yeah. I think a good question. The, if we go I think across the board, we, you know, 33% up by half, we've got the big projects, transformational projects coming to an end and the outlook's relatively positive. I think as we go beyond the fourth Eight Point Plan, yeah, things are pretty much lined up as a platform for for growth, but different growth and not bolt on acquisition or backward integration driven growth. More efficiency and gaining benefits from the investment sort of growth. More self-help business as usual growth.
In terms of the team, I think if you look at, if we start with the real estate business, I think Tom Russo has his team quite fired up. As you said, growing very well. The focus of real estate, we had a real estate, Elders Real Estate quarterly board last week, and it's very positive. Big pipeline of projects. You saw the Jumbuck job that we've got, which is a big, another big project. I'd say for them, it's being a focused real estate business and not within ERS is quite positive.
If we then go to Delta, I think you'd expect the normal transitional bumps and bruises with a founder-based private business going into a listed corporation. We had the board at Young at Delta's head office a couple of months ago. Again, very, very positive and really for Delta, they just wanna deliver. In all the branches that we visited, and certainly the quarterly board meetings, we've got a Delta quarterly board in two weeks' time. It's relatively positive and we're really just wanna deliver the growth because for them they were impacted significantly with the seasonal impacts last year, and the grants against the synergies. If you go to ERS, it's probably a refreshed ERS with Peter Lourey running that.
I'm sorry, when I was speaking with Delta, of course, I'm referencing Gerard Hines and Chris Deane works very, very closely with him leading that business. With ERS, there's a rework of the ERS strategy. Again, I don't think I've seen the ERS leadership team more focused and positive. They had their leadership meeting in Adelaide last week, and we also had the ERS quarterly board. Lots of issues to work through. The biggest upsides in Elders are through ERS, and that's where this project, the spans and layers project, is going to have the major impact. Pretty positive.
Across to AIRR, Corey Brown, who's been CEO since October first, he's born and bred in the business and really they had record attendance at their National Members Convention in February and see the second half as strong as well. Back to Elders Crop Protection, a bit more integration to do there because we've got the two formulation businesses, Eureka and AgriToll, on the side of Titan. Again, the issue we're dealing with there are the transition of the founders, and they'll be moving out the end of September. We've and you see that in the cost where we've had a doubled cost base in terms of the leadership for the first half of this year. Relatively positive.
In terms of Rene coming across the CEO, we've had.
Meetings with the executive committee and Rene already, even though he's not in role. On Wednesday, I'll be catching up with him again. We're making sure that we provide as much backdrop Rene coming into the business. Of course, I'm in the business until February next year at any rate. I'm not sure if that answers your question directly, but there's not a lot of jumpiness or nervousness that I see. There's Paul, you might be able to add.
Oh, look, yeah, I'll just add a couple of comments. You know, just from a head office perspective, I think, you know, there's growing optimism around, you know, having the system transformation piece in the rearview mirror. I think with every month that moves on, you know, there's growing optimism around that, you know, just because of the, you know, the distraction it is to the business and the additional, you know, work and just the typical issues that come out of an IT project. You know, I'd certainly we're looking forward not back.
Yeah. Okay. That's helpful. Thank you.
Thank you. Your next question comes from Jonathan Snape with Bell Potter. Please go ahead.
Hey, guys. Can you hear me okay?
Yep. Loud and clear.
Yep. Where to start? Look, I think the market and everyone's obviously looking for some guidance here on costs. I mean, stock's down 22% as we sit here, and a lot of it seems to be by your corporate overheads that have jumped AUD 15 million year-over-year. I think what people are looking for here and what they're kind of circling around and you're circling around is where is that cost gonna lie for the full year? You're talking about some fuel running costs, but you're not giving us any idea on what the size or makeup of that is. Traditionally in the second half you'd be higher because of the way you accumulate incentives. Are you able to give us some clarity on where your corporate overheads are gonna land for the year?
They look like they're out of control. How much of this stuff is non-recurring versus, you know, where it's gonna be versus recurring? At the moment, everyone's just gonna double that number and knock AUD 20 million off your EBIT as it sits. I think people pressed as to getting a reason as to why they shouldn't do that.
Understood, John. I'd refer you to slide 17. Our view of base cost growth is, you know, that it's increased by 4.7%. Your question around, you know, how much continues into perpetuity, that's our estimate of that. Just noting how much is going on in the business in regards, you know, to the project and our intent to finish the project as soon as possible. I think the other option, Mark, is that we have lower costs, but this goes on for longer and takes longer to deliver the benefits. You know, that's the approach that we've taken. We are absolutely focused on finishing this mostly this year, you know, with a go live early in 2027.
You know, I'd end there in terms of the base cost growth in the business is 4.7% against, you know, inflation of 3.4%.
Specifically, the corporate costs from AUD 42 billion to AUD 58 billion is a big jump. How much of that is SysMod? How much of that is double the usual running? 'Cause I imagine taking some of this up in your base business as well. That's the number that's come in a lot higher than where everybody was sitting. GP, all those sorts of things kind of looked okay, but that number is higher. You're not giving a lot of detail as to why that number is materially higher and how much of it's gonna run off and how we should be thinking about it in the second half. That's what I think people are looking for today. Are you able to give some granularity on what that jump is? How much of it's gonna be there?
Have you started accruing benefits already for the second half based on your short-term incentives? Is there some kind of clarity you can give on where that number's gonna land for the full year? Because that seems to be the number that's problematic today.
Yeah. We've got the AUD thirteen and a half for transformational projects.
Yep.
The reality, John, is so that with the busyness of the project continues certainly through this quarter and then starts to taper off in Q4. We'll see some relief in the financial year from the overlapping waves of the project and then more relief in 2027. Yeah, as I note, our intent is to finish the project as soon as possible. That involves a temporary uplift in costs associated with the project, that AUD 13 and a half million on slide 17.
Okay. Look, can I ask two other questions? One on livestock. I mean, the volumes, particularly in cattle, went backwards in a market where it was kind of up, if I looked at turnoff. Sheep, you were kind of down more than what the turnoff numbers were down. It kind of implies that there's some market share loss in that business. Is that what you're seeing at your end, or is there something else moving in there that from the outside we can't see?
Yeah. I think your instinct is correct. We had a couple, so three branch walkouts in those key livestock areas. We also had lost some operatives to competitors in Queensland prior to going to the divisional structure. We're in the process of rebuilding that. Your, your intuition's right, John.
Okay. Just lastly on Delta, if I look at it, I think you said you got five months contribution. It's probably not linear, but let's assume it is. It seems like you're still running and that the baseline's still in that AUD 40 million-AUD 45 million based on the splits you're kind of talking.
Yeah.
Is that kind of the way to think about it? 'Cause it's still kind of at the base business case it was a couple years ago.
Yeah, yeah. No, spot on.
Okay. Great. Thank you.
Thank you.
Thank you. Your next question comes from Ben Wedd with Macquarie. Please go ahead.
Hi, Mark and Paul. Thanks for the question. Just looking at one of the comments you made, Mark, around sort of increased competition in retail there due to some dry conditions. Could you sort of, you know, open that up, give us a little bit more color, and also noting, you know, crop protection and GP did increase versus PCP there.
Yeah. Yeah. I think the observation what we've seen over the last couple of years, probably since 2022, was these hotspots of competition and you know, and margin pressure, particularly in crop protection. Our thinking more recently has been, well, maybe it's a system reset in terms of trader impacts, et cetera. I think this year there have been hotspots down south, like through Victoria, and probably hotter than previously. So whether it's a complete reset, if you talk to crop protection operatives around the world that they have seen an increase in competition as the percentage of the portfolio that is off-patent has increased.
We've seen that in Australia with the recent big AIs that were proprietary Active Ingredients that have come off patent and the value being taken out of the market. I think that's basically what we're seeing.
Yeah. Thanks, Mark. Just another one on Delta there as well. Full year's guide for AUD 8 million of synergies retained there. Can you give us an idea of what sort of was delivered in the first half, if any, or is this sort of mostly at AUD 8 million in the second half?
Yeah, yeah. I think first the majority is just crop protection backward integration with their Four Seasons Agribusiness, as you're aware. The first half would have been products that have been sold through and therefore through the network, as opposed to the bulk of their product being second half. It's largely crop protection. There have been some other benefits. You know, we've got some other supply chain benefits around pallets and around some other costs, but it's largely crop protection, and they will wash out in the second half.
Yeah. We got it. Thanks, Mark. Just one there for you, Paul, just depreciation. First half sort of looked like it was down a little bit, versus the PCP. Any comments there sort of, you know, in context of the SysMod program sort of, being, you know, fully recognized on the balance sheet?
Yeah. I'll come back offline on that, Ben. Yeah, I'm not sure what's driving that decrease. Yeah, I agree it seems counterintuitive.
Yeah, no worries. Thanks, Paul. Thanks, Mark.
Thank you.
Thank you. Your next question comes from William Park with UBS. Please go ahead.
Good morning, Mark and Paul. Thanks for taking my question. Firstly, can I just ask about, I guess, what you're hearing from your end customers, particularly in regions where you've seen some dryness emerge. Obviously across, you know, the media there's some chatter around sort of Super El Niño and dryness persevering, particularly in New South Wales and Southeast Queensland. Just wondering, you know, how you're thinking about that. Obviously we've seen the impact of dryness last year across South Australia and Western Victoria, but just wondering whether you've seen any sort of headwinds emerge out of that or whether if it's too early. Some comments around, I guess, I think you touched on competitive dynamics as well, but just any changes if you've observed anything. Thank you.
Yeah. I think I saw Super El Niño playing in the European Cup final. He's a striker, isn't he? In terms of market, it's basically northern dry, so New South Wales, and what we're seeing there is that just holding off. As you know, there's a strong capital base across agriculture, pre-farm gate agriculture in Australia. Deposits haven't been or been close to record. What we're seeing in the northern New South Wales area is there's a planning window for wheat. A lot of them are or winter cereal that will go past that in the next few weeks, although, you know, there's been rain coming through that area of late.
The next option will be chickpeas, which is a short season crop that they can plant. The benefit of chickpeas is it's a legume, it'll be putting nitrogen into the soil. Agronomically, it'll be a nice rotation. The Indian markets look like they're okay from a chickpea viewpoint. From an Elders viewpoint, chickpeas is a high technical service and proprietary product, high margin crop. We really haven't seen negative sentiment, if that's kind of what you're searching for. I think it's, you know, it's agriculture. There's of plan A, plan B, depending on the timing of a seasonal break. You know, in terms of capital and cash availability, it's okay. Paul, you might want to add as well.
Yeah, I think, Mark, you've put it well there. I think the thing to note, Will, is that they're still in the sowing window in this northern New South Wales area that has been dry. At this stage, I think it's just a late start, you know, whether the bureau is right on Super El Niño or not. They got it wrong last time they said that. You know, we'll see and the farmers will just adapt to how the season plays out.
Thank you. Thanks for the color. Just one last question I had is, I'm just wondering whether if you sort of look through, you know, previous cycles that you've been through, obviously the business looks, you know, a lot different to sort of the prior cycles, given the businesses that you've added and so forth. I'm just wondering, in terms of, you know, your definition or internal expectation of sort of mid-cycle earnings, has that sort of been recalibrated as a result of you know, the acquisitions and so forth? Also, if it has, like whether, you know, how you think, or how you're thinking about sort of the first half, second half earnings split, and then whether that's sort of evolved. Thank you.
Yeah, certainly it's different now, you know, given the weighting of Delta to the second half, Will. You know, where it's probably historically been, like some of the [inaudible] done the math, but whereas historically probably been averaged 45, 55 first half, second half, it's probably closer to 40 or even less first half and more second half. It's something like that.
Thank you. Sorry, just one last one. Could you give us some color around whether there has been any updates around backward integration? I know you pointed out the targets that you want to get to, but have you been able to identify new opportunities, particularly with respect to Delta and whether if that selling target has been revised upwards internally? Thank you.
Yeah. In terms of the Titan brand within Elders, it's been on track. It might be 65% and we've, you know, we've said we'd take it to 70%, so we've got enough headroom for generics with proprietary suppliers. That's largely on track. AIRR's Apparent brand, we're way high with that and we're about 90% of backward integration there. Way high. With Delta, from memory, they were at 25%. At the beginning they'd be significantly higher than that. In order to fast-track the backward integration or the synergy benefits for this financial year, we'll make a bigger step with Delta's backward integration as a percentage of generics. It's either on track or above.
With Delta it is above what we had for a three-year transition.
Thanks very much.
Thank you. That is all the time we have for questions today. Any further questions, we will take them offline and answer them separately. I'll now hand back to Mr. Allison for closing remarks.
Okay. Thank you very much. Great session, and we look forward to the one-on-ones and the group discussions we'll be having over the next week. Thank you for all coming in.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.