Good. It's good to be good, to do good deeds, be in good hands. Let's be honest to goodness, because good makes a difference. If you get a chance to do good in the world, you should. At Ingham's, we grow good food that does you good and makes you feel good, too, knowing that 100% of our sheds are certified RSPCA Approved. At Ingham's, we're embracing good ideas and good solutions all round. T hat's why we've committed to 100% reusable, recyclable, or compostable packaging by 2025. Doing our part for the planet, and then some more, just for good measure. It just makes good sense, right? Choose Ingham's, and together we can do a world of good. Ingham's, always good.
Good morning, everyone, and on behalf of the Board and Management team, welcome to the Ingham's 2023 Investor Day. On behalf of Ingham's, I would like to respectfully acknowledge the Gadigal people of the Eora Nation, the traditional owners of the land on which we meet today. I pay my respects to elders, past, present, and emerging. For those of you who I've not yet had the pleasure of meeting, my name is Helen Nash, and I'm the Chair of Ingham's Group. In the front row, we have three Board Directors with us today who I'd like to introduce to you briefly. The first is Mike Ihlein, who is a Non-Executive Director and Chair of the Audit and Finance Committee. Next to him is Rob Gordon, the Chair of our Risk and Sustainability Committee. O f course, we have Andrew Reeves, our CEO and Managing Director.
Also in the front row, we have most of the members of our executive leadership team, many of whom you will hear from across the morning. It is great to be back together again in person and to have the opportunity to discuss with you in more detail our strategy and plans for the business moving forward. Ingham's has a rich history spanning over 100 years, but it is my firm belief that our best years are ahead of us. The business has prevailed through some extraordinary challenges in recent times, but we have put those challenges behind us and returned to growth. Fiscal year 2023 established a strong operational and financial platform, and as you have seen from our recent guidance release to the ASX, this momentum has been maintained, and we have started fiscal year 2024 strongly.
This performance is underpinned by the progressive return to normal operating performance levels across all facets of the business, and in particular, the ongoing recovery in our farming performance and improvements in labor and supply chain conditions. Importantly, the outlook for the business is positive, and the operational investment decisions we are taking position us well for the long term. As you will hear from our management team, we have identified and are pursuing a range of growth projects, which we expect to deliver significant shareholder value over the next few years. Here is a brief outline of this morning's agenda. Andrew will open with a presentation on the market positioning and strategy of Ingham's. Gary will then cover financial performance and capital management. Seb and Claire will discuss brand, customer, and consumer.
Anne-Marie will present on our network strategy, and Ed will provide an update on the New Zealand business. Following each presentation, there will be an interactive Q&A session, which Andrew will moderate. On behalf of the board and the Management team, I hope you find today to be informative, with valuable insights into our plans and outlook for the business. W ith that, I now invite Andrew to take to the lectern and get us underway. Thank you very much.
Oh, good morning, everyone, and my welcome today, and thanks for giving us your time. As Helen noted, we've come through a number of quite, quite challenging years. It's been quite difficult with the disruptions that we've had to, we've had to navigate, and it's been really great in the last 6 months-9 months, where we've got back to something that looks like a normal operating cadence and a very stable environment. W e've been able to get out of firefighting moat and crisis management, and then start to really focus on our strategic agenda and the growth path forward. H opefully, that's what we'll be able to share. Well, that's what we intend to share with you, today. Which one do I click, Brett? Just the little arrow. Great, thank you.
This, by any measure, is a sizable enterprise. We're employing thousands of people across Australia and New Zealand at 90+ sites. At any time, we have 230 contracted growers, raising in the order of 33 million birds. W e purchase 1.5 million tons of grain to feed and raise these birds, meaning that we're processing something in the order of 5 million birds per week. T hat is servicing, obviously, a very large and a very growing market with, how many we've got there? Just a number, multiple kilograms per year. Thank you. 40 kg/ year. If we think about how we're advantaged in this marketplace, our vision is to be the first choice for ANZ poultry.
Now, that translates to being the preferred partner for our key stakeholders with whom we engage, for example, customers and consumers, our suppliers, and our investors. O f course, that means we have to consistently do the best job we can to meet their specific and often quite unique needs. We describe our purpose not by what we produce, but the outcome that we create. Deliciously good food for a variety of occasions, which is most often at the center of the plate. W e do this in the best possible way, which references running a sustainable business, a performing business, and with particular emphasis on the care we show for our people and our animals. We think there are four areas where we create particular advantage.
The first one, of course, is our fully integrated national network, which stitches together a bespoke set of poultry assets operating together, and at scale, with a group of tier one customers. We're certainly innovators in the segments of the market that have the best and most attractive growth prospects, and these are the areas that return superior margins and that we have the capability to support and promote. The business has deep technical expertise and know-how throughout the value chain, which we can apply to multiple value creation opportunities. We have a deep belief and commitment to operating to the highest standards in all aspects of our operations, and these are foundational to our long-term success. W e think l et me just get this right in a minute. We think that translates into quite a compelling investment proposition.
We take these themes a little deeper and look at those. We think we've got a platform that's going to provide robust and attractive earnings over the longer term. We have benefit scale, which translates to efficiency in a large and growing market. We produce a portfolio of offerings that service a popular and favored protein of choice. Our customers, with whom we have deep partnerships and relationships, value and prioritize poultry. If any of you have been watching television lately, I'm sure you will have seen the enormous amount of promotion that McDonald's have been putting into their new McCrispy burger, for example. That's a great example of our customers prioritizing poultry. We know how to work with them, and we know how to execute well against relevant consumer insights that create valuable growth.
We are industry leaders in crucial areas of safety, quality, animal welfare, and sustainability. Our disciplined process of consistent and continuous improvement lowers costs and unlocks capacity. The team that you'll be seeing throughout today have the right capabilities and experience to successfully navigate the strategic path we've laid out. Finally, we have the financial strength and flexibility to invest in the right strategic assets to grow our business. In a growing market, chicken consumption has grown consistently over 30 years to very high levels of per capita consumption and household penetration. In fact, in Australia, for example, something like 70% of Australian households consume chicken 3x a week.
Population growth, which will be further stimulated by the anticipated increases in immigration from countries where chicken is already a very popular choice, should underpin stable and consistent market expansion. Chicken is in Australia, the most affordable animal protein, and even with the most recent uplift in prices, the relative gap to red meat still remains significant. The same applies in New Zealand, however, pork and chicken are much closer. Chicken is certainly a popular and favored protein and is frequently shopped, not just due to its price advantage. It has established a reputation for being healthy, highly versatile meal solution, and it can be prepared in many ways to provide variety, flavor, while being convenient and widely available. Of course, as we've mentioned many times, it has a very sustainable carbon footprint that we estimate is 5x lower when compared to other animal proteins.
Now, those of you familiar with our business already know that we have a geographically diverse and extensive network of operations across Australia and New Zealand, and they're supporting both markets directly, where we trade with shares above around, above 30%. For biosecurity reasons, both markets have limited or no imported poultry products, so we're not subject to competition from outside our domestic competitors. This coverage means that we're really well positioned to service a wide range and type of customers with any of the products from our portfolio. I n some instances, such as with Waitoa in New Zealand or the Free Ranger in Australia, allows us to promote provenance as a part of a product's appeal.
Such a network supports resilience and flexibility of sources of supply when required, an example that we were able to call on during the recent industrial action in South Australia. Obviously, this was tested and survived the disruptions of the whole COVID pandemic. It further assists our management of biosecurity and agricultural risk, where we can isolate or contain disease, or again, provide alternative sourcing and, or certain alternative sourcing arrangements. Of course, it's a platform that provides wonderful support for our long-term ambitions for growth. We're vertically integrated. We control and operate all the critical activities across a vast supply chain, and we can apply our deep technical knowledge and know-how to extract the best performance and the outcomes from each part of the chain.
From a capital point of view, the most recent investment, we think of the last 3 years-4 years, has gone into what you might describe as the upstream elements of the value chain. W here we've made sure that we're ensuring that we have enough capacity to raise the birds to keep pace with market growth. F or example, a new feed mill in Murray Bridge, state-of-the-art hatcheries in Victoria and WA, a new breeder triangle coming on stream as we speak in northern New South Wales. W hile not a direct investment, the establishment of 3 new state-of-the-art distribution centers in Victoria, South Australia, and coming on stream in January, Western Australia.
In coming years, the investments, and we'll talk to this today, the investments in our value chain will be more targeted at the processing segments of the chain as we further enhance our capacity to meet market demand for growing product types and do this as efficiently as possible. If we go back and map our growth since the time of listing, in both markets, we've been able to grow ahead of the market. We believe in Australia, where the growth rate has been closer to 3% rather than 2.5% in recent years, we'll continue to expand at that rate, something akin to GDP + population growth. As I said, in recent years, it's been a little bit higher than that long-term trend.
It's a slightly different story in New Zealand, but this is because of a number of factors, including how Tegel completely failed. Sorry, following a failed export strategy, had to flood the market, and it was no longer a factor, of course, that's gone. T hen we went through the very severe restrictions imposed on some channels through the COVID lockdowns. I'm sure that when you listen to Ed talk about the ambitions he has for the market today, you'll see that we have the potential to grow ahead of that long-term average. One of the attractive, very attractive elements of our business is that we have a very diversified customer base, and we like to think about this market structure in a number of ways. Primarily, there are three macro channels where the volume moves in significant proportion.
Retail, which is primarily dominated by supermarkets, where our biggest customer, Woolworths, sits, being the largest players, and they're essentially servicing an at-home consumption occasion. The other two channels are focused mainly on out-of-home dining and all the forms that comes in. QSR, which is dominated by the big global players like McDonald's and KFC, are historically fast-growing as they relentlessly invest in new store openings and drive high-impact marketing campaigns. We have grouped wholesale and food service together because primarily they service customers who provide product for the balance of the market, such as small retail, such as barbecue chicken shops and butchers and specialist retailers, as well as the hotel, restaurant, and cafe sectors.
It does mean that we have a significant variety and diversity of trading relationships that will vary depending on aspects like volume, the size of business, service levels that are required, whether or not we get exclusivity of products, promotional programs, and whether or not we contribute to unique and bespoke product development. What I'm confident you're going to see from the detail in the presentations that follow is that our team, who are very ambitious for Ingham's, as demonstrated by the growth, that creates value. We aim to increase the share of our volume that comes from higher value, higher margin products, and this will drive our goal to take the business to a position of delivering sustainable double-digit margin in the coming years, a growth trend which has now been established in terms of margin in our recent results.
Our priority is to invest in understanding consumer needs with insight that we can execute in partnership with our customers to bring relevant propositions to life in a way that meets our most important consumer needs. Again, you will see some examples of that today. The insight is the product of really rigorous and large-scale research that takes a long-term view of the growth trends and the most attractive trends in the market for us to pursue. Our customers very willingly buy into these insights, and they work with us to seek to understand how they can best tap into the opportunities that these trends represent for them. We have distinctive capabilities that provide differentiated and valuable product options, and a constant theme is maximizing the whole utilization of the bird and driving the best mix outcomes.
We will demonstrate where our insight is driving relevant innovation in key growth options such as free range, Value Enhanced products, and further processed products, and how customers are supporting these initiatives. Our customers have long-term and deep relationships with us and rely on us to work with them to design and implement a range of products they and us determine will best suit the consumer needs and keep pace with emerging trends. Our network capabilities have facilitated the growth and sometimes even market entry of our customers. This is supported by our capacity to maintain and evolve our network and supply chain to grow with our most important customers. We place significant emphasis and priority on operational excellence and the notion of continuous improvement. It drives against the need to be relentless about ongoing efficiency, which supports both our returns and our competitiveness.
Ingham's license to operate will be determined by many factors, but none more than our ability to provide secure and safe food supply, while promoting and practicing demanding standards of animal welfare and pursuing a long-term commitment to running ever more sustainable operations. In our business, we have emphasized the importance of our cultural journey as much as our strategic journey. A long heritage of a family-owned company set on by the short-term private equity thinking does not necessarily promote the capabilities, leaders, or behaviors that create an agile and sustainable future. This business needs different capabilities to grow and perform than just the ones that got us to listing, and we have been actively building those capabilities. Since listing, this company has established a long-term and sustained improvement trends in the safety for our people.
This is not just a moral imperative, but one that supports a high-performance workplace and retains experienced people. Driving continuous improvements in efficiency, utilization, yields, and waste are supported by an inclusive culture that engages people and encourages them to bring forward ideas that promote progress and advances in all of our processes. The success of our continuous improvement activities relies very heavily on tapping into the experience and observation of our frontline leaders. G oes the leader, so goes the culture. G oes the culture, so goes the company. The quality of leadership of our people experience, that our people experience every day, is the single biggest factor in their positive engagement and the effort and contribution they put into their jobs.
We invest heavily in the development and growth of our leaders because this will be a source of competitive advantage in the quest for talent, and ultimately, the performance outcomes will deliver. We have published and committed the business to a sustainable agricultural roadmap out to 2030, including multiple targets in relation to the care of our people and our animals, climate action, and safe food supply. In the medium term, most of this effort and commitment that we have made is what you might describe as being inside our gate. The things that we have most direct control over and that we're most readily able to impact.
These details, we have been very deliberate about outlining and publishing in recent annual reports, and we've committed to both evolving and shaping those targets with, and where possible, with new necessary investments or as particular new and novel solutions arrive, and we will invest in those. With that, I'm going to hand over to Gary Mallett, our CFO, to talk through our capital management process. Following Gary, we'll be happy to open up for some questions.
Hi, good morning. I love the passion of the people in the videos, and you'll see that as we play a couple during the day. S hown quite an increase in our earnings since second half of 2022. I'm sure we spoke to many of you at, at that time, so it's a far more pleasing trend that we've seen through that time. P art of it has been the success in being able to pass on those inflationary cost pressures through the time. You'll see a gray bar there, that's our, the guidance that we put out in our trading update, a couple of weeks ago now. I think, I mean, visually, what it shows is that I think we've broken out of those halves, and we're at actually sort of above that traditional level.
What we'll see today is just the plans that we have to continue to grow from there, throughout the rest of the day. W e've made substantial investments since the IPO, and Andrew called out a number of the things earlier. We did slow down a little through 2021, 2022, 2023. That was principally supply chain. Speak up? See if we can direct that. Can you hear me better now? Thanks. W e've slowed down a little between 2021, 2022, 2023. It was principally around supply chain challenges and COVID, and trying to get into the, into the various sites. W e'll be having a catch-up, from that. W e've previously talked about at the full year results in August, that we'll be spending about AUD 100 million, in FY 2024.
Then I think what you'll see with that catch up, but also, with all the plans that are outlined today, particularly by Anne-Marie and Ed later on, that we'll have elevated CapEx over the next few years because we've just got good opportunities and good returns that we can deliver from those. We have done a fair bit of upstream investment, which Andrew talked about. There has been investment in our primary and further processing facilities, but that'll be the emphasis coming up over the coming few years. You'll see that our ROIC, it's been heavily influenced by our earnings over that period of time, so I know it gets a lot of attention around the capital side of the calculation, but earnings is a really key driver, so you see that floating through.
S peaking a little bit about our capital management. Management and the Board are very conscious of allocating capital in the very best way that we can. W e need to look after the base business. Got to take advantage of the poultry tailwinds and growth, and then we've got to also use it to be driving that efficiency. W e'll look to retain our balance sheet strength to allow us to take also those strategic opportunities that may present themselves to us. O r framework remains relevant, and we've seen it before. We've slightly expanded our sustaining CapEx and our investing CapEx out into separate limbs on there.
You'll recognize that we haven't hit that 75%-90% of depreciation over the last few years, which again, is back to the just difficulty we had of getting into some of our facilities and getting equipment into the country. T hen as it flows through, and I'll talk about a couple of those other things further on, excess cash will either have strategic investments or ultimately return to shareholders. W e're thinking about capital allocation across four categories, and it's really important that we have a spread of investment across those first three. We've provided a rough range of what that, w e can't not do stay in business CapEx or ESG-related spend. We'd all love to just do high growth ones, and that's where the big returns come from.
The core growth also sits in there, and that's how we meet our ongoing demand of our consumers and customers. We need to invest in that core growth to meet those demands. Stay in business and ESG, it's usually the case that the return on those will be less than our WACC, and sometimes it's negative. If we're replacing a fully depreciated asset with a like-for-like, then under the ROIC formula, it will be a negative result. You've got a capital base and no change to your earnings and some depreciation coming through. The core growth, we expect to more align with those sort of normal returns, WACC, a bit above WACC.
Then with high growth, if you think, say, for example, automation, then we're expecting +20% returns, and Anne-Marie and Ed will have some examples later on, which are significantly higher than that. T hen there's strategic investments which really come about when the opportunity presents themselves. W e recognize that, sometimes there'll be a compelling case that we need to do that. We're constantly scanning for what those opportunities could be, and we'll bring them to the table when they do make sense. Examples of that could be some strategic properties within our network. Y ou know that we've got a large leased portfolio, and one day there could be the possibility of grabbing some strategic site or two back into our network.
An acquisition of a business that's complementary to poultry could add significant value and something that we have looked at in the past and will continue to look into the future. T hen as we grow, one day, we're probably gonna have to take that step change in our processing facilities. Anne-Marie will talk about, and that's not tomorrow. T here's a number of things that we can do, but one day we're gonna have to look at taking that step change in processing capabilities as well. We're currently concluding an extension of our debt facilities out to FY 2027, and we've continued to be very well supported by our banks. Thank you.
There's a couple of them here today, so thank you for your support. Over the journey, our leverage has stayed within our target range, so we're targeting between 1%-2%. O ur net debt levels, you can see we've managed to manage with discipline, manage those net debt levels through the earnings variations that we have over time. I'll just finish up with shareholders' returns. We've given back AUD 550 million as returns to shareholders since the IPO. D ividends, we've managed to stay within our dividend payout ratio all the way through that. Even in FY 2022, when there was a challenging period for us, we still managed to have a dividend in that period as well.
With that, I'll invite Andrew back up, and I'll go take a seat.
Thanks very much. Happy to take any questions that might come through.
Good morning. Craig Woolford from MST Marquee. Just a question, your aspirations in double-digit margin. J ust clarify which margin that is?
Okay. Yes, you did hear me right. It wasn't, it wasn't a mistake. We just certainly have an ambition to grow our margin, and we're thinking there about our EBITDA margin, which has been-
Pre.
Yes. Sorry. Yes, got to get that right. Pre-AASB 16. I f we go back to our previous best result, which was FY 2021, we were around about 8% there. We've obviously dipped through the last couple of years, but if you look at the results since then, we've been getting back on that trajectory, and that's our ambition in the future years, to get that into double digits.
Yes, I mean, without getting specific to on double digits, is it really about a mix of business forward?
Yeah, it's four key things. I mean, it's focused on cost and efficiency, which we do all the time. It's where we can make those high-value investments, which typically help improve cost and margin. It absolutely is mix, and that you'll see some great examples of that today. That's crucial. A gain, pricing discipline. Us being, excuse me, us being able to go to customers and pass on costs. T hose four things are the big drivers of that growth. Yeah.
Awesome. Additional question.
Yeah.
Just one more, one more. J ust in terms of the ERP system, something that was talked about. Why was it abandoned? S omething that needs to be invested from a CapEx perspective on, is it part of this elevated CapEx that you've committed to?
I think I need your phone with your questions on there here.
For the feed.
Back in December 2022, we said that we were pausing the investment that we had in the ERP project. That really came down at that point in time due to the financial conditions that we had and didn't feel it was the right time for that and also the right time for the change that it would take through the organization. Going forward, the reason we were doing it is, yes, we do have some legacy systems, and one day we do need to replace those. F ortunate thing with legacy systems is they're bespoke, and they're actually really fit for purpose, so that's the great part that we have now, but one day we do need to replace those.
I am quite presently, at the moment, we're going through and going, "Okay, is there an alternative to the plan that we had before? Can we do it in a more effective way, both as far as how we would have changed through the organization, decreasing risk and also, to do it at a lower cost than what we were previously planning?" T hat's yet to come into the future.
Just interested in terms of the margin aspirations, that over 10%. The property market feels like it's been the best lot it's been in the last, I don't know, 10 years. At the moment, short supply, customers are starting to get rational, rational competitors. Do you need to see this sort of market dynamic continuing to be over 10%, or do you see the competition, the prices coming back, et cetera? Just wondering, feels like we're in a bit of a, let's say, the line of a really nice spot for the moment, best sale on time.
Yeah, I think, I think you're right about where the market's at, at the moment, but we're thinking about this over the long term, throughout the cycles. I t's our thinking, our planning, our aspirations to get to that margin, even if we don't have those, those most favorable conditions. T hat's how we're thinking about it. W e only think it's quite, it's quite doable from where we are. You know, given the market historically has been, while it's been through its ups and downs, it's been very stable, it's been very rational, both in Australia and, and, and New Zealand. I f you think about some of the investments we're making, you know, that we have got control of, like in automation, they're very, very much contributing to that margin expansion, for example. T hey'll, they'll, they'll go ahead. We're confident we can get there.
Just in this, this backdrop, we've got more value-conscious shopper. Theoretically, U.S. side, cheaper protein values at the front edge. Are you seeing any early benefits of that? Do you think, obviously, you've been strained by demand a bit this year, so you've learned, You see any benefits, and how does that play into your business and earning conscious in the market?
Yeah, well, obviously it does. From the point I made earlier, it means that our customers are prioritizing poultry. Y ou know, poultry in retail is about the second biggest fresh category. We've seen, and Woolworths came up. We've talked about this earlier. Woolworths came to us earlier this year, said, "We want to prioritize poultry. We want to promote more poultry. Can you up your, can you up your volumes?" Which we were able to do. They've recently expanded space for poultry and increased ranging. I made the reference to McDonald's and McCrispy, but McDonald's have made a global commitment to grow their chicken business, and that's certainly translating into Australia and New Zealand. And of course, KFC is the core of their business.
I mean, it's very much in this cost of living, this difficult cost of living environment, poultry is very advantaged in that environment, and customers appear to be playing to that. There is a little bit of a, j ust to make an observation, at the moment, there is certainly stronger growth in retail than QSR. QSR is a bit softer at the moment as they have some challenges with foot traffic, but we're seeing a compensating growth in retail, and we're reasonably comfortable with that, about that swing.
This is just kind of on for me, the, sorry, going back to 10%, the over 10% number. Looks like this year you're going to be solidly into the 9s, basically. I'm just wondering where is this something that could be realistic to get into 25, do you think, based on the trends and the development?
That would be guidance, and I don't think I should be doing that. C learly, you know, we'd like to get there as quick as we possibly can.
Thanks. Apologies for this question, because I'm fairly new to the stock, but there's been a significant step up in profitability that you guys have seen for the first half relative to what we've seen over the last sort of eight years or so. Can you just talk us through what's changed in the last six months, and why you think that's the correct normal operating cadence for the business and why there isn't a bunch of one-offs that sort of refer back to that AUD 200 million EBIT annual number that they have?
There's not. Gary will help me out here, but there's not a lot of one-offs in any of those numbers. I mean, they're pretty clean earnings. I think you've got to take out that FY 2022 number because it was just abnormal because, you know, just you're new to the stock. Y ou know, we went through six months of half our workforce wasn't available, massive supply chain disruptions in New Zealand. We had major customers who were closed. It was incredibly difficult. T hat doesn't really represent a stable benchmark or run rate for our profitability. If you go back to the previous best result before that, you know, we're, I would be thinking about our growth on that, which was 209 pre-AASB 16.
This year, we're getting back towards, we're certainly sorry, FY 2023, we're moving back towards that, and hopefully, we'll exceed that in the year ahead. W e think that is a sustainable run rate. Because of the market conditions that we're talking about, I think our ability to secure price, to cover costs has changed in recent times, and the investments we're making in our network and their cost out programs are all supporting that. Y ou know, we feel that there is a sustainable runway of earnings growth. I probably should also point out, you know, our New Zealand business has, and Edward talked to this on the Tegel's blunder, but it's certainly, you know, keeping up its EBIT run rate and will be a more material contributor to our longer-term EBIT as well.
Are you able to talk about farm productivity and performance? T his is quite a way from H to birds, has that changed materially?
It hasn't changed materially. Again, we, we experienced in the back end of the first half of 2023, we had some farming problems, which were a legacy of COVID, which had an impact on fertility, which meant that there was a shortage of supply. I f you, again, if you look at our farming practice across both markets over the long term, we, we maintain incredibly good stats when it comes to fertility, mortality, hatchability. They are, they are very good numbers, and we're back on, we're back on those trends now that we got through that disruption. A gain, if we can maintain those, and there's no reason we can't because of the, the facilities and expertise we have, that should not be a problem for us.
Yeah. Great. Thank you, Edward. Question about a gain, sorry for that, but I want to dive into the target. The announcements, projects, is that enough to get there? Is there, you know, going to have to do more after what you know or about to do better on the slides in terms of automation and things like that to get there?
I'll just repeat myself. It's those four things I went through. We've got to work on each of those four levers year in, year out, and all of them contribute to that growth. Yeah.
Then my second question is just around the price and the better outcome. The current price is great in terms of its value prospect to drive traffic.
W e're not seeing any particular change away from normal, normal practice. As I said, our biggest customer is prioritizing poultry and is expanding space, but not particularly doing it with heavily discounted product. Y ou know, lost my thread there, but, you know, we're quite confident that that pricing trend can be maintained. If you look at, I won't give you the exact number, but we'll disclose that at the half. But our average selling price has continued to improve across the first half.
Thanks.
Sure.
Hi. Mitchell Hawker from Bank of America. I'd just like to know, do you have capacity constraints there or in your production? I guess with Woolies selling more space towards chicken, are you able to meet that demand with your existing, I guess, productivity levels?
Yes, we are, and we have. I fact, our customer service levels to Woolworths are unbelievably high. Like, I'm looking at Anne-Marie here, but I think they're up around 98%-99.9%. Y ou know, we do a very good job of servicing our customer. We look at our capacity, we've got capacity to stay with market growth and to meet those sort of trends over the next 3 years-4 years, and we'll talk today about some of the things we're doing to maintain that capacity. As Gary alluded, out beyond that, we're probably going to have to start coming up with some other solutions to expand capacity, and we're thinking about that. Y ou know, when we know what that solution is, we'll absolutely share it with the market. R ight now, we're very comfortable with our position from a capacity point of view.
He's back. Thanks.
I didn't get the today. T he last one, so this is not me talking, but when I talk with a lot of people about this stock in the financial markets, they worry about the buying position that Ingham's has with its customers. T hey're the big customers, and they provide a lot of big suppliers out there. How do you respond to that in terms of what your buying position is? If you did have 10% plus margin, publicly listed company, other retailers and other customers would apply for that.
There's plenty of companies that have much superior margins than that, that do a very good job of negotiating with those big customers. I don't think a 10% margin is particularly gouging or extraordinary. I think it's. It'll be a good margin for our business relative to where we've been. T here are businesses out there that do, that work with those guys who have much better margins than that, and they manage to sustain it. N ow, look, I, I'm confident, and one, again, I alluded to it earlier, one of the things we have really been focusing on has been really building our capability inside the business of having people who really understand what it's like to work with those big customers. W e have a variety of trading relationships.
A gain, as I said, they, they're determined by all sorts of things, and they're very diverse and very different. You'll, you'll get to see Claire talk about this later today, and she's a great example of bringing talent into the business that really understands this type of environment, and we've invested heavily in that. I'm very confident that we know how to negotiate with those, with those customers. F rankly, they're enjoying it as well. That's, you know, you, you follow them, you can see what their margins are doing. T hey're, they're certainly enjoying the growth of the category and, and how that's impacting their business as well.
Is there any intention to expand beyond poultry? Talk about acquisitions, where is, where are the boundaries around that?
I was asked this question yesterday, and someone said, "Are you going to the pork business?" I said, "Emphatically, no!" Y eah. Look, at the moment, our strategic focus has been very much on the core poultry business because we think that's where our expertise lies, that's where our strengths lie, and we can see growth potential in core poultry. T hat's really where our emphasis has been, particularly after what we've been through. In time, quite possibly, there will be adjacent categories that might make sense for us to go into, but nothing that's on the short-term or medium-term radar.
Last one. A sustainability question. One of the issues that's popping up, mainly in Europe and the UK, is around the impact of antibiotics on birds, and no doubt has an impact on yield and cost per kilo. What's Ingham's' stance on use of that? How would you respond if there was some sort of change required around the use of antibiotics?
I'm gonna. I might hand this to Anne-Marie in a moment, but, but yeah, I think that you're better positioned to answer that than me.
Yeah, sure. Look, the antibiotics movement globally is quite an interesting one at the moment. You've seen Tyson actually withdraw from their no antibiotics ever claim. L argely, you know, we are seeing a different disease status rolling through the birds. We still maintain our antibiotic policy, and that is the responsible use of antibiotics. W e don't use antibiotics prophylactically. We use them to treat sick birds, as we all would if we had sick pets or sick children. T hat position doesn't change for us. I t is, it's an area that has a fair degree of research going into it out of the States at the moment through the universities.
One of our Susie Klein, who heads up part of our business, is actually in the U.S. and had the benefit of visiting that research facility and has actually been engaged in it. I t certainly is a moving feast for us, but certainly, we will maintain our antibiotic policy, and that is the responsible use.
Thanks, Anne-Marie.
Thank you.
Be thinking about that appreciation, obviously, on that short period.
You really get called. O n the depreciation policy on how we have such experts, obviously, over the useful life of the asset that we're talking about. Generally, they're in a longer term. It's sort of 10, 10 years-ish, probably on average, depending on what the investment is. T hat gives you some guide there. Yeah, and I think you might see s o clearly, depreciation is going to rise, and you might see more than 100 over the next few years. D epreciation will consequently go up, with the depreciation. If you worked on 10%, that would be probably okay. Thanks. How are we going with time?
We've got about 2 minutes. We've got plenty of more questions.
All right.
We've got some questions online? Yep. Sorry, Cate, you just-
No, the phone is not so good.
The phone. Okay. All right. Well, with that, thanks, Gary.
Thank you.
I'm sure you'll save some up. T he next segment on the agenda, you've got-
I think we've got a break now, is it?
We've got a break.
Yep.
Oh, yeah, a break. Okay. Sorry. I understand what's going on. How long are we breaking for?
20 minutes. 20 minutes. Yeah.
Okay, great. Thank you.
My name is Seb Brandt. I'm the Chief Strategy and Planning Officer, as it says there, and I'll be shortly joined by Claire Stevenson, who's our Executive General Manager for Retail. Before I kick off, we'll just throw to our Dinner Done ambassador, and we'll talk a little bit in a minute about what Dinner Done is.
Let me show you how to get dinner done. B eautiful, so colorful, so delicious. This is already smelling so good. Look at all those beautiful color, different texture, different flavors. Absolutely. Look at those golden babies. Nice and crispy. Delicious. That's Dinner Done, thanks to Ingham's.
Thank you to Manu there. H e's done a bunch of content for us, which has been performing really well and helping us explain to Australian consumers what's one of our key demand spaces looks like. I t's our job is to talk to you about what's happening in the consumer landscape, what's happening globally, what does our product portfolio look like going forward? T hen Claire is going to talk to you about how do we interact with our customers, how do we work with them to grow their businesses as well as ours and those of our shareholders. A s we look forward, and I think Andrew sort of mentioned this, we see the global and local poultry outlook as being incredibly positive, and probably, you know, in the best shape it's been for a very long time.
We've recently conducted a study, a very deep econometric study, looking at sort of 10 years of scan data, 10 years of ex-factory data, working with our key customers to understand where they see growth. Global study tours, global growth forecasts, overlaid with about 60 econometric variables around population growth, trends towards health and convenience, and so on and so forth. W e've now got a really, really clear understanding of where we think growth is going to come from, both at a consumer spend level, so what, how much do consumers spend on poultry, and a consumer volume level. I will spare you the 60 pages that sit behind this, but we actually did it by subcategory. W e now understand very well where that growth is going to come from for the next 5 years by subcategory.
If we think about what's driving that growth, as we look at retailers, and Andrew touched on this, consumers see poultry as being very valuable. Now, that doesn't just equal price. We think about value as what I get over what I pay. W hat do I get? I get a versatile protein, I get healthy protein, I get one that's highly sustainable, and I get it at a price that's, you know, significantly more affordable than actually the other proteins. W e look at that word value as what I get, divided by what I pay.
Secondly, and again, Andrew mentioned this, we've had pretty much every major retailer in Australia come to us in the last sort of 6 months-12 months, asking us to help them think about how they may get more space, more shelf facings, and a broader range on their shelves. T hat's an absolute privilege for us to help them do that. L astly, I think our customers and us, through deep consumer insights, have really been able to bring a lot of innovation to life, and that innovation is meeting consumer needs. T hat's kind of what's driving retail. As we shift across to out-of-home, it used to be back in the day, and particularly in QSR, that the next big thing would be, you know, a red meat style offering.
Typically now, over the last 12 months, I would say that's actually shifted to the big hero launches that we've seen in QSR and out-of-home actually have been poultry, which is incredibly favorable for us, and we have a very deep understanding, both in the management team and R&D teams, of what it takes to win in QSR. You're also seeing a lot more prominence on the menu. Again, used to be, you know, they're called Translites in a lot of the big QSRs, but the middle picture would always be a beef product. More often than not, we're seeing that as a poultry product now, which again, is really positive for us. T hen lastly, I think the really interesting one is this premiumization at home.
This is what we would call a whole muscle burger, and you may have read about the burger wars in the U.S., which is, which is translating to Australia here. W e're working with our big out-of-home customers to create kind of the next big thing in the really high-quality, whole muscle products. T hat's kind of where we see going forward in Australia. As we look at, globally, and I was fortunate enough to visit, Canada and the U.S., and we also had teams go to, U.K., Ireland, and most of Western Europe. A couple of key trends happening globally. One is the strong core category growth that we're enjoying here in Australia is being experienced overseas. Secondly, is those tailwinds around health, versatility, and great value is also being experienced overseas.
I would say that, particularly in the U.K. and the U.S., retailers have invested heavily in the shopping experience of being able to easily navigate, being able to easily find products that they want and need, even to the point of having coffee shops and actually mini QSRs within some supermarket environments, so people can kind of chow down on some nuggets while they're shopping, which appealed to me greatly. I would though say, it was a little bit disappointing from a kind of global trip, as I was hoping to see the next big thing in innovation. A ctually, what we realized is the next big thing in innovation is happening in Australia, and it's happening through Ingham's with our customers. W e feel really confident in our innovation ability to post that global study.
If we move from global to what's happening in Australian poultry consumption, so we consume about 45 kg/ person/ year, so almost a kilo a week. W hen I go to dinner parties and I tell people that, they say, "No, I don't." Y ou actually prompt them through their week, and you go: What did you have on Monday night? What did you have on Tuesday night? Did you take the kids to McDonald's for the after sport on Saturday? They very quickly realize, as Andrew said, that 70% of households have chicken three times a week. Slightly less in New Zealand, around 40 kg. B oth really strong, but also with room for growth. We see free range as the fastest growing category, so free range is growing at around 20%, both on a volume and value perspective.
A lso consumer seeking convenience, growing sort of around 11%-12% in those highly convenient products, which we'll, we'll talk about also. I f you net all that out, we see volume growth at around 3% and value growth at around 3.8%. W hat does that mean for Ingham's? We have a, a very, very deep understanding of consumer needs. We have a very, very deep data set, and we've been able to, you know, commercialize that, and I'll show you a really great example of a case study of how we've been able to do that in Australia. We have two key demand spaces, and we'll talk about that in a minute, what they mean, but Dinner Done, which is just get, get dinner on the table seven nights a week, and then Raised Right, which is, which is code for free range.
We have a very, very strong and large innovation team who understand well what consumers and shoppers need. Y ou'll hear from Anne-Marie later on, also, that we have made significant investments in capability and capacity to meet these needs. We are making them last month, today, next month, and over the next 5 years, and she'll outline that for you. W e talked a little bit about demand spaces. W hat does that mean? I f you look at the very top of the chart there, there's just shy of 9.3 million households in Australia. 95% of all households buy chicken at least once a year. Now, that's a very, very high number for such a, such a big category, and typically, you wouldn't see numbers not north of the 90s.
We're working in a very, very favorable category. To give you a cross point, only 98% of houses buy toilet paper. I'm not sure if they're stealing it from work or I'm not sure what's happening with the other two, but, so we're close up there. The next row then is the timeless category drivers. Why have people bought chicken since the start of time? O ne is value. We talked about that, what I get over what I pay. Two is versatility. Poultry has this wonderful attribute that I can take chicken out of the freezer, go to work, and I'm pretty sure that I can put together whatever's in the fridge and whatever's in the cupboard, and I'm going to be able to deliver something.
With some of the more expensive red meats, it's just not possible, and people are kind of scared of ruining a good meal, whereas obviously, chicken being incredibly versatile. Taste, it's very rare you run into someone who says, "Just don't like chicken," right? It's, it's a broad taste appeal, and then, of course, health, particularly compared to some of the red meats. T hat's kind of category drivers. We need to then move deeper, which is into the why. W hen we do consumer segmentation studies, there's typically six questions we ask is: Who, what, when, where, why, and why not? This goes very deep into the why. W hy do consumers buy chicken? 41% of people buy chicken because during the week, particularly, I just want Dinner Done.
I'm probably not ordering in, I'm cooking at home, got a family, or I'm a single household, double household, and there's a significant amount of poultry goes and meets those needs, far more so than any other protein. As we move across the page, Food Connection might be later in the week, perhaps kids sports finished. It's the first time the family's connecting into Impress the Crowd, which is probably more of a, you know, Saturday night. Maybe it's a dinner party, maybe it's a barbecue. Chicken plays less there. That might be more sort of in the, you know, more of the lamb kind of, demand spaces. Lunchtime Heroes is a interesting one.
This is where people are either consuming chicken with a, with a sandwich or a subway, or more often than not, actually, they're taking the leftovers from the night before, and mom or dad, who's going into work in an office like this one, actually gets kind of a free additional meal. T hat's one less meal to produce for the week. T hen probably the second one I really want to call out is, is Raised Right, so making good choices for myself and the protein that I consume. Consumers are very passionate about the welfare of the animals. They understand that a happy chicken is a healthy chicken, tastes great, and so we, we have 20% of our needs sitting in that spot.
Then, of course, the last one is the Green Protein, which is, you know, we know that of all the land proteins, we're the most sustainable in terms of our impact on the environment and what it costs us to feed them in terms of feed conversion and whatnot. C onsumers understand those needs, but we're gonna really go down deep now on Dinner Done and Raised Right, which, as you can see, is just north of 60% of all need states. J ust an example of how we use this data and how we plan to improve margin, how we have improved margin, how we plan to improve mix. I f we've just taken a classic breast fillet, this is the biggest outside of the barbecue chicken.
This is the biggest selling SKU in all of retail chicken, so breast chicken and tray pack. This is your everyday chicken, incredibly high welfare, endorsed by the SPCA, so call that index 100. T hese, this works for, for both countries and, and mainly with a retail focus, though. We move then into a free range chicken. Consumers are willing to pay 35% more for that same plastic tray, 2 breasts, but free range. We move in then to what we call our further processed range. T hat's, that's an Ingham's tender there. Still breast, still a 100% breast. We've, we've turned that into a, a product more for what you saw with, with Manu earlier. That's again, a 35% premium. We now move into our sort of value-enhanced area.
This is basically a chicken breast that we have cut up using a DSI machine, which Anne-Marie will talk to you about later. We've marinated it for you, so we've taken away cut up, and we've taken away marinade for you. T his is going straight from your packet into your pan, barbecue, air fryer, whatever you choose to cook it, 90% premium. Y ou can see on the very bottom row, these categories are starting to really accelerate versus the last 10 years. I ncredibly strong growth. Then you go to the far right, and we talked about, we talked about Dinner Done, which is kind of the further process and the value-enhanced columns. We talked about Raised Right, which is the, the first column, that far right-hand column. We've cut it up for you, we've marinated it for you, and it's free range.
S uddenly it's Dinner Done and Raised Right, and you can see there a significant price premium, and, you know, kind of 40, 40% growth. Hi.
Sorry, just can I ask a clarifying question? Just the index, is that the retail price, or is that your price?
Retail price, what pay is, what consumers are willing to pay.
The 10-year growth, that's historic, not for, not for us?
Yeah.
Okay, thank you.
Yeah. However, that 10-year growth, we roll into that model that you saw on page 1 to kind of predict what we think is going to happen- Sure. O ver the next five years. Sorry?
We don't provide that.
No. We're not, don't provide that. A s you can see, consumers are willing to pay for it. We're able to do it. Helps improve our mix, helps improve our margin. Okay. I just want to go deep into, into two. One is Dinner Done. So Dinner Done is a, is an incredibly painful thing for Australian households. I think if you all kind of think about what's today, today is Wednesday. What are you going to have for dinner tonight? Here we go again. Most people have seven meals, only seven meals on high rotation. I think if you were to write down what you typically have, you're going to find that you probably have six or seven meals that are on high rotation, and it kind of gets boring.
We believe that Dinner Done is a significant unlock and one that poultry can do, perhaps better than any other protein. Dinner Done is a chore. We are a great product that meets time poor. We're versatile, we're great value, we talked about, and we're healthy, and we've got just an ultimate 10% market growth in this space. P roducts that we add value to that help you get Dinner Done. However, typically, the solutions to Dinner Done in Australia and New Zealand have been just kind of a suite of products. We think about that more as whole propositions.
A proposition that has both a convenience aspect, perhaps it has an environmental aspect, perhaps it has a welfare aspect, and we communicate it, and we communicate it on shelf, and we work with our retailers to build whole propositions. A great example of a proposition is the product on the top right, which we'll talk about in a moment. Traditionally, also, we've really looked just at flavors. Let's just do a new flavor of X. We've now got a team set up within our organization to mine data, insights, to work with customers, to work with consumers, to deliver breakthrough innovation that meets multiple needs. For example, cooking bag, for example, pre-marinated, for example, boneless. Then lastly, I think, typically this sort of section can be a little bit hard to shop.
We work internally, both on our brands and with our retailers' brands and packaging and navigation, to help people understand perhaps how long does it take to cook. R eally big call-outs on the front of pack that says, you know, 15 minutes, for example. We believe our understanding of consumer insights gives us an advantage over our competitors. W hat does it look like going forward? Anne-Marie will talk to you about our automatic leg deboners. Unfortunately, you know, gone are the days of the kids fighting over, you know, the drumstick. You know, Australian consumers have more gravitated towards breasts and thighs. W hat do you do with drumstick meat?
We now have a way to get that off the drumstick very quickly and turn it into a far more higher value item that we're able to charge more for and the consumer is willing to pay more for. Cooking bag technology is another significant platform we're working on where. I f we've taken out the cut-up for you, we've taken out the marinade for you, you can actually just slide it straight out of the bag into however you're choosing to cook it, so you don't even need to touch it if you don't wish to.
We see that as a significant value add. T hen, of course, you know, healthy, clean label marinades, rubs, and flavors, we will continue to do to try and sort of break up that kind of 6 or 7 meal rotation and help consumers solve needs. T his is all really important because it does two things: It helps our customers grow their business, and it helps us grow shareholder value through margin expansion. W e talked about, you know, that boneless bird up there. W e basically take the bones out of it for you. You cook it in 40 minutes, in any vehicle of your choice. Roughly, consumers are willing to pay twice what they do for an RSPCA, and then we talked about the breast steaks on the bottom.
That's how we plan to grow Dinner Done, and we plan to improve our mix and improve our margin. The last one then to talk about is Raised Right, so, or free range. M aking good choices for me and the protein I consume, 20% of consumer needs. T his is a really interesting one. When you talk to Australian consumers, and you say: Would you like to buy free range? 68% of them say: Absolutely, I would like to buy free range. T he category is in strong growth. We talked about this 22% growth on volume and value. However, when you really ask them, and you t his is actually panel data, and then which turns to consumer data. 8% of people only buy free range, and 35% of people sometimes buy free range.
Our job is to grow that 8% closer to 35% and the 35% closer to the 68%. A gain, this will help us grow margin and improve mix. H ow do we do that? Typically, I think the free range approach, particularly in Australia, has been very attribute-led and kind of putting tick boxes on products. Really, what consumers want is a far more emotional experience. They want to know where the farm is. They want to talk about, is it local? They want to know the provenance of it. W e are working with our retailers on their brands and on our brands to sort of create these meaningful stories. Y ou can see that Marion Bay, if anyone's had the opportunity, it's one of the most beautiful places in Australia.
We have a chicken factory down there in Tasmania, and that has an incredible provenance story, as does, and Ed will talk about Waitoa over in New Zealand. Secondly, is cutting through at the point of purchase, and, free range can be a little bit difficult to find. W e're working with our retailers where we can, and our own brands, to try to really call out where, where free range is, shelf stripping, and making that shopping experience significantly easier. T hen lastly, is reward and reinforce the way the retail environment's grown in Australia, that both major retail, actually, all, all major retailers have incredible data sets now of shoppers, and we're able to easily say: "We noticed you bought free range eight weeks ago. You haven't bought it since.
You know, here's an offer or an incentive to come back into the fold." W e're able to sort of start to create that flywheel turning. If we look up to how we're going to unlock this notion of from somewhere, so consumers want to know where the chicken's coming from. O ne of our brands, The Free Ranger, we've recently started to call out, you know, Southeast Queensland and Mornington Peninsula, and we've seen a significant volume uplift based on helping consumers understand that kind of more emotional side. Secondly, we talked about value-enhanced and further processed. I f you think about the far right-hand side of earlier, when we roll up all those attributes together, we're able to to charge more and earn more.
Then lastly, you know, we need to start thinking about our estate, you know, our total business, and do we have enough farms to support this growth? We're working now to make sure that we can support free range growth for the next five years. As I just finish up on the right-hand side there, here's how we monetize these consumer trends. We talked about the, you know, that 30%-40% premium for tray pack free range, and then down on the bottom, the breast steaks. In summary, we have a very deep understanding of consumers. We've got a proven ability to commercialize what consumers want. We've got deep R&D and innovation capability, and we've got strong relationships with trusted suppliers to help them grow their businesses.
With that, actually, I'll call up Claire to talk to you about how we are going to continue to work with our trading partners and business partners to grow the category.
How we execute this with our partners, and the most important thing we need is strong partnerships. The essence of a great partnership is the ability to grow categories, create value, and do that through insights. Now, our partners are already very clear on the attractiveness of this category. They understand the tailwinds that Andrew's talked to. We've obviously shared lots of data with them, and they have their own data, so they understand the poultry category. We obviously understand that as well, and you're already seeing them get behind this category in market. Whether that's through more space in retailers, you're seeing many, many more ranges being developed and put on shelf, largely in that Dinner Done space.
E qually, our QSR partners are getting behind this, and there's a real priority now coming through, certainly from a menu and an innovation point of view. T here's an element of premiumization coming through. O ur job is to deliver those insights and create value for not only Ingham's, but also our customers and, of course, our consumers. T he key areas for us that we're going to partner on will be around Dinner Done and Raised Right, which Seb has just taken you through. T he good news is, that resonates really well with our customers, and we're already starting to build those partnerships. T he reason it resonates with them is because not only will it create value for Ingham's by targeting those higher value segments, it obviously creates value for our customers.
Similarly, it can grow their revenue, and it gives them differentiation when they can get customers through their stores or through their QSRs. Of course, as I said, it creates value for the consumer by ensuring that we give them an unmet need. When we think about Ingham's and our customer value proposition, this is a really important part of us turning up as a great partner. To ensure that we can support that growth, not only in volume, you have to have the ability to deliver at a national scale. We have to be able to deliver poultry to all consumers across the whole of Australia, and that is a really important part of a strong poultry partner.
The other element that is critical for us to unlock those future spaces, such as Dinner Done, and create those products, is the actual capability to do that, and that's about how do you produce those complex products that are specialized to deliver to those consumer needs? Ingham's sits in the far right. That's our unique capability to be able to deliver not only scale, but also the complexity that our consumers expect. We're well set up to be the partner of choice when it comes to poultry. I've talked to you about insights being the essence of a great partnership and the ability to create value. We've talked about the need to make sure that you can deliver at scale, and that you have that capability. There's three other elements that make a great partner.
Now, we know our customers, we know their strategies, we know what they need from our, from our partnership, and the first one is the ability to deliver innovation. We can't just turn up with insights. We've got to be able to deliver those products for those consumers on time, at the shelf. They've got to be great products. They've got to be products that consumers are willing to pay for, and that is how we create value for our partners. It's not just product, it's going to be how do we support them on their ESG agendas as well. The second one, which is critical in this space, it's critical for all manufacturers, certainly of food, but when it comes to quality, it's about safety as well.
When we deliver a product, and it goes all the way through Australia, we need to make sure that product is safe and fresh, and it's consistent for our consumers. The importance of that ability of national scale comes into play, quality, and our customers tell us that we lead the way when it comes to quality. T hen lastly, we talk about animal welfare. This is becoming more and more important to consumers. Therefore, it's more and more important to our customers, and of course, it's important to us, and we will continue to lead the way when it comes to animal welfare, and we will partner up with our key customers to make sure that we support them in their ambitions as well. U nderpinning all of that is service.
I think all of us would have heard of the challenges through COVID, and it certainly wasn't unique to poultry. AW hat we learned through that is if you don't have great service, it can make it really difficult to have strategic conversations. You can't turn up with innovation if you're not delivering it on time. I t's all about making sure that we can deliver on time, in full, safe, quality product with good, fresh shelf life to all consumers in Australia. We know our customers. We know our customers better than anyone else, and the good news is our partnerships are so strong that they know our strategies, we know their strategies, and that is how you form great partnerships, by ensuring that you know how to create value for them. Lastly, I wanted to give you some insight on some of our relationships.
We have been around for 100 years, and in that time, Ingham's have developed relationships of decades old, from 30-, 40-, 50-, 60-year-old relationships. With that long-standing relationships comes the deep knowledge and understanding of each other's businesses, which is quite unique, certainly in my experience. Having that long-standing relationships gives us an advantage that we know their strategies, they know how to support us. W e actually know how to partner with our retailers and our QSR partners in how to unlock value. E qually, we can partner together to solve challenges and problems that arise when certainly in this industry. I it's not just about Woolworths, it's not just about KFC, and it's not just about McDonald's, although these are key partners for us.
We have a diverse customer base, which goes across wholesale, export, other retailers, other QSR, and we've actually got some growing relationships emerging with Aldi, Hungry Jack's, and Hellers. H aving the ability to replicate our, our long-standing relationships with more customers is how we'll continue to create value for Ingham's. So you've heard about our great insights. You know where we want to go to create value. We know how to partner with our retailers and our QSR customers, and we're well set up to deliver the growth by having a national footprint and strong capability to develop those products for consumers. That ends our section. Thank you.
Thank you. M ore than happy to take any questions that Seb and Claire might have stimulated for you there.
Thank you. Just one thing, you talked about the customers and the retailers, and so what about the end customer? If we look across the end customer, building brands, building loyalty from that standpoint, how is Ingham's thinking about trying to build the brands? Obviously, Woolies, like Macro, you supply the new environment that some similarly built strong brands as well. How are you trying to create that, house that, that connection with your end customer, building loyalty to create special or allowing you to sort of have that strong position in the table?
Yeah, well, I mean, clearly, the category this has developed over decades has got a very high proportion of retailer-owned brands. I mean, KFC, McDonald's, that type of brands in market. T here's a category dynamic there that isn't really operating the same way as many other FMCGs. But where we have opportunities to develop brands like Free Ranger in Australia or in our complete freezer range or Waitoa in New Zealand, we're investing quite heavily in that, which is building that loyalty with the end consumer. O f course, you know, we don't own the Macro brand, having exclusive supply of that brand, because we've set up a network, a bespoke network to service it, then that gives us some certainly some security over that. Do you want to add anything?
Yeah, I think just two things. One is, where we have, I don't know if you follow Instagram or social channels, but where we have content like the Manu work you saw the opening speech, we actually put a link in the bottom to where they can actually go and buy that product. W hilst we're not a DTC business and we're more about a subscription business, it allows us to actually point consumers to where to go and buy. T he second one is this whole campaign you've seen in all the videos you've seen at Manu, the rebrand behind me. We think about it as a three-prong approach. O ne is, internal staff, so it's we want people to feel good about working at Ingham's.
Secondly, is our customers, so we want our customers, well, at least ALDI, KFC and them, to understand our desire is to be always good. T hen we want consumers, which is more of the consumer-facing, the thing that you saw, the ad that you saw before, Helen spoke, the Manu piece as well. That's more directed at the consumer. A s we create our suite of assets, we deploy them against each of those three key stakeholders.
This is the final one for me. I presume that chart you put there with the free range of gain, right, that's still a margin contribution as well for quick close. How do you guys think about value add and what percentage that can come to the business? Because there's a lot of talk, obviously, about the sort of changes in types of bracket pullback and another bracket pullback. Where do you think value add can get to? Do you have aspirational targets, or do you have to balance that use?
Yeah. W e just completed the five-year volume projection by product line. We see. Well, a couple of things. One is we see value add or further processed products growing significantly faster than the base, and we see that for at least the next five years. Anne-Marie is going to talk to you about what we're putting in place to set ourselves up to do that.
Sorry, I said one more, but just on the percentage of penetration, where do you think you guys are doing this best in practice or best in class, rather, to ensure that you have 300 basis points level, 500, 800?
I honestly, I honestly don't know the answer to that, to that question because I'm not sure it's irrelevant, especially relevant. What we're thinking about is how do we grow our share of that in, in, in our volume? Because it's higher value, higher, higher margin products. T hat's where the focus is. T hen the view of the, the markets internationally, have quite different focus in that sense, but I think it's more thinking about the market we're operating in and how do we expand our share of that.
Thank you.
Great. J ust on channel profitability over the journey on reflecting on pre-COVID periods, but is there anything meaningful which channel profitability between retail and QSR? There's food service and wholesale.
W e are, as you know, we don't talk to specific margins in channels because it's competitively pretty sensitive. T he profitability between channels doesn't vary greatly. I guess the channel that's probably got the most volatility here has been the wholesale channel, where it tends to react to supply and demand. I would say that we've even in the last two years have seen a step up in pricing in the wholesale channel that I think is structurally, you know, there for the long term. T hat's been, you know, in terms of thinking about the business, I think it's the ebbs and flows in that wholesale channel are probably the one that makes the biggest difference to margin.
Is that a structural change or?
Well, so, you know, we've passed on quite a bit of price in that channel, and you go to people like M&J, these sort of further processors, and they pass that on to their customers, and it's sticking. W e're not seeing the same. In recent times, we're not seeing the same volatility in that wholesale price that we historically have seen. I f we can get that to stick, it's going to be quite advantageous.
Yeah. On the slide 1 and 16, what we talked about, the value growth of 3.8 and volume growth of 3.1, inferred price contribution of 0.7 seems very low?
I think that is a mixed contribution. A lot of the products that we showed were higher value actually might have a bone out. T ake the boneless bird, actually weighs less than a whole bird 'cause we take the bones out. I would rather let's think about it as price rather than think about-
The volume of the actual chicken.
Yes, so you may sell the same number of chickens, but they weigh less because you're doing things like further processing, where you're doing value- enhanced, where, you know, you put the weight of the marinade in there, for example.
Last question.
There's never one last question.
Does Ingham's under-index on free range in the Australian market?
Uh, no.
A share of free range matches here?
Sure.
Sorry, cross-country recording. Can I just ask how you're thinking about the competitive environment over the next five years? Do you see any players coming into the market? Let's say, does JBS, for example, in poultry, is that a risk over the medium term?
Well, I guess it's possible. I mean, the market structure, you know, we've got ourselves and Baiada, the two major players, and then we've got regional players, you know, Hazeldene, Victoria, Cordina, New South Wales, Golden Cockerel up in Queensland. Now, that structure has been in place for quite some time. There's often, you know, chatter and gossip about one of those bigger players coming in. I would imagine, given what they'd have to pay to take out someone like Baiada or even Ingham's, for that matter, is that they would then become a very sensible player on the other side of that investment, given what it would cost them to buy into the market.
You would think that a rational global player, like a Tyson or a JBS, who would enter the market via an acquisition, would then have to be very cognizant of the returns they're going to get, and you would think that would translate into sensible behavior.
Richard Barwick from CLSA. Just got to ask more questions about the competitive dynamics in terms of value-add products. Does it get easier as you go forward and move up the value proposition because it's harder for the state-based players to compete? Is that, is that something that's going to play out over an extended period of time where you do start putting the hurt on your, your smaller competitors?
Well, I guess, Richard, our view is that we're better positioned to grow in that in terms of planning capability, the facilities, the infrastructure that we've got invested. I think Anne-Marie talked a bit more about how we think about setting up the network, so we become even more efficient at doing that because it's a fast-growing area. If we can gain share or gain more share of that business, do it more efficiently, it's going to be a very attractive growth option for us.
Does capital become a key winning criteria?
The way we're set up, rather than spending capital, I think it's, you know, it's, it's probably, you know, again, I'm a steward of capital , but it's how you think about your big primary plants and your value-enhanced operations, how you, how you set those up so that you're, you know, you're maximizing speed and efficiency where it's sensible, or you're, when you're doing deboning or marinade products, you've got more efficient systems to, to, to do that. Y ou know, I mean, I think we're really focused on our capability to do that really well.
Thank you.
Well, I mean, Anne-Marie will expand a bit more on that.
Thanks. Just a reminder on the landscape review, how does it work, how contracts with each state-based?
They're principally negotiated at a head office level on a national basis. Sometimes they divide up the business on a state basis, or they might, you know, if they share a business, they might give one competitor a certain region and what have you, but they're very much essentially negotiated contract basis. We're not, you know, we're well past the days of states doing their own individual negotiations.
No questions online? Okay. We thank you very much, Claire and Seb, and we might move on. Oh, quick 10-minute pause. All right. Jeez, we're making it like this today. 10-minute pause, and then we'll come back with Anne-Marie.
Not only do we have our national network, we spoke about the biosecurity controls that we've actually got in place, which are absolutely critical for a business like Ingham's. W e also have incredible technical expertise right across the business, and that starts from our farming, from our nutrition, our feed mills. When we look at welfare, we actually have the highest number of vets that we recruit ourselves, and they make sure that their fundamental job is to ensure that our welfare standards remain world-class, and that's what they are. In terms of our unlocking innovation, and making sure that we service our high-value segments, it's absolutely part of our know-how.
It's something that we do incredibly well, and it's something that we can actually service at a national level that others can't. T hat's something that we will continue to invest behind, not only with the teams that we have in place across Seb and Claire's portfolio, but also across the manufacturing facilities that we also run. ESG, o ur credentials in sustainability are unmatched in the poultry world. I t's something that we say with pride, from a welfare point of view, from an environment point of view, or from a social point of view, we hold ourselves in absolute stead from a sustainability perspective. We've set ourselves very ambitious 2030 targets, and these are the targets that we absolutely believe we can deliver.
In addition to targets for packaging, targets for water, welfare, and we are the leaders in food safety in Australia. The good fortune of also going overseas and benchmarking ourselves globally. I actually was the U.K. and Europe tour. T his was a fantastic fantastic trip for us to actually go to what we deem to be some of the the best players in the U.K. and Europe, who service some top-tier customers in U.K., Europe, and actually learn, you know, and make sure that we continue to stretch our thinking, challenge our thinking in terms of where we're going, what we're designing, and what we're, what our ambition really is. W hen we look at it, we look at some lots of similarities.
Tight labor is very much a significant issue for the processes in U.K., Europe, and it was one of the key drivers for automation, particularly post-COVID. They experienced very similar things to what we experienced. Thank you. It became a real driver to really look at how they could reduce their reliance on labor. Significant investments in automation. We saw lots of examples. We saw some that were further behind than us, and then we saw what was something that I don't think would ever work in Australia, but it was, you know, certainly one of the highest automated facilities that we'd seen and was very much its own little village. An incredible investment, and then we saw everything in between.
It gave us a really good, broad range to actually have a look at. One of the key things that we actually identified was the plants are operating 20 hours, 6 days a week, generally. T hat when you look at poultry facilities, and you look at one of the reasons why we don't do 24/7, it's ultimately because we've got that clean down that we've actually got to do from a food safety perspective. I t really supported and endorsed what we're looking to do from a capital light option to unlock capacity. Andrew and Gary have both spoken about, you know, what are some of the options that we've got within our facilities. One of our options definitely is that we can actually move more to this kind of model.
It is a capital light option, but it certainly allows. We operate 16 hours, 5 days a week, so you can just see just with that differential between the way between what we operate and what we saw overseas, certainly starts to allow some capital light options to unlock capacity and gives us the confidence that, over the, you know, short to medium term, we will have that capacity to meet the needs of our growing business. One of the other key findings was primary processing was designed for speed, really high speed, heavily automated, still a heavy reliance on labor. I was hoping that I'd get over there, and I'd actually see, you know, these really high-speed automated sites, and maybe 100 or 200 people, and I was bitterly disappointed.
Most of the sites, you know, still, at 2.5 million birds, were still recruiting 1,000 people. Okay, so it's still, it is there still is a reliance on labor, but what it does give you, and what automation does give you, it is, it certainly unlocks structural efficiency, but it also allows you to tap into a greater pool of labor as opposed to skilled labor. I t's really sort of given us food for thought and allowed us to, to really challenge, and, and benchmark ourselves.
I am pleased to say that, through all the sites, and the countries that we visited and our contingent that went to the U.S. as well, proudly, I can say that we absolutely do lead in animal welfare, in quality, and in food safety. Our standards here at Ingham's are certainly a lot higher than anything that we actually saw overseas. Moving forward, Gary spoke about our capital and our categories for capital. As we look at it, and as we focus on our investments moving forward, we think about capital as it relates to operations in three different ways.
We look at it to unlock capacity, we look at it to accelerate automation, to drive structural efficiency gains in the business, and we look at it to unlock our capabilities, so, so that we can continue to deliver into the value segments that will ultimately underpin the growth of our business. A cross the categories, same business, core growth and high growth, you can see some examples in terms of, you know, what we have invested in over the past, and then, some of the things that we are investing in as we move forward.
You heard Seb and Claire talk about value-enhanced, and what we, you know, rightly so, we are absolutely well-positioned in this space to continue to grow with the value-enhanced segment that as we sort of progress over the next three to five years. This is an example of a product that we produce, and one of the key things that we'll be doing is, as we move forward, and as Andrew spoke about, was we're actually looking, currently, we do a lot of our VE in our primary plants. We'll be looking at decoupling our value-enhanced processes into an individual, individual sites. It requires, you know, some of, some of the products require batch processing. They can be high in labor, but there are also opportunities for automation.
By unlocking the Value Enhanced production, will really give us that opportunity to look at those automation opportunities. What it also does, though, it creates more space in our primary processing facilities and again, gives us the room and the space and the ability to look at further automating and simplifying our primary processing plants. R eally achieving our goal, which is really building those sites for speed. A couple of mentions through the presentation around leg deboners, DSIs, and there's robo batching. Y ou can see here that the ROIC and the payback on these automation investments is actually quite material. O verall, when we look at what we're proposing, we're looking at automation increasing our capacity and productivity by about 5%-10%, potentially even greater.
We'll also reduce our labor by 20%, which is quite significant when we look at labor being, you know, one of our most significant costs in the business. T here's a real focus in the business to design our sites, to look at the opportunities for automation, and really look at how we continue to unlock capability, how we continue to unlock the capacity. M ost importantly, how do we continue to make sure that we drive the efficiencies to ensure that our CPU remains sustainable and competitive as we move forward? From a cost perspective, and Andrew spoke about in his opening around continuous improvement, and our focus as a business on continuous improvement.
When we talk about driving efficiencies, and we talk about managing costs, automation and capital investment is certainly one lever that we've got available to us. However, the lever that typically is the capital light lever is also our focus on continuous improvement. You can see on that top line, feed and farming is our biggest cost base in the business. Something that we take very seriously from a welfare perspective, but this includes feed, farming, feed mills, all the way through to delivering the birds to the primary processing plants. In this category, we absolutely have the expertise in-house. We drive best practice from a feed mill farming perspective.
We ensure that what we're delivering to our primary plants really focuses on a very sharp and a very competitive cents per kilo or cents per bird, as it's delivered into the primary processing plant. These are just examples of the various levers that we've got across feed and farming and primary and further. These are the measures that we actually use to measure our performance. Really, as you can see from that, there's not one indicator. There are multiple indicators right across the supply chain. You know, something that we focus on is making sure that all of these are absolutely balanced to drive the best, the best outcome and best performance. One of the encouraging things is in relation to continuous improvement.
We talk a lot about continuous improvement, and pleasingly, in FY 2023, we delivered over AUD 40 million in savings across 300 separate initiatives. I t's not that we're saying that CI or continuous improvement is a program that has been in for a year and out for a year. It's something that's actually part of our fabric. It's the way that we operate. It's part of our DNA. We continue to invest behind it. We invest in training our people, we invest in the programs, and we invest in trying to continue to deliver opportunities. As I mentioned, a lot of these projects tend to be capital light options, so we focus on process improvements, we look at waste opportunities, we look at cost savings, we look at driving out duplication throughout the processes.
That, while it's been heavily centric on our operations, part of the business, as we look forward to the next three years, we are looking at expanding that across the business. T hat includes all of our support functions as well. In this case, we have two examples just to sort of highlight to you, you know, what some of those continuous improvement projects may look like, because there are other benefits that we actually derive from a lot of these CI projects, and they're not just limited to cost savings. I n this case, if you look at the top picture, we had people, you know, physically moving chicken, physically moving crates, and we put in a diverter arm, so just a conveyor that actually delivered the meat to the point of use.
Not only did we get a labor saving, but we also got a safety benefit as well by reducing our manual handling through the plant. T hat's just one example of the myriad of other examples that we've actually got underway. P leasingly, you know, we're on track this year. We continue to invest behind CI, and it absolutely will continue to be part of the way that we run our business moving forward. On that note, I will thank you and hand over to Ed.
Thanks, A-M. Look, as is the way, I'll start with a video.
Now, Ingham's have been free range SPCA Certified for quite some time, but the big news is now they are 100% SPCA Certified. That means all their chickens, whether they are reared in free range systems or barn systems, are meeting those high standards set by SPCA Certified. We know that 90% of the New Zealand public really care about farmed animal welfare, but it can be really difficult when you're in the supermarket to know what products align with your beliefs. Ingham's coming on board with 100% SPCA Certified means there are more choices for them that are aligned with their values.
I feel really proud to be working for a company that's 100% SPCA Certified. You know, we're not just 50%, we're not just 90%, we're 100% of all of our farms.
Well, here in New Zealand, there are over 120 million chickens raised per year. That's a huge number of animals. F or SPCA, it was really important that we see one of these big producers come on board, like Ingham's. 100% SPCA Certified is a really big step and shows Ingham's' commitment to animal welfare and continuous improvement. SPCA Certified for all of our standards, there are independent audits, so we use an external auditing company. I t's really important to us that not only do we have scheduled audits, where the farms know that they're coming, but also unscheduled audits. T hat's to make sure that at all times, people are upholding these really high standards.
To get SPCA certification, it's not easy for a farmer, so it's a lot of hard work for farmers to meet 100+ SPCA standards: from recording feed consumption, the amount of water they drink, litter quality, foot pad health. We check the lighting. Also, we check ammonia and overall general health.
Providing enrichment is something that's really important for ensuring positive mental welfare, and that things that go above meeting animals' basic needs and really tap into things animals want and give them opportunities to explore, to be curious, to destroy things. That's something chickens love to do. Enrichment items can be things like chains that hang down. A particular favorite of chickens is cardboard boxes because they can jump on them, they can perch on them. They show a great deal of motivation to get access to perching, and also it has other benefits, like strengthening legs and better leg health. Dust bathing is a behavior that chickens perform, and it may seem a little strange to people who haven't seen it before. Basically, they get into a pile of litter, and they run it all through their feathers. This is something that a chicken really enjoys.
Some of our chickens almost purr. N ot only is it good for their mental health, it's also good for their physical health. It cleans their feathers.
Ingham's farmers really, really do care for their birds. It's not just a business for them, and it clearly shows when we do our audits, that the birds are cared for.
Even though we have 100% SPCA certification across our farms, we're always looking for other ways to improve our animal welfare. You know, we're always doing research to try and make sure that we're doing the best thing for the animals, looking at international research and applying that to our local environment, working with universities, working with our veterinarians and all of the animal welfare specialists that we have within the business. We've always had animal welfare at the heart of our business. It's just a really important moral and ethical perspective of living in this world to do the right thing by the animals that we're raising, and our customers expect that, and rightly so.
Ingham's, always good.
Good morning, everyone. I think as, as Anne-Marie said, and every speaker who's come before me has said, animal welfare is clearly important to Ingham's. From a New Zealand perspective, we obviously announced to the market recently our move to become the first New Zealand poultry producer to be 100% SPCA Certified. It's something that we're proud of, both in terms of extending our strengths with regards to welfare, as well as obviously from a people perspective, providing our people with a reason to be proud to work at Ingham's. L ook, my name's Ed. I'm the Chief Executive of our New Zealand business. Look, there's three things in particular that I think is worth touching on today, which isn't necessarily in the order of the slides.
The first is our learnings from the last 12 months. The second is the actions that we've put into place to become a kind of more resilient and a more profitable business in New Zealand. Then finally is obviously our strategy and some level of the comprehensive thinking that sits behind some of our future choice making. Again, all with respect to the New Zealand operation. Moving up here on this slide, on this slide, I'll probably turn your attention to two things immediately, just given the questions that have come today. The first is our ambition. Over the next five years, we plan on doubling EBITDA pre-AASB 16 versus our historical run rate.
We think that the plan that we'll start to talk you through today goes a long way to showing how we're going to achieve that. The second is our strategic intent, which Andrew referred to up front, that it is this idea of being New Zealand's first choice for poultry. We're going to achieve that through brilliant partnership, focused operational excellence and system-level innovation. If I touch on those with a little bit more detail, I suppose, but they've got all underlying beliefs or three core beliefs. As Claire alluded to in her presentation, we believe that we can achieve far more through partnership than we can through transactional relationship.
When we talk partnership, we're talking partnership with our people, we're talking partnership with our customers, and we're talking partnership with our suppliers. Our second belief, and this is really what Anne-Marie referenced, is this idea of by focusing our operations on the things that create value for our customers and that create value for us, we're able to extend our value proposition, and we'll become more profitable over time. I think if you think about how you create double digit margin, I think that's at the essence of it. T hen finally, it's this idea of system-level innovation or a belief that to properly differentiate yourself within the poultry business, it's about differentiating at a system level.
That is things such as introducing new welfare standards, which fundamentally mean that you're operating a different playing field, relative to the other players in the market. T hen in terms of our strategy, I suppose we've got the intent in terms of how we're going to win, and this is what I'll talk through, so I'll touch on it briefly, but it's capturing the full potential of today. There's still an awful lot of upside, that can come through our core business. Secondly, is investing in automation, not as a means to an end or not as an end in itself, but a means to an end. I think certainly from a New Zealand perspective, there is the increase in productivity, that you get from automation investments. There's also the reality that.
We operate in the Waikato. We're relatively isolated, and therefore we need to reduce our reliance on scarce labor. I'll talk through that. T hen finally, I think, Warren Buffett, I'm not referring to myself as Warren Buffett, but Warren Buffett refers to this idea of the economic advantage or the moat of economic advantage, and we're creating our own moat of differentiation, and we'll achieve that in New Zealand. Firstly, we enjoy cost leadership. There's a reality that the main game's always the main game, and so we need to extend that cost leadership relative to the rest of the market over time. We're gonna invest behind Waitoa. We've got the number one free range brand in the market, and there's a real opportunity there to extend that ahead.
We're gonna innovate packaging, and then finally, we're gonna continue to raise the bar as it relates to welfare and attributes. Then the final note is just some of our strategic capabilities that we deem as sort of critically important to enabling that strategic intent. The first is capital discipline. We need to be spending more time thinking about how we deploy cash in a way that both sustains the core business as well as makes the business more productive tomorrow. The second is business intelligence. I'll touch on this shortly because it's a learning from FY 2023. Then the final is our go-to-market approach and how we use or how we bring our products and our brands to the market in a way that maximizes value, both to ourselves as well as to our customers.
As I said up front, though, all of this is about really doubling that pre-AASB EBITDA, as well as becoming New Zealand's first choice for poultry. If I take us back some 18 months or so, FY 2023 was a pretty tough year. I think across ANZ, but I'll talk specifically to New Zealand. Q1 started with pretty severe labor shortages as well as a nationwide shortfall of CO2. Q2, well, we had significant cost inflation as well as continual supply chain disruption. Q3, perhaps more surprisingly, well, we had flooding as well as cyclones, and Q4, perhaps thankfully, brought some ray of light as it relates to the end of the tunnel.
I think there's little doubt in my mind that we were dealt a rough hand, but there's also some pretty critical learnings that we take from the period that we'll then put in, put into play to ensure that we become more resilient as we look forward. I think, I'm not sure, I mean, I assume some people have read Ray Dalio's book on Principles, but one of my favorite principles from that book is this idea of pain plus reflection equals progress. I think the pain is what I've just gone through. The reflection is probably twofold, and the first is that an integrated network of assets is only valuable if you have the right people to run them.
Andrew talked upfront about our investment in people as a business, both in terms of development of our leaders as well as improving our culture. In August of 2022, we were operating in New Zealand with 30% vacancies across the board, and we were forced to subsequently reduce our processing numbers by somewhere between 10%-15% for the full H1 period. Our learning is ultimately that in the short term, we need to be more proactive with regards to a changing labor equation, and we need to really double down on these themes of developing leaders so that they can create a stronger culture.
In the longer term, and that I'll talk to shortly, is this idea of we need to reduce our reliance on scarce labor, and so our plan, as it relates to automation, talks specifically, to this idea of reducing our labor or our headcount by 20%, across the next three years. Our second learning from this period of time is that if you don't have a clear understanding about the resources that are critical to your business and monitor them regularly, then you'll be caught out. F or us, that was clearly, CO2. It was our Achilles heel, from an FP production standpoint, and we were forced to, across the course of the year, reduce our production output, by some 30%.
Our learning is simply that we need to be more proactive with regards to picking up on weak signals from the market, and it's why we talk to this idea of a strategic capability being business intelligence. B usiness intelligence is really saying: How do we flex up a capability that looks at the market and takes weak signals, turns them into insight and fundamentally decision-making, that both manages downside risk, but also capitalizes on upside opportunity? I think all that said, and they are the key learnings, we certainly emerged stronger from FY 2023 than we went into it. T here's a lot of things that we look back on and we're pretty proud of. We raised wages by 17% to reset the people equation.
We acquired Bromley Park Hatcheries, which provided us with end-to-end control of our farming network. It provides us with capacity for future growth as well as improved network resilience. We transitioned off CO2 at both of our further processing sites. We've fast-tracked our plans to automate primary processing and reduce our reliance on labor. T hen finally, we raised pricing by some 15% across the course of the year, which is fundamental to where we are today. T hen, and so we exited the year with a very strong run rate. I ndeed, we've followed that through or carried that through to FY 2024.
With the caveat that there's still six weeks to go until the end of this half, we're currently on track to do in the first half of FY 2023, yeah, FY 2023, what we did in the full year last year, which I think is exceptional and it talks to the choices that we made across the course of the last 12 months. Listen, I think everyone's referred at some point, as a business, we've made the decision to sponsor this idea of global study tours to pick up on best practice operations and processes, as well as bring back trends and opportunities back to Australia and New Zealand. I won't go through them in any detail. I, for what it's worth, did not go on the tour, but three people from New Zealand did.
I think the learnings from our perspective and what you'll see flow through the strategy and how we think about strategy from a New Zealand perspective are up there on the page, and that's this thinking of traceability, provenance, which Seb referenced, sustainable packaging, as well as there is a very real need for a short-term flight to value. When we zoom in on the New Zealand market, I think there are some pretty important differences that Andrew referred to up front in his opening, and they're important to call out in a little bit more detail. The first is that chicken is being challenged for the mantle of the cheapest protein from a New Zealand perspective, by pork.
I think the so what of that, I mean, I racked my brain a bit to work out what the so what is, but it is that on pricing alone, we are now substitutable. I t's definitely a difference between Australia and New Zealand, and we must therefore work harder, to promote these ideas of sustainability, versatility, health, and all the other kind of relative advantages of New Zealand versus other animal proteins. The second thing, that I want to call out is this idea of we operate in a very advantaged market structure. W ithin the New Zealand market, Ingham's and Tegel occupy roughly 80% share of the market. I think perhaps more importantly, Ingham's and Tegel are the only vertically integrated operations.
With the acquisition of Bromley Park, you know, six months or so ago, well, probably took the keys a month ago. W ith the acquisition of Bromley Park, Ingham's and Tegel now supply all of the day-old chicks into all of the other processes within the New Zealand poultry market. T he point of that is probably twofold. The first is, only us and Tegel have the unique opportunity to differentiate through farming practices, because we control the genetics and the upstream inputs into other processes. The other is that we can control our own destiny as it relates to growth within this market.
Finally, when we zoom in further on Ingham's, we can see that while we have the same intent as in, as the Australian business, different markets, as well as different networks, quite frankly, necessitate the need for different strategic choices. Three things, in particular, I want to call out. The first is that our consolidated primary network, so we only have one primary operation versus Australia's five primary operations, means that on the one hand, we enjoy structural cost advantage relative to the other players in the market. Tegel operate three primary processing plants, Brinks, the third biggest operator in the market, also have three, and they've both got about three times the amount of labor. W e have a structural cost advantage within the context of the New Zealand market.
The flip side to that is that we can't look at things like decoupling VE from our primary operation. We don't have the optionality, and we don't want to bring complexity into our sole operation because that may impact costs. That's where this idea of how do we differentiate upstream, I think, really takes effect. The second thing worth calling out, and probably to Ben's question earlier, is we do have the number one free range brand in the market. It provides us with an opportunity to talk directly to the consumer. It's commercially attractive, and it also really speaks to these ideas, as Seb referenced, around provenance, around welfare, and since we went Carbon Zero with it, obviously around sustainability, and provides us with a real consumer brand to talk to consumers about our sustainability attributes.
Then finally, as with the Oz businesses and as A-M referenced, we continue to be the leaders with regards to quality, with regards to safety, as well as with regards to animal welfare. All of this, I think, and if I bring it into a bit of a so what, extends to when we think about strategy, from a New Zealand perspective, there's three criteria that are worth referencing. The first is that we need to extend our strengths, and our strengths are cost leadership, our strengths are welfare, our strengths are sustainability, and our strengths are quality. The second is that when we differentiate, we need to differentiate at scale, and that will be through upstream innovation, which fundamentally flows to the rest of our product set.
Then the final necessity is that we need to build a network over time that's resilient, and has capacity to growth without adding unnecessary costs into our production processes. I f you think about how these have, in some way or another, come to life over the last sort of 18 months or so, they're up here on the page. F irstly, we launched the first Carbon Zero product to the market under Waitoa. This move allowed us to commercialize sustainability. We passed through the cost, got increased ranging, and it provided us with this platform to naturally talk about the lower carbon footprint that poultry offers versus all other animal meat proteins. The second one up there, we acquired Bromley Park, as I referenced before.
This, in short, provides us with end-to-end control of our supply chain. It provides us with additional network resilience, and it provides us with much-needed capacity to support future growth. T hen finally, and the video paid tribute to this, at the beginning of this financial year, we became the first poultry producer within the New Zealand market to be 100% SPCA Certified. When I talk about differentiating at scale, things such as this is what I mean. You know, it's this idea of suddenly we're not competing directly on commodity, we're competing on another playing field vis-a-vis our competitors. On SPCA, I thought the video probably did a better job than I did of talking about what the requirements are.
You can see them up there. I think the important thing to note is that there's no significant cost impulse from an Ingham's perspective or from a production standpoint. T his really goes to my second point, which is that I think you quite frequently hear this idea of welfare, and to some extent, sustainability are table stakes. L ook, I don't think that is the case, and I don't think it's the case because there is clear, and we've enjoyed clear first mover advantage with regards to both within the New Zealand market. W hat are the advantages of moving first? I've got them up on the, on the page, but we were allowed to co-design the requirements with SPCA, and that meant that we were able to design it in a way that didn't represent a significant cost impulse to us from a business standpoint.
We were also allowed to differentiate at the scale. It allowed us to market something new. I get a fair bit of niggle from Andrew around this. I got in Women's Weekly, which was certainly a career highlight, but it's only reflective of that there was a reason to talk to the market about what we're doing. We strategically partnered, as Claire referenced. We've got these great long partnerships, very similar customer set to ours, and they provide the platform to launch this through to the market. T hen finally, and as I referenced upfront, it was a reason for our people to be proud. I think you can see that in the way in which people are showing up across our business.
A-M reference automation, our focus for automation is going to be Te Aroha, so our primary processing facility, which has about 550 people, and as I said, we operate within the Waikato, and labor is relatively scarce. The full automation program, which will be stretched out over a 3-year period, is designed to lift capacity by some 12% across that period and reduce our reliance on labor by 20%, again, across the same period. I think importantly, and as I referenced upfront, automation is about delivering an outcome, and it's not an outcome in itself. F or us, it's around productivity, it's around capacity, and it's around reducing labor. T hen finally, and similar to A-M, you can see there's very attractive returns on the invested capital up there.
There's very attractive ROICs, and ultimately, it will also make our workplace a safer place for our people to be working in. L ook, this is the final slide, and this is just providing, I suppose, in particular, a little bit more detail in terms of how we plan on doubling that EBITDA versus our, our existing run rates. W e've got three key levers. The first is operational excellence. Very similar to ours, we've got a CI program, we've got an automation program, and we're also looking at how we're gonna optimize our supply chain or our distribution model over time to reduce cost to serve into our major customers. Y ou see there, across the course of the next 5 years, that will deliver AUD 16 million-AUD 24 million in underlying.
Secondly, sustainability and welfare. We will continue to raise the bar to compete. We'll continue to use sustainability and welfare as a basis to differentiate, and we will continue to commercialize what we're fundamentally very good at. Across the course of the next 3-5 years, that will deliver AUD 3million-AUD 5 million. T hen finally, brand and innovation, extending Waitoa's leadership, as well as really investing in tray packing capability, and more sustainable tray packing will deliver in the vicinity of AUD 4 million-AUD 7 million across the next five years. I think there's two points to note, and the question was asked earlier around, you know, opportunities in adjacent areas, et cetera. The first thing is that I think what this slide shows is that the main game is always the main game.
Making our core more efficient through operational excellence, you can see there it delivers outsized returns relative to the other levers that we have at our disposal. The second thing I note is that we have this real line of sight as to how we're gonna achieve that financial ambition. Therefore, our focus as a team, from a New Zealand perspective and obviously tying in with Seb and his team, is around how we, how we properly execute against that. With that view, how can we bring the benefit forward over time? Finally, we have these three strategic capabilities, improving discipline, capital discipline. BI is about ensuring that FY 2023 doesn't happen again, and improving our go-to-market approach will allow us to maximize the value that we create or that comes into us through our customer propositions as well as our pricing through to market.
Hopefully, that provides a bit of insight. Both Australia and New Zealand have exactly the same intent. There's just a reality that because of the market composition as well as the network composition, you've got slight nuances in terms of how you fundamentally win within your respective markets over time. On that, I will hand to Andrew.
Thanks, Ed. Do I want this one? Great. Thanks, Ed. Thanks, Anne-Marie. It's very good. Again, happy to open up any questions or comments that the guys have stimulated for you. How many have we got? How many this time, Craig?
Three questions. Three questions for me. C an I just understand your automation? There was two different pictures that you went through. One was there was something you didn't go and see that could be done here in Australia, but then, on the other hand, it does look like there's some areas of automation that's the, is the outcome of producing mayo.
Yes, so Craig, I guess what I was talking about was the range and the scale of automated facilities that we actually saw overseas. W hat we're designing will be fit for purpose for our market here, our product mix, and our growth trajectory as well. When we look at, you know, what this particular facility had, it was bells and whistles beyond what we would ever need in this marketplace here, and it was fit for purpose for their market, and it was fantastic. O ur focus is really on automating to drive out those structural efficiencies, that we are really keen to generate, and really make sure that our primary plants are built for speed, and where we can automate on, from a VE point of view, we'd certainly be looking at those as well.
Isn't that also due to the size of it and the number of birds they process that we would never get to?
Yeah. Yeah. I mean, it was, it was a very, very large facility, and as I said, it was fit for purpose for that environment.
There's been, like, touched on much here, but there's been quite a bit of investment in this hatchery, both in Australia and New Zealand. What, from a couple of you, like, what is the move there? Is that about a particular part of a value chain that had been outsourced, and you want more security and control over, or is there something?
No, it's not, it's not that it's been outsourced. Like, the, the two hatcheries we've invested in most recently, Victoria and WA, were a t, at first, it's about capacity. I t's making sure we've got enough eggs, enough chicks, ultimately, to, to, to process. T hey were replacing existing and old assets, and we replaced them with the best available technology in the, in the HatchC are, which also had a significant welfare advantage. T he chicks are getting immediate access to food and water, and that should translate into them landing on farm in, in better shape and better shape and more efficient growth, over time. T hat was, that was very much about a capacity issue, which is the same issue with the breeder triangle in Northern New South Wales.
The last one, just on New Zealand, yeah, there was a competitor, Tegel, had a big focus on export. Would have been extra capacity that they had in that market. How would you describe the level of excess capacity?
Yeah, so I mean, you're right. Tegel did, up until they left the stock exchange and changed ownership. I'd currently describe them firstly as a very rational competitor within the market, and I think that's reflected in the average sale price that we're getting across the New Zealand business. In terms of capacity standpoint, I think when we assess capacity, we think that there is not a lot of sort of primary processing capacity within the New Zealand market currently. T herefore, you know, we don't see a significant risk of you know, FY, whatever it was, 18 or so, happening again in any short period of time.
Just because I think it's our target to double your EBITDA over the next five years?
Yes, that's right. I should. L ook, my caveat is, what's up there, I'm talking about management reports, so it's probably pre-royalty, is a simple way of looking at it.
Well, I think I did say, Craig, earlier, that you know, the next number of years, New Zealand will become quite a material contributor to our EBITDA growth.
What does the growth maybe add to growth outlook actually look like in New Zealand as of today? You've got a reasonably solid investment transfer that's coming through. I think the market's been challenged, given trade and perhaps Russian flow through. Do you see the market staying nice, happy, balanced, or slightly undersupplied?
I suggest that the outlook for growth is very similar to Australia. We'll target between that sort of, you know, 3-odd% thereabout, across the next five-year period. As I said, I think the, the nuances that relates to New Zealand is this, that our sales and Tegel supply the upstream day-olds into the other processors. I think what that inevitably means is that we've got more control over our growth prospects, relative to, you know, the other players within the market. You know, which means that I, I expect for the New Zealand market to also remain rational, over the next period of time.
Thanks. Most of it, I was going to say, Anne-Marie , and just direct feed. I don't know whether Ingham's said that or
Here we go.
I'll pass to Gary.
Two questions. One, year return, just to give you a feel, I know you talked about it in the results, but just get a high-level view on how you see the outlook for feed costs. It looks like there's some easing in the second half just from modest hedging, maybe holding, easing. T hen the second one, I don't know, Andrew, if it was just two, but just over the last X number of years, you've had some pretty significant improvements in your productivity as a poultry globally in terms of feed ratios. Do you still see much opportunity around that, or is it more put forward, is it more moving around things to optimize profitability based on different products?
I'll deal with the first piece and then pass to Anne-Marie. Look, clearly, global feed price, and the two biggies for us are wheat and soy, and they remain elevated. We're just looking at numbers as recently as this week. There's been some improvement in wheat prices locally because we're at harvest time, and there's a bit more liquidity, so that's nice. S oy's jumped up again.Y ou know, it's had a big spike up to do with South American supply conditions and U.S. demand. L ook, at the moment, it's not the outlook is not a lot different from when we talked at the results. It's still elevated. Our numbers are assuming it's going to stay that way for a period. As we always say, your guess is as good as ours on that one. Talk to FCR?
Yeah. I n terms of farm performance, we're always looking for opportunities to improve farm performance. With genetic improvement, there's always an opportunity to look for improvement, so we certainly haven't capped out. I t's something where we get the optimal feed and nutrition from a performance point of view with the bird. I n short, the potential for improvement remains, and really theoretically should remain in that sort of broiler space, providing we get that optimum mix between feed and performance.
You just want to mention the cost equation to that as well, because you can buy brilliant performance then-
Yeah.
Very inflated cost.
Yes, you can. I mean, in terms of it. You can always go for accolades and look for getting the best feed conversion rate, for example. I f you're going to be spending AUD 70 a ton to achieve a 2- or 3-point improvement in feed conversion, it's not necessarily the smartest payback. F rom our perspective, we always look at what is that most economical way of feeding the bird to get the most economical outcome in terms of that return for that meat that comes, that comes off that bird. It's something we spend a lot of time with. I referenced the fact that, you know, we've got our own nutritionists who that is their sole role of formulating feed.
It's, it's a precision diet, it's scientific, in nature, and it's, we've got four different feeds, for the different life cycles of the bird, and it's imperative that, that we get that absolutely right. W e don't buy performance. We look at what is the best economic outcome for the business.
Just follow up for me, like all the divisional heads have put up some pretty attractive return profiles, 20%, 30%, 40%. What's, what's the constraint, do you have any constraints on capital at the moment? I f you can get 30%, 40% return in some of these areas, you must just be throwing. Y ou would just want to throw money at all these things. What's stopping you putting more money into it at the moment? Is it capacity? Is it just not the demand to deal with the productivity? How do you think about it?
Well, again, we tried to explain through there that we have a whole mix of capital spend, from sustaining and replacement capital through to ESG and growth options. I think what the team have highlighted today is where we've got some really attractive growth options, which give us well above WACC and hopefully drive that return on invested capital. Y ou've got to still look at the whole mix. I don't believe we're capital constrained to do the things that we want to do. At the moment, Gary alluded to the fact that there's been a little bit of an uptick in the year ahead and probably next year, which is largely speaking to do with both a bit of catch up from COVID times and also driving into these attractive options.
I wouldn't want you to leave you the impression that all we've got is 30%+ in investments. Y ou know, if we did, if that was all we did have, obviously, we'd be throwing a lot of money at it. Where it's appropriate, where it makes sense, we're putting money into those projects, but it is a mix. What, Gary? There's that.
Never finesse that. C oncur, and it's not capital. It's actually, we've got to think about how you implement those returns. W e've got stay in business that we need to do. All of these plants need to keep running, and all of these automations need the plants to stop to actually implement all of those steps. I t's planning for resources, it's planning for expertise, it's getting supply chain delivered, and then it's actually planning for the implementation and the successful testing of that. I t's quite a detailed forward look as to how we're going to sequence everything.
Great build, Gary.
You know, and right at the very start, your first second slide, you had a chicken consumption over a longer run, and there have been periods in New Zealand where you had an extended decline in consumption of poultry. Can you just talk us through what was the dynamic between those periods, and what's the risk of us now extrapolating from high points and saying that that's significant growth? Yeah, I suppose the cycle that we've seen in the past.
Yeah. In the profile of the graphs that Andrew put up had obviously a pretty sharp spike, followed by. Exactly to Andrew's point, I'd categorize that as an irrational market being driven by the largest player in Tegel driving up production and ultimately that resulting in poor poultry economics. I think there's a reality within the market, and this is referred to in terms of how we win, which is that it's always balance on economics. You know, how do you balance how much you're processing with your relative return on that production volume? I think New Zealand got it wrong for a period of time, and we're now in a period of rationality. I think that what you'll end up seeing over time is a rational.
Like, take FY 2023 to some extent out of it, because everyone was constrained from a labor perspective. I think you just draw back in line with a kind of historical growth profile, which the long-term average population growth is about 0.8% from a New Zealand perspective. I expect the consumption to be a bit above that, in part driven by an improvement in price relativity, because the carbon tax, in particular, will come and impact red meat proteins.
Then sort of on that, what would remain a cheaper meat than chicken over this period? Your idea, that sort of intergroup?
Yeah. Look, the, I mean, the pork one's interesting, right? I mean, in part, I mean, there's a question, so why is it in line with chicken? It's because it's imported in. I mean, that's point number one. I suppose in terms of how we think about that. Firstly, I think there's some work to do from a legislation perspective, which mandates that external overseas operators are held to the same standards as domestic ones. I think the second is that we need to keep working, and I had up there Ops Excellence, but we need to keep working on our own cost base. I think there's advantage that's created from being the cheapest protein and therefore, by price, being a reason to divert to chicken.
The third is, you know, this idea of we need to continue to call out all of the other attributes that make chicken attractive. I do think if you look at the relativity, both from an absolute as well as on a percentage basis between pork and poultry, it ebbs and flows based on the season. I t's not like there's a distinct difference, I suppose, from pork to chicken. The reality is you'd almost call them like for like, as we stand here today.
It's still a significant advantage to red meats?
Yep. Yep.
Richard, 2 questions. Just, so AUD 20 million in fiscal 2023, can you give a direction of, you know, upwards, downwards, flat, going forward?
We wanted to quantify that because we talk about it a lot, and I guess we wanted to communicate that it's a material number. I t certainly helps us offset inflation pressures, particularly, you know, labor being a great, great, great example. I won't put a number on it, but we have it embedded in our forecast, and we have it embedded in our thinking. It's that sort of quantum that we're looking for.
Thank you. The second question was just in reference to, I think it was, slide 45. I just wanted to ask you to, i t was the map around the facilities around Australia. If the size of the dots was representative of something to do with the size of operations, first part. The second part was, it looked like, New South Wales relatively underrepresented, correct? J ust sort of what, if there was any inference that we should draw from that one way or the other?
I'm just having a look at the chart now. Thanks, Richard. I think it's showing, because we're in bold red and everyone else is in a kind of a dotted color, it probably misrepresented the size of the facilities. Y es, broadly, you know, we are looking, we are basically saying that, South Australia and Queensland for Ingham's are our two bigger sites, with the balance of the sites being smaller than those two sites, and obviously our key competitors in New South Wales, Victoria, and Queensland, so pretty much Eastern Seaboard. W e are from overall Australia. From a poultry processing point of view, we are heavily indexed to the East Coast from processing capability.
Are you underway in New South Wales as being the biggest state? Is there an opportunity to sort of, you know, gain, gain volume on that basis?
Yeah, look, we, so with Queensland and South Australia and a bit of Victoria, we actually. We produce in those states and then export into New South Wales. N o, we've got, we've definitely got capacity and capability that we can service New South Wales.
You don't have to have the facilities in New South Wales to service-
Not necessarily.
Yeah. Understood. Just trying to confirm. Thank you.
Yeah. Brett, do we have any questions online? We don't. Okay, well, I think if. Thank you. Someone walk away there. Just gone the wrong way. T hank you again for your time today, and thanks for your, your questions, and hopefully, we've done a good job of answering those. I guess, you know, what we've tried to communicate today, that we've been through a challenging period, but we're well and truly out of it. We're enjoying, again, operational stability, and we're focusing back on our strategic agenda. H opefully, what we've been able to tell you today, what we've reported in terms of most recent results and our outlook for the market, shows that the business has got some real underlying momentum and is really performing, starting to perform well and hitting its, hitting its straps.
Hopefully, what you've also seen today is a leadership team that's quite ambitious for the business, is thinking about how the business differentiates itself, how it competes, how it can grow its margin over time through leveraging those opportunities. Hopefully, you've also seen that we've actually got some pretty tangible ways of thinking about how we're going to execute against that plan and deliver it, particularly with these very strong partnerships that we have, with deep customer partnerships that we have. Just to leave you with that final thought in the sense that, you know, we think this business is a business with a tremendous future and with great prospects, and we think it's a compelling investment proposition.
Unless there's any further questions, we'll be happy to buy you lunch. Okay, great. Thank you.