Thank you, operator, and good morning. I'm Jim Layton Managing Director and Chief Executive Officer of Ingham's. And it's my pleasure to welcome you to Ingram's 2020 full year results call. Now, I assume you have all have a copy of the results presentation because I will be referring it to as I go through that deck. And I want to thank all of you for taking the time out of your day and joining us and your interest in Ingram's.
Joining me to present the results today are our Chief Financial Officer, Gary Mallach, our Chief Executive Officer for New Zealand, Jonathan Gray, our Investor Relations Director, Craig Haskins. Slide 1 is our standard notice and disclaimer. So let's move on to Slide 2. But before I discuss our financial results, I want to briefly recap on our 5 year strategy because it underpins the resilience of our FY 2020 financial results. Going back to our investor presentation since October last year, we have been sharing what I believe has solid 5 year strategy that clearly sets our sights on delivering more consistent, predictable and reliable returns to our shareholder Our purpose is to nourish our together position us to deliver profit to our shareholders.
This purpose connects to our strategic pillars to optimize the core transform for tomorrow and create the new so we can deliver at our objective to our shareholders and achieve our ambition to be the most trusted food producer in our market. It is this 5 year strategy that is building resilience of our organization and the resilience of the people who benefit from this clarity and work together to deliver more consistent, improved financial results. And moving to Slide 4, our group performance highlights. We have delivered resilient financial results in 2020 underpinned by a solid and clear 5 year strategy. We achieved an underlying operating EBITDA 3 AA SB 16 leases of $179,700,000.
While our EBITDA full year results is below where we had originally planned, it is consistent with our May business update which highlighted the potential impact brought on by COVID-nineteen. So whilst Ingram has shown its resilience in adapting to COVID-nineteen's world in the second half, we are not immune. This result includes all of the impacts of COVID-nineteen on our supply chain and operations and the impact of the decline in demand and oversupply and inventory issues that we faced. I am proud of the Ingram's team for what they have achieved. At the half year, we told you that we had resolved operational issues in our further processing network, added significant costs and the inefficiencies to our business in the first half that is behind us.
And we started solidly in the second half, despite the callouts of bush fires and floods, and we said that our recovery in New Zealand was well underway in which it was. But the real pressure testing of our strategy, our organization and our people came in the form of COVID-nineteen. You know, I've often said that we should never waste a good crisis. And while we're not leaving any opportunity unturned by the challenges that COVID-nineteen is thrown at us, the challenges that we have overcome have included: 1, making very important changes to our supply chain and operations which kept our operations running during COVID-nineteen 2, a continuation of high feed prices that we dealt with 3, the first of panic buying during COVID-nineteen, which was dealt with by an agile sales and operations team who met consumer demand for poultry which is still valued as the most affordable animal protein. 4, the complete lock down of all of our out of home channels is a result of level 4 restrictions in New Zealand as John will go into more depth on in a minute and 5, managing the excess supply of poultry product both Australia and New Zealand is our supply chain adjusted to lower customer demand in that last quarter in the closing of some export markets.
Slide 5 talks the tale of 2 halves. And again, speaks to our resilience and unwavering commitment to achieve our objective to deliver profitable growth. The first half was marked as in the second half. We achieved 3.3 percent growth in core poultry volume, which, as I said, recognizes poultry as an affordable source of protein Now, Gary will talk more about our cash and balance sheet later, but our debt remained within our targeted range. As we said in May, we have been closely watching cash and costs and working with our customers to ensure that debtors balances are well managed.
We have announced a final dividend of $0.607, which takes the full year dividend to $0.14 and is in the middle of our targeted payout ratio of 66%. Now, before I hand it over to Gary, I think it's useful to have more context for you around COVID-nineteen and how it impacted our people, our operations and our sales channels. So if we could move now to Slide 7, the health, safety and welfare of our people has continued to be our number one priority and always will be I want to commend the Ingram's team for how quickly they work together to make the necessary changes at work to stay safe throughout COVID-nineteen. I also want to praise our incident management team who set the safety benchmarks for all of our people and our business high from the very beginning. Creating a safe work environment also kept our people engaged in our absenteeism very low.
Agile operations and sales meant we could at least to the extent possible meet the pantry stocking demands, while dealing with the restrictions or closure of much of out of home customer base. It's been a volatile period. However, as I said before, a clear strategy is not we still have been able to continue to focus on profitability and growing the business in creating the new. We have pleasingly developed new products for both the Australian and New Zealand markets this year, including the free Ranger in Australia, and new plant based protein products, including Lexi in New Zealand in the plant collective in Australia. A slide 8 provides an overview of how we manage the many logistical costs and productivity challenges across the supply chain.
Now rather than go into too much detail, I'll give you just a great example of how our people minimize the impact of many of the issues that they face. It relates to our primary processing plants, which are by far the most complex and labor intensive of all of our operations. In addition to implementing measures to allow us to switch to supplying more of our fresh poultry products in trays. Our customers told us that that's what they needed to satisfy consumer needs and we listened and we responded accordingly. Successfully delivering this material change required redesign of our plants to enable our people and created some negative impact on plant productivity, but it was absolutely necessary to deliver those products to our customers and we did it without compromising our safe work or our environment.
Another consequence that we have was to temporarily suspend the production of some other value enhanced SKUs as we simply could not properly reconfigure our plants in the short term to meet our objective. All of this may sound straightforward, but for those of you, and I know many of you have been in a chicken plant, you will know and appreciate how well the team responded. Turning to Slide 9. This slide summarizes the demand volatility across our sales channel, every channel, both in Australia and New Zealand have been impacted by COVID-nineteen restrictions in some way. As you know, retail surge in the third quarter due to panic buying, but this material volume surge was temporary.
And as demand normalized, albeit at higher levels than normal industry oversupplied, including our own excess volume came in issue in the fourth quarter. QSR was more resilient than food service and wholesale markets, which were hit by shutdowns. While we have opportunities to move products in the export market, we have also lost volume when borders were closed in some of our traditional markets On Slide 10, we have shown how the year has shaped up graphically. Now, we would not normally show this much detail on a quarterly basis but we thought it would be helpful to show the flow of the year. So again, the building of volume and financial momentum from a slow starts to the first quarter due to the FP operational issues that we spoke about at the half and lost margins from some of our channels.
And then moving to a traditionally stronger second quarter due to some positive seasonality and solid performance in operations. Followed by strong customer demand showing in the 3rd quarter and then negative impact on the 4th quarter on core poultry demand excess supply, lower margin and export volume. The decline in profitability of the business in the 4th quarter also reflected the higher costs and the write down of some inventories as Gary will discuss. Now I cannot emphasize enough how exceptional of the Ingram's team has worked given these challenges to deliver profitable results in this environment as a credit to the resilience of our strategy our organization and our people. I will now hand it over to Gary to present our financial results in more detail.
Gary?
Thanks, Jim. Looking at Slide 12, our statutory P and L shows ahead of $40,000,000, And as you can see, our numbers are significantly impacted by the adoption of AA SB 16. You will also note on this slide, that we have adopted the modified retrospective approach, so we have not restated our FY19 comparatives This makes year on year comparisons difficult. As previously reported, the FY 'nineteen year also included the gain on sale of my device and some other smaller assets. EBITDA has increased $146,000,000 to $388,000,000.
AASB 16 required lease expenses of $230,000,000 to be removed from EBITDA, but offset by a depreciation expense of $209,000,000, an interest charge of $55,000,000 and a tax effect of 10,000,000 AASB 16 results in a decrease in NPAT of $24,000,000 for the full year, which as you know, has no impact for cash on our business. Turning to Slide 13, which gives you our underlying 18 financial performance. As you noted, core group poultry volume is up 3.3% for the year. This volume reflects growth of 4% in the first half and slowing to a 2.6% growth in the second half. Notably, our second half sales volumes are a little lower than the first half, which given we had birds in the third quarter, sets of growth has created oversupply in our market in the fourth quarter.
External feed sales volume is down in the second half, as a number of customers reduced orders as COVID-nineteen impacted their businesses. Buy products volume showed a small increase over the year. Core poultry revenue growth was up 3.5 percent for the year. Revenue growth exceeded volume growth in the first half, as we saw better pricing in several channels. Australian wholesale market is a good example of that.
In the second half, revenue growth was 2.1%, below volume growth of 2.6 percent, which reflected a softening wholesale market, greater export sales, and clearance and promotional activity in the local market to deal with the 4th quarter market oversupply. Buy product revenue was lower by $3,000,000 with external feed revenue up $1,000,000 compared to last year. As gross profit of $460,000,000 was down $20,000,000 on last year. In the appendix, we've provided a breakdown by half of our results, including gross profit. Untaling the gross profit line a little, The first half showed our group revenue growth was up 4.7%, but our cost of sales grew by 7.3%, which is attributable partly to an increase in feed costs, but mainly the operational issues in our further processing business, which we discussed at the half.
This contributed $14,000,000 of our year on year decline in gross profit. The second half has shown modest improvement despite COVID-nineteen impacts. Costs are up 2.4%, below total poultry volume growth of 3.3%, However, revenue grew 1.5% due to the impact of pricing I just mentioned. The margin decline was lower in the second half at $6,000,000. Also included in cost of sales in the second half is an increase in our inventory provision of approximately $9,000,000.
As Jim has stated, our underlying EBITDA pre AASB16 result of $179,700,000, takes into account all the positive and negative impacts of COVID 19 above the line. There are some positives like the brief 3rd quarter surge in retail volumes, but that is offset by decline in out of home volumes, sales clearances in Q4, and costs including the additional inventory provision and higher costs of distribution, cleaning, workforce, physical distancing, and PPE required to safely produce our products. Our depreciation has significantly increased. 900,000 of this is attributable to catch up depreciation as we reclassified our Wakehole feed mill from asset held for sale. The balance reflects cumulative effective CapEx spend over the past couple of years.
Our tax rate remains unchanged to 29%. Underlying NPAT is $79,000,000, which is down $24,000,000 on last year. On slide 14, we provide the reconciliation from statutory to underlying EBITDA and MPAD pre-sixteen. The reconciliation takes out the AASB 16 impact of $230,000,000. The other key call out on this slide is that we've taken a $20,000,000 impairment charge relating to a couple of assets.
These impairments are not related to COVID-nineteen. Firstly, the Cleveland further processing facility closed last year. The site remains vacant. And we now do not intend to use it for operations in the future, so it is appropriate to fully write down the value of this leased asset. The Wakehole fleet Mill was purchased in 2017 as part of our self sufficiency feed strategy.
This asset has been held for sale since that date, as it was originally intended to be sold or leased back. However, that is no longer the case. The asset has been reclassified in the balance sheet and the valuation has been revised to reflect its current valuation. Looking at our balance sheet on Slide 15. This slide reflects the impact of the new lease standard with land and buildings and grower contract recorded as right of use assets.
We've previously explained at the half year, the grower contracts, and I'm happy to answer any questions on this later. You will see that inventories have increased by $56,000,000, which is a result of industry oversupply in the fourth quarter in both Australia and New Zealand. We have chosen to hold the majority of this inventory increase as further process products as it is frozen finished products like Kieves, Snitzel, and nuggets, It is the longest shelf life and the FP network is our most flexible. You'll also see that feed inventories increased year on year, as we are holding greater stocks from grower direct purchases and year on year pricing increases. Our total receivables balance has decreased year on year However, in the detail, our financial statements highlight an increase in trade receivables of $16,000,000 over last year.
We feel this is an excellent result given the natural increase you get with higher revenue and the situation with COVID-nineteen that some of our customers found themselves facing. Our debtors days outstanding only increased 2 days and our over dues greater than 30 days increased $5,000,000 to just under $10,000,000 in total. For the group. In our business update in May, we noted we were working with our customers to support them where they were in distress due to COVID-nineteen changes and in certain cases, this has resulted in payment plans being established, which are being met. We are quite comfortable with our debtors position and continue to monitor cash closely.
Turning to a cash flow on Slide 16. Cash conversion has improved from 60% at the half. We closed our books on 27 June, and we are pleased with our cash collection at year end. Conversion was negatively impacted by the working capital build in inventories, but we are satisfied with the 97% we have achieved. We've also provided a conversion ratio, which considers the benefit we accrued from the increased year on year in our inventory procurement trade payable.
This ratio of 81% is a solid number in the context of operating in the 'nineteen world. We spent $87,000,000 during the year on capital expenditure, which is well below where we suggested at the half Like many other companies, we were more judicious in spend in the second half, and there was a deferral of some work due to restricting access to our sites. To essential visitors only. We continue to invest in the Victorian and Western Australian Hatchery projects, which are on track to be completed in FY 2122, respectively, pending any possible impacts due to COVID-nineteen. On Slide 17, and net debt finished at $315,000,000, with leverage increasing to 1.8x, primarily with the hatchery investments and higher inventories.
Net debt decreased $9,000,000 from December 19. You will see that the inventory procurement trade payable has increased by 26 $1,000,000 to $120,000,000 since June 2019. This reflects a few factors. The first is that there was about $15,000,000, which fell due for payment just after balance date, reflecting the timing when we took delivery. The second is that as we build seed inventories on our balance sheet, It is reflected in that payable.
The inventory procurement trade payable was 98,000,000 at the half year, so the increase was mainly in the second half. Our final dividend of $0.067 per share, fully franked, fits us in the middle of our guided payout range of 60% to 70% of underlying NPAT pre-sixteen. And with that, I'll hand back to Jim. Thanks, Jim.
Thanks, Gary. Now moving to Slide 19, I'll turn over, to our segment performance for Australia and New Zealand. I will start in Australia then I'll turn it over to Jono. Who can update us for New Zealand. The big call out in the Australian business is a 6.5% growth in core poultry volumes in the third quarter.
Which then quickly dropped to be up only 1.2% in the fourth quarter to finish at 4.3% growth overall for the year. This drop in the 2nd half revenue and profitability was impacted by an excessive supply in the 4th quarter, creating pressure on pricing. And additional promotional and clearance activity in inventory provisioning, which lowered margins. We experienced higher costs due to COVID-nineteen measures and slightly higher feed costs, but pleasingly, our costs overall were slightly below volume growth and in absolute terms, were down from the first half. The team has done an excellent job to keep costs down through very tough conditions.
Our external feed sales were also down on the half as some customers responded to weaker demand in their businesses and the loss of some unprofitable business. Everybody's talked about the impact to our channel, so I won't go over this again. However, I think it is important to understand that the balance of our volumes by channels does not net out to 0. So whilst the poultry category is resilient, It is not immune. I would now like to hand it over to our Chief Executive Officer in New Zealand, Jonathan Gray, to talk about our segment performance in New Zealand.
Chano?
Thanks, Jim, and good morning, everyone.
Our New Zealand business
delivered underlying EBITDA pre AA SB 16 of $28,600,000, which represents a decrease of 1,000,000 or 3.4% compared to FY 'nineteen. At the half, we told you about the progress made in our New Zealand turnaround plan, and the momentum that had been established. Looking at the full year result, it was not so much a game of 2 halves, and it was 3 quarters of pleasing results as we progressed our turnaround plan. And then 1 quarter that was severely impacted by the response New Zealand and the country took to meet the challenge of COVID-nineteen. Core poultry was down 2% for the full year.
Looking at the second half breakdown of that, we see a lift in demand of 3.8% in Q3. Before a significant drop in Q4 of 13% compared with the corresponding period in FY2019. Houltry revenue growth, which had built nicely and above volume growth through the 1st 3 quarters. Then slowed in the final quarter due to excess supply that I will talk to you shortly. It's worth taking a couple of minutes to explain the detail and impacts that the alert level restrictions had on our Q4 performance, particularly the impacts from alert level 4, given the significant impact that you see on Slide 10.
From March 26, The country moved to alert level 4, which was a full national lockdown. This lasted for four and a half weeks. 2.5 weeks of alert level 3 followed before moving down to alert level 2 and then an extended period at alert level 1. Level 4 restrictions meant all non essential businesses were closed completely. So for us, that meant no QSRs open at all to 4 a half weeks.
And likewise, no restaurants or cafes open. At all. Aside from a few minor exceptions, every out of home channel, including food service and the wholesale market closed overnight and did not reopen in any capacity for 4.5 weeks. When they did reopen at a level 3, it was in limited capacity such as drive through and takeaway only. From there, restrictions continue to ease further until just last week.
During the level 4 period, supermarkets remained open as an essential service, and we saw an increase in demand. However, this increase in retail demand did not nearly offset the drop from out of home channels. Our total demand was down by over 35% during this level 4 period. In addition to the challenges of that extreme demand decline, we had to move decisively to reconfigure our processing facilities to meet the site specific protocols required, including social distancing of workers in our factories. We also faced declining attendance levels as schools were closed and carpooling was heavily restricted.
Our plants ran less efficiently through this period. And of course, with birds in the field still coming and demand having significantly declined, there was a resulting oversupply in the market. Our sales volumes dropped, our margins were negatively impacted, and we rapidly built inventory. At this point, I'd just like to mention the enormous pride I have in my New Zealand team, not only for the way they responded to the challenges, that COVID presented and continues to present, but also for the leadership guidance and support they provided to their respective teams. We have received excellent feedback from many of our key customers and strategic partners around how we performed communicated and conducted ourselves through this very difficult period.
Jim. So last time we spoke, I highlighted the progress made in New Zealand against our turnaround plan. Whilst we continue to manage the unpredictable challenges of COVID-nineteen, we remain committed to that plan. I believe we are a more nimble business and a stronger team as a result of what we have been through. Okay.
I'll hand back to you, Jim.
Thanks, Johno, and congratulations to you and your team. This is a great job. Now turning to our feed markets, which are on Slide 22. Our feed costs have remained elevated as the tight inventory of old crop forcing domestic buyers like inghams to pay more for supply certainty. The low inventory was further exacerbated when exports entered the market as the Australian dollars temporarily declined creating an opportunity for aggressively bidding limited available stocks.
As Gary noted in such a tight market for old crop, we have made the prudent decision to secure supply to feed our birds given the visibility to these low stock levels. We anticipate that stock levels will improve as conditions remain favorable for the new crops that are due to be harvested at the beginning in November. In the regions where we source our supply, Now that would, if that happens, lead to lower costs. However, it will take until the fourth quarter of FY21 before lower fee costs fully flow through our supply chain and into cost of goods sold. Now moving to Slide 24, Now, I feel like a broken record when it comes to COVID-nineteen, but the unfortunate reality is that it will challenge our economy for some time even beyond model and highly adaptable people to help us work in these highly volatile situations.
Now, we've noted the government restrictions continue to impact our customers and therefore the consumption of poultry and products in both Australia and New Zealand. And whilst our diversified network leaves us well positioned to maintain supply, we are not able to predict the impact that COVID-nineteen may have on the poultry industry or Ingram's capacity in our poultry supply chain in the future. Again, we are resilient, but not immune. Seam facility in Victoria. As we speak, we are currently managing and managing well, I might add.
The government mandated reduction in work for us in our Victorian operations. We will continue to focus on mix of lockdowns and international and state borders closing. As poultry remains a competitive and affordable source of protein, And by the way, even more so in the depressed economy, we are optimistic that we can continue to fulfill our role as an essential service provider and we're proud to do so. As I noted earlier, we would anticipate the improved outlook for feed pricing to fully flow through in the fourth quarter of this financial year. And as always, we remain focused on efficiency, productivity and cost management across our supply chain.
Now moving to Slide 26, this brings me back full circle to the beginning of this presentation. Strategically and operationally, we are on the right track. We have managed the challenge as well and we are applying lessons learned going forward. We have been able to do this because we have a clear strategy that builds resilience and points us in the right direction to achieve profitable growth for our business. And create the new.
While there's no crystal ball on what the new normal will look like post COVID 19, what is clear is that our 5 year strategy is building the resilience of our organization, the resilience and adaptability of our people enabling us to focus on With that, I will hand it back over to the operator for
We have multiple questions in the queue. Our first question is from Mr. Marco Peek from Goldman Sachs. Please ask your question.
Good morning, Jim. Can you hear me?
I can, Michael. How are you, sir?
Good. Thank you. Yourself?
I'm well. Thanks.
Good. Look, thank you for your time. Just on the indicated sort of oversupply in the fourth quarter. Could you just give us a sense of where we're at at the moment, maybe how long do you think that might take to clear maybe a bit of a sense of what wholesale channel pricing is doing at the moment?
Yes, Ken. That's a great question. So, as we stated in our remarks, We did have quite an inventory build of I think Gary mentioned about $56,000,000. And then there was a provision But I can tell you, for the 1st through 7 weeks or so of this financial year, we've been able to push out about $9,000,000 of that So, you know, that's a good news. And relative to the wholesale market, we are seeing it come back to a more normalized pricing in that in that channel.
Okay. Thank
you. And maybe, just one for Gary, maybe, slide 10, just looking, thank you very much for that quarterly breakdown. That really helps quite a bit. But just thinking about coming into 'twenty one, and the first quarter was impacted by that fee issues that you highlighted. I just wanted to get a sense of roughly where normally you would see your EBITDARs per quarter would it be a little bit flatter than that across the quarters, but obviously I think 1st and 4th would probably be the weakest.
Is that the right way to think about it?
Yes. So as we've talked about, quarter 1 was impacted heavily by the processing networks we've talked about at the half and Jim's mentioned today and Q4 was heavily impacted by COVID. So your thesis makes sense.
And then thinking about first quarter of this year, going to have some impacts, obviously, with what's going on in New Zealand, Victoria and still around the rest of the country. But you are cycling the HP, but would do you expect some sort of a little bit of a normalization there?
Yeah. So you're going to hear this lots of times about, we're not providing guidance and clearly we're sitting in a very uncertain world with COVID-nineteen. So our Thomas Town plant was, shut down for 10 days because we had a COVID, some COVID cases in the plant. And we're also in Victoria operating with a 20% lower workforce per government regulation and New Zealand has moved back to higher alert levels as well. So making predictions even in the first quarter is very challenging for us, because those things actually do make quite a difference for us as you could see in Q4.
And Michael, Jim here, I would add to that typically, and we've talked about this quite a bit. The seasonality of this business typically would be say 51% of our EBITDA generated in the first half, 49% in the second half, based upon Cleveland, we had indicated that it might be a little bit different this year. As a result of the first half, Cleveland issues, which are, as we stated at the half, are behind us And so the good news is we have left Cleveland. The bad news is what Gary was just talking about, what we had to do Tomestown to close that facility for 10 days.
Next telephone question is from Craig Woolford from Citigroup. Please ask the question, Craig.
Just wanted to understand is what's a moving part as we can imagine. Into the second half of twenty twenty, what was the impact from the COVID costs that you're alluding to, what other costs fell? Because as you noted, the, cost growth just difference between revenue and EBITDA in Australia. Cost growth was lower than volume growth. We've seen like a good result.
But, it's a surprise to see that given some of the cost issues that we've just talked to. And kind of related to that, was there any government subsidies in New Zealand?
Sure. Craig, I'll take that one. So in New Zealand, we had 200,000 I think it was kiwi dollars of government staff disease last year. So pretty immaterial when we didn't receive any staff disease in Australia. In regard, we haven't broken out the impact of COVID-nineteen.
And frankly, that would be a very difficult thing to do because it is just spread right throughout the business. I did mention that we did have some benefits in, the sales surge. Kind of at the beginning of COVID when there was some pantry stocking. But we have had, a number of costs in the operations, but we haven't pulled out a number probably except for the increase in the inventory provision, of $9,000,000 which we saw that build in the inventory, very concentrated across that sort of April, May period.
Craig, this is Jim. I would add to that, as for our previous conversations. And I think you noted, yes, there are a lot of moving parts especially with the COVID and impacting this business. But I will say that we are realizing some of the benefits that we thought we would realize given some of the new operational talent that we brought into the organization and leadership. So I think through to our forum that's starting to show up as well.
Okay. Yes, it's, so that even fee provision is another line the past that you believed you couldn't. So I mean, the elevated inventory position that you have, which is in FPD products, What does it all mean in terms of how you're setting the eggs or the outlook for the supply chain for this first half twenty one?
Yes. So just with the inventory I wouldn't say it's because we can't sell the product. It's actually a net realizable value adjustment. So it's where we think we might be, having to promote or clear some products, but I wouldn't say it's because we can't don't feel that we can sell it. And just for that point of clarification, I'll let Jim talk about the balance of our supply chain.
Yeah, and I'll talk it in terms of balances for commercial reasons. We don't talk about settings and so forth on supply. For obvious reasons, But we will, for our previous comments, we're making sure that we obviously bring this back into balance. So, as we bring inventory down, obviously, then we'll start increasing more supply through our primary for the processing plants.
Great.
It's clear. So just lastly on this feed cost commentary, just wanna saying the question the right way, is your fee cost outlook now, better or worse than what it would have been back in, say, February or pretty covid?
Yeah. I'll answer it in general terms. And, as you know, that we, buy 3 and 3 to 9 months is kind of the from a risk management perspective, how we manage feed. And as I mentioned in my earlier remarks, because we got such a low we had so low stocks coming into the year based upon a 3 year drought. We were very cautious to make sure we had continuity of supply So that influenced how far out we should go.
And now of course, we're just waiting to see what the results will be of, we know how many kind of hectors have been planted, but we're waiting for the harvest to see what the yield off of those hectors and acres are. Gary, do you have anything to add?
So the, I wouldn't say, I mean, the major impact we saw with COVID, on feed was probably at the beginning where the Australian dollar weakened. And then our grain became more attractive to overseas market and we saw quite a lift in price at that point in time. So that's been probably the main thing we saw. Now that's normalized back a little bit now. And that's probably the main COVID thing we saw on feed.
Thanks guys. Appreciate it.
Next telephone question is from Matt Johnston from Macquarie. Please ask your question.
Hope you're well might just go back to, I guess, the Q4, Q1 question into FY 'twenty one. I appreciate not giving guidance, but could you maybe talk to, I guess, the different challenges between what you saw, I guess, in the first wave versus the second wave of tour and ends at?
Yes. So why don't we start with ends at Johno? You want to talk to the impact on Q4 into Q1. Of course, we don't give guidance, but I think we get some flavor for what's going on with restrictions and so forth.
So the, I think firstly, we've spent time, over the last 3 or 4 months, we've spent time in New Zealand to act period that are at level 4, alert level 3, 2, 1, and then back back again currently Auckland is at alert level 3, rest of the country is at alert level 2. So the reason I start there is there hasn't been an extended period at any level, for long enough for us to definitively understand all of the impacts at those levels. What I will say and you would have picked up hopefully through my commentary is the level 4 restrictions which is the only level that closes out of home channels for New Zealand. They obviously have a far deeper impact and further reaching impact for us than, than other other levels. That's not me saying that level 2 or 3 doesn't have an impact, but clearly, level 4 is is next level.
So we would all be hoping that we don't move back into a level for But otherwise, the, the, as we come into, come into Q1, I'd use the word choppy again. And the visibility that we have ahead is short visibility. So it remains volatile and possible to predict.
Yes. And Matt, as far as Victoria, to your question, And it's a great question. I think the way I characterize Victoria, it's, I call that wave 2 is similar to what we saw across Australia for wave 1. With panic buying and so forth and so on. So the good the good news is we learned a lot through Wave 1.
We learned a lot in Australia from New Zealand and what they went through and we applied many of those learnings to our business in a very positive way. So, yeah. We're hoping that Victoria wins and can get out of this as soon as they possibly can.
And Matt, I'll just add you asked directly from Q4 into Q1. They're not directly comparable, but clearly the level 4 impacts that Jono talked about are not as to be in that we're seeing in Q1. We're still seeing that very choppy market position. And I think we'd use work of short visibility as to demand forecast coming through. So it definitely that's pretty similar.
Through the period. And whilst we had quite a number of operational impacts in Q4 in Australia, the Victorian situation is probably more challenging in Q1.
Yes. And the other thing
that helps you get a sense between the two.
Thanks, Gary. Matt, the other thing I'm pretty sure you're aware of is there were 2 in poultry, there are 2 primary processing plants that as a result of COVID and positives within those plants had shut down for a period of time. So that also impacted both the demand and overall supply. Which made it even choppier.
Okay, great. That's helpful. And maybe just a couple of quick ones. Can you actually comment on where you sit on your forward cover for feet at the moment?
Matt, not over and above what we normally say. So we say that we have, and when just repeating for everyone, we physically buy. And we have between that 3 9 months that we have. But you would note that we've got a little bit more in our balance sheet. So that gives you a small indication that we've probably been building a bit in this last half and we're still sitting between that 3 9 months.
Yes. And where that will manifest itself, Matt, as I stated earlier, my comments is we're anticipating if in fact we have a good robust which by all indications, it sounds like we will, but we won't know until the harvest. That will flow through and we'd probably think that it would flow through sometime in later in the fiscal year Q4.
Okay, that's clear. And then final one for me, just around operating leases, there been any discussions with landlords in the past 6 months as many businesses have around, I guess, changes or flexibility?
So, Pat, we've had discussions, but I wouldn't be factoring any significant changes into the forward look.
Okay, great. That's helpful. Thanks guys.
Our next telephone question is from Scott Real from Roumor Equity Research. Please ask your question, Scott.
Thank you very much. Jim, firstly, I wonder if you could just give us a sense of how your Victorian employees are now held by? They recovered?
Yes, Scott, that's a great question and thank you for asking and the answer is yes. We are very fortunate. I talk about a lot of on our purpose is to nourish our world, but during COVID-nineteen, especially internally, the communication is not only do we nourish our world. We have a dual purpose in that as to stop the spread of COVID 19. And we are very fortunate and I'm going to spend a little time on this.
I'm sorry, but that our employees have really embraced that. We are an essential service provider and the importance of them staying healthy and safe not only in the workplace, but also limiting their activities outside the workplace. And as a result, as I mentioned, our absenteeism has not been impacted our business. People are showing up. They're doing whatever they can.
And fortunately, those were impacted by COVID-nineteen have fared fairly well. I think we only had one individual who was hospitalized and that had to do with some other conditions of that individual dealing with, but thank you for asking.
All right. Good. You didn't spend too long on that. That's good. I think you've done a pretty good job, Jim and Gary your numbers in particular in terms of helping us understand some of the impacts.
So thank you. Can I ask a quick question on Slide 10? On the chart on the right hand side, you've called out the $14,000,000 worth of costs that we talked about at the half year result in 1st quarter. And so if I look at quarter 1, quarter 2, quarter 3 adjusted for that, Each one of them was over $50,000,000 of EBITDA. Is it fair to assume that the difference between your actual results in Q4 and another result that would have been greater than $50,000,000 was essentially the COVID impacts that you talked about?
I'll turn it over to Gary, but I want to reiterate something. And that is if you if you look back over the history of this company at least for some period of time, typically what you'd see is 51% to 52% in the first half and then 48% to 49% of EBITDA being delivered in the second half. Gary?
So, Scott, I know, I got to agree with your analysis that you go through. So there is the $9,000,000 inventory provision in there. And then when you say COVID, you've got to consider the impacts through demand through cost, through mix, through margin. The logical statement that you made.
Okay. Good. And then just on Slide 28, which is also quite helpful to have in your pack. So if you, and I'm just checking. These are, these are, I'm not asking you to quantify anything that in particular, but in the first half, as you call out, you had, poultry volume up 2.6% and revenue up 4.7 But the volumes were up 3.3% in the second half, but revenue is up 1.5%.
So is it fair to assume most of that, that pricing change, the effective price reduction, which you saw in the second half, is due to mix and the inventory position that you've talked about? I know it's not the inventory costs, sorry, but the, the fall in, in, well, I guess it's mixed mostly, but also yeah, some of the inventory that you built up that was unable to be sold?
I thought you'd find page 28 helpful. So just one thing on that one, as you mentioned, the total poultry volume of 3.3 percent, the like for like in revenue is 2% at total poultry level. So the actual 1.5% takes into account the external feed sales that we have as well. So 3.3 playing 2 is the apples and apples. Then you really, again, you're well informed.
I think the other part we've got in there is with the oversold applied market, it would be fair to say there was clearance of product and promotional spend that we needed to do to help with that oversupply position, which impacts our revenue.
Yes. And then looking at that gross profit, I'm correct that that 14,000,000 in the first half comes in, in the gross profit line, right? So gross profit margin was impacted in both halves, due to the varying impacts, in addition to feed cost inflation, I understand that, but that's where most of the impact comes in in terms of the margin, I think from COVID in the second half in particular. Is that fair? Yes.
Yes. Okay. All right. Those are my numbers questions. Thank you.
Then could you maybe this is a question back to Jim. You just talk to, what you've seen as, and I take Jonathan's answer before in terms of the different levels of of restriction that you've seen in New Zealand and how each one of them has differed, and there's been changes regularly, but just in general cases, can you comment about how you've seen your mix change as restrictions have been, relaxed relative to what your mix was, say, 6 months ago before the impact here? And then maybe the other question, you've got a couple of photos of your free Ranger product in the past, but you didn't talk to them too much. Could you just talk to the free Ranger and some of your your plant based protein products that you're looking at and where, what what the impact of those has been in the market so far? Obviously, early days.
Yes. So why don't I start with that? Yes, we are very pleased with the results we're getting with the free Ranger, specifically launched it in a in one retailer and expanding distribution there. We are also I think I mentioned in In strategy day, we've opened the lens of our organization to not just be a poultry company, chicken turkey, but we're also looking at proteins And so we've been working on a number of products that are plant based proteins and those are the 2 first launches. Which have also been, although they've only been in market a short period of time, they are exceeding our expectations as well as our customers' expectations.
So that's good. And we have a number of other things in the pipeline, but there has been no material impact based upon those because it's a, as you know, a slow build. Just in general terms, what I've seen since the impact of COVID-nineteen, which is new to all of us in just in general terms, it's almost to state the obvious, but as restrictions go up, there is to your point, a huge change in shift in mix. So as Jono mentioned, when we supply QSR, we supply all the big QSRs. So you can imagine that we're producing specific products for those specific customers.
And when those close down for 4 to 5 weeks, that has a significant impact on on everything from live birds in the field all the way through finished product. So typically the higher the restrictions, the first to close our Q South and food service. So then there's a major shift. And then we see the huge, uplift for a temporary period of time in retail as people continue to panic by and we've seen this out in both currently in Victoria. We're seeing it again in wave 2 and we saw it initially in New Zealand.
So, Scott, I don't know if that answers your question, but that's kind of the way I view it.
And have you seen, though, as restrictions have been relaxed, have things gone back to, and I'm talking inverted commas here at normal? Or are you seeing still, I guess, and it's early again. We haven't, we haven't, we haven't relaxed things for very long, but is it are you seeing things kind of switch back to how they were or is it a bit of a long it's a quick change when restrictions are tightened, but it's a slower change as as things get relaxed?
Yes, I think the impact on QSRs quicker, but the impact on food service meaning out of home consumption in restaurants and pubes and so forth is much, much slower.
Yes, okay.
Is by Mr. Phil Kimber from Evans And Partners. Please ask your question, Phil.
Hi, guys.
And also I just want
to pass on my thanks for the extra info in the slide deck, it is really helpful. And so on that point, just looking at the 4th quarter, and exploring this inventory provision, I heard you mentioned before, it's not a write down as such. It's more around, you know, you look your closing stock and, you know, maybe the costs that are the prices that you can sell it for going forward aren't as high as they otherwise would have been. And so you have to adjust. Is it as simple as just adding that back in Q4 and saying, you know, that was sort of a one off as such, or should we think that in the first quarter of this financial year, you know, you've still got COVID issues, suppliers, still in an excess position, but you may have to continue to readjust inventory through that first quarter.
And so it's more of an ongoing cost that representative of a tough market rather than a one off type, spent. So I guess I'm just trying to understand that a little bit better when thinking about FY 2021.
Yes, I'd be happy to, I'll turn it over to Gary here in a second But, I I see that there's quite an interest in slide 10. And I do wanna emphasize something relative to, the fact that historically, and going forward, we normally won't be talking about quarters. But in any time there's an extraordinary situation, we want to make sure that we're providing people as much information to understand what's going on as we possibly can. So that's the reason we put that in there. And I think your questions are spot on.
So, Gary?
Hey, Phil. So thanks for the feedback on the deck. In regard to inventory I think the way I try and so the way I think about that going forward is as our levels of inventory decline, then naturally the provision will decline as well. Now I accept that there is some mix in that question. So it's I think the answer is it's a bit of both.
So it's partly due to just the market at the moment under the COVID demand signals. And then it was also the build which we'll reduce over time. So for it to completely go away, we need both inventory down, and the market to come back to normal demand, if that helps answer your question?
Yeah, yeah, no, it does. I just didn't want to, you know, take the, whatever it was, 36,000,000 in the 4th quarter, add back 9 and say, okay. That's your your 1st quarter sort of starting point, because I've got the sense maybe that's where some of the questions were heading, and I just wanted to understand for myself, how to think about that.
Yes, I'm sorry. Another quick way to think about this is, as we're taking finished product out of frozen inventory. Obviously, that volume is not we're not producing it in the plant. And so that does have an impact on overhead absorption and everything else. But structurally, if I understand your question correctly, ongoing, if we ever get to back to normal, we don't see any structural changes in our cost of inventory.
Yes. And then just on, exploring the the feed costs. You know, you said you've got typically 3 to 9 months cover, and you sort of implying the market's tight at the moment, you've been having to buy some, which is why feed costs are probably going to stay elevated in the first half, or maybe three quarters. And then hopefully with the drought breaking, wheat prices potentially come down as the crop starts to look better. Would it really come through in the fourth quarter?
Cause, I mean, if I take the 3 to 9 months, just call it 6 you know, add, you know, what is it? 15 weeks or 13 weeks to grow the chicken. I sort of was getting more first quarter FY 'twenty two, but, I just wanted to understand that a bit better.
Yes. So, you're right. And it's beyond a lot of people talk about poultry in 12 weeks because from the time you hatch a chick until it's goes through the process. But it's even further out than that because we are physical buyers of grain. So we physically buy the grain and then it has to be delivered to, to one of our feed mills that's converted and taken to the farm, then fed to the chickens and I could go on and on.
So I think it's an interesting insight that you have that Yes, there will be assuming a good crop impact on Q4, but it will definitely, again, assuming good crop in the first quarter of FY21. Gary?
Yes. So I'll just add a little bit more color. To that. So firstly, we do hold stock. So we start buying, hopefully, reduce cost grain when new crop comes through, but we'll still have some old crop to run through with inventory through our feed.
And then possibly the thing that people don't think about is when we're feeding chickens, we're feeding both chickens that are growing and coming into meat, but we're also feeding the breeder chickens as well. And by the time it goes to the breeder, Hands then into eggs then into growing and then into the plants. There is a longer lag than you might initially think.
And I'd like to take this opportunity to congratulate Gary on knowing so much about the poultry business in this 1st year here. So thanks, Gary.
That's great. So it's more that it hopefully starts the benefit from Q4, but it sounds more like it's the following year as in FY22, where it really kicks in That that was sort of where I was going. It starts in 4Q, but it really kicks in in FY 'twenty two, assuming that we have a good crop and all the things we just spoke about.
That is correct. And I've said this before and, again, one of the purposes of answering these questions and having this dialogue and being open on and collaborative with our with everyone we deal with. If I think a good way to look at this business is on the procurement grain side that will impact this business significantly. And then there's 3 parts of it in the middle of it. It's how well you do in an operations mix all of that.
And then on the right side of it is, keeping an eye on the wholesale markets and what the pricing is there.
Yes, that's correct.
You're asking all the right questions.
Thanks Phil.
Is
that it Phil? Okay, thanks.
Our next telephone question is from Paul Baez from Credit Suisse. Please ask your question, Paul.
Good morning, guys. Thanks for your time. I know there's been a lot of questions. This is just a few quick ones from me. First one, just on you've given some great commentary on, I guess, some of the ongoing challenges, including managing supply and the Victorian situation.
I was just keen for maybe a little bit of color on obviously you guys have got a national supply chain. Just a bit of color on how you think that sets you up, I guess, from a competitive perspective with the advantage of having that national supply chain, versus your competitors, obviously, one big one of which is national as well, but just interested in a bit of flavor in that regard as to how you cut versus, I guess, the rest of the market?
Being not only in every basically every state national in Australia and across New Zealand, which is unique to Ingram. As it's a huge competitive advantage and it's pretty obvious that if we have a problem in one area, you can go to another plant and ship across state lines and so forth, assuming that they're open and being an essential service provider, we've been able to do that. So yes, the larger scale producers are in a much better position to manage through this, I would imagine than say if you had a single processing plant in Victoria, which in fact happened and if you have to close that plant, it's going to have a fairly significant impact on your entire business. So does that
answer your question?
Yes, thank you. I mean, just thinking that there are obviously some regional players that are Victorian based. So just interested to see how, I guess, if you can use that, that supply chain to some extent in your advantage?
Yeah. I I will, but I also wanna make sure that everyone understands that the last thing I want or anyone wants is for anybody to, you know, be impacted by COVID nineteen we don't want any of anyone in the poultry industry to have to deal with closing their plants and so forth. Of course.
Of course, understood. Thank you. Just a quick one in terms of your CapEx plan, I mean, I guess, just given your comments around the ongoing obvious challenges from COVID and some of those residual uncertainties, how does that have any impact on how you think of your CapEx plans over the next sort of 12 to 18 months?
Yes, I'll have Gary give you some specifics on it, but we've we had a couple, capital projects, that were, and we've talked about the the spin chillers. We talked about those spend chillers in 2 different plants that were to be installed and COVID has impacted that. They basically are sitting, were sitting in the parking lot because we couldn't get people internationally here to help us install them and so forth. So that has impacted our capital spend because we've had to halt a number of projects, for a period of time. But Gary, do you have any more specifics on that?
Yes. So that's the factual situation. So I may just spend at the moment, and looking forward is the Victorian WA Hatchery projects. And we've continued with those throughout this period. And we gave some dates when we think they're operational, but did have the qualification of there of COVID access.
And what I could mean by that, is some of the specialized hatch care gear could normally requires visitors from Holland to come and install and to test that. So we might run into some COVID issues down the track. But assuming that we we don't, they'll continue to the dates we said, and that'll be the bulk of the CapEx next year. Probably a similar level to what we had this year, is one idea that you can think about there. Outside of that, I think will remain very, cautious with our capital whilst the COVID conditions in demand are impacting us.
So that's really it depends, on that one, but as we're in the current positions, we'll be keeping things pretty tight as we were through second half of last year.
Thank you very much for that Gary. And last one, just Jim, you mentioned, I guess some of the initiatives that you've been putting through having some of the benefits throughout this period and obviously, probably kind of somewhat lost in in all the various moving parts and the market disruption, but I just came for a little bit more color, I guess, on specifically which major ones are working as you would hope and to the extent that you see further benefits are you kind you've got them done where you need to be going into the next 12 months?
Yes, so none of the capital projects that are we're underfoot that were paused other than say the hatcheries depending upon when we bring those back online. And complete those would have a material impact on our results. It's mostly just the good practices and best practices that we're putting in place new continuous improvement processes and so forth that we're starting to see the results fall through to the P and L.
Okay. Okay. Thank you very much.
That's all for me.
Can I just add, we're having, Ari from UBS having a few technical issues getting through? So I can just pick up a couple of the questions that he's asked. Hopefully that's alright, Ari. You talked about the margins between the impact between the different channels. I think Jim answered that one before.
You're wondering how to think about CapEx. Just think just mentioned with, Paul, You mentioned DNA and you saw the uplift of DNA in the in the second half. And whilst there was a impact from a catch up from Wakehold depreciation. I think you can look at that though as a pretty clean run rate as that second half DNA. And then you talked about some flavor around the competitive intensity in the market and whether it's being rational.
And I think I'll hand over to Jim for that one.
Yes. So in our two markets, Jono, you want to talk about competitive rationality in New Zealand?
Yes, thanks, Jim. We talked at the half on that question. For New Zealand and I commented on evidence of more rational, decision making behavior from our largest competitor, perhaps relative to the prior 2 years leading into that, which got a bit of airtime on these calls. My answer would be no different to what it was at the half in terms of the rational market. So we do see it as being rational
Yes. Thanks, John. I would say the same for Australia. No, we're not seeing any irrational behavior.
Hopefully, that answers your question, Ari. Can we go to the next question operator?
Our next telephone question is from Belinda Moore from Morgan. Please ask your question, Belinda.
Hi, Jim and Gary. Look, I was just hoping, can you give us any sort of flavor of the extra costs of COVID impacting that you've had to shut the plant on either reopen, but what sort of extra supply chain costs, etcetera, have you uncurred from Victoria's restrictions in this first quarter, please?
So, Belinda, I'll take that one. So whilst we didn't didn't quantify it in Q3 and Q4 last year, I'm not going to I'm also trying to quantify it in Q1. So sorry, I'm going to say I can't do that. And partly, it is actually a really hard thing to try and isolate what specifically COVID as well. But I think if I go back to trying to the theme that I was mentioning before whilst the situations are are different between the two quarters, we are still seeing that choppy demand, and we are seeing operational impacts occurring in different places.
So it's not like for like, but when we fix something solved in one place and then it pops up in another place. So we're seeing a continued run of those costs would be the best way I could answer it.
Yes, I would say, pretty obvious, but directly when we had to close Thomas town, you know, that would have a much more significant impact than anything else in the event that we were to have to close a plant. Fortunately, we is we we closed that plant before anyone told us to close the plant. We just had, I think, 3 positives, at that time. And if we are very fortunate to only have to have closed it for 10 days. So, again, I give the people at Inghams, all of our people who've worked so hard at this I have to give them a lot of credit because managing this business with everything that's going on and the risk of the environment outside of work is just absolutely a fantastic result to be able to get through all this because I know a lot of people in this industry around the world who there are plants that unfortunately have had tens of people that have died.
So I think our team has done a great job. Thanks. Other questions?
Sorry, speakers. There's no further questions at this time. Please continue.
All right. Well, thank you, operator. I appreciate that. I just want to thank everyone for joining us today and your interest in Inghams. We look forward to speaking with many of you over the next few days and I hope you all stay safe and stay well.
Thank you.