Welcome to the Inghams Full Year 2024 Results Call. Following the formal presentation, there will be a Q&A session for investors and analysts. Participants can ask both text and live audio questions during today's call. To ask a text question, select the messaging icon, type your question in the box towards the top of the screen, and press the Send button. To ask a live audio question, press the Request to Speak button at the top of the broadcast window. The broadcast will be replaced by the Audio Questions interface. Press Join Queue, and if prompted, select Allow in the pop-up to grant access to your microphone. If you have any issues asking a question via the web, a backup phone line is available. Dial-in details can be found at the Request to Speak page or on the homepage under Asking Audio Questions.
Text questions can be submitted at any time, and the audio queue is now open. I will now hand over to Andrew.
Thank you, and good morning, everyone, and thank you for joining us this morning. My name is Andrew Reeves, Managing Director and Chief Executive Officer of Inghams, and it's my pleasure to welcome you to the Inghams FY 2024 results presentation this morning. On behalf of Inghams, I'd like to respectfully acknowledge the traditional owners, both past and present, as custodians of the land we're meeting on today. Also joining me today, as is normal, is our Chief Financial Officer, Gary Mallett. And at the conclusion of the formal presentation, we'll be happy to take any questions you may have on the results and the business. I'm very pleased to report that Inghams has delivered a record set of financial results for FY 2024.
I'd like to take this opportunity to acknowledge the entire Inghams team for their hard work, dedication, and achievements that have, that is the foundation of the results we're reporting today. As you can see here, our earnings, profit, and cash flow metrics have shown strong year-on-year growth. Capital expenditure and acquisitions totaled AUD 168 million, and the investments we have been making have contributed to a very pleasing return on invested capital result of 21.3%. Reflecting the strength of our financial performance, we have declared a fully franked dividend of AUD 0.08 per share, which takes our total dividends declared or paid during FY 2024 to AUD 0.20 per share, which represents a significant increase of 38% on the prior corresponding period.
Inghams' strong FY 2024 results are underpinned by growth in volumes, margin, and solid operating performances across both farming and production. Australia and New Zealand have both made strong contributions, resulting in a 31% increase in underlying pre-AASB 16 EBITDA to AUD 240.1 million, a 130-basis point increase in the underlying EBITDA pre-AASB 16 margin to 7.4% and a 27% growth in EBITDA per kilo. Our relentless focus on safety, supported by our company-wide Safety for Life program, has resulted in another significant improvement in our safety performance, with our total recordable injury frequency rate declining by 7% on a PCP. We saw core poultry price growth across our three key channel groupings, resulting in an overall NSP growth of 5.4% on PCP.
The general rate of inflation across the economy may have moderated a little, but costs are still rising and our costs therefore remain elevated. I'm pleased to say that we are seeing the cost of key feed ingredients and inputs, I should say, stabilize, with our internal feed cost increasing a modest 1.3% in FY 2024. Our New Zealand business delivered a very strong performance over the year to the credit of the whole New Zealand team. The performance was driven by a return to normal operating capacity compared to FY 2023, resulting in the business achieving a pre-AASB 16 underlying EBITDA growth of 100.9%. Our investment program is delivering some great outcomes with a number of important investments completed during FY 2024 and in early July this year.
We completed two important acquisitions, finished our WA distribution center development and installation and commissioning of four new automated leg deboning machines in Australia. We're also well over halfway through our water jet cutting program, another key automation investment. Company leverage ratio increased only marginally to 1.5x and comfortably within the target range of 1x-2x . As I noted in the prior slide, we've declared an AUD 0.08 fully franked final dividend. This year, we are providing a table summarizing the key financial statistics that align to how we judge the performance of the business, and we intend on reporting consistently moving forward. While I have already touched on the majority of these metrics, we have also added a new measure, which is EBITDA per kilo, which I know many, a number of you look at.
In this regard, we've achieved a very solid growth at both a group and a segment level for FY 2024. Before we get into more detail on our financial results, I would like to talk briefly about our safety performance in FY 2024. Safety is integral to everything we do, and safety of our teams, contractors, and visitors is paramount to our success. In FY 2024, our total recordable injury frequency rate declined a further 7%, which represents a very significant 56% reduction over the last five years. Our work, health, and safety management system is helping us identify and control hazards, conduct effective risk management, and maintain chain of responsibility for injury prevention and health preservation. This year, we completed our 2022 to 2024 Safety for Life program, and we have recently completed work on our next program.
Okay, so group net selling price increased 5.4% versus FY 2023, reflecting the full effect of increases applied later in FY 2023 and during FY 2024 in response to the significant growth in key input costs we have experienced. The movement in NSP in FY 2024 has been influenced by a shift in channel mix. Retail channel share increased 3.1% to 51.1% of core poultry sold versus FY 2023 as a result of a shift in consumption patterns toward in-home dining that we have spoken about at some length over the past six months. Turning now to look at conditions across our various channels during the first half. Group core poultry volume increased 2.8% on FY 2023.
The growth comprised growth in Australia of 1.9% and a very strong growth in New Zealand of 8.4%. The growth in New Zealand was driven by a return to normal operating capacity compared with FY 2023, when production volumes were significantly impacted by lower egg setting in response to acute labor shortages and supply constraints on CO2. The broad themes across the channels were consistent across Australia and New Zealand, with the first half 2024 results we reported in February. Retail growth was stronger in both markets as consumers respond to cost-of-living pressures by shifting consumption towards in-home dining options. The shift has been at the expense of traditional out-of-home channels, including mainly quick-service restaurants and food service. Toward the end of FY 2024, we agreed on in-principle commercial terms for the renewal of our multi-year supply agreement with Woolworths.
Importantly, Inghams will remain Woolworths' number one poultry supply partner. The key provisions of the new agreement will be phased in over the course of FY 2025. The agreement does provide for a phased reduction in annual volume, which will facilitate the execution of our own customer diversification strategy for a broader and more balanced portfolio and aligns with Woolworths' approach to diversifying its supply mix across its fresh poultry category. We have won significant new business for FY 2025 and are actively working on additional new business opportunities across our broader customer base. Overall, we view the transition as a manageable one, with effect of the new agreement and the new business factored into our FY 2025 guidance and outlook. I'll now hand over to Gary to present the financial results in more detail. Thanks, Gary.
Thank you, Andrew, and good morning, everyone. Commencing with our profit and loss for the year. As you know, FY 2024 was a 53-week trading period for Inghams, and as a result, all of the information we have presented, including the comparisons to FY 2023, are on this basis, unless noted otherwise. We have also provided normalized 52-week data in the presentation and supporting materials to assist with your analysis. Overall, our FY 2024 results were very strong, with EBITDA growth of 13% and NPAT growth of 68% on PCP. Andrew has already noted the strong growth in underlying pre-AASB 16 EBITDA of 31%. Core poultry volume increased 2.8%. New Zealand achieved significant growth of 8.4% as operations returned to a normal cadence, while Australia grew at 1.9%.
The growth we have delivered in NSP, combined with the increase in volume, underpinned the 7.2% growth in revenue. Cost increased 6.2%, or AUD 163 million, with feed cost growth of AUD 10 million being fairly modest this year. Other costs increased 5.8%, which is a slower rate than what we reported at the half year and was due to volume growth and general inflation, partly offset by efficiencies and an improvement in operational performance. A more unusual element of our post-AASB 16 costs reported on this page this year is the impact of the conversion of 66 grower contracts to performance-based variable contracts. Thus, they are no longer part of AASB 16.
This resulted in a AUD 19 million increase over the prior corresponding period in these post-AASB 16 costs, since more of our grower contract costs are now included within the post-AASB 16 EBITDA, having been previously included in AASB 16 interest and depreciation lease costs. Naturally, this has no impact on our pre-AASB 16 cost or result. While cost inflation has moderated a little during the period, higher cost growth has been observed across salaries and wages, utilities, husbandry, ingredients, and repairs and maintenance. Depreciation declined 9% due largely to a reduction in these AASB 16 contracts, the depreciation line, and then our interest finance expense increased 10% due to the effect of higher interest rates and a higher average debt balance. Turning to look at the drivers of performance between the first and the second half.
Overall, FY 2024 saw us deliver very strong financial results in both halves. As those of you who follow Inghams' closely will appreciate, our first half to second half earnings mix exhibited a larger half-to-half variation than is explained by normal seasonality, and I wanted to spend some time explaining the main drivers of this in a bit more detail. As you can see on the slide, we've provided a bridge to help reconcile the key factors that influenced the first half, second half split in FY 2024. The first driver of this differential this year was normal seasonality. In volume terms, if you were to look back through our financial disclosures from prior years, you would find that normal seasonality drives second half volumes that are on average about 7,000-8 ,000 tons lower than the first half in any given year.
This always impacts both sales volume and production unit cost levels. The next factor in the movement between the halves was wholesale pricing and channel mix. In the case of the wholesale price, while it remained firm during the second half, it was lower in absolute terms versus the first half. This was partially offset by volume and margin growth, which was underpinned by a channel mix shift to retail. As we had advised at the first half result, we temporarily adjusted our settings to help address an element of the inventory increase we had seen due to the demand shift from the out-of-home channels. As a result of lower processing volumes, we saw some increase in unit costs. As we have also noticed, we are seeing some reduction in average bird weights, though I would note we started to see an improving trend as the second half progressed.
Finally, there were some SG&A savings made, providing a bit of an offset to some of those other factors. Turning now to the balance sheet. Inventories and biological assets increased by AUD 23 million versus PCP. This was due to an increase in processed poultry inventories to support improved customer service level and the decline in demand from out-of-home channels commencing in the second quarter of 2024 and continuing through the second half. And this was largely what we saw at the first half. At June, it was partially offset by a decline in feed inventories during the period. Property, plant, and equipment increased AUD 100 million due to the acquisition of the Bolivar primary processing plant in South Australia and the Bromley Park Hatcheries business in New Zealand for a combined AUD 80 million, and the various core and high-growth investments we have been undertaking.
As you can see here, we have recorded a significant reduction in right of use assets and lease liabilities of 19% and 17% respectively. These items have reduced, both due to the acquisition of the Bolivar primary processing plant and the conversion of 66 contract growers to performance-based variable contracts. We'd expect further grower contracts to move to a variable basis in coming years. Net debt increased AUD 85 million on PCP to AUD 348 million, due mainly to the Bolivar purchase. Our leverage ratio increased marginally to 1.5 x and remains at the midpoint of our target range of 1x-2 x. Moving now to cash flow. Starting with cash conversion, we saw an improvement to 98% due to strong cash collection.
FY 2024 was a busy period from an investment standpoint, with total capital expenditure and acquisitions of AUD 169 million. Included in this was an investment of AUD 37 million in core and high-growth projects, including the Northern New South Wales Breeder Triangle and automation investments. Dividends paid in the period relate to the final FY 2023 fully franked dividend of AUD 0.10 per share, and the interim FY 2024 fully franked dividend of AUD 0.12 per share. Tax paid increased AUD 22 million due to higher FY 2023 earnings. AASB 16 interest and principal payments declined AUD 19 million, again due to that conversion of the grower contracts, but also the acquisition of the previously leased Bolivar primary processing plant. Now, turning to our capital expenditure. Our capital expenditure falls into three main areas: sustaining, investing, and strategic CapEx.
Staying in business CapEx was 83% of pre-AASB 16 depreciation at AUD 48 million. Overall, the significant increase in total CapEx was in particular due to the various programs in the core and high-growth categories and the completion of those two strategic opportunities, being Bolivar and Bromley Park. And we saw that strategic CapEx represents about 50% of our total capital and acquisition expenditure during the year. Pleasingly, as I mentioned previously, the high tempo of investment and acquisitions in FY 2024, which saw net debt increase AUD 85 million, our leverage of 1.5 x remains in the middle of our range. Overall, we retain flexibility to undertake further investments with a total liquidity of almost AUD 200 million. Overall, our capital management outcomes for FY 2024 have been satisfying.
Our sustaining CapEx tracked well against our target range versus depreciation, and as I outlined on previous slides, we are successfully executing on a significant number of core and high-growth projects, as well as our strategic investment completions. We've today also declared a fully franked dividend of AUD 0.08 per share. Finally, our return on invested capital has again been strong at 21.3% for FY 2024, which is higher than the 19% return we achieved in FY 2023. Finally, now turning to the feed market. As you can see here, FY 2024 has seen the observed pricing of key feed inputs moderate, with observed wheat prices declining 4% and soybean prices 15% over the last six months. On a twelve-month view, wheat and soybean prices have declined 1% and 14%, respectively.
Global soybean production is forecast to grow by approximately 16%, and pricing is expected to moderate over the remainder of this year and during 2025 with this increase in supply. In terms of wheat, ABARES is forecasting Australian crop production to increase by 12% in 2024-2025, despite a mixed start to winter cropping season, with pricing expected to continue to moderate in line with international prices. I'm going to hand back to Andrew to discuss the segment performance.
Thanks, Gary. In Australia, core poultry volume increased 1.9%. Strong retail channel growth saw increases of 18 kilotons, more than offsetting the decline in the QSR and other out-of-home channel volumes. The decline in external feed is due to a full year effect of the closure of the Wanneroo feed mill in April of 2023. Revenue increased 6.3% on a PCP, driven by volume growth and the 5.3% increase in core poultry NSP, which was in response to cost growth across the business. The pre-AASB 16 underlying EBITDA margin for the Australian business increased 80 basis points to 7%.
Total costs on the underlying pre-AASB 16 basis increased 5.2%, driven by a small increase of 2.2% in internal feed costs and a 4.6% growth in other costs due to higher volumes and general inflation. Turning to New Zealand, as we noted in February, we have seen a significant and meaningful turnaround in the performance during this period, which is a great credit to the New Zealand team. As I noted earlier, core poultry volume increased 8.4% on PCP, reflecting a return to normal operating capacity compared with FY 2023. Revenue is up 12.4% due to core poultry volume growth, an increase of 4.8% in NSP. External feed NSP declined 4%, reflecting raw material cost reductions.
Pre-AASB 16 underlying EBITDA margin for New Zealand increased by an impressive 410 basis points to 9.3%. Underlying costs pre-AASB 16 increased 7.5% PCP due to higher promotion and brand-related costs, distribution, labor, utilities, and repairs and maintenance costs. Due to a decline in international price for key feed ingredients, internal feed costs improved 5.2% for the period. Turning now to an update of our key investment initiatives during the period, followed by some closing remarks before we move to questions. On March seventh, we announced to the market the acquisition of the Bostock Brothers Organic Chicken business in New Zealand.
The terms of the deal include 100% shares of Bostock Brothers Limited, including the brand with respect to poultry products, three freehold farming properties, and a primary processing plant for New Zealand, AUD 35.3 million. The acquisition of Bostock Brothers aligns with Inghams' strategy and provides growth opportunities, including greater domestic market share, export and expansion into value-added and further processing categories. I am pleased to report that having received the required approvals, we settled on the acquisition of the business and the farms on the 1st of July, 2024, which was slightly ahead of forecast. Settlement of the processing plant is expected in the first half of 2025 upon completion of planning-related items via Bostock Brothers Limited. Overall, the integration is well on track.
As noted at the half year, we completed two key network-related acquisitions in FY 2024. In October last year, we completed the purchase of Bromley Park Hatcheries in New Zealand, an owner and operator of breeder farms, as well as a hatchery. This was followed by the opportunistic acquisition in December of the strategically important Bolivar primary processing facility, aligning with the group's stated desire to own key operational sites on a freehold basis. The purchase provides Inghams with greater control over future operations planning at the site and introduces greater flexibility into the broader primary processing network. We have previously spoken about Inghams' focus on investing to enhance our network capacity, capability, and efficiency. In February, we reported that the new distribution center in Hazelmere, WA, had been completed and is operational.
The Hazelmere DC represents the conclusion of a three-year facility DC investment program that has seen us open up new distribution centers at Truganina, Victoria, and Edinburgh Parks in Adelaide, as well as this now new one in Hazelmere. Our automation investment program saw us complete the installation of our four new leg deboning machines toward the end of the first half of FY 2024 and earlier than forecast and ahead of budget. Delivery and installation of the new waterjet cutters is progressing very well and is due for completion in FY 2025. I'd like to just share a couple of other projects we have underway, that while comparatively small in the amount of capital they require to invest, are expected to generate significant benefits for the business over time.
The first of these is the investment we are making at our Lisarow site to convert the production line to a fully cooked capability. Scheduled for completion this financial year, it will add a second fully cooked manufacturing site to our network, provides East Coast production capability and capacity, while also providing dual-site contingency. This project will deliver savings in both transport and other production costs. The second project is the decoupling of our value-enhanced production processes across our network. Inghams is currently producing a range of value-enhanced products within its primary production operations. The project will be completed in two stages during FY 2025 and is key to enabling the implementation of higher-returning projects in the future across our primary processing network. Our commitment to sustainability has resulted in key performance indicators, some of which we have noted here, showing solid year-on-year improvements.
As I noted earlier in the presentation, our intensive focus on safety has seen our safety outcomes improve significantly over the past five years and demonstrated that our Total Recordable Injury Frequency Rate, at which there's declined 56% over that period. In May, we launched our Reflect Reconciliation Action Plan as a part of our ongoing commitment to support inclusion, equity, and diversity, and we have a range of initiatives underway to support Aboriginal and Torres Strait Islander peoples in our business and in the community, including sponsoring CareerTrackers to support university students in our business. In what we believe will be a first transaction of its kind for a poultry company in Australia, in late June, we completed a transaction to convert our entire AUD 545 million of debt facilities into a sustainable linked loan.
The deal reaffirms our sustainability leadership position within the Australian poultry industry and demonstrates our ongoing commitment to achieving our ambitious environmental goals. On food safety, we are pleased to have achieved A or AA Global Food Safety Initiative, British Retail Consortium ratings across all sites. We have also recorded further reductions in our greenhouse gas emissions and further reduced our waste to landfill. Our annual report, which will be published in October, will provide more detail and information on our ESG progress. Today, we are providing guidance for FY 2025 to help the market arrive at an informed view, including assessing the effects of the phased introduction of the terms of our new Woolworths supply agreement. Importantly, I would like to emphasize that our guidance represents growth, growth on what is a strong FY 2024 result.
We are guiding for core poultry volumes to decline in a range of 1% - 3% versus FY 2024, based on a normalized FY 2024 volume outcome. This largely reflects the effect of the phased introduction of the new Woolworths agreement. Our guidance for underlying EBITDA pre-AASB 16 is between AUD 236 million and AUD 250 million. At the bottom of the range, this would represent an outcome which is in line with the FY normalized FY 2024 earnings, and at the top of the range, a growth of approximately 6%. Overall, our guidance takes into account several factors, including current operating performance, a sustained improvement in the price of key feed ingredients, and a wholesale market pricing slightly below the level that was established in FY 2024.
In terms of the overall operating environment, we expect consumer conditions to remain challenging due to the ongoing cost of living pressures, and with inflation expected to remain somewhat elevated during FY 2025. As discussed, core poultry volume will be a little lower due to the phased introduction of the new lower supply agreements and the ongoing effects of cost-of-living pressures on consumers. Similarly, channel mix will reflect the effects of these factors, though we expect some relative improvement in the QSR channel volumes during the period. Core poultry net selling prices are expected to show modest growth, excluding the potential effect of any feed cost reductions. Based on current commodity pricing trends, Inghams expects some net benefit to be expected from lower key feed ingredient costs in FY 2025.
We are targeting to achieve annualized cost savings through both procurement, operational and continuous improvement initiatives that will help us significantly offset general inflationary effects. Capital expenditure of between AUD 100 million and AUD 110 million is forecast FY 2025, excluding the Bostock acquisition of New Zealand, AUD 35 million, which will progressively settle throughout the first half of FY 2025. We are now seven weeks into the new financial year, and trading has so far been consistent with the outlook that we are providing today. So before I move to questions, I just would like to make a few general remarks about the business. We believe that Inghams represents a compelling proposition. We have deep relationships with our key customers who prioritize poultry. We operate at scale, which translates to efficiency in a large and growing market, executing against relevant consumer insights.
This provides a platform for delivering robust and attractive earnings over the long term. We are leaders in safety, quality, welfare, and sustainability, and we have the right capabilities and experience to execute our strategic plan, underpinned by financial strength and flexibility that enables us to invest for growth. That does conclude our formal presentation, so I'll now hand back to the operator so we can take your questions. Thank you.
Thanks, Andrew. If you have not yet submitted your text question or joined the live audio queue, please do so now. I will introduce each caller by name and ask you to go ahead. You will then hear a beep indicating that your microphone is live. Our first question comes from Ben Gilbert from Jarden. Ben, please go ahead.
Morning, Andrew, and thanks for your time. Just the first one for me, just around this Woolies contract. I appreciate there's obviously a lot of commercial sensitivities around it, but there are a couple of questions on it. One, is the full year impact effectively coming in from first of July, i.e., the volume impact that you've obviously talked to for fiscal 2025 , is that a full year, or should we expect ongoing volume impact into next year, into fiscal 2026?
And then the second part of the question, as it relates to the Woolies contract, is one of my favorite slides you put up at your strategy day a little while ago was around the opportunity through value add, and moving to free range, et cetera, and obviously there was a lot of Woolies logos all over that, and it was a big margin, and ASP opportunity. Did this dilute that opportunity moving forward and your ability to sort of move to those aspirational 10% + type margins?
Yeah. Let me deal with that second part of the question first, and I'll come back to the first part. During the course of last year, we worked with Woolworths on a quite significant, what they term as a range curation project, which expanded the space for poultry, and that did include expanding their range and space that they provided for free-range products. That hasn't changed. That's in place and in the market, and that will continue to be there. Working with Woolworths is still as our largest customer and as their largest poultry supplier, those opportunities to continue to work on the range, to continue to work on improving mix, on driving the category, are very, very much alive and well, and we're working with the customer on those.
So that hasn't changed, Ben. In terms of the new agreement, it is phased in over the course of this year. It's a one-time step down. We will still have an opportunity to grow with Woolworths as their business grows. That opportunity will still be there, and we anticipate that it's a manageable transition that we'll undertake throughout the course of FY 2025, and it's reflected in the guidance that we've given you today.
So sorry, just to be clear on that, so yeah, there will. All else equal, assuming you didn't win any other contracts, I appreciate you said you'd had, there'll still be an annualization of the volume rebased lower into fiscal 2026, all else equal?
I'm talking about fiscal 2025. We're not talking about fiscal 2026.
Okay. Okay.
Ben, it's going-
It's phased in-
It's phased in over 2025, so yes, that's correct.
Yes. Yep, okay. And then maybe just could you talk again. I appreciate there's a lot of commercial sensitivity around this, but you've talked to winning some contracts.
Yes.
How much opportunity is there out there in the market, and particularly, obviously, it's quite specialized if you're dealing with a QSR versus a Woolies in terms of different requisites around what they want and configuration of plans? How much volume is there out there for you to win that is comparable, that you might see the negative impact from Woolies? And is the expectation to be able to offset that in time?
Absolutely. Those opportunities are out there, and we certainly have all the operational capability to make the products that are currently in demand in the marketplace, and continue to upgrade our capability to do that, so I don't have any concerns about that. There are certainly opportunities out there. We've already been able to secure some of those opportunities, and they're coming through, and I think over time, as I said, this is a very manageable change and won't have a long-term impact on the business.
And then just final one from me. At the strategy day, and historically, you've talked to sort of these aspirational 10% EBITDA margins within Australia through all the work you're doing around these productivity gains and mix, et cetera, et cetera. And I think you sort of probably talked to sort of three to five years or two to five years. Just how confident now are you still feeling about those?
Still remain very confident those opportunities are there, and we continue to work on them, and our results today demonstrate that we've made progress in that regard, and that's why we've also included, you know, calling out this metric of EBIT per kilogram, 'cause that's quite a good measure to track how we add value to our volume over time. So, you know, we remain committed to that objective.
Fantastic. Thanks, guys, appreciate it.
Thank you.
The next question is from Evan Karatzas from UBS. Evan, please go ahead.
Okay, thanks. It's two more hours, so I'll just get to one. Can you give us a bit more specific of how much of the lost Woolworths volumes you've actually replaced so far, please?
No, I'm not gonna give you that, that detail.
I have to say?
No.
Okay. That's just... Okay.
You have a very bad line here. Sorry, mate, I'm not hearing you very well.
All right. Can you, can you hear me perfectly?
No, you're dropping out, Evan.
All right.
Moving on to the next question, which is from David Errington from Bank of America. David, please go ahead.
Hi, Andrew. Andrew, you and I have been around the block too many times to try to put a nice angle on a major shift with a major customer. I mean, whenever there's a major change in a contractual arrangement, generally that leads to industry instability, where you basically, everyone starts trying to place more volumes, et cetera. So that's generally a statement, so I'm very concerned whether this is a industry shift, whether this is a major industry change. Trying to understand why Woolies would wanna do this, given that there's growth in the on-premise, et cetera, et cetera. And I suppose that's a statement, I'd like you to comment on it, but my first question is: With your capacity, how much excess capacity do you have? And with these new contracts that you're looking to win, which segments are they likely to be?
My concern is that you'll need to just dump them into the wholesale market, so can you give us a little bit of an understanding? 'Cause I'm trying to understand this industry change. Whenever I hear major change with a customer, particularly as big as Woolies, 'cause Woolies have obviously got motives to do it, they wanna reduce costs. I'm worried about what this is gonna do to the industry. It can, so if you can talk to us a little bit about that, to calm us down a little bit, that'd be really appreciated.
Yeah, thanks, David. Look, well, you've sort of popped the adjective of major there. I think it's a change. I wouldn't characterize it as a major change. And the rationale that we have discussed with Woolworths on this is very much about a supply security issue. It's very much a response to the experiences that we all had through the last couple of years of disruption, and they have, and quite rightly, have a very high priority on their customer, you know, customer order, sorry, customer service levels and security of supply, and as we've worked this through then, this is very much about protecting their supply security. So that's the motivation, and I... That's what they talked to us about, and I completely understand that from their point of view.
So yes, it is a shift. We won't be. It's not gonna put that sort of pressure on our system that we've got to go and, you know, just dump volume into the marketplace. That's not at all gonna happen. In fact, we've been very, very, I guess, thoughtful about where we look to place that volume and, you know, and look, it's obvious we would go to the other retail customers, which we have, and we've secured new business with them, and we're securing that in the, you know, in the regular segments of the market that you would expect that we would go after. So I would not, from my point of view, this is a change, but I certainly wouldn't be reading it as a structural change in the market, the market dynamic.
And in fact, this whole issue of, you know, diversification of suppliers creates opportunities as much as it does create some shifts away from our business. So, I'm not concerned about it as a long-term issue. It's certainly, in the short term, it's got some impacts, which we've reflected in our guidance today. But again, I would characterize those as a manageable change, and I don't think it changes the underlying growth prospects for the industry or the stability of the market or the attractiveness of the industry, you know, that we've talked about consistently. So yes, it's a change, but I wouldn't characterize it in the way that you, you'd probably characterize it in your statement.
Okay, that's very cool. So just understanding your guidance, you know, you've got your volumes. So you've given us your volumes will be down, you know, 1%-3%. Can you give us a bit of guidance, breaking it, what you... In your, in that guidance, are you factoring in your core poultry net selling price to rise in FY 2025 or do you think that will remain stable? And then you're gonna have to work your costs a little bit harder. 'Cause I'm assuming that there's gonna be a little bit of negative leverage here because you've got lower volume, 1%-3%. So obviously, feed costs work in your way. I'm trying to bridge what the earnings guidance makes, you know.
If you could help us with that bridge, you know, are you assuming in that constant net sales revenue being relatively flattish, say, but you're looking at feed costs coming off that will support your earnings, but you've probably got a little bit of deleverage? Is that a good way of thinking about it?
Yeah, well, I'll let Gary have a go at that one.
Yeah, so we talked, David, hi. We talked about showing growth in our net selling prices, so expect that to come through. We also talk about improvements in feed costs, so we expect that to come through. We expect to see some benefits of the automation and other good cost control coming through, which I can see why you're asking that. It's obviously volume down, but then it's showing guidance that's higher than a record result. Clearly, something else is have to change. So yes, it's all of those angles coming through.
Thank you. And the next question is from Ajay Mariaswamy from Macquarie. Ajay, please go ahead.
Hi, good morning, team. Just on that FY 2025 outlook, in terms of the improvement expected in QSR volumes, would you be able to give us some color around whether that is expected to come through new customer contracts, or is that general volume improvement on a like-for-like basis, you know, as QSR partners-
Yeah
... look at promoting chicken given their relative affordability?
Yeah, we're really looking at a recovery in that channel, and in fact, interestingly enough, we've seen some of that in the first seven weeks that these large QSR customers, you know, they've got, you know, you've seen some of the reporting, and they're obviously doing what they can to help bring customers back, bring order sizes back. So the sentiment that we have talking with them is that we expect that we will see some general recovery in the channel across the course of the year, hopefully as there's some improvement in the broader economic environment. It's not our comment there is not built on the idea of winning new business or significant changes to existing business.
Makes sense. Thank you. And, the other thing around the New Zealand business, how sustainable do we see that EBITDA margin, given that we're all back to normal operating cadence? And can you comment on the operating environment there, given the tough economic backdrop?
I think if you look at the New Zealand business and they have had a good, consistent, multi-year record of holding and improving margin. I think that number shows good improvement, and we would expect it will continue to maintain or improve into the future. Yes, the New Zealand economy is experiencing many of the same issues that we're dealing with in the Australian economy. You know, difficult cost of living environment, people really facing a lot of pressure on household budgets, people really looking at what their discretionary spend looks like. The out-of-home consumption is down as it is in the Australian market. The parallels are pretty similar between the two markets at the moment.
The next question is from Phil Kimber, from E&P Capital. Phil, please go ahead.
Hi, guys. Just a question, and I'm really only looking for this directionally, 'cause I know you're not gonna give specific half guidance. But, you did point out, you know, you had an unusual, first half, second half split in FY 2024. Should we expect a more balanced, between the halves in FY 2025? Just trying to understand, how things might break down by half.
Yes, we expect it to return back to that more normal range that we see, with a bit of a higher first half and a lower, slightly lower second half, but not to the same degree as this year.
Yep. Perfect. And then my second question, just, you mentioned there, to Errington's question about pricing, and I was just trying to find the slide again here. It's on page, slide 10, which is a great slide, core poultry net selling prices, and I understand costs have gone up a lot. But is it, is it fair to assume that core net selling prices are gonna go up again in FY 2025? I mean, if I look at that history... You know, they've averaged sort of AUD 5.20, AUD 5.30 for a long period of time, albeit some of that was COVID. Saw a significant step up in the last couple of years for reasons we're all aware of.
But, you know, feed costs are starting to come back down, and one of the big drivers over decades of chicken consumption has been its price relativity to other proteins. So I just wanted to explore that pricing outlook a bit more.
The price relativity of other proteins hasn't really changed, so that, I guess, category tailwind still sits there. And as we've said on that guidance and outlook slide, we do expect to see some modest improvement in net selling price across the course of the year. Clearly, the last couple of years have been quite abnormal in terms of the long-term cycle, so I don't think anyone would expect us to be achieving those sorts of improvements again. But there, you know, we are including some improvement in our outlook.
Our next question is from Richard Amland, from CLSA. Richard, please go ahead.
Good morning, guys. Just want to have a look at the cost of goods, please. The gross margin dropped pretty hard in second half 2024, and we've, you know, spoken about feed costs have moderated. There's been no mention of labor costs, so presumably that's not been a factor. So your two largest costs are either flat or improving. Can you please shed some light on other parts of the business that have impacted the gross margin? Because the OpEx and the right-of-use assets haven't really moved collectively, except in your favor. So something else is going on that's really hit the profitability. If you can provide some color to that, please.
Are you talking from page 14? So the-
I'm just looking at my-
16 basis, so there was.
No, I'm above that. I'm at gross profit. So just revenue less COGS, your gross profit's fallen, and this is the trouble with reporting 80% of your OpEx in one line. There's a lot in there, but we don't know what it is, but it's had a material impact.
Yeah. So I'll answer your question, Richard. I'm just trying to make sure I understood your question. So compared to FY 2023, which is what we've been reporting on, yes, labor has gone up, which we call out. We also call out utilities, ingredients, R&M. We call all of those out. And then, depending on whether you're looking pre or post AASB 16, there was also a large impact of grower contracts coming back into cost of sales that were previously being reported in interest and depreciation.
I thought those were going into the COGS?
So sorry, you cut out. I didn't hear your sentence.
Sorry. I understand that the reallocation of the grower contracts, but I was under the impression that was going into the OpEx of distribution admin stuff.
No.
You're saying it's gone into the COGS line?
Absolutely.
Okay.
Yep. Which you can see if you scroll through the appendix, you can see it's split out there. It's always there for pre-AASB 16, that's why I'm asking, but for post-AASB 16, yeah, they're costs that we pay the growers to grow the birds, which is part of cost of goods sold. When it was treated as a lease, it got taken out of there and put down in depreciation and interest.
Um, okay.
We can take it offline if you want.
I'll come back to you later in the day on that. Yep, yep. And the second sort of question is, yeah, I'd echo the concerns, you know, put forward by one of the other guys earlier on regarding the Woolworths contract update. There's only two national providers of chicken, so, yeah, realignment of, you know, suppliers. Interesting, but, you know, can you comment on, you know, would an offsetting impact through a Coles contract update, would that be material enough for you guys to announce to confirm to the market, you know, that the swing has gone the other way? Or are we sort of just gonna, you know, just watch volumes?
I think that your last comment is the right one. We'll watch volumes, and when it's appropriate, we'll inform the market on how that, how volume overall is tracking. But there is. I'll repeat what I said earlier, there are still opportunities for growth across the broader market, and there are specific opportunities and specific customers that we're working on. So, you know, I don't think there needs to be any cause for great concern. This is a manageable change, and, you know, it'll work its way through the course of the year, and, you know, and I think it doesn't really change the underlying characteristics of the market or our long-term prospects.
Our next question is from Craig Woolford, from MST Marquee. Craig, please go ahead.
Morning, Andrew and Gary. You might expect I'm gonna ask about the Woolworths contract. Can you just clarify what it means for your primary processed product or, you know, what's in the meat case versus in frozen and other areas? Is it equally impacted across different product categories within the Woolworths business?
I'm not sure I totally understand the question. No, I mean, our mix of products in-
The reduction in volume, where's it? Is the reduction in volume across the broad portfolio that you supply to Woolworths, or is it just the... Yeah.
Well, I mean, we, we'll continue to provide to Woolworths the same portfolio of products that we've always provided. So it doesn't really affect the product mix that we're making for them. It's probably more to do with where they might allocate that volume on a regional or a store-by-store basis, but the product mix will stay very stable to what it is today. There'll be some changes, there'll be some modification, but it's at the margins. And we've-
And particular state-
Just going back to where Gary was before, I mean, we, you know, obviously there is some impact on the, on primary processing, and we've moved to address that with a very significant attention to costs and other changes there to help mitigate some of those things. So again, that's factored into the guidance, which allows us to project that, you know, we'll we'll show where, you know, where we see a path forward to growth on this year's numbers. So we're able to, you know, mitigate those changes.
Okay. But so, I mean, what you're essentially saying is certain state-based outcomes where volumes are gonna drop with Woolworths?
Yeah, that's, that would be my understanding of it. It's probably is more where it's allocated on a geographic basis rather than a product basis.
And moving on, our next question is from Elijah Mayr from Goldman Sachs. Elijah, please go ahead.
Good morning, guys. Just following on, I guess from, we've had the Woolworths agreement sort of come through in terms of them looking to diversify their suppliers. Last period, we had major QSRs looking to do the same thing. Is this a trend you're seeing amongst your customer base that potentially will make it, I guess, more difficult to win incremental volume or heighten the potential to lose volume from existing customers?
We're talking about one customer, we're not talking about the entire market, so no, I don't think it has any impact on our ability to win volume elsewhere or to grow volume overall.
So there's been no discussions from other customers in terms of wanting to diversify their supplier base as well?
Actually, most other customers have got a more diversified, have got a reasonably well-diversified supplier mix as it is. So, no, I don't anticipate there being any particular issues coming out of other customers.
Yeah, no problem. And then I understand you won't be able to talk specifics on the contract, but kind of, I guess, on a general term or, or at an industry level, are you seeing contracts with suppliers in terms of their tenure and timing sort of shorten or, or sort of move to more variability?
Not particularly, no. There's been no real change in length or duration of contracts across the market.
No problem. Thanks for the question.
Great.
Our final question comes from Ajay Mariaswamy from Macquarie. Ajay, please go ahead.
Hi, thanks for taking a follow-up. Just a question around the shift to in-home and, you know, how we're seeing QSR volumes for Inghams at least looking to improve, and the decline in volumes away from Woolies. Do we expect any margin impacts there to the Australian business?
Not significant, no. Again, you know, we've sort of covered, we're covering that in our guidance, but I'm not foreshadowing any significant margin change away from what we're normally used to experiencing.
Cool. Thank you.
We also have a text question from Michael Peet, from Paradice Investment Management. The question is: What pre-AASB 16 EBITDA contribution should we expect from the acquisition in FY 2025?
Assuming that's Bostock's? And we've talked about around about AUD 3 million from that. Hopefully, that answers your question, Michael.
That concludes the questions for today's call. I'll now hand back to Andrew.
Great, thank you. Thanks, everyone, and I'm sure we'll chat with a number of you later during the day. So appreciate your attention this morning. Thank you.