Good morning. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ridley Corporation Final Year 2023 Results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by one on your telephone keypad. Thank you. I will now turn the call over to Quinton Hildebrand, Managing Director and CEO. Please go ahead.
Good morning, everyone, and thank you for joining us for the Ridley FY 2023 results. I'm joined here this morning by Richard Betts, CFO of Ridley. We'll be referring to the presentation that was uploaded today on the ASX, and you can also follow it through the Open Briefing platform. I'm gonna be starting at slide two, which is the FY 2023 financial highlights. You can see that we're pleased to report an EBITDA of AUD 88.5 million, which is just over 10% up on the prior year, and pleasingly, good performance in both reporting sectors.
If we look at the balance of the, what's made up the results, effective cash conversion, AUD 105.3 million in operating cash flow. That is a much stronger position than last year, as we're able to... Operator, can I just confirm that you can hear us okay?
Yes, go ahead.
Thank you. I was just saying, effective cash conversion achieved through the orderly reduction in our inventory as supply chains across the globe have normalized, and we were able to reduce the strategic inventory that we had carried previously. During the year, we deployed both maintenance and growth CapEx, totaling AUD 33 million-AUD 34 million, and that is able to allow us to keep investing in the business and underpin the growth of our future earnings. Our balance sheets remain strong at a 0.33 x leverage, and we were able to do some capital management with the AUD 7 million on-market share buyback.
With the confidence of the performance of the business and the future outlook, the board has declared a final dividend of AUD 0.0425 per share, fully franked, and that takes the dividend for the year up to 8.25%. Again, an increase on the prior comparative period. If we move to the reporting segments, starting on page three, the packaged feeds and ingredients segment, see the EBITDA result there of AUD 65.8 million, 13% on the prior year, and an EBITDA ROCE of 34%. The biggest contributor to this performance is the ingredient recovery business unit, and as we had indicated at the first half, strong prices in tallow and oil and meals.
In the second half, with some of those prices coming off, we did get the benefit of some increased volumes, and that, together with our ongoing premiumization initiatives, have supported a strong performance in the second half. Our packaged products business unit had volume growth of 6% and pleasingly maintained margins through this period. The aquafeed business unit did underperform in this 12-month period, and as a result, we were allocating more of our constrained extrusion capacity through to pet food production. You can see, you know, growth in packaged products, to some degree, offsetting the aquafeed performance within FY 2023.
Then pleasing to say that Novacq delivered its first profit in this year, and that's achieved through the ongoing lowering of production costs, and we also benefited by an increased level of sales into the domestic prawn market. Moving to slide four, which is the bulk stock feed segment, an EBITDA of $36 million, up 5% on the prior year, and this was the result of an improved second half performance. You'll recall we called out the delayed harvest impact in the first half, but a stronger performance in the second half, benefiting from the ongoing strategy we have with the flywheel and leveraging our procurement and nutrition expertise, getting the scale benefits, sharing some of that with the customers, and growing our sales volumes.
In FY 2023, we saw the monogastric sales up 3% and the ruminant sales up 11%, demonstrating the benefit of this growth strategy. Through the period, like all businesses, you know, facing both wage and other inflationary costs, we were successful in being able to pass those costs through the supply chain. That takes us to the end of the introduction. I'll hand over to Richard Betts to give you more detail on the financial results.
Thank you, Quinton. Good morning, everyone. Turning now to page six and the profit and loss statement. As Quinton has already noted, the EBITDA of AUD 88.5 million was up AUD 8.4 million, or 10.5% on the previous corresponding period. Both operating segments reported improved trading results and were up 10.2% on previous corresponding periods, with a particularly strong result for the packaged feed and ingredient segment, and the bulk stock feeds business, delivering the forecast efficiency benefits of our debottlenecking program in its half two result. Corporate costs were up by AUD 1.1 million. This included AUD 1 million for CEO retention arrangements. Excluding this one-off cost, corporate costs were in line with the prior year, even after absorbing the higher costs of inflation.
There were no individually significant items in the period, compared to an AUD 8.9 million gain in the previous period, which related primarily to the sale of our surplus assets, including the Westbury extrusion facility and the old Bendigo and Mooroopna land assets. These were partially offset by the cost of Software as a Service associated with the implementation of the Dynamics 365 system rollout in that year. Depreciation was down on the previous period, as the depreciation expense for the rendering assets acquired through the acquisition 10 years ago, have now been fully depreciated. This reduction was partially offset by the depreciation associated with the reinvestment in our facilities and our core growth capital. As foreshadowed, finance costs increased on the back of higher interest rates and the slightly higher debt levels over the period.
The effective tax rate of 28.7% was in line with the prior year. While the reported NPAT, although reduced slightly on the previous year, after eliminating the prior year's significant items, represented an underlying growth of AUD 5.6 million or 15.5%. Turning now to the balance sheet on page seven, and inventory, which totaled AUD 107 million at 30 June. This is a reduction of AUD 10.1 million, and while inventory values increased by the impact of higher raw material input costs, we reduced our physical hold as we trimmed inventory that was previously held to manage the challenging supply chains that existed during and post-COVID.
Whilst this was a successful strategy at the time, we have now regained greater control of our supply chain, which allows us to take the strategic decision to reduce our total inventory balance. Receivables were also well managed and in line with the prior year, despite also increasing significantly on the back of higher raw material costs into those sales values. Improved collections were able to offset this effect, which resulted in a slight improvement in our debtors' days. Property, plant, and equipment grew as a result of the investment in our asset base, resulting from the funding of the capital to support the debottlenecking projects in our mills, the Project Boost capital, and the prioritization of our maintenance capital. The movement in payables is in line with the movement in inventory and receivables associated with the higher raw material costs.
Net debt was AUD 29.9 million, an increase of AUD 6.6 million. Whilst there were multiple factors driving the change, the primary reason related to the AUD 7 million outlaid for the share buyback that was announced and completed in year. Turning now to page eight and the working capital summary. As noted on the previous page, the net movement in working capital was a positive AUD 13.2 million, with the negative impact of rising raw material costs more than offset by the reduction in inventory and disciplined management of receivables. This is a very pleasing result, given the challenging macro environment that was navigated during this financial year. On page nine of the presentation, we have identified the key items driving the strong cash result.
Operating cash flow was AUD 105.3 million, or 119% of EBITDA. This was an increase on the previous period of AUD 33 million, was delivered through the improved operating results and the disciplined working capital management, as discussed above. CapEx during the period was AUD 34 million, although slightly higher than the previous period, aligned to our capital allocation model, with maintenance capital being prioritized to ensure the quality of our asset base is retained and consistently upgraded. Net tax payments over the period totaled AUD 21.9 million, an increase of AUD 11 million on prior periods. This difference related primarily to the catch-up of tax payments from prior periods. Turning now to page 10.
The strong cash management resulted in net debt of AUD 29.9 million, which enabled the business to drive the following initiatives: AUD 23 million of growth capital, including debottlenecking and boost projects to support the future profitability of the business. AUD 7 million on-market buyback of 3.66 million shares. AUD 13 million to acquire LTI shares, representing both the FY 2022 and FY 2023 schemes. These incentives aligned with our strong total shareholder return over the three-year period of the FY 2022 scheme, which totaled 177%. The payment of these LTI shares or the buying of these LTI shares in year is expected to halve in future years, as only one year's worth, one year at a time will be purchased going forward.
AUD 25.2 million of dividend payments were paid during the period, representing a 47% increase in the amount paid on the previous year. The strong capital management resulted in a debt leverage ratio of 0.33 x, which is well below our maximum desired range of 2 x EBITDA. Turning now to page 10 and an overview of Project Boost. For those unaware, this is a project to manage a series of smaller opportunities that require capital of approximately AUD 15 million, with paybacks of less than three years and an expected annualized earnings boost of AUD 9 million when it fully implemented. Good progress was made in relation to these projects, with a total of AUD 12 million spent to date and AUD 5 million, or 60% of the benefits, already delivered to the P&L, with the remainder largely expected in FY 2024.
On page 11 is our capital allocation model, which outlines the behaviors which prioritizes the management of our available capital and the ultimate aim of consistently delivering strong returning, returns to shareholders, which are measured through total shareholder return or TSR. During the period, we continued to deliver against this model, with the key highlights being: maintenance capital was prioritized to ensure the reinvestment in our capital base. The buyback of AUD 7 million was completed during the period, despite the leverage ratio remaining at a very positive 0.33 x. The strong cash flow and disciplined capital management enabled the dividend to be increased to AUD 0.0825, or 62% of NPAT, at the higher end of our desired range.
The consolidation of the above being a TSR for the 12 months of 16%, which is above our targeted level of 15%, and a combined return over the last three years of 177%. That concludes the overview of the key financial slides. I will now hand back to Quinton, who will run through the progress against our growth plan.
Thanks, Richard. If I could take you all to slide 14, which is the FY 2023 to FY 2025 growth plan that we published in May last year. Just by way of update, I'll just talk to both the packaged and ingredient segment, as well as the bulk stock feed segment, and the growth and optimization initiatives that we have advanced in this last year. I'll also talk to Ridley's sustainability pathway, which is really a foundation to our growth plan, and outline the progress that we've made there. Moving to slide 15, which is the first of the packaged and ingredients updates. The ingredient recovery strategy is to climb the wall of value, i.e., premiumize the product that we're making out of the materials we're buying from the suppliers.
I'm very pleased to update you that, in a competitive environment, we've been successful in renewing our key raw material supply contracts and have extended those, a number of those, for multi-year agreements. That underpins the runway and the investment cycle that we're in as we continue collaborating with both pet food and aquafeed customers to produce more premium products, and, some of those requiring some capital investment to make sure that we can deliver to their niche requirements and get the lift in value. Underpinning the raw material supply gives us the runway to continue that investment cycle. As we all know, the growth in renewable diesel globally is driving and expected to drive the future demand for tallow.
So we've positioned ourselves, with access to some export terminals so that we can participate further up the supply chain and are dealing directly with some of the producers of renewable diesel, to see how we can supply directly through to them. On the energy initiatives, ongoing focus in this area to both reduce the cost of our production facilities, but also to lower the carbon intensity, as clearly that becomes a greater focus as you participate in renewable diesel engagement. We move to slide 16, the packaged products business unit has made good progress with the Narangba packing line, scheduled to be completed in, in this, in the first half of FY 2024. That's giving us both efficiency benefits-...
as well as unlocking 10% of the extrusion capacity at the Narangba facility. We also launched two new brands that you can see the packaging on the slide there. The aquafeed focus continues on looking to optimize returns from our extrusion facility and extract the benefits we have from our location in Queensland, supplying into Northern Australia. Again, we continue to manage our aquafeed business unit in conjunction with the other alternative products that we can produce out of the extrusion facility. Finally, as we reported a profit in FY 2023 from NovaqPro, that ongoing progress in getting widespread adoption of the Propel product, which is a Novacq containing prawn feed , and we're getting extensive distribution through Australia and have just commenced exports in a small way.
If we move to slide 17, which is the growth plan for the Bulk Stockfeeds business unit, I think we've spent a bit of time talking about the flywheel impact and the virtuous cycle. If we move to the next slide, you can see the progress that we've made in FY 2023 with the debottlenecking of four plants, which equated to a 10% increase in our bulk stockfeeds capacity. That, we believe, will give us the runway for growth over the next two years in both monogastric as well as ruminant. If we move to the next slide, you can see that we have underway two further debottleneck projects, and those two will give us an additional 5% increase in our bulk stockfeeds capacity.
As we continue to get the benefits of the flywheel impact, making sure that we've got the capacity ahead of us to grow into. We go to the sustainability update on page 20. We have been going through the implementation process that's outlined in page on page 21, and, you know, we're moving into the last of those phases, phase V. Just as a refresher, on page 22 is the outline of our four sustainability pillars: smarter ingredients, optimized production, effective solutions, and meaningful partnerships. Against all of each of those pillars, on slide 23, we've outlined the areas against which we're going to make commitments. There are a total of 14 commitments that we are intending to make for, and these are commitments off a defined baseline through to 2030.
Against each of these, we've done a significant amount of work defining the baseline, working up are the, you know, how can we make improvements against each of those? Those will be approved by the board and published in our FY 2023 annual report, which is due to come out next month. Very pleasing to see the progress that we've made, and we believe that for Ridley in our sector, this is an area of competitive advantage for us, as we'll be able to deliver solutions for our customers, which we believe are cost-effective and should enhance our competitive position in the marketplace. That brings us through finally to the outlook and slide 25, we just summarize the Ridley investment proposition as we see it.
We have a strong growth plan, a, well, a well-defined growth plan, a strong balance sheet. We have a disciplined focus on capital management and have a number of potential opportunities, both organic and future inorganic opportunities, that we think we would enable us to create further shareholder value. If we look at our position in the market as the market leader, we have a number of scale benefits which give us the ability to employ specialists and adopt technology, and through that, provide a point of difference in both product offering, but also in margin and return to Ridley. As the expectations increase on sustainability, we think that Ridley is well positioned to deliver solutions for our customers, and this should give us a competitive advantage.
Given the sector in which we operate, we, we are fortunate to have a geographical spread, also a multi-species offering, which, you know, through this process, gives us significant earnings resilience, despite weather and disease and market fluctuations. Underpinning the business, and underpinning the demand for our Ridley products, we have the thematics of demand for both human and pet food protein consumption increasing, as well as the, the growth in need for substrates for renewable fuels. All of that is underpinning our product offering. Finally, to slide 26, the outlook.
Ridley expects ongoing growth earnings for the year ahead by delivering further premiumization for the pet food sector in the packaged and ingredient segment, and volume increases in the bulk stock feed segment, enabled by our debottlenecking projects. Macroeconomic conditions are expected to remain challenging. However, the business continues to take steps to reduce adverse impacts from inflationary pressures and to be able to manage changes in commodity cycles. We anticipate the cash from our operations and the strong balance sheet that we have will support the ongoing investment in the business, the payment of progressive dividends, and the potential for us to pursue growth opportunities. That wraps up the slide presentation for this morning. I'll just hand back to the operator, and we welcome any of your questions. Thank you.
If you would like to ask a question, please press star one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of James Ferrier from Wilsons. Please go ahead. Your line is open.
Good morning, Quinton and Richard. Thanks very much for your time today, and congratulations on the result.
Thanks, James.
Thank you, James.
Could I, first of all, ask you about the packaged result, that's just been delivered? You referenced the, the volume growth, but the fact that margins were flat. What we're probably curious about is, you know, to the extent that there might have been a benefit in margins coming through in this result from the catch-up on pricing, that's occurred over the past year or so.
James, can I just clarify you, you are talking about the packaged products? that was the,
Yes. Yeah, packaged product-
The-
not the overall segment as such.
Thank you. We've got a 6% growth there, and as you say, we're, we're calling out, we maintained margins. Where what we're supplying here is these are a combination of our biggest sectors are chook feed in packs, horse feed, and dog, pet food. Different ingredients go into that, as well as, you know, packaging costs and the like. In this period, we actually have put up our prices in FY 2023. Notwithstanding that, there was quite significant increases in the prior year, and as you're indicating, that was to recoup raw material pricing, there has been a need, on a lesser scale, but there's been a need to do that again within FY 2023.
Maintained margins is, is what we've achieved.
Yeah, James, just-
Okay
... a bit further than that. One of the, one of the challenges with that segment versus, you know, particularly the bulk, where we're able to move product, product cost changes in almost immediately. Within the packaged segment, you're probably looking at about a two to three-month lag all the time. What we saw as, as we still continued to see some, some price, price increases or some cost increases, particularly in the first half of the year, we were, we were still trailing the lag in terms of, in terms of putting through that price.
What we did see was by the time we got to quarter four, we had caught up and fully put through the, the, the impact of any raw materials, and, and that sort of showed through in, in terms of some of the strength of the result in the, in the second half.
Got it. Okay, that's helpful in terms of timing. We should be thinking about the year's second half and even fourth quarter as a sort of a better run rate of margins going into FY 2024.
Specific to that packaged product, yeah.
Yeah. Yep. Okay, that's great. Second question: With the bulk stock feeds and the, the capacity increases in FY 2024, Clifton is a part of that program. Can you give us the context as to what's happening around Clifton and, and that catchment area, the sort of the demand rationale for executing a capacity expansion project on that particular asset?
Yeah. Clifton is a monogastric feed mill, and we produce predominantly broiler feed there, as well as some pig, pigs, customers are supplied out of Clifton. What we're seeing is, the, some of the, produce, the broiler, customers in that area, and we have two significant customers... have their own milling, capacity, but as they are growing, we're picking up an increasing amount of, of their overflow. As they, increase the, production, that production is going further west of Brisbane and away from the, you know, the built up, Brisbane, Greater Brisbane area. It's the expansion for both of those large customers is happening more towards, where the Clifton Mill is located, and we're in a good position to pick up the benefit of that.
We've locked in contracts which underpin for the medium term the investment that we're making in Clifton, which will result in, you know, about a 35% increase in the capacity of Clifton.
Excellent. That's good color. Thank you, Quinton.
All right.
The third question, maybe for Richard, just given we've sort of talked about some of these projects, and you've sort of itemized some of the growth projects to execute in FY 2024. Could you update us on what your expectations are for CapEx, on both maintenance and growth, and also depreciation in FY 2024?
Yeah. In terms of CapEx, in total we're expecting about AUD 35 million of total CapEx. That would include maintenance in the range of sort of AUD 12 million-AUD 14 million, with the remainder being the growth capital, which includes the, the remainder of the boost, boost capital. The depreciation charge would be in line with, with what we've seen in the FY 2023 year.
Okay, that's great. Thanks, gents. I might pop back in the line if any other questions come up, but thank you.
Thanks.
Your next question comes from the line of Apoorv Sehgal from UBS. Please go ahead. Your line is open.
Good morning, Quinton and Richard. First question from me, excuse me. Just on the Project Boost, just trying to work out the exact sort of contributions there. You said at least 60% of the benefits have been realized. I think that would imply sort of, of the AUD 9 million, roughly AUD 5.5 million so far. I think from memory, that AUD 500,000 came through in FY 2022. Would that imply kind of AUD 5 million EBITDA contribution from Boost in the FY 2023 result?
Yeah, that's correct, I'd say. Yep.
Perfect. And then into FY 2024, that means there's another 3.5 to go?
Yeah, we, we'd probably assume that the bulk of that will be in, in FY, FY 2024, with a very small overhang into, into the, the year after.
Got it. Okay. Then, on the supply chain rationalization, initiative you've got with the, the freight providers and consolidating that freight base, were there any cost saves that you were able to achieve in FY 2023? I think from memory, it's meant to be a AUD 3 million-AUD 4 million type opportunity. Just any indication on what we can expect to see there in 2024?
Yeah, AP, there were some benefits as we consolidated some transport contracts together. In some, towards the back end of the financial year, we actually took responsibility for delivered feed to some customers as well, consolidating those into back-to-back arrangements we have with transport companies to deliver. Yes, there's, there's you know, as we consolidate those, we're getting some scale benefits. Some of that's shared with the customer, and the rest has come through. Then we've had a few benefits in other parts as well. For example, in the ingredient recovery business, we, you know, we did some larger payloads and some rationalization there.
I think, in some, to some degree, these benefits have gone to offset increased costs that we've faced in those areas. You know, nonetheless, so, a benefit in FY 2023. As you indicate, you know, for some time now, we've, we've spoken about greater opportunities to, to reduce costs within our supply chain, and, you know, we are slowly bringing those on. I think, there will be opportunities in FY 2024 and beyond, as we just take these on, on at a sensible rate.
Yep, understood. Then just on Novacq, good to see the positive EBITDA come through. Are you able to quantify what that number was in EBITDA terms of 2023? Any indications on 2024?
Well, it was just under AUD 1 million at the EBITDA level for FY 2023. You know, that was a fairly significant movement from the small loss we had made in the prior year. The rate of, you know, increase in performance for Novacq will, you know, be driven by our sales into the both domestic and export market. Increasingly, the international sales are where we need to make the progress. As you know, it's pretty difficult to project that. Yeah, I think if we were, you know, improving our position by one to one and a half a year, I would be happy with that.
hopefully, we, we can go faster in our export programs, but, you know, that, that would be a fair indication for from where we sit today.
Mm-hmm. Okay. Then just a question on the tallow price, please. In the end, what was the six-month impact from that moderation in tallow prices we've seen, in the second half?
Yeah. You know, first half, we had those very strong tallow prices, and, you know, those moderated, and we're, we're saying there was a $3 million impact from the benefit in the first half, shifting to, you know, being eroded in the second half.
Is that AUD 3 million an annualized number, or is that literally the AUD 3 million, half-on-half impact in that six-month period?
No, that, that's an annualized number.
Yeah. Okay. Thought so. I guess, all else equal, if the current tallow price kinda holds into FY 2024, there's probably like an incremental AUD 1.5 million, like, very simplistically speaking, an incremental AUD 1.5 million sort of EBITDA impact in 2024, just from the, the next, you know, another six months, I guess, at these sort of levels.
No, we're saying it's a AUD 3 million impact. If it all, all else remain... If we remained at today's levels, you'd probably have a AUD 3 million impact. Now, it's hard to know what'll happen. You know, we watching the developments in the tallow market going forward, and hopefully there's a bit of strength to the back half. But if we make the assumption of today's pricing, FY 2023 versus FY 2024, negative AUD 3 million.
Yep. Okay. Cool. Thanks, guys. And well done with the result.
Thank you.
Thanks, Ap.
If you would like to ask a question, please press star one on your telephone keypad. Your next question comes from the line of Richard Barwick from CLSA. Please go ahead. Your line is open.
Thank you. Good morning, guys. Just clarifying what your strategy around the tallow exports is. Is that trying to ship to the U.S., or is that, you know, trying to, trying to, you know, explore markets that are closer to us?
Thanks, Richard. The key demand areas are Singapore, which is, you know, has an operational renewable diesel facility. It's, that's owned by Neste, so that's a good geography for us. Our product has already been supplied into that market. The growth, though, is coming through facilities that are under construction in the U.S., so there'll be increasing demand there. We're a bit agnostic as to which market the product goes to. We're engaging with the, you know, the owners of those facilities to see if there's benefit in us, you know, having direct supply agreements, and lining up the supply chains.
Okay. Thank you. Just looking to follow up on an earlier question on deployment of capital. You guys have flagged AUD 35 million of CapEx, based upon, I, I think that's, you know, pretty close to what we saw in 2023. There's a lot of dropouts of sort of, you know, one-off, one-off capital outlays in terms of, you know, retention bonuses, buybacks, this, that, and the other, the LTIP. Do you have any comments that you'd like to make around to, you know, additional capital deployment, anticipated in 2024? Are there any new. Yeah, you've, you've outlined a couple of, you know, two, two feed mills that are gonna receive capital, but is there anything, anything further that you'd like to comment on?
Is there any inorganic?
Is that the crux of the question, Richard? Is there inorganic?
No, not, not solely.
Look, I, I think answering the first question, in terms of the organic, you know, we, we have a constant roster of, of projects, coming through. You know, we've always talked about the need to prioritize the, the maintenance spend, and then after that, it, it's a prioritization piece around, you know, around the, the need and the capacity to spend. That AUD 35 million, we always think, represents a level within the business that, one, continues to ensure that we can drive forward, and two, ensures that we deliver maximum value from those projects. We obviously have the, the continuing focus on the debottleneck projects, within the, within the bulk stock feeds business. In here, we have the, the finishing of the packaging line within the, within the extrusion facility.
Then we have a number of projects around the, the ingredient recovery that will support, you know, our, our process and our strategy around premiumization. I think that covers the, the organic piece. I don't know whether you wanna comment on the inorganic, Quinton?
Well, Richard, you know, we're always looking for opportunities that will add value and, you know, provided they're within our wheelhouse and, you know, earnings accretive to Ridley. You know, we've- we're in a fortunate position to have a strong balance sheet, and, you know, we continue to explore, you know, acquisition opportunities. I think, we're, we've been patient up, up till now, and, the, the, you know, discipline that the board has is, you know, we, we need to make sure when we-- if, if we do buy something, we buy it at the right price, and, and, and we're confident in the, integration and, and, earnings profile. We- we'll, we'll maintain that process.
As we've often said, in this FY 2023 to 2025 growth plan, you know, there's enough for us to, you know, organically continue to grow earnings. If there's an acquisition opportunity on top of that, that, that fits the, fits all our thresholds, that'll be on top.
Do you feel like the environment's getting more friendly to opportunities, potential vendor expectations starting to sort of become perhaps more realistic, or is it still, you know, pretty competitive, you know, pretty, pretty challenging out there?
Yeah. Well, I, I think that, you know, the cost of debt's up and, so those kind of, you know, that, that, that would perhaps, bring some vendors to the table a bit, sooner. Yeah, the uncertainty in the market, we are hopeful that expectations of vendors will be a bit more realistic going forward because, yeah, you know, we've obviously been, you know, looking, looking for value in our, in our criteria. Yes, I, I suppose we, we would expect the next couple of years to, to present opportunities that, have been elusive in the last couple of years.
I think, Richard, the, the key for us is obviously the, the state of our balance sheet, and the quality of our balance sheet will enable us to, to continue to look and explore those options. If, if they give us an opportunity to, to drive better value than, than the inorganic, than the organic, then we'll, we'll take advantage of that. You know, that's the logic around continuing to hold a, a strong balance sheet, particularly given the high interest rate environment.
No, no, no question on the, on the strategy. Just trying to get a feel for, you know, environment shaping up like. That's it for me.
All right. Thank you.
Thanks a lot.
Your next question comes from the line of James Ferrier from Wilsons. Please go ahead. Your line is open.
Guys, thanks for taking a follow-up. Appreciate it. Can you remind us, with the Narangba packing line, project, can you just remind us of the economics there? I guess I'm asking that partly in relation to the fact that I think earlier, there was a target for two private label dog food contracts. You're obviously going forward with just one, whether that's altered the economics of that particular project or not?
Thanks, James. You know, the, the packing line has the two benefits to it. One is, it, it gets removed from being in series with the extruder, and so, you know, you could only run as fast as the packing line or the extruder, whichever was the limiting factor. This takes it out of series. We'll get some benefit in capacity there, which is welcome, given, you know, that Narangba is operating seven days a week at capacity. In terms of our, that component of the, of the benefits, we, we're on track with that. As far as the, the pet food sales go, that are produced on this extrusion line, you're right, we're only supplying, one, one contract. We didn't get to.
whilst we won the tender, we stood our ground on the terms, and we didn't end up getting that business. However, if we look at our total dog sales, relative to the budget that we put up at the time of making the decision, we're on track. We've got increased cover sales-... We've picked up some other contract packing to specialist, to specialty pet food distributors. We've got this underlying grocery contract. Yeah, that's it, it is, it's pretty robust, and to expectations.
Yeah, that's, yeah, that's a pretty impressive outcome. I just, yeah, sort of illustrates the, the natural tailwind you've had there, through, through those efforts. Can you just remind us what the growth CapEx was for that particular project? I'm assuming it probably straddles FY 2023, 2024.
Yes, that's about, the total is AUD 6 million. You know, I, I just, I just give you a indication that this, this wasn't a Project Boost. You know, this was on a longer payback. I think I might have mentioned at the time, AUD 6 million investment and probably a six-year payback. It, it gave us this enabling capacity.
Yeah
... the split, Richard, between, the, this year.
Yeah. About AUD 4 million of it has already been incurred in, in year, with the remaining AUD 2 million to be spent in the latter to the first half of this year. This FY 2024 journey.
Thanks, Richard. Then lastly, sort of the premiumization and, so I'm talking about the ingredients, the packaged and ingredients segment as a whole. The premiumization and downstream value capture, it's a big part of the growth ambitions there. Obviously, bulk is more about volume growth, packaged and ingredients, more about premiumization and downstream value capture. Can you just remind us of where you think you are on that journey and sort of how much opportunity is ahead of you? It's just seems a little bit harder for us to quantify that, whereas the bulk capacity increase story's a little bit more straightforward.
Yeah. James, I would say that we're still pretty immature in that premiumization journey. You know, the raw materials that we're getting supplied from the abattoirs into our rendering plants, you know, a lot of that, you know, the, the, the initial benefits have come through segregating the raws coming in. You know, Laverton's got six plants, and we operate in specific, you know, species, specific meals out of each of those. The opportunities to produce for... It's predominantly in pet food and in aquafeed, where we can have more specific products like low ash, you know, products, higher protein products. We're, we're doing those.
You know, down the track, and this is in that, wall of, you know, climbing the wall of value slide, you know, there, there's even fresh products that go from, from the, abattoirs directly, sometimes in frozen form, and sometimes direct into the pet food production facilities. You know, I think there's opportunity for us to convert more and more of that. Those are conversations we're having with, with our suppliers as to how we can try and position ourselves into those supply chains. If you, if you look at, what is happening in, with materials in the U.S., and Europe, and, those supply chains, you know, out of...
If, if we were, we would only be 40% of our material would be premiumized relative to where they're at in those production, in those supply chains. I, I think there's a, you know, there's multiyear progress ahead of us to, to continue on this journey.
Yeah. Quinton, that's great color. Appreciate that. Thanks again for your time today.
Good. Thanks, James.
Again, if you would like to ask a question, please press star one. We have no further questions in the queue at this time. I will turn the call back over to the presenters for closing remarks.
Well, just to thank you for those questions and for your interest in Ridley, and we look forward to seeing a number of our shareholders in the roadshow scheduled for a couple of weeks' time. Thanks for your attention today, and have a good morning. Thank you.
Thanks, all.
This concludes today's conference call. Thank you for your participation, and you may now disconnect.