Thank you for standing by, and welcome to the Ridley Corporation Limited first half FY 2022 presentation. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press star key followed by 1 on your telephone keypad. I would now like to hand the conference over to Mr. Quinton Hildebrand, Managing Director and CEO. Please go ahead.
Good morning. Thank you, Armand. Good morning to everybody, and thank you for joining us today. With me, I have Richard Betts, Ridley CFO, and Kirsty Clark, Company Secretary and General Counsel. The results presentation that we'll be taking you through today was loaded up this morning on the ASX website. I'm gonna commence at slide number 2 with the FY 2022 first half highlights.
I'm pleased to report another half with improvements in all financial metrics as the business continues to gain momentum. The underlying EBITDA before significant items, which we take as our key performance measure, was AUD 39.1 million, up 21% on the prior year, with both of our reporting segments growing organically. This growth has been achieved through a period in which we've endured COVID-19 lockdowns and there are ongoing global supply disruptions.
I'm extremely proud of the Ridley teams for keeping our customers in full supply and for maintaining their focus on safety, which remains our top priority. The operating cash flow and the sale of the Westbury facility in the period allowed us to pay down AUD 66 million in debt, reducing our leverage ratio to 0.2 times. With our strong balance sheet and the favorable outlook for the business, the board has declared the payment of a AUD 0.034 per share dividend, paying out 60% of net profit after tax before significant items, and this will be fully franked.
If we move to the segment performance on page 4, starting with the packaged feeds and ingredients. This is the segment that comprises all products sold in bags to the market, ranging from 3-kilo bags all the way up to 1-ton bags. This segment grew earnings by 18% to AUD 27.1 million, with the EBITDA ROFE increasing by 51%. Running through the contributions from the different business units that make up this segment, starting with rendering.
Rendering continues to generate strong returns due to both the ongoing high selling prices for protein meals and tallows, part of which we do share with the supplying abattoirs, and also the improvements in our yields and product premiumization, which is following the recent capital upgrades at our rendering facilities. Again, we've enjoyed strong sales growth in our branded packaged product volumes, and that's in both the rural farming and the growing urban pet food markets.
The aquafeed business continues to operate in an oversupplied market, but pleasingly, we are now achieving higher asset utilization, having transitioned to the single facility operations during this period. Then from a Novacq point of view, we reported a loss in this period, and that's driven by the fact that our production in Thailand is skewed to their summer. Most of the production is delivered in the second half of our financial year.
Moving on to page 5, the bulk stockfeed segment, which grew by 28% to AUD 18.6 million and delivered a 29% increase in EBITDA ROFE. This was achieved through volume growth in all species, with significant gains in the poultry and the dairy sectors. We also had a successful transition from the old to the new season grain crop with our purchasing team managing that transition very effectively.
In this period, we also saw the benefit, the full benefit of the lower cost base that's arisen as a result of the replacement of the aging Bendigo and Mooroopna feed mills with the new Wellsford feed mill. I'll now hand over to Richard, who will take us through the financial results in more detail.
Thank you, Quinton, and good morning, everyone. Turning now to the profit and loss summary on page 7. As Quinton has already mentioned, the group has delivered a net profit after tax for the half of AUD 22.6 million, which is an increase over the previous corresponding period of AUD 12.5 million or 124%. EBITDA before significant items was AUD 6.8 million or 21% up on the previous corresponding period at AUD 39.1 million, with both operating segments delivering very strong results, as Quinton has already mentioned.
Corporate costs were up on the previous corresponding period as a result of the higher accruals for the long-term incentives, which are directly linked to the improved operating results of the business. All other costs were well managed and in line with previous periods. Individually significant items before income tax were a net gain of AUD 7.4 million, which included gains from the property sales of AUD 9.3 million, including AUD 6.4 million from the sale of the Westbury facility in Tasmania.
The benefits from these property sales were partially offset by a AUD 1.9 million expense related to the successful implementation of the group's cloud-based ERP system, Microsoft Dynamics 365. The treatment aligns with the new accounting standard directive issued in April 2021, and our financial statements at 30 June 2021. Consistent with the financial statement in June, the prior year comparatives have again been restated. Net finance costs were well below the prior period on the back of the lower debt number and the lower interest rates.
The increase in income tax aligned with the improved financial results. Turning now to page 8 in the balance sheet. Net assets increased to AUD 306 million, an increase of AUD 18 million. This was due primarily to the focus on operating cash flow and the proceeds from the property sales, which we used to reduce net debt. Inventory did increase by AUD 12.8 million, which included the inflationary effects of higher raw material prices.
However, the primary reason for the increase in inventory was the commercial decision to invest in approximately AUD 10 million of additional inventory to build a better position for the second half, to allow us to offset the potential impacts of COVID-19 and the supply chain challenges that potentially brings with it. Net debt at 31 December was only AUD 17.2 million, a reduction of AUD 66 million in the half. On slide 9, we have provided further support for our working capital.
Since 30 June 2021, working capital has increased by AUD 6 million to AUD 31.7 million. However, this number is still AUD 18 million below the same period last year. As previously stated, in the latter part of the half, we made the deliberate decision to take positions in regard to certain inventory categories to better position the business for the second half. This contributed approximately AUD 10 million to that increase in inventory. The inventory rebuild related in part to the pre-purchase of some long lead items imported from overseas to help manage the potential concerns regarding the global supply chain.
The group also made decisions to take positions regarding certain grain and meal stocks to position ourselves for the assumed rising cost markets in the second half. While receivables remain a focus in this challenging economy, these were also well managed in the half. Turning now to slide 10 in cash management, and specifically cash from operations. Operating cash flow before significant items was AUD 25.3 million, which was a slight reduction on the same period last year.
However, this included the deliberate inventory build of AUD 10 million. Including the benefits from significant items, operating cash flow was AUD 31 million. On slide 11, we have reflected the reduction in net debt over the last 18 months. During this period, debt has been reduced by a total of AUD 130 million, of which AUD 66 million related to the last six months.
AUD 50 million of this number related to the proceeds from the sale of the Westbury facility in August 2022. However, the business has still generated a very healthy AUD 31 million of cash from operations, which were partially offset by AUD 6.2 million in dividends, which were resumed during the period, and tax payments of AUD 9 million, which aligned to the stronger earnings performance. Turning now to slide 12, our capital allocation model.
In August, we first introduced this model, which diagrammatically reflects how the group aims to manage capital. As is shown on the slide, the business has delivered strongly against these metrics, beginning with the operating cash flow, which we have outlined already in this presentation. The group has maintained its focus on maintenance and ESG capital. Our discipline around review and approval processes was good.
However, the actual spend was slightly below our targeted levels as a result of delays in securing capital equipment due to the challenges associated with COVID-19. Net debt is now AUD 17.2 million, which represents a leverage ratio of 0.2x, demonstrating our strong balance sheet. On the back of the strong cash performance and the net debt reduction, the group has announced an increase in the dividend from AUD 0.02 to AUD 0.034, an increase of 70%, with the dividend being fully franked.
Pleasingly, the discipline with which the business has been managed over the last 24 months is now being reflected in the share price, which together with the resumption in dividends, the movement during the period has resulted in a healthy total shareholder return of 61% for the last 12 months. That completes the review of the group's financials. I will now hand back to Quinton, who will talk you through the growth initiatives.
Great, thank you. If I can move us to slide 14 of the presentation. This is the same slide that I provided two years ago, which outlines the optimization, sales growth, expansion, and innovation opportunities that we identified and that we've been progressively working through over the last two and a bit years. As you can see from the results, we're tracking to deliver on this plan by the end of FY 2022, and we're well advanced in the development of the next three-year strategy, which will take over from when this one finishes, and it's planned to reap more rewards from this opportunity-rich business.
This is likely to be the final time that I'll speak to this slide, but six months ago, we outlined what we plan to deliver during FY 2022. I'll just give you an update on those specific initiatives in the following three slides. If we move to slide 15, I mentioned to you that we were bringing online a new plant that produces high protein animal meals, which replaces fish meal in aqua diets and also improves digestibility in premium pet food. This plant was commissioned and is now supplying the market, so all that initiative's on track. Our expansion into the new pet ranges also has good traction.
During this half, we experienced double-digit growth in pet specialty sales, as well as we've also been successful in winning a second house brand contract, which will commence in the second half. On Novacq, with our production tripling on the prior year and now achieving commercial scale up in Thailand, we've made the decision to close the pilot plant in Yamba, which is northern New South Wales. That'll be finalized in the coming months. The logic for that is that the Yamba pilot plant has now served its purpose.
The learnings have been deployed to Thailand, and Thailand is now operating on a commercial basis. The other pleasing thing is that over the last six months, prawn season, we've supplied all 15 of our domestic prawn customers with Novacq. It's now standard within our prawn diets to all customers, and we still expect to break even with Novacq by the end of the year. Moving to the next slide on sales growth.
We've secured additional pig and poultry customers, and as a result, we've needed to increase the utilization of our new Wellsford plant in Bendigo, with this plant moving to 24/7 operation. We're also considering debottlenecking options to accommodate future growth for this facility. On the aquafeed front, we successfully transitioned to a single facility in the first half following the sale of Westbury, and we're starting to enjoy the benefits of a higher asset utilization at Narangba from both aquafeed and pet food demand.
If we move to the next slide, I had advised six months ago that we had engaged with specialist consultants to review our supply chains. While a fair amount of analysis has been conducted during this half, we did make the decision to defer this project. As with the lockdowns that we were incurring, as well as the disruption to supply chains and transport challenges, we decided that this wasn't the time to implement changes to supply chain. The benefits that we had some quick wins that we expected to materialize in the second half, that won't be the case, although they were not that material.
However, the supply chain opportunity remains ahead of us, and when the time's right, we will get into implementing some of those changes. Finally, if we go to the Ridley DIRECT, which we introduced six months ago, this is our new service, delivering ingredients direct to customers who do on-farm mixing. You know, they currently wouldn't buy much material from Ridley, so we've broadened our access to the market.
We've kicked this project off in Victoria, leveraging on our established sales teams, and I'm pleased to say that we're on track to deliver the target, which is to supply ingredients totaling about 5% of the bulk stockfeed's weekly volume by FY 2023. If we move to slide 18, this is separate to the growth strategy. In July last year, we announced Project Boost, which you'll recall was a fifteen million dollar investment in targeted CapEx over an 18-month period to generate annualized EBITDA returns of nine million dollars.
Those are projects with a combined payback of less than three years. On the right-hand side of that slide, we've provided a scorecard just to reflect the status of Project Boost. We've approved 14 projects to date. The total of those projects is AUD 8.1 million, although as of the thirty-first of December, we had only expended AUD 1.1 million against that. The annualized EBITDA contribution when these projects are commissioned will be AUD 5.5 million.
In essence, we're a little bit ahead of halfway on the deployment of Project Boost. If we go to slide 19, the summary. This has been a period of great progress for the business. Behind the scenes, we successfully delivered a Dynamics 365 ERP upgrade, which went live in November and has been successful. We continue to grow the business as the EBITDA of both operating segments going up on the back of higher utilization and increased sales and efficiency gains across the business.
With the strong cash generation, we've deleveraged our balance sheet, and we're pleased with our progress on the strategic initiatives. Finally, as has been covered already, the declaration of the dividend recognizing our focus on delivering shareholder value. Finally, if we go to page 21, our outlook statement. For the second half earnings on an EBITDA basis, we're expecting to improve on the previous corresponding period with the business well-positioned to grow earnings through maintaining the momentum in the underlying business segments, as well as the ongoing delivery of the growth strategy.
With our ongoing cash generation, we expect to support maintenance capital requirements of the business, fund investment for growth, pay dividends, and there is potential for other capital management strategies. This outlook is obviously subject to the ongoing impact of COVID-19 and the related inflationary pressures.
However, we have taken proactive steps to reduce the potential impacts from these risks. That concludes the formal presentation, and I'll now hand back to Arman, who will facilitate any questions. Open to questions. Thank you.
Thank you , if you wish to ask a question, please press star one on your telephone and wait for your name to be announced, if you wish to cancel your request , please press star two, if you are on speakerphone please pick up your hand to ask your question. The first question comes from James Ferrier from Wilsons. Please go ahead.
Morning, Quinton and Richard. Thanks for your time, and congratulations on the results.
Thanks, James.
Thank you, James.
First question's about the bulk stockfeed segment. I'm looking at slide 5 here. Can you just give us a little bit more color around the significant gains, volume gains in the dairy sector? Yeah, historically, it's been a bit of a semi-cyclical sector, so I'm just curious as to what observations you're seeing there, whether this is a cyclical uptick this year, or whether that's more of a structural growth result you're seeing.
Yeah. Thanks, James. The demand from the dairy sector, we would think over this period has been relatively flat. You know, there are good pastures. While the milk price is very strong, it hasn't led to an increase in feed demand across the sector. We attribute our growth in dairy sales to an increase in market share. That's happening in the Western Districts region, and also in the Gippsland region. Those are the two main areas where we have secured additional market share.
Terrific. Very, very pleasing. Directly below that point around successful raw material procurement, can we read that as Ridley benefited sort of in a sort of an abnormal cyclical sense from that transition during the period? Or did you just get through it, as per normal and there weren't any adverse P&L impacts?
In this half, it's more the latter. The reason for calling that out is you'll recall that, you know, during the harvest, there was a lot of disruption due to rain, you know, across Victoria and New South Wales, and you know, probably mostly New South Wales. As a result there, when everybody was expecting new season grain to be available, it was deferred by two to three weeks. That was quite disruptive, and you saw the price jump quite significantly.
You know, those sort of short-term spikes can impact us. Our team did a good job on both securing the supply during this period and holding the price, you know, and securing ahead on price. We didn't get the adverse that you would otherwise have expected in December. Looking forward, what also happened was there was some downgrading of wheat. As some, you know, APW wheat has been downgraded to stock feed grade. You know, our trading team has taken advantage of some of that stock feed grain available, and that will be a benefit for us in the second half.
Yeah. I think where you're going with that is probably what was my next question, that AUD 10 million elevated inventory that Richard talked about. You know, part of that's about trying to sort of get a buffer in case of any supply chain disruptions. But I'm interested if that, as you call it, a benefit to Ridley, is it just about having that safety net of raw materials? Or do you think that the successful actions of your trading team is going to translate to a margin benefit for the business in the second half?
Yeah. It's part and part, James. You know, the main driver for us was to secure the particularly the import supply chains. We extended our inventory position on some of the additives and vitamins, minerals and things that we import. That would probably be half of that AUD 10 million deliberate inventory build. The other half would be a combination of our grain position as well as our meat meals positions just going through the half.
Okay.
Period.
That's helpful. Very helpful.
I think.
Moving on to the other.
Sorry, just to expand on that.
Sorry, Quinton.
I think the other piece to this is probably it more demonstrates the opportunities having a stronger balance sheet gives us going forward as well. It allows the trading teams to take positions in certain markets and conditions. We know that, you know, markets can be volatile in this space, and it just means that they have greater capability to take on positions which can help both our business, but also those of our customers as well. So, you know, I think there is a piece that's specific to the conditions that existed at that time, it's also part of how we need to think about our business going forward as well.
Yeah, makes sense. Moving on to the packaged and Ingredients segment on slide 4. Most of the bullet points there look to us like they're benefits coming through to the business that are sustainable benefits, structural benefits. The first point around higher selling prices for some of the protein, that's perhaps partly more cyclical. Can you just talk a bit about the contribution that that more cyclical element had on the earnings uplift and the outlook for it?
Yeah, you know, global prices of protein meals are high, as are tallows. You know, just to expand on, we're obviously mostly exposed to the meat meal proteins out of the rendered business that a direct substitute would be soybean meal. If you look at the landed soybean meal prices into Australia, they're at highs. That's both high commodity soybean meal prices, but also the shipping costs to get it landed into Australia. Protein prices are high.
The global demand for tallow is driven by renewable fuels, you know, primarily in the U.S. drive. That's knocked up tallow prices globally and is affecting our domestic tallow prices too. You can see that in canola oil as well and other sort of substitutes that go into animal feed diets. You know, this has been with us for over 12 months now. Some call that a structural change to tallow and oil prices going forward. You know, we don't see it abating anytime soon. We would think that probably for this calendar year, these sort of prices are to remain with us.
You know, ultimately, I'm sure there'll be a market response, and those commodity prices could drop. I importantly call out there that a lot of our raw material procurement is linked to indexes and there's a Jacobsen e-index. As these prices have gone up, we're paying more for our raw material. As they come down, we'll pay less for our raw material.
You know, these abattoirs supplying us and ourselves are benefiting from these increased prices, but we're obviously sharing that largely with the abattoirs. We're not getting the full benefit in these results, and nor will we get the full impact on it as it comes down as we'll pass through some of the reduction.
Thanks, Quinton. That's very helpful color. I'll hop back in the queue with a couple of other questions. Thanks for your time.
Thanks, James, for that.
Thank you. The next question comes from Paul Buys from Credit Suisse. Please go ahead.
Morning, Quinton, Richard. A quick one from me first up. Just a bit of a follow-up, I guess, on one of James' questions there. You spoke a bit about dairy, which is obviously a market share gain story for you. You also called out in the bulk space a good contribution from poultry. I guess I wanted to understand that, I guess, in the same terms, in terms of industry demand versus market share for Ridley.
Yeah. Thanks, Paul. In terms of poultry, on the broiler side, we've picked up some additional volume from existing customers and that's been in new geographies. Some of our integrators have shifted some of their requirements to Ridley in some geographies that we didn't use to supply them in. Then, we've also gained some additional layer business, which is, you know, smaller, but some new customers there.
On the downside, the supply to duck feed has reduced just during this period as, you know, there've been a number of disruptions from a food service point of view. That has reduced our supply of duck feed. That's the makeup of the poultry sort of composition. Net-net, we've gained volumes through our facilities.
Great. Thank you. Well, kind of a broader question, actually. I was gonna say sticking with Boost, maybe more across the whole business. I guess obviously the key focus, Quinton, that's you know that you've driven over the last couple of years is really driving up utilization, kind of looking at capacity across the business. That's obviously been playing out. I guess I was just keen to kind of get an overview from you as to where you see the business now from a capacity/utilization perspective. I guess, how far are you into the journey and I guess how much room is there to go further in that regard?
Yeah, that's a great question and, that's where we've been really focused. You may recall me putting up a slide when I joined, around having 74% utilization across the business. Obviously since that period, we've closed Murray Bridge, closed Mooroopna, closed Bendigo, and built Wellsford, which was bigger than Mooroopna and Bendigo combined. Today I would place us in the 90% on monogastric, capacity, so capacity utilization.
That's 90% on a, you know, on a standard operating basis. That's not 24/7 across all our facilities. We wouldn't do that because we just need to have contingency for supply to our customers. You know, from our accessible capacity utilization, I would put us in the 90% on monogastric. In ruminant, we would probably be in the high 70s%. What does that mean for us? Within Project Boost, we'll call out debottlenecking projects.
Included in those five debottlenecking projects that are on slide 18, we've got small incremental increases. Example would be St Arnaud Feed Mill , AUD 1.1 million capital to increase the dies at the mill, and that gives us, you know, a throughput gain. Terang in the western districts, which is our dairy facility, a similar project happening there to give us some more capacity actually for ruminant in that area.
If we go to the new Welshpool facility, we're well progressed on some debottlenecking ops. Relatively small capital expenditures that we're putting in place across the network to anticipate future growth in demand. I hope that gives you some color on that.
Yes. Thank you. That was very useful. The last one from me, just on your comments on the delay for obviously understandable reasons for your supply chain rationalization initiative. I guess my question is just simply, it originally, you know, there wasn't gonna be a big FY 2022 story, but some of it might have flown through into second half 2022. You've obviously, you know, given your outlook commentary that you expect the second half to exceed the PCP.
My question just really is, does that represent a, I guess a diminution to your second half expectations 'cause that's pushed out? Or is it feels like momentum is arguably going stronger in other areas. I suspect it's being absorbed into everything else that's happening. Just wanted to, I guess, get a context on the delay for this kind of next six months impact.
The good thing about these supply chain changes is that it's not broken. I think I just indicated, you know, we've got a wide range of transport providers. We've got some network opportunities and things like that. It really was the time to just make priority decisions. I think we've got enough going on in the business with the execution of Boost, other efficiencies, the volume growth that, you know, we're not gonna miss this supply chain contribution in this half or in FY 2023. It's still ahead of us, the opportunity to, when the time's right, to pull on those supply chain implementation opportunities.
Got it. Makes sense. That's all for me. Thanks, guys.
Thank you, Paul.
Thank you. The next question comes from Paul van der Knaap from TSK Partners. Please go ahead.
Thank you, and thanks to you, Quinton and Richard. Very solid platform as we've been talking about. Just some high level stuff, if I can. Just on return on investment, Quinton, I think in the past, you've talked about a target. Are you able to talk about it in any more detail now that you're two years into it and obviously In another half or so, you're in a stronger position.
Paul, probably, yeah, I can give you some context. You know, as you can see our ROFE, EBITDA ROFE for the two segments is improved significantly. That's a result of both growing the earnings and working on the asset base and you know, the sale of Westbury, you know, the closure of those other feed mills. We're getting the benefit on working on the balance sheet and improving the P&L.
As far as you know, the ROFE at a NPAT level that we call out on the highlights slide of 10.5% is still well below where we think we should be operating. We're obviously you know. I mean, it's a jump up, but there's more ahead. I probably won't put a target on it at this point.
No. Look, I think.
Fair.
I think our focus is obviously to continue to deliver value, as Quinton said, both in terms of delivering on EBITDA contribution and looking at what we can do in those asset bases. You know, there are also opportunities for debottlenecking, which at different phases will impact on that ROFE. Certainly, as Quinton said, from a longer term perspective, you know, we see the benefit to continue to increase the return on funds employed from an underlying perspective, Paul.
Fair enough. You know, with the improvement, you've got that grade for sure. Just two other follow-up questions. One is, what sort of variation do you see in return with seasons now and the diversity you've got? Maybe an allied question is how much of your product is under long-term contract, and how much is on spot?
Those are great questions. I would describe the seasonal impact on us. If I can split it into different components of the business. Firstly, there's a first half, second half kind of impact, and that's most pronounced with aqua feed, you know, more aqua feed sales in the first half. As we've called out, more the financial returns from Novacq™ will come in the second half. But in the scale of our overall business, those two are currently not big movers, so that's one seasonal impact.
The second, you know, seasonal impact is commodity prices, so raw material input prices transitioning one season to the next season in wheat, et cetera. Those kind of aspects, you know, typically we will get impacted on the carrying stock that we've got. Most of our sales are, you know, higher volume is linked to pass-through pricing with what we would call on-costers. Large poultry customers, for example, who, you know, we will purchase grains for on their behalf and, you know, they ultimately wear the underlying risk.
We would take a position which might be we only wanna keep 4 weeks' worth of inventory just for certainty of supply, but we might extend that all the way up to, say, 16 or I suppose at the outlier, 20 weeks. We've got a, you know, a few months worth of raw material product, which if we get it right, will be a benefit for us. If we get it wrong, will detract. Again, most of our sales are, you know, most of the volume is on pass through.
That's not. You know, I think you might have a AUD 3 million-AUD 5 million plus or minus in an annual result, based on our current sort of inventory management profile. The third seasonality cyclicality would be around droughts and the impact that has on the bulk stock feeds supplying supplementary feeding to beef and sheep and dairy.
We, you know, the last time we had that drought, which was, you know, two and a half years ago now, we saw the benefit of about AUD 5 million EBITDA. We think that's still, you know, as I indicated to an earlier question, the capacity of our ruminant mills is not at full capacity. If you hit a drought, we would typically go to 24/7 through the ruminant feed mills. There's probably a AUD 5 million swing in a year, where you go to an extreme drought situation.
That's how I would try to provide some context for the variation. Your second question was around, you know, what's locked in, what's long-term supply contracts, it really does vary quite significantly across the business. In bulk stockfeed, it would be the majority of our supply is contracted, and you know, greater than 12 months up to 7 years. In other parts of the business, you know, there would be more sort of packaged or aqua sales, you know, they would typically be 12-month contracts or up to 36-month contracts. That would be the majority of the supply as well. I hope that is-
Excellent detail.
Giving you some.
No.
Yeah.
We can talk about new growth options another time, but thank you, Quinton. Thank you, Richard. Thank you, operator.
Great. Thanks, Paul.
Thank you. Our next question is from Brad Glick from Cranleigh Partners. Please go ahead.
Good morning. Thank you, Quinton and Richard. My question is on slide four. There's a point in there about the aqua feed market being oversupplied. I was hoping you could just tell us a little bit more about that in terms of the dynamics that you're seeing and how long you might expect those conditions to prevail. Following on from that, with the closure of the Yamba, just curious how you will supply Novacq™ to your domestic customers. Will you be sending that product from Thailand back to Australia?
Thanks, Brad. So, just briefly, just to repeat a bit of the journey through aqua, you know, the aqua feed, the aqua sector is growing strongly, both in the tropical species, prawn, barramundi, yellowtail, and then in the temperate. Sorry, not yellowtail, just barramundi and prawn. In the temperate, yellowtail and salmon, also growing but at a lower rate.
The supply is made up of two international players based in Tasmania, one of whom we sold the Westbury facility to, and we've got our facility in Queensland. We built the Westbury facility, and six months later, one of the international players commissioned theirs in Tasmania. We went from a position that was, you know, balanced domestically, actually, with imports coming in, feed imports coming in from other parts of the world.
We've now gone to a period, you know, to a domestic capacity that well exceeds demand. If we extrapolate the growth trajectory, we think that this supply would take five years to fill. You know, that's if you can extrapolate all things being constant. Unfortunately, as we know, that's not how the world operates. You know, in the meantime, who's to say that we won't do some more debottlenecking of our facility and those kind of things. There might be some other capacity added on, but, you know, in theory, it'll take five years.
Now, there are some growth projects in the aqua sector that are significant if they went ahead, and that would change that dynamic quite significantly. It's a hard one to call, but as we sit today, based on the recent past, we think it would take five years to fill the capacity in the sector. If we go to your second question, which is Yamba was set up as the pilot. It was producing much lower yields because of its geography. It's in a temperate, northern New South Wales is not in the tropics, like our Chanthaburi, Thailand, facility.
Lower temperatures, lower yields, and so we can produce a lot more, a lot cheaper out of Thailand. That product from Thailand is currently coming into Australia. It has to pass all the phytosanitary requirements. We have to radiate it, et cetera, but that's the current program of bringing all the Novacq™ in from Thailand. We've got enough inventory that we can support any supply chain disruptions. We don't see any limitation on the domestic supply. We'll prioritize that from our Thailand operation.
Yeah. Thanks, Quinton. That's a really good answer and good background. Do you still, just following from your explanation, is that still profitable by the time you obviously produce it at a lower cost in Thailand and go through those import requirements, does that still make commercial sense to do that?
Yes. Yes, it does. It's still significantly cheaper by virtue of the better yields we get in Thailand. The lower operating costs in Thailand and the scale we've got there.
Wonderful. Okay. Thanks, Quinton. That's all for me.
Thank you, Brad.
Thank you. Your next question comes from Anthony Kavanagh from Chester Asset Management. Please go ahead.
Thank you. Good day, Quinton. Good day, Richard. Congrats to the team on another solid result. A lot of good questions have been asked.
Thank you.
I just wanted to ask you about Novacq. You've reported that that's delivered a loss in the first half, but it's supposed to be EBITDA positive. I was just looking for clarification on whether that's an EBITDA positive run rate or EBITDA positive for the full financial year 2022. I guess in answering that question, I'd appreciate the color on how big the loss was in the first half.
I'll just clarify so we all understand the process. We feed the ponds with the herbs and spices magic ingredients, you know, throughout the year. But in the wet season in Thailand, we're only able to do the mechanical drying and harvesting process. Whereas in the dry season, we actually maximize by doing solar drying. We drain the ponds, evaporates, and we dry the Novacq in the bottom of the ponds. We get, you know, the lion's share of our production happens in the second half, or the harvest happens in the second half.
You incur all the feeding costs, all the ingredients that go in, you pay for those, you know, throughout the year, but mostly in the first half, and you get the benefit in the second half. That's how that's structured. As far as the negative in the first half, we've obviously increasing our sales production, so there's more raw materials. That was a loss of around AUD 2 million in the first half. We expect to recoup that as we bring product into Australia and that finds its way into diets into the next year.
Just further to that, in terms of when we did make that statement in August, that was where we expected to be. It's not like we're in a different position to our overall expectation around how the year would translate and get to that break-even position by the end of the year. We are in line with that run rate.
Sorry, I'm still a bit Is that a run rate or are you saying there's gonna be AUD 2 million positive contribution in the second half?
I was saying the full year contribution will be AUD 2 million, yeah.
Nothing. The second half will be two, and the full year will be break even. Yeah.
Cool. Yes. No, that was just.
All right.
Can I also ask, I mean, you're now servicing the 15 customers in Australia. I recall it being maybe five customers at June. Is this customer-driven demand or are you suggesting to those customers, "Here, try this out, we'll give you a bit of benefit," and almost providing them kind of like an incentive to trial it over this period?
The journey's been that we had one major customer try, you know, doing trials with us three years ago. Then they kept coming back for more, and that's become a commercial arrangement. Last two seasons ago we had more uptake, and we did some more trials. This year we're putting out in all our early season diets containing Novacq. Ridley is that that's a standard offering in the early season diets. All customers that bought early season diets from us are buying the product commercially. I hope that answers.
Okay, cool.
the question. Does that
Yeah.
Is that what-
Sorry, I might just throw one more.
They're not trials.
Yeah.
These are commercial sales.
I wanted to know one more then. Just the economics, Quinton, of like if they were buying normal feed versus feed with Novacq in it, is it comparable price or are you actually kinda being able to extract some economic value out of it?
Yeah. No, we are extracting economic value. The price of our early season diets is higher, but the performance of the prawns on those diets makes it a commercially feasible proposition for the producer. The other benefit of Novacq is importantly the nitrogen.
You know, managing nitrogen in the water and nitrogen discharge rates is highly important in these production facilities. In order to try and get the highest growth, you have to increase your protein levels. The higher your protein levels, the more nitrogen discharge. But the Novacq, a diet containing Novacq means that you can actually drop your protein levels because the growth of your prawns is offset.
We've got an environmental or, you know, a farming management sustainability benefit which is driving the uptake of Novacq™ as well from the domestic industry.
Yes. Cool. Awesome. Thanks for the color, Quinton. I really appreciate it.
Great. Thanks, Anthony.
Thank you. The next question comes from James Ferrier from Wilsons. Please go ahead.
Thank you. Just a couple of financial questions to finish off from me. You explained why the corporate costs kicked up a little bit in the first half. That all makes sense and well-deserved. Do we basically double it for the full year?
It won't be to exactly double that, because obviously some of that was to pick up some costs associated with the prior periods and to align those up to the performance that we're seeing. You know, we will still see probably in the range of somewhere between AUD half a million and AUD 1 million dollars in the second half in relation to that increase in cost.
Yeah. Understood. For the full year, what are you thinking? What are you expecting around CapEx and D&A?
In terms of obviously taking the D&A first because that's the simplest one. We're expecting that it will be somewhere around sort of the between AUD 25 million and AUD 30 million. At this stage, obviously, that is dependent upon how much capital that we're able to spend in the full year. I think when we talked in terms of August, we were talking about, you know, we expected to spend in the range of about AUD 30 million in terms of capital for the 2022 financial year.
You know, in terms of where we are and the approvals that we've made, we're aiming to still spend around that mark, but that number may actually come out lower than that, just simply because of some of the challenges associated with sourcing equipment. You know, those are the metrics that we're working on, to be spending around about AUD 30 million, both on sustenance and growth at this stage.
Yeah. Okay. That's helpful. Looking further out on the D&A, we've obviously had to step down this year with the reset of the Aqua footprint, with Project Boost expenditure in particular there, and the other growth projects. Does D&A start to pick up over the next two or three years, or does it stay flat or even go down?
Look, I think it will probably tick up slightly, but you know, it's not going to be significant. In reality, you know, we are starting to roll off on some of the older parts of the spend as well. So you know, we think AUD 30 million is the right number from a total capital perspective. It'll allow us to maintain the facilities in the current condition and also develop some growth as we roll off. But I don't see that you know that number that we quoted, you know, I don't see it significantly getting too much higher than the top end of that range over the next 2 to 3 years, James.
Yeah. Great. What was the balance of the securitized payables facility? I haven't seen it in the accounts yet. Having a look today.
It's still the same AUD 30 million.
Sorry, that was 30?
Sorry, did you say the payables facility or the?
Yeah, yeah.
The securitized-
Securitized payables facility.
We have a supplier financing facility, which is about AUD 50 million. That's what I'm referring to.
Yeah. That's what I'm referring to. Yeah.
Right. Yeah. That has not changed in the period.
Yeah. Got it. Last one on that SaaS expensing. Now that the ERP system's implemented, does that SaaS expense item essentially go away?
Yeah, look, we're primarily now 95% of the way through the full spend in terms of the SaaS. There may be some slight spend more around the development type activities in the second half, but as I said, you know, we're basically now the project was fully implemented in November and it's basically around, you know, looking at just how we can develop, how we can drive some further value out of the system, but that will not be significant.
Okay. Great. Thank you, Richard. Thanks for your time.
Thanks, James. Cheers then.
Thank you. There are no further questions at this time. I will now hand back to Mr. Hildebrand for closing comments.
Great. Thanks, Simon. Thanks everybody for your attendance today and for the suite of questions. I think that was very helpful. Really appreciate it. We're thankful for your interest in Ridley as we undertake this journey to take the business to its full potential. Thanks for your participation. Have a good morning. Thank you.
Thank you very much. Ladies and gentlemen, that does conclude our conference call today. Thank you for participating. You may now disconnect.