Good afternoon. Welcome to the 2022 half year results for Select Harvests. I'm Paul Thompson, MD and CEO of Select Harvests, and joining me today is Brad Crump as the CFO and Company Secretary. Before I start with the presentation, I'd just like to acknowledge the retirement of our Chairman, Michael Iwaniw, which will be effective the 30th of June, 2022. Michael has made an enormous contribution to this business over the last 11 years, and the business is a much stronger and a very different business at the end of his tenure as Chair. He's provided counsel and leadership and friendship to myself and the remainder of the board. As I said, clearly, Select Harvests is in a much better place. I wish him and his family well in his retirement.
Today, we'll be providing you with an overview of our performance from a triple bottom line perspective, profit, people and planet. An update on the business performance on the global almond market, plus the strength and the value and the uniqueness of our assets, plus the underlying competitive advantage we have at Select Harvests. At the end of the presentation, you'll be able to ask questions in the Q&A session. We'll provide instruction on how to do that at the end of the formal presentation. It's worth noting that the appendices does contain some valuable information about the industry. Please note our disclosure statement. Now, I'd like to give you an overview of our performance and provide insights into the global market, almond market, including pricing.
Following this, Brad will provide you with more detail around the financial performance, and I will cover off our activities in the people and planet environments. There's no doubt the first half has been challenging. At the start of the season, global pricing appeared to have recovered from its 10-year lows. Unfortunately, it rapidly returned to its 10-year lows. COVID-19 continued to impact demand and cause significant operational challenges. Supply chains were disrupted with port congestion, increased costs and container availability. The biggest impact, in fact, being felt in the U.S., where 80% of the global almond supply is grown. Basically, inventory became trapped in the U.S., forcing prices down. Internally, we had the misfortune of a fire at our processing center between Christmas and New Year.
On a more positive note, we have not been affected by the freight congestion and cost as much as the U.S. by targeting direct access markets such as China's and Southeast Asia and avoiding transit ports like Singapore. We've successfully recovered from our fire, invested and commissioned capital in our parboil and sorting and packing lines at Carina West. Remain on schedule to exit Thomastown on time and below budget. We are forecasting yields at higher than the industry average at a cost per kilo equal to last year, aided by the improved water price. Today, we are confirming on the basis of a fair value forecast that our crop will be 29,630 metric tons at a fair value price of AUD 6.64 a kilo.
As we sit here today, 96% of the crop has been harvested. Due to climatic conditions, in-shell volumes are lower than last year. Harvest costs and processing are forecast to be higher due to the wet harvest environment. Corporate costs have increased. This has been driven by increased insurance costs, some corporate acquisition DD, increased investment in our sustainability programs and reporting, and the legacy costs around head office as we move out of the Thomastown facility. The chart is the almond price in USD. It is the contracted price and in some cases includes freight. You can see where we finished last September.
The market price for all grades had moved significantly higher as economies came out of lockdown and there were concerns about the U.S. drought impacts on the U.S. crop. As the market realized that product had been trapped in U.S. inventories and inventories in Europe were high, economies were slower to recover from lockdown in the northern hemisphere winter, the U.S. crop was significantly not as far down as forecast. Pricing reverted to 10-year lows. This has impacted both the buyer and seller trust in the market. Today, there are positive green shoots in the premium snacking products, which are the top three grades that you can see there. The manufacturing-oriented product supply prices remain low.
This is as much about supply as demand. The European and the Euro-US market demands for these products has returned, but old inventory levels remain high. Adding to the price pressure, US growers are chasing cash as they are expanding, they are expending cash on pollination, fertilizer, fertigation, increased labor and energy costs on their 2022 crop. Ultimately, this cost pressure will result in the lifting of prices. As you can see further in the presentation, which Brad will talk about, we have carried some higher-priced inventory into this financial year, especially in the lower grades, which we need to support the continuing supply to our value added facility.
As a minimum, we need to carry six to eight months inventory from the end of the year. The simplest way to look at this is that we have not lost money on the crop, we have simply not been able to benefit from the additional margins from value-adding. I will provide you a review of future pricing later in the presentation. Brad will now take you through the financial results.
Paul, good afternoon, everyone. The full year 2022 half year result is predominantly based on the fair value assumption relating to the 2022 crop. The lower than average financial result reflects the fixed cost nature of the business and the linkage to the market price of almonds. The result assumes no improvement in the current 2022 almond market price and overall lower than average in-shell yields. A reported AUD 15.8 million EBITDA was 20.5% higher than the first half last year. This led to a reported NPAT of AUD 2 million and an operating cash flow that has been materially impacted by delays in shipments of AUD 15.3 million. Our bank debt to equity remains below 25% at 23.7%. Our debt level for...
Our debt level of AUD 126 million is close to the seasonal peak, which occurred in May. As cash flows increase in the second half, as shipments increase, this will reduce. All bank covenants are comfortably met and current facilities remain adequate for operations moving forward. Given the half year result and the current unfavorable market conditions, no interim dividend has been declared. Above industry yields. Other than lower in-shell production due to the colder and wetter conditions late in the season, quality appears to be in line with the 2021 crop. The fair value price assumption is $6.64, taking into account the 51% of the crop is either sold or committed for sale. The 2022 crop is now fully hedged for the export program at an AUD/USD rate of 0.72.
Overall crop cost per kilo have risen by 1.8% to AUD 5.60 per kilo. Growing cost per kilo, excluding water, rose by 9.8%. This is due to increased wages, chemical costs, fert costs and power. Additionally, the rate of capitalization decreased at a greater rate than the yield improvement from our immature trees and the loss of volume from the wet harvest that we just underwent. This was partially offset by a 35% decrease in water cost per kilogram. Harvest and processing cost per kilo rose due to the extra cost impacted by the delayed harvest, wet conditions and lower in-shell yields. 2023 growing costs are expected to rise, with material increases in fertilizer and chemical costs, and all trees are now at their full maturity levels.
2023 water costs are forecast to remain at their current low values. Pleasingly, Select's LTIFR rate reduced by 8.5% over the period, reflecting the company's ongoing focus on well-being and safety. I've covered most of the factors that are shown visually on this slide. It's worth noting, however, that the bottom right-hand graph clearly shows the impact of being a highly fixed cost business, highly leveraged to price, especially when there is a near to full orchard maturity profile. There are two points I'd like to raise on this income statement slide. Firstly, our revenue is down compared to last year due to the impact of lower pricing and the delays in shipments as a result of ongoing global supply chain issues. Secondly, we have recognized the portion of earnings that relate to the discontinued operations separately.
Discontinued operations will be finalized by the thirteenth of June, 2022, with all prior provisions raised more than adequate to cover our related costs. I'll quickly move through this, EBIT waterfall slide. For our first box there that you can see, this is a comparison of last year's half year result to this year's half year result. Firstly, we've got additional volumes, and that's related to the extra tons that have been produced this year. The second box reflects the higher almond price compared to the AUD 6 per kilo recognized in the first half of 2021. Note that this number has been impacted by higher freight costs. Select Harvests has absorbed some of the freight uplift in previously agreed contracts. All contracts going forward has freight passed on to the customer.
The third box relates to the current reported impact of the value-add business. This has been negatively impacted by continued production at Thomastown, which has now ceased, commissioning of new equipment and delivery of a high-cost production solution for existing contracts. Additionally, there has been higher-cost prior-year raw material committed in a low-cost sales environment. The next box shows that the higher growing costs, this is the gross costs that were detailed earlier, and relate to cost increases and the increased maturity profile. This has been offset by the lower water costs. The delayed harvest costs are due to two factors. Firstly, an increased cost relating to labor as the harvest has been longer than expected.
Secondly, we've got increased processing costs related to additional drying requirements that will be required due to the higher moisture levels of the product that has been out there in the wet conditions. This assumed cost increase needs to be firmed up in the next few weeks. Other crop costs relate to increased processing depreciation costs, increased harvest costs due to the orchard maturity profile, and increased processing costs due to the lower percentage of in-shell produced this year. External processing income has decreased as contracts have not been renewed to allow processing capability to focus on Select's crop. Paul has covered the corporate cost increases, a lot of which is reflective of the change in the structure of the company. On our balance sheet remains in a strong position.
Inventory levels are higher, reflecting the delay in the sales program over the past twelve months. Property, plant and equipment has increased from our investment in additional horticultural equipment due to the increased maturity profile and Piangil requirements. Additionally, we have invested in our value add capacity and capability in sorting and packing technology. The market value of the company's orchards and water assets are not reflected on the balance sheet. These assets are recorded at the historical purchase price. Market values for both almond orchards and permanent water rights have remained high. Management's internal estimates value the company's owned orchards assets at AUD 520 million and its own water at AUD 135 million. The company's processing center estimated value is over AUD 100 million.
We are currently in the process of getting official valuations completed of our own orchards and processing center, and these will be reported in our full year results in November. As previously indicated, cash flows have been impacted by both lower prices and delays in shipments. The negative movement in working capital relates to the increase in inventories due to delays in these shipments. Cash flows can be managed if this pricing environment continues and costs increase. Select Harvests has no major capital commitments going forward other than operational CapEx. Other planned CapEx, such as new warehousing, can be delayed until such time that pricing returns to average levels or better. Thanks, Paul.
Thank you, Brad. I'd like now to outline our performance related to people, community, the planet, environmental sustainability. Clearly, the most important asset we have is people, and it's critical that they work in a safe, physical and psychological environment. The last six months, our performance around health, safety and well-being has improved. The most important strategies have been to, one, identify incidents before they happen. Two, ensure all stakeholders are involved in the wellness, health and safety. Finally, the challenge in this period has been managing individual employees as they manage the post-COVID way of working. We recognize in many of our regional communities we are a significant influence. Every year, a representative group of team members recommend local community charities to support. There's a broad spectrum, including schools, sporting clubs, and community clubs.
We've partnered with SuniTAFE to develop and have a customized leadership program as our organization grows. We are committed to the 40:40 Vision, where we are pledging that 40% of our executive leadership will be females by 2030. We have commenced to implement an HR information services system. This will enable us to impactfully manage our talent and more efficiently and report and manage compliance. There is no doubt our stakeholders are expecting significantly more focus and transparency around environmental sustainability. As an organization, Select Harvests has been one of the most progressive companies in our industry in this area. This year, we confirmed our commitment to zero carbon by 2050 or earlier. Our focus is to do this from our own footprint, not by buying credits.
Many people talk about circularity or the closed loop. The almond industry is very much a circular closed loop industry. Many people fail to recognize that everything we grow is consumed or commercialized. From a commercial and performance perspective, our metrics are tied to our almond kernel production, not our total biomass. Our almonds provide significant nutritional and economic benefits to the community. As an industry, we are turning our commercial and resource focus to the 75% of the crop that has been largely ignored. I'm proud to say Select Harvests is at the leading edge of this commercialization and unlocking the environmental benefits of the significant biomass asset. As I said, we released our environmental policy in the last six months. It touches on every part of our business, water, carbon, land, air and people.
Simplistically put, it's about using our resources as efficiently as possible by reducing, reusing, recycling and repurposing. The commitment is there, and in the next 12 months, is about increasing transparency and having, and making sure we have the correct measures to assess our performance. I'm not gonna talk in detail about this slide. It's just a tangible example of how we try to create a positive, protective environment when the bees are on our facility, and we do this sort of thing in every part of our business. Again, the Co-Work projects, I'm not going to go into the detail of this slide. It just shows you how big the opportunity we have from this, our biomass.
We've been composting our Lake Powell Orchard since 2018. Recognizing our soils are generally low in carbon, our most recent evaluation has shown two things. The carbon content is improved by 100%, and the water efficiency has improved dramatically, measured by the key measure of water consumption per metric ton of product produced. Now I'd like to provide you some insights into the global almond market. As I suggested, demand appears to be back on track. At a recent global industry event, the INC Congress, nobody could see any reason why we will not see 10% growth this year in consumption. Supply chain congestion, especially out of California, seems to be less of a problem.
The industry is currently sitting on 200 million pounds of too much stock. The recent subjective estimate was 2.8 billion pounds. The other industry forecasts have varied between 2.7 and 2.9 billion pounds. All these forecasts are highly conditional on the fact that it's been very difficult to forecast this year. The northern region of the California industry has had significant frosts. In fact, with just three months to go, orchards are still being removed because of lack of water. The water access has been tightened due to government allocations and just recently, the banning of additional wells. 20% of the Californian almond crop is assessed to be in critically low water districts.
Last night, 40% of the growing area was declared to be in the exceptional drought region, which is the highest drought region that they measure in the U.S. Drought Monitor. You're seeing a dramatic increase in cash costs, and you're seeing a lack of cash in the industry from the previous crop. If you apply the 2015 yields and the Land IQ acreage, the crop could be as low as 2.6 billion pounds. There is a long way to go, and the 200 million pound overstock doesn't seem that much. In summary, growers need a pricing increase because the significant proportion of growers are running at a cash loss.
The market needs to be convinced the supply balance has been restored, which I've just talked about, and is not that far off. It is unlikely buyers will let price run as rapidly as they did last September, but it is widely acknowledged the current pricing is not sustainable. Obviously, the recent prices have been extremely challenging, but it just reinforces the fact that you need to manage your cost and volume to get the best cost per kilo position, which we believe we're doing at Select Harvests. If I move to our strategy, it remains unchanged. We want to be a leader in plant-based foods, in the plant-based food segment. We can do this by optimizing our almond base, growing our brands by adding value, expanding strategically in the almond vertical or related verticals.
Our goal is clear: sustainable shareholder value creation. That's financial, social and environmental. These are our priorities, which I won't read through. I'd just like to remind you, we have a unique high-value asset base. The value is not reflected on our balance sheet. Despite the challenging crop and pricing, we continue to have headroom in our debt. We have an amazing, amazingly passionate and talented organization. I'd now like to open the floor for questions. You can ask those questions by using the
Ask from the right-hand side.
The chat function on the right-hand side there. The question is, it's around the supply chain. Are the ports cleared in California at this stage? My last reading it was there was over 200 port boats sitting outside the California ports waiting to get product shipped out. That's down to 55. It's not to say there aren't still some challenges around getting product to port in California, because of the lack of labor around trucking, and also there's a general lack of container availability. But definitely, I'm anticipating that next month's position report will be slightly larger than last month's, which is eating into that excess 200 million pounds. If there are any other questions, please use the chat function. Got a question here. Thought so.
It's just in relation to the cost per kilo number. That doesn't incorporate any non sort of direct almond related costs. It doesn't include corporate costs or any other activities outside of the almond related or crop related activity. The reason why there was a tax refund was because we paid as we you know as on a monthly basis last year. When we reconciled back to our result we got a refund back from our you know from our tax paid.
One of the other questions is around slide 11, which is the EBIT movement. How many of these headwinds listed there? What's our view on each of those moving forward? Back to slide 11. We go from left to right. Yes, we will have additional volume, which you can see in the appendix. That'll move up to around 31,000 metric tons, assuming the crop is not affected by adverse weather. Second, increased almond price. Hope like hell it does go up from where we're sitting at the moment.
We won't have the transition costs and the commissioning issues that we've had related to commissioning new lines at Carina West. That's all basically up and running as it sits today. Certainly there are headwinds around fertilizer and energy moving forward into next season. If you refer to the appendix, there is a cost wheel there that tells you what the various breakup of all of those costs are sitting there. Hopefully, with better weather conditions, the harvest delays won't be there. Hopefully we have more in-shell, which gives a lower operating costs.
That external processing will disappear as we fill the facility with more of our own volume, and we won't have the repeat of some of the transition costs around head office. There's one question there. There's a question here, re: the cost increases flagged for next year. Just to give an indication, the major ones will be around fertilizer and ag chem. Fertilizer at this stage looks like it will more than double in cost for the 2023 crop. Ag chem is at this stage looking like at least a 50% increase. Then obviously there are other cost impacts as well around labor, diesel, and they're expected to go up around that inflationary rate of circa 5%.
The major cost increases are around those crop inputs of fertilizer and agricultural chemicals. We're expecting, you know, the expectation, you know, now going forward is that will start coming off in 2024 crop and further in the 2025 crop in relation to fertilizer. Just in terms of there's a question here is, should we be expecting zero EBIT for the value add segment this year? The answer to that is it won't be any higher than zero. The start of the year is, at the moment, below zero, and we're working towards the second half, pegging that back with a view that in 2023 it'll start being in positive territory.
The next question is there talk of the U.S. removing trade? From talking to the U.S. growers, they're not holding much hope that the tariffs will be removed from the China crop at the moment from China, though. It is important to note that there is the Indian tariff advantage that we're getting in Australia at the moment, which will commence later in the year. It's 34,000 tons of gross weight and at the moment, Australia is shipping 23,000 tons of gross weight into the Indian marketplace. There is some headroom in that perspective but, you know, at the current pricing levels, China still remains a priority market over India at the current pricing levels.
There's a question here in relation to if we'll be taking favorable movements and valuation into the P&L and retained earnings. There's no plans to do that going forward. It's really just to advise the market in terms of what the value of our assets is. The question's about tree removals in California. Look, there have been tree removals. There continues to be tree removals in California. Look, it really is dependent on what water district people sit in, the age of their trees, their own personal business balance sheets. As I said earlier, we are hearing of trees coming out between now and harvest, which is particularly unusual when really, if you have a look at it, they're sort of 80% through the growing, the annual growing year.
Just a question on Piangil's performance. That's still to be fully assessed, and we'll assess that once we process the crop and understand the yields. To date, you know, it appears as though everything's going as per our business case assumptions. There's another one here in relation to cost per kilo. Will that grow at double digit rates versus FY 2022 of AUD 5.60? At this stage it looks, I'm anticipating it will grow at double digit rates. I'm anticipating at least another AUD 0.50-AUD 0.60 per kilo on top of our costs going into 2023. Another question about do we leverage or how do we leverage our scale?
Clearly, you know, in a fixed cost business, probably the priority is to make sure that we grow the biggest crop possible. You know, we keep a focus on both, clearly a strong focus on absolute cost, but not at the expense of volume. There's a point where we are prepared to expand volume, but we're not near that at the moment. There's a query in relation to slide 11 and what relates to the $5.60 number. If you look down the bottom there, the higher growing costs do, the low water costs do, the delayed harvest costs do, the other crop costs, maturity profile, reduced in-shell does. They're the four items that relate to the $5.60.
There's a question here in relation to value add versus FY 2021. I can't compare, do a comparison back to that because the FY 2021 has a number of factors that what we used to call the food business, whereas value add is a mixture of components that were in that and what's in what used to be in the almond division going forward. It's difficult to compare other than to say the components of the food business that we've now sold and the closure of Thomastown were actually, you can see from the discontinued operations, they're actually loss-making areas of the business. The question about forecasting year, but we just don't, we do not give guidance on the future profitability.
Second half CapEx guidance will be pretty much down on last year. The CapEx in the second half is generally lower in the first half as we do acquire a lot of our or pay for a lot of our horticultural equipment early in the first half. We'll have to start to draw a close to questions as we've got analyst calls to make now. If you do have any outstanding questions, you've got our email addresses, and you've got Andrew Angus's email address. If you could email them to them, and we'll give you a response back to those. Thank you very much.