Rick, if you'd like to go, Paul?
Thank you, Andrew. Welcome to SelectHarvest's 20 1 20 21 half year results presentation. Joining me today is our CFO, Brad Crump and Company Secretary and Andrew Angus from Overland Advisory, who manages our Investor Relations. This presentation is being recorded and will be available on our website. Brad and I will present the results and provide a market update.
There is the facility for analysts and institutional shareholders to ask questions at the end of the presentation. Please raise the hand function and you will be able to ask your question. If a retail shareholder has any questions, please e mail Andrew at andrewangusoverlandadvisors.com.au and their e mail address is on the screen. Andrew will arrange for a response at the end of the presentation or via e mail. Please note the disclaimer and the basis of preparation of this presentation.
As an introduction to our performance in the first half of twenty twenty one, this has been challenging as was the second half of twenty twenty. As you have previously been advised, like many businesses, we've had the operational issues of COVID-nineteen. In addition, we've had market access issues in major markets, Europe, India and China. Like all export ion type businesses, we've had seen that in another we have seen the dollar appreciate over 10% over the last 12 months. But the biggest single headwind was the U.
S. Industry's marketing of a record crop 20% larger than last year. The net impact of this is that select harvest has had delays in cash flow, the rest pricing and a much more a much weaker bottom line. As you can see, the low almond prices significantly impacted our results. NPAT for the first half was $1,300,000 EBIT for both divisions was $3,100,000 The EBITDA was $12,800,000 EPS, 0 $0.26 per share.
We maintained a strong balance sheet. Net debt to equity was 21.7 percent, excluding lease liabilities. Operational cash flows was a positive $6,300,000 This cash flow was the result in part to the delayed shipments, all due to market access issues. In a normal year, our shipment profile would have been 75% of shipments were between March to August and 25% for the remainder of the year. In 2020, there was a fifty-fifty split.
As a result of these results, the Board has elected not to pay a dividend. I would like to remind you that this result is prepared on the basis of the assumptions around cost, price and volume. The actual result is not known until the crop has been 100% processed and 100% committed. As we sit today, with 40% of the crop processed, 50% of the crop committed and 80% of the export currency hedged at 73%, we're anticipating a crop of 28,250 metric tons. Around 4,500 of this is from the Tiengla acquisition.
This is marginally higher than the forecast we announced on the 29th March. Growing conditions we have seen were good without being spectacular. Harvest in New South Wales was delayed. The general quality is better than last year, and this plus our investment in new shorter means that we are getting a high percentage of inshore from our crop. The price realization is $6 a kilo, which is at the top end of our March 29 announcement.
Market prices have remained low as the industry has marketed the larger U. S. Crop. The delay in the Australian shipments has put additional put additional stretch on an already full supply chain. Prices have started to recover, but a lot of this has been evaporated through the appreciation of the currency.
We have made a strong focus on our controllables, including the integration of paying the launch, cost in general and staff safety. The acquisition is meeting its business case as we are well underway in integrating the Orchard into the Saliq Harvest Group. We've kept our cost down through absolute cost control. We're particular focused on our harvesting costs, Carina West productivity, our water strategy and our general repairs and maintenance expenditure. As always, our people are our first priority.
Our team is continue to manage through the challenges of COVID-nineteen. Our total recordable frequency rate has reduced by 6%. I'll now turn to our operational performance. At these prices, we are seeing strong demand from all markets, China, India and Europe. Last year, the domestic market grew by 10% with over 3 50 new products being introduced into the market containing almonds.
Plant based protein through products like almonds is becoming more and more an everyday staple in our lives. As I said, we have 50% of the crop committed. We're expecting similar pricing and we're expecting some further price recovery, but the full benefit will not be held in 2000 until the 2022 crop. We have inventory we have invested in new shorting capability, which has improved our inshore yield and throughput. Water prices have fallen, but we have experienced we have only experienced a small benefit as we were concerned about availability after the end of last season and carried a significant amount of water over at a higher price into this year.
The food business transaction is proceeding with companies undertaking detailed due diligence as we speak. We've commenced we've commenced some of the transfer of our industrial capability to the Carina West facility. We have capital plans to increase the value added capacity of Corina West and as the market demand continues. Recognizing the volatility inherent risks, we have maintained a strong focus on our cost, cash flows and balance sheet. I thought it's important to give you the context of this result.
You can see what we can control we are. If we can mitigate a risk, we are mitigating that risk. Unfortunately, it is virtually impossible to totally compensate for the almond price decline of this magnitude. You can see there that we've managed to maintain our cost, as we said, not far above last year. With our Orchard investment program, we've seen volumes grow.
And unfortunately, you can see what a dramatic impact the price decline has been. I'd now like to hand over to Brad.
Thanks, Paul. Good afternoon, everyone. Paul touched on the reduction in the global iron prices had a material impact on the 2 21.5 year results. On a positive note, revenues for the half were 24.2% higher than the prior corresponding period, and this is due to COVID-nineteen related delays in sales in the second half of FY twenty twenty. You'll see the impact of this on Select's operating cash flow.
Select's EBITDA, EBIT and NPAP are all predominantly impacted by the reduction in the almond price from $7.50 to $0.06 This is what has been used in the 2021 crop fair value calculation. Partially offsetting this was the additional tonnage produced by the newly acquired Leyen Gold Almond Orchard. Other factors that impacted the division's results were the ongoing lower value of the whole market as conditions remain positive for traditional livestock feed and also moderately higher cost per ton due to increased level of cost recognized as Select's younger trees mature by another year. And additionally, yields are lower than the 2020 cycle result. Food division produced an improved result on the back of improved margins and value added almonds produced into the industrial market.
Additionally, there's been new lucky product range in the major retailers and continued growth with Sun Soul New Zealand. Lower corporate costs are due to lower employee payments, including short- and long term incentives and reduced discretionary spend. Moving to the next slide, which is an EBIT waterfall. This clearly shows visually the impact of the Waira item for us reducing year on year the half year result of $25,000,000 There's a small benefit from water savings in the first half, and this is due to the lower price. The benefit will increase considerably going into FY 2022.
The half year result benefit is reduced to the large water large volume of carried out water from FY 2020 that came in at a higher price and the increase in expenditure recognized due to trade maturity profile. So more water has come on to our P and L. The triangle additional volume has contributed $2,700,000 in EBIT. And as mentioned earlier, cost per kilo have increased. Just going on to our sensitivities on the next slide.
Whilst 40% of the 2021 crop has been processed, 50% contracted for sale and 80% of the exportable crop hedged against the USD, there are still potential for some movements. As shown on the table, there are 3 areas that are very sensitive to a small movement in the in their drivers: the crop size, the crop price and the U. S. Dollar rate FX rate. You can see there that the sensitivities are pretty clearly showing.
And this is the sensitivities are based on the whole crop, the price and the FX, not on the amount but still unsold. Just going on to our next slide. This slide gives us, as shown on this slide, select cost per kilo for the 2021 crop has increased, and this is mainly due to 2021 yields being lower than the 2/20 record result and the higher recognition rates for our immature orchids. As the pie chart shows, while a large portion of these costs are considered variable, they are fixed in nature. For example, there's a fertilizer program in place during the growing cycle.
This is committed to cost based on an assumed tonnage. We don't change that as the year goes on. Overall, costs only increased by 1.4 percent sorry, cash costs only increased by 1.4%. The higher overall increase was due to additional depreciation from the Triangle Orchard Maple. Bankers.
Balance sheet remains in a very strong position. Despite the lower earnings results, Select's gearing position remained relatively low at 21.7%, and all bank covenants were met for the half. Current assets are higher due to the inventory of biological assets as a result of additional crop related to buying book. The increased sales have also led to receivables being higher as at the end of March. Non current assets are higher due to the acquisition of Pineapple coming under the balance sheet.
It's worth noting that all lined orchids and water assets that are on the balance sheet are outside that cost, which is materially less than their current market values. Bank debt is higher due to the portion of the Plaguel acquisition that was debt funded, and bank debt is forecasted to reduce in the second half as 20.21 Finally, on to our cash flow. Usually for the first half, Select produces a positive operating sorry, unusually for the first half, Select has produced a positive operating cash flow. This would normally be negative in the first half due to the growing and the harvest costs offset by the second half when the bulk of the crop is sold. The reason this year produced the first half positive operating cash flow is that a significant portion of the 2020 crop sales were delayed due to COVID-nineteen.
These sales accelerated in the first half of FY twenty twenty nine. Investing cash flows were dominated by the PayEngle acquisition. Other investing cash flows were in line with the prior corresponding period, other than additional $4,400,000 of permanent water that was acquired during the period. Thanks,
Great. Now I'd like to turn to the market outlook. As many of you be aware, 80% of the world's almonds are growing in the Central Valley of California. And as I said earlier, 20 the crop was 20% larger than the previous years. It is no doubt that the size of the U.
S. Market are the price setters for the market. The 2021 crop is due for harvest in August. Currently, industry forecast predict the inventory between seasons will be 8 weeks stock, which is a very manageable carryover, whereas last year, the carryover was larger. The size of this year's crop is the topic of a great deal of conjecture within the industry, with industry consensus well below the U.
S. Department of Agriculture's forecast of £3,200,000,000 As you can see from the slide, the marketable crop will be somewhere between 10% smaller or 2.5% larger than last year. This is extremely manageable from an industry perspective. What's going to influence the size of this crop is going to be the impact of the California drought. Ironically, droughts are the best growing conditions for almonds on the basis you have sufficient water.
The current allocations being deliberated in America means it's very questionable whether there's going to be sufficient water for them to grow a large crop. The conditions that are in the market at the moment and from a water based perspective and that being snowpack, aquifer and reservoirs is very similar to the 20 14, 2015 period where almonds pricing moved up to over AUD10. There is one big difference between the 2014 2015 drought is there's been an additional 400,000 acres of bearing permanent tree crops put into the Central Valley. To put this in perspective, they planted over 3 times the Australian almond industry into the valley. The available water is the same.
We've come through that this has been accounted for in the crop estimate on July 12 when the Department of Agriculture, the U. S. Department of Agriculture releases the objective estimate. At the moment, market pricing has really has firmed slightly, but there's a lot of subjective as to whether or not it's been fully built into future pricing. Yes, a couple of other things to note in the industry forecast is the slowdown in growth moving forward.
As you can see, there's been quite a dramatic growth in the past 5 years. It's certainly slowing down in the next few years in America. And the impact of the water legislation, which is unknown and probably hasn't been built into these waters. From a macro perspective, the impact of that legislation is that between 25% to 35% of all agriculture in the Central Valley is going to have to lay fallow. Now whether or not that is almonds, how much of that is almonds is not being determined, it really does depend on industry profitability.
The index of the appendix of the presentation contains a lot more detail about both the U. S. And the Australian conditions moving forward. Last night, the California Drought Monitor was released and 26% of the state is in exceptional in its exceptional drought condition, which is the highest drought condition. That is a movement of 11% in just 1 week.
As I said, demand has been very strong for plant based proteins, and they are becoming a more of a staple part of our diet things like almonds. For all the pain of the low prices, it can be said this is about the best marketing tool for driving future demand as almonds become used in more and more snacking, confectionery, bakery and beverage products. As you can see here from this chart, you can see the sort of momentum that is building with double digit growth in exports for almonds into mainly the Asian European marketplaces. The industry through its industry marketing boards are continuing to invest heavily in the Indian and China and the European market. The health benefits of almonds are so well known that in India, they've been described as immunity boost enough by the government encouraging consumption during the COVID-nineteen period.
If supply can't meet demand, inevitably, price must shift up. Our strategy remains unchanged is to become a supplier leader in plant based foods, namely almonds. It's basically around our strategic priorities to optimize our almond base. That's becoming through becoming more productive and potentially acquiring additional almond orchards, growing our brand, particularly in the B2B environment and obviously expanding strategically in areas where we think that growing almonds is going to be long term viable proposition. You can see here that we have the growth built in and our volumes are assured moving forward from here through the year 2028.
And this is on the basis of the maturity profile of our orchards becoming older. Our focus is on the triple bottom line of people, planet and profitability. If I look at our 2021 to 'twenty two focuses, we recognize that we're recognizing the need to direct proof ourselves with ongoing focus on minimizing the usage and the mitigation of the water risk is one of our key activities. Last year, we published our sustainability report. The next step is to set more some more stretch goals, particularly in the environmental quadrant there or planet.
We have the opportunity to commercialize our excess co waste at our Greenaway Processing facility, selling it into other horticultural industries. Labor has been challenging, particularly in regional Australia, as you've seen. We're very dependent on casual and island of labor when we do harvest. We had no concerns with this no issues with it this year, but we're already planning for that next year as COVID seems to be continuing with closing the borders. As we've grown, our systems have been have become inadequate.
If we want to be to get great people and have engaged people, we need to improve our systems. And also, we need to have make sure we have the appropriate developments and plans in place. And clearly, the investment in Carina West to make sure we can take on both the capacity and the future capability that we're moving from Thomastown. I'll go through our top ten priorities, our safety and well-being. It's making sure that our horticultural programs are in place to deliver a big crop in 2022, completing the execution of the food business restructure, adding further, as I said, further capacity into our processing facilities, managing both absolute cost and cost per kilo, marketing programs to ensure we're the preferred supplier of that product into the marketplace.
Clearly, with that sort of volatility, managing both our cash position and balance sheet is critical, growing strategically as opportunities come up, selling the crop completing the sale of this crop at the price we forecast and managing our capital investments. Andrew, I'm open to questions. Thank you.
Thanks, Paul.
We've got a question here from Paul Jens from PAC Partners. So I'll let him into the room. Paul, can you hear us?
You hear me?
Yes. All good.
I'll hand over to you.
Okay. Just wanting to talk about the M and A opportunities in Australia. With the prices we're at, I suppose it's to me out of processes both here and looking into the U. S. That are making money.
Is opportunities opening up for you in this low price environment?
We're aware of several assets which are for sale at the moment, Paul. We obviously have to be conscious of where we sit from a balance sheet perspective and actually the value that these properties deliver to us. We're very conscious that the cost of growing is different in different regions and they bring different issues with them. Some of the properties we put a line through without looking at, if there's something that's attractive, we'll certainly have a look at that mature orchards. I'd say most sellers' expectations are probably above where we sit today, and there's probably a need to recognize where the market prices sits and the sort of cost imposters that are potentially moving forward in the industry.
And then on the U. S, any comment on the U. S, Paul?
Look, we're not engaged in anything in that area at the moment,
Paul. Okay. Thank you.
Paul, we have another question from Alex Patton from Citi. I'll put him in there.
Afternoon, Paul and Brad. Can you hear me?
Yes. Hi, Lance. Awesome.
In your release, when you say you anticipate the second half twenty twenty one results to be similar to the first half, are you talking about EBITDA or NPAT or another line item? Or am I reading that incorrectly?
Well, across all of the because we recognize half of our result from the fair value point of view in the first half and obviously, the second half has the other 50%, unless one of those factors that we spoke of earlier changes, then the second half will be very similar to the first half across EBITDA, EBITDA and impact.
Okay. Cool. I just wanted to make sure that was the case. So I think in the March update, you said you'd sold or committed 20% of the crop at $6.60 a kilos. This $6 average price kind of implies a big shift for the remainder 30% you've committed probably implies a price around $5.60 a kilo.
Is this just due to different quality grades or has pricing really deteriorated that much in 2 months? Because the export data would suggest otherwise.
It's mix. It's mix. We as I said earlier, I mean, our export programs like 75, 25 and the majority of that is in shell orientated. So it's a mix issue, Alex. There is a chart in the back of the presentation that shows you that pricing has improved, particularly for nonpareil varieties, whereas the other grades have pretty much stayed the same.
Okay. Yes. Cool. I would have assumed you guys would have benefited from some of that non brow strength. Is that right?
Yes.
Okay. And one more for me. With the food business, treating that brand those branded sales and non almond stuff as a discontinued operation, the EBITDA margin seems to have improved markedly to about 13% in the first half. Is this level of margin appropriate for that food business going forward?
Yes. So that's all that component of our food business going forward is all our value added components. So for example, let's see your baseline, let's just slice and slivered overseas. So yes, those margins going forward are right, bearing in mind also that our production facility in Thomastown will no longer be part of that. So that's all product that's produced up north in our factory in Robinvale.
That's very clear. That's all from me. Thanks, Alex.
Paul, we've got a question from Jonathan Snipp, Bill Potter. I'll put him through.
Yes. Hi, guys. Can you hear me okay?
Yes, Jonathan. How are you going?
Yes, good. Just a couple of questions. Maybe first, just following on for the pricing one earlier, that 50% of the crop that you've committed, at what price point have you actually committed to that?
So the 50% that's committed is is it's committed at a price over $6 at the moment. But as Paul mentioned, we obviously have a also have a trial of manufacturing grade product that will come in into the mix later on that will draw that price back down to the $6 that we estimate.
Okay.
And where are you seeing spot pricing at the moment?
Well, that depends on what product or what grade we're looking at.
I think historically, kind of in the last update, I think you said it was like $5.50 to $6 is where the spot has. Has that moved up since then? Or is it kind of happening still?
John, if you refer to the graph at the back of the slide, the non Piraeus price has definitely moved up a little bit. The other stuff stayed about the same. And then you've got back out a little bit of currency there because of currency depreciation. So look, it's in the same it's similar zone.
Okay. And can I just ask a question around the cost structure? And in particular, I guess, I'm going to reference the depreciation rates and as well the kind of comment in there that you bring on some of the younger trees and so it's creeping up the cost per kilo. And obviously, you guys capitalized some of these costs as the orchards are maturing. But the PP and E, particularly listed a lot, the depreciation really hasn't followed suit, which would kind of suggest that there's probably a fair bit of triangle depreciation still being capitalized.
Is there any way you can give us an idea of how you expect, say, not just this year, but looking at next year and the year after, as those orchids mature, how do we think about that shift in capitalized costs coming onto the P and L as an expense going on?
Yes. There's something that I can go through just in a bit more detail with you offline, John. But it's fair to say that we had some of our immature orchids had a spike up in production in the last couple of years. So there were some cost benefits that flowed through from that. And now they're flattening out to a level which was sort of more expected.
So that's why there's been from 1 year to another, there's been a bit of an increase in that cost per kilo from immature which is. With our capitalization that we do over a 7 year period for younger trees, we try to average that out so that the capitalization of costs increases with the level of production that those trees produce. But as I said, some of these younger some of these immature orchids that we put in place recently have exceeded their production in their younger years, which meant that, that capitalization rate and the production has sort of hasn't quite matched up as it had
previously. Is there a simple way where you can say, I guess, this year's cost per kilo move, how much of it kind of reflected costs that, say, were capitalized last year in terms of water and, I guess, operating, which would then expensed this year? Is it like a simple number we can reference? Is it that 3 that's in the bar chart? Or is there a little bit more in there in addition to that?
Sorry, which 3 are you talking about?
I think you had one further where you had the movement year on year in the EBIT. Think it was the EBIT waterfall one right back up that one. Yes. Is it simply that growing cost, that $3,000,000 Is that the number I should be looking at? Or is there other components of it fixed in elsewhere in the the
Yes. So that growing cost, that's the pure that's the increase in costs that have come under the that's the increase in costs that have come under the income statement for the half. So that's $5,800,000 for the year, increasing brining costs that have been recognized.
Okay. All right. Great. Thank you.
Thanks, John. Paul, we've got a question from Simon Khan of Investors Mutual. Simon, can you hear us? Simon, are you there?
Can you hear me now? Yes. Cool.
Here you go. Brad, quick question on the balance sheet. Can you just you got your PP and E quote as 430,000,000 because it's a half year canceling unit breakdown. And I think in the slide you say some of that's a cost and others at market. Can you give us a breakdown on the 430 in terms of what's in there and then just in terms of what the market value might be, more reflective of the current asset prices in agricultural assets?
If you go if you have a
look at our annual report, we sort of break it out there. That was at the year end, it was at the end of September. If you bear in mind that market prices and permanent water prices probably haven't shifted much from that point, then that will give you a good indication as to what the variances are between what's in there at cost. We don't so we don't mark we don't revalue any of our assets on our balance sheet. So anything that was acquired in prior years is put in there at the acquisition price.
The only recent thing that would have come on board would have been the Poynyl acquisition that we did that we put on board in December. So and that's all sitting there in our noncurrent asset line that we've got there. And you can
see there, if you look
at the cash flow, that will give you a bit of a breakdown in terms of what when we've done the PP and E or what the uplift in the investing cash flows are, what we paid for the or went out for the Pineapple acquisition of 138,300,000 which included some water as well.
Is it a $124,000,000 sorry? The $130,000,000 okay, the $10,000,000
Yes. If you look at
the cash flow slide there, your partial acquisition is $138,300,000 dollars So that was 129 for the actual orchard itself and then there are other costs on top of that relating to the capitalizing and so forth. Included in that number is 13,500,000 orders.
Okay. So the triangle was in the half, Brad? No, it wasn't?
Yes, it is in the half, yes.
You're referring me to the annual report in September. The triangle was
that wasn't in there. So if you take triangle, we pay market price for triangle. So assume that hasn't moved. If you look at the annual report, it's all our other owned orchards. We've given an indication there as to what the value is coming in at as opposed to what our cost price is.
So those valuations you think are current?
Yes. Nothing much has changed since that time.
Okay.
Thanks.
And in fact, we did valuations again of our orchids when we did the for bank purposes when we acquired Pineapple. And if anything, those valuations have gone up a little bit from what's in the annual report. But that's a non audited valuation number.
Okay. And just obviously, India has obviously locked with the COVID issues over there. Can you just talk about logistics getting product into India and payments and how that's going?
I mean, it would be fair to say logistics generally is pretty bound up. I don't think I'm telling anybody don't know about logistics and moving stock around at the moment. But we're definitely getting product into India. Initially, when COVID was announced, there was real concern that all the ports would close down and the ships wouldn't go in there. That's sort of freed itself up.
We've also tried to tranship into we also which port we can ship into is not necessarily the one to want to, but we can get the product moved internally. So there is a slight delay. Looking generally, Indian market, we're talking to the people in the market is very buoyant still. And they ironically feel that they're sort of on the other side of COVID, some parts of some of the people I'm talking to. So it seems very strong.
And there's no real in shell left in the U. S. Market, so we're really having pretty good run at it at the moment.
Right. And do you
have any update on China, what's going on there?
Look, China, there's no direct interference from the governments and us trading in almonds. We haven't got any concerns such as other industries have at the moment and hopefully we won't have. Definitely, some of the anecdotal stories you hear about challenging getting stuff reports and things like that, we're certainly aware of that. Really, what we're having to do is make sure whatever product goes in there is in all the documentation is right, everything is pristine, there's no quality concerns. So we're having a higher level of governance around ensuring that what is in the documentation specifically matches the documentation, which may sound pretty yes, don't you do that every day?
But it's the little things like if the label is supposed to be printed in black, it's printed in black and dark blue doesn't do. It's that sort of stuff. That's the sort of detail we're going to. And we haven't experienced any issues to date. And they're an important market to us.
And the product appears to have strong demand still.
Okay. Thanks, Paul. Thanks, Brian.
Thanks, Simon.
Paul, is it Mark Topi from Select Equities?
Yes.
Mark, you're good?
Mark, are you there?
I might answer a couple of the investor retail questions while we wait for Mark, yes? Somebody asked, I've got a question here. What would the impact be if the almond price was 7.50 dollars Look, just take it, it's $1.50 times 28,000 28,000 tons 2.50 tons. I mean, the cost would be pretty much the same. All of that would drop through to the bottom line.
I don't think you feel any different about that, Brad, that answer?
Exactly. That's right.
Another question is, would we consider developing orchids in Western Australia? Not at this stage. There's still opportunities in the Murray Darling Basin. Issues with infrastructure support, it's 3,000 kilometers away from their processing center. There isn't enough industry infrastructure to support investing in greenfield acres into Western Australia at this point in time.
I think that's the only two questions I've got so far.
While we're waiting for Mark, I've got James Ferrier here from Wholesale Advisory.
James, can you hear us?
Yes, I can. Thanks, Andrew. Can you hear me? No worries. Yes, perfectly.
Hi, Paul, Brad. Thanks for your time. And apologies, I did join late. So if I'm going to ask you a question that you've already answered, tell me to move on and we can take it up later. On Slide 12 of the presentation, which shows a profile of production costs, can you just clarify the definition of that production cost?
Is it as simple as saying crop volume times price equals revenue, less EBIT is your production cost? Is that how you calculate it?
Roughly, gentlemen, these costs are actual costs that are that go through our income statement or that we costs that we recognize. So these are actual costs. But yes, the cost per kilo is, obviously, the total cost bucket divided by the number of kilos that we produce.
Yes. So I guess, is it a number that we can reconcile based on the accounts that you disclosed to the market? Or are there balancing items that we'll sort of never see?
So there are some other factors that aren't included in here. So for example, if we process product for 3rd parties, if we are wholesales, sale on assets, a number of this is just purely on the actual crop that we produce and the cost that relate to that crop. So that will give you the fair value on the crop. So the profit for the actual crop, I think, is around about $12,000,000 And then there are other factors that are on top of that.
Yes, okay. Good. That's helpful. And the outlook for farming costs or production costs in the year ahead? I think you made reference specifically to water costs and the quantum of benefit you're looking at there beyond water?
We're not seeing at this point, we're not seeing any major up in our costs. So other than the fact that our lease costs will rise year on year with CPI increases, but all our other costs should remain relatively flat. What will impact the sort of cost per kilo, if you like, is our yield performance going forward.
Yes. Okay. So when you think essentially, if I can paraphrase what you're saying there is on a cost per acre, you're talking pretty flat. But if yield performance improves or sort of stays at these reasonably good levels, then the cost per kilo can come down?
Correct. Yes. That's right. Yes, okay.
Thank you for that. The food business, I can see in the accounts you presented the continuing and discontinued earnings. Is the continuing business earnings for food, is that indicative of its full potential post the changes? Or are there still a bunch of other changes that you can make that could potentially see further improvement there?
That number that's in there is sort of is a like for like, if you like. So if we transfer what we're looking to transfer up north, that's the sort of numbers that we'd be looking at. It doesn't take into account any further possibilities of additional products we may be able to do up north. But there is no large expenditure items that still need that will be in there.
Okay, great. And then the last one, can you just explain the difference between the P and L interest expense and the cash flow interest cost? It might be an AASB 16 thing. I'm not sure that just sort of pretty small number versus about 7 or 8 on the cash flow statement.
Yes. That's exactly where the differential is for the recognition of AASB 16.
Yes. Got it. Okay. Thanks for your time, guys.
Thanks, James.
Thanks, James.
Well, we've got Matt Taipi. And again, I
think he's having some issues before. But Matt, can you hear us? Can
you hear me? Yes. Sorry. Can you hear me? Sorry.
Sorry about that. I'm sorry to switch on and off buttons. But Paul, did you mention you see globally this increased demand with the lower almond price? I'm just wondering if you might be able to expand on perhaps where you see it coming from and how sustainable that might be going forward in terms of the total demand picture?
Yes. If I go through the regions, India has been the star performer. It's become the 2nd largest market in the world. And that's definitely you have to say in China, the more price sensitive markets. But every time we as an industry grow, it sticks.
And I think you can't underestimate that if the government comes out and encourages to eat these products, you can't just underestimate that. China has definitely bounced back, back to pre COVID type volume. So that's going well. Europe has been a very constant despite all of their market closures. It's continued to grow at that sort of 6% to 8%.
America has been a little bit softer. But what if you look in the underlying numbers there, it's manufactured products. So it's ingredients product, it's beverage products have been very solid on the way through. So all of those markets, we can see ongoing growth there. Look, our domestic market ironically grew 10%, which is pretty unusual.
And a lot of that is put down to baking and more people working from home. And some of the European markets have experienced the same thing. And it seems that if people stay at home rather than in all economies, they actually eat healthier than they are when they're on holidays and things like that. So that's where we said, right? Thanks, guys.
It's in a lot of it is driven in what I'd say is more price less price sensitive areas where we add 100% of the product cost.
Yes. Okay. And you alluded to the lower water cost as is at the moment. Can you just maybe talk us through what you see in that component of your, if you like, spot purchasing going forward? What's the sort of strategy Do you try and lock in at this point?
Or do you wait and see how the season unfolds in terms of water prices? Can you talk
to that perhaps a little bit? Yes. The reality is we have to carry some water
over. And more it's
just as much of a risk mitigation thing as anything because the allocations don't come out the 1st day of the year. So we do need to carry some water over and we always do and we'll there's a certain ramp of water, which we'll always carry between season, and then we may well top up on that. This year, the outlook is for the next quarter for above every rainfall. So we'll be carrying stuff over. You'll see that all general allocation water in New South Wales and Victoria, some of them had no allocations.
Where we sit today, you've got to save it a couple of years of that water there, which will keep a ceiling on pricing. Entirement pricing hasn't moved at all. So that's, I think, a function that there's more permanent cropping in the valley. So people are acquiring water as a risk mitigation strategy similar to ourselves.
Yes, okay. And if I recall correctly, just in terms of what you deem to be your optimal mix, did you have to acquire some more permanent water for Piongill going forward?
Yes, we've acquired a little bit of that. We're probably below our strategic number at the moment. And yet we're just taking the time to accumulate that over time rather than rush out into the market, looking at our current profitability. And also, when we go into the market, we don't want to signal the level of activity we've got or what we want to get.
And just fair to say, looking at your commentary on that water side, some of the more frenetic sort of activity around water purchasing might be slowing down a bit there? Or is that kind of the sort of takeaway from that chart on future water purchasing?
I think the market look, the people getting full allocations and high allocations, the pressure on the water market is clearly a lot less.
Yes. I'm just trying to think through some of those major projects that are kicking around,
whether some
of those have gone away or not.
I was going to make projects by us or by Oh,
no. Almonds, olives, the whole kind of
There's still plantings going there. They're definitely coming down the number of there's a lot less new plantings from nursery sales going forward than they are today. I think we're a bit like that chart that we show in the U. S. Where I think we should go to a similar level of activity and there'll be a similar level of flattening because people are concerned about more availability and more deliverability.
And you've got one state government that's not issuing any licenses, the Victorian government. So that's potentially a fair opportunity there.
Yes. And there's no negative sort of implications to you from this whole Murray River review and so forth that you can see?
No. I mean, probably didn't get our wish list on, but no, there's no negative change.
And just perhaps lastly, so historically, in terms of where you're positioned now on your forward sales of arms is probably a little bit less than historically. So I'm just your confidence level around that selling the balance of 50%, you're feeling pretty confident around that and maybe seeing a little bit of a positive price movement there?
Look, I think what I outlined in supply and demand says in theory, the pricing should be moving in a upward direction. The only thing that can there's only 2 things that can disrupt that was one is the currency appreciates faster than price and the other one is that we don't have the quality that we think
we have on the crop. Sure. All right. Okay. Well, thanks very much for that.
Thank you.
Thanks, Matt. Paul, we are all out of questions.
Okay. All right. Well, I'd like to thank everybody for connecting up. And for those of you we're going to see in the next couple of days, Look forward to seeing you via Zoom or Teams. Unfortunately, as Victorians, we're not moving too far.
Have a safe weekend.
Goodbye.