Good morning from me as well. As Andrew said, welcome to the Select Harvests 2025 half-year results presentation. My name's David Surveyor. I'm the Managing Director and CEO of Select Harvests. Joining me delivering this presentation is our Chief Financial Officer, Liam Nolan. Next slide, please. The 2025 full-year results presentation will be delivered by webcast on the link displayed as advised for the ASX. After Liam and I have delivered the presentation, there'll be time for questions before we commence our investor roadshow. To ask a question, simply raise your hand via the button on the screen. We'll progress you through the queue, and you'll be given the opportunity to ask your question. In the event we have outstanding questions at the end of the allotted time, please contact Andrew Angus via the email on the screen, and we'll deal with them subsequently. Next slide, please.
This slide simply outlines the disclaimer and basis of preparation of information contained in the presentation. Next slide again. In terms of the agenda, I'll start by providing a business update before handing over to Liam, who will discuss the financial results in detail. Following Liam, I'll discuss strategy and the forward outlook before we both take questions. Next slide, please. To set the scene on today's presentation, there are three observations we would make. The first is that over the last couple of years, we have consistently spoken about the almond macro heading into positive space and this supporting price. We think this is now increasingly apparent to everyone and remains our forward prognosis. Secondly, the company's self-help activities delivered through our PMO are making a difference.
It's evident in the results we are seeing: record safety, tight cost management, better farming practice, step-changing processing, and increasing price capture. Thirdly, in terms of financial discipline, our focus has been on driving the base business. Profit is increasing, and despite a lower growth, it's a turnaround approaching AUD 150 million over the last three years of results. We have a drive on cash and net debt reduced by half and no big capital spends that stretch the balance sheet. Rather, our spends are smaller continual increments for gain. Next slide, please. If you move to talk about safety, people are critical to Select Harvests. We continue our focus on safety improvement. Our TRIFR, as at the full year, was a record 5.5. I think it's reasonable to say that at three years of high performance, we have demonstrated step change in safety.
We're driving a clear sense of deep and felt safety leadership through our people. We're training our people. We're raising the visibility of safety across the organization. We're reducing workplace incidents and hazards and ensuring compliance. Just as with running a business, you never get to perfection on safety. We're not satisfied. We still have much to do to achieve our sustainability goal of zero harm. The Bradley curve shown on the right-hand side is a framework to measure the maturity of an organization's safety culture, and we still have a long way to go. Our position on the curve evaluates how deeply safety is embedded in behaviors and attitudes across the workforce. As our safety culture matures, injuries and accidents decline dramatically, and operational efficiencies increase. We're now starting to see safety become self-sustaining with energy from the shop floor and farmhands.
If we go to the next slide, please. In terms of the almond macro, the global demand and supply dynamic is in great shape. This slide provides a sense of key data and key drivers. On the demand side, prices have been increasing as the long-term global almond economic macro has improved. Noting there was a mid-year dip when talk of a 3 billion-pound California crop surfaced, and we will talk about that more later in the presentation. Total global demand continues to grow with CAGR at 5%-7%. Food megatrends continue to favor healthy foods and convenience foods, both of which are almond positive. As a further comment, we are seeing positive global sentiment towards Australian supply, and Select is recognized by customers as being more connected to the market and more physically present than others.
We also note that ultra-processed foods are getting negative press, especially around snack eating. This makes almonds even more attractive. In terms of unit production costs shown on the bottom left of the slide, Australia has a significant relative competitive advantage to the U.S., this being a function of operational costs and yield performance. We've used data from UC Davis in this analysis, but we've taken a conservative approach to the size of the differential and note others have assigned higher unit cost disadvantage to U.S. growers. On the supply side, California represents approximately 80% of global supply, and almond acres appear to have peaked at 1.4 million bearing acres, of which approximately 20,000 acres may be abandoned, and plantings have reduced over time.
The 2025 planting number is not yet released, but anecdotally, it's being reported as continuing to reduce, with an estimate of only perhaps 3,000 new acres being planted. Australia is about 10% of global supply, and forward volumes are also reasonably flat. The time to maturity for trees is six to seven years, so the supply side cannot quickly respond to an uptick in demand. We have a very positive almond macro that is sustainable over at least a seven-year horizon, and relative competitive advantage where Select Harvests is well placed to benefit with very good medium-term pricing. We can go to the next slide, and we'll talk about our financial results. The company has delivered a meaningful improvement in net profit after tax to AUD 31.8 million, with a return on capital of 6.8%. This number includes a profit of AUD 5.8 million on our water rebalancing strategy.
The board has determined there is no dividend to be paid this year, and this reflects the company's focus on continuing to reduce its debt levers. The company is conscious of the need to balance debt reduction with paying dividends, and once we get debt down, then dividends will resume. It's worth noting that the company has made AUD 31.8 million in a year when the Australian crop size was smaller, and so the results reflect the broad improvements being made in Select Harvests. The average price for the 2025 crop was AUD 10.18 per kilogram, and we recovered a couple of extra tons in the final few weeks to finish at 24,903 metric tons.
It was a year that included some price volatility, and we saw this when the U.S. objective forecast was released in July, and prices dropped by 20% and then recovered as the real crop size has become apparent. Operating cash flow was AUD 118.6 million as we accelerated sales and bettered down our logistics capability. This is the price we struggled to deliver in our first attempt at logistics, and the obviousness of the opportunity should now be apparent to all. We think there is further opportunity in this space to drive on a lower working capital position and increase cash generation. Net debt has halved and sits at AUD 79.1 million. This year also saw the company refinance its banking facilities with new terms, moving to three and five-year money to reduce our risk and also lower our costs.
Now, what I'd like to do next is provide some more detail on each of our key results drivers: volume, price, and cost. If we could go to the next slide, please. I think it's difficult to escape the fact that the 2025 crop was disappointing for the entire Australian almond industry. A lower crack-out rate from thicker hulls and some frost damage did not help. This year, we once again operated an earlier harvest, 10-14 days varying by farm, to optimize hygiene and reduce insect damage. We've continued our work on shaker oscillation frequencies and trialed new shakers for increased efficacy of removing nuts from trees. This was successful, and we have ordered 24 new machines. I think the company did an exceptional job in getting harvest complete and looking after the quality of the crop.
Now, the positive, however, of a small crop is that it helps drive innovation in approach. Operationally, we ran a pilot program to see if we could extract further kernel yield from our hull pods. The answer is we can, and I will talk about this more fully later in the presentation. Next slide, please. As I've already noted, the company delivered an average price over its full crop of AUD 10.18 per kilogram. Now, earlier in the year, we started to give the first sense of Select's work in getting a price premium for our products. We've continued to refine our work and measurement in this space. The top chart shows our performance against strata markets based on price at the time of signing a contract, the FX rate of the day, and an adjustment for tariffs. Now, the math for this requires some assumptions.
To the extent it's inaccurate, however, it's consistently inaccurate and so does not give variation by individual transaction. The work says that over the year, Select Harvests has taken a global commodity and delivered a price premium over the global markets of about AUD 8 million or 2%-2.4%, with some of this value benefit going to external growers. I'd caution, this is one year of data only, and it's happening in an upside, although we also saw the premium gain remain true in the mid-year price correction. I'm keen to continue building our data because as we prove the sustainability of our approach, it means we now bring extra profit leverage to every horticultural and processing improvement that we make. The bottom chart shows global almond pricing increasing from the start of the season and peaking in May, June 2025.
As I previously noted, we experienced a July price correction of 20% following the USDA objective forecast of 3 billion pounds and prices have since recovered. Now, the most recent October 2025 California almond position report shows a reduction in receipts of 7.97% compared to 2024. A direct extrapolation would imply a 2.5 billion pound U.S. crop, which we think does not capture some delayed receipts as the wet weather likely slowed delivery to processing plants. Therefore, we think a 2.6 billion-2.7 billion pound U.S. crop is likely, and the next California crop report will give further insight. The net result, in our view, is a further solidifying and increasing of price, and I'll give a sense of Select Harvests' outlook position later in the presentation. If we move to the next slide, please.
Total production costs, which is the cost of growing, harvesting, and processing, was successfully held flat in 2025 on a normalised 29,000 tons basis at AUD 6.71. Now, I specifically note comments by Dr. Brittney Goodrich on work done for UC Davis, saying that between 2019 and 2024, grower costs in the U.S. have increased by between 47%- 53%. Now, whilst the time periods are not perfectly compatible, it's a stark contrast to Select Harvests' ability to control its cost base over the last three years. This year, there were some notable improvements in the cost of labor efficiency, fertilizer costs, harvest costs, and processing costs, with some offsetting cost increases in water sprays and electricity. Now, let me hand over to Liam for a detailed discussion on our financials.
Excellent. Thank you, David. Select Harvests' net profit after tax is AUD 31.8 million, up from AUD 900,000 in 2024.
The key drivers of the result are a AUD 10.18 Select Harvests' achieved almond price, up 32.4% from 2024. This is offset by a lower crop size, as David previously mentioned, down 15.7% to 24,903 metric tons. Despite the rising costs in areas such as water, bees, and electricity, the company has managed to keep the cost per kilogram consistent with 2024, normalised to a 29,000-tons crop. Our lower finance costs are due largely as a result of lower debt and the part-year benefit of lower costs from the refinance of the company debt facilities. As announced at the half-year, the company has refinanced our debt facility in 2025. We refinanced the syndicated debt facility to three and five years and were very well supported by our banks, NAB, Rabobank, and welcoming Commonwealth Bank to the syndicate.
By extending the tenure and adding a third bank, we've reduced our future refinancing risk. Our total committed facility of AUD 240 million has a AUD 150 million limit for three years and AUD 90 million for five years. This structure provides flexibility for both short-term liquidity and longer-term funding needs. We've also been able to lower our financing costs, which include a 61 basis point reduction compared with 2024 and an over 200 basis point reduction on our overdraft facility. We currently have AUD 170 million in undrawn committed facilities, providing strong liquidity to support operations and any future growth. Next slide. 2025 EBITDA growth of 37.81% is essentially driven by the impact of the crop profit, up AUD 26.4 million from AUD 27 million in 2024. In the current year, we've benefited from AUD 5.8 million from the water rebalancing, which completed in 2024. The company balance sheet has improved significantly during 2025.
Through a combination of improved earnings and strong cash flows, the gearing ratio has reduced from 34% in 2024 to 15.1% in 2025. The strength of our balance sheet can be seen through lower working capital, lower lease liabilities, and most pleasingly, lower debt. Next slide. 2025 operating cash flows are up AUD 109.1 million to AUD 118.6 million. The cash flow generation included the carryover of 2024 working capital of around AUD 21 million, meaning the underlying operating cash flow generation was almost AUD 100 million before lease payments. The strong cash conversion from the AUD 82.4 million EBITDA is attributable to strong earnings, excellent sales velocity, and a step change in our logistics performance in 2024. We also had a very strong focus on our cash collections as we ended the financial year. Our investing cash flows were impacted by investments in the pre-cleaner and dryer, new shakers, Optimus, and the water rebalancing.
Our financing cash flows benefited from the AUD 17.4 million relating to the 2024 equity retail raise. All these strong cash flows and management of the audited cash are the key drivers to improve net debt to AUD 79.1 million. Next slide. For our 2025, management and the board have developed a capital allocation model. Today, we wanted to introduce the framework on how we deploy capital. In doing so, we have developed a framework that aligns with our strategic goals and objectives, and the model is designed to be attractive for existing and future investors. The first element of our capital allocation is around strengthening our core. With our first priority, as David's mentioned earlier, is on gearing and our intent to see our gearing continue to lower. It's very much the first priority, and it enables the company to operate freely.
Our base capital expenditure is targeted to be around 80% of depreciation, and this is very much focused on replacement CapEx. However, we are eager to invest in the business and specifically growth CapEx, which we broadly define as CapEx in higher returning initiatives. This could include, or this includes, investments like our new Harvest shakers and Project Optimus. A future action, which is not in any immediate plans, involves how we look to fund major investments. In this instance, we would look to fund these through a combination of debt and equity. Our allocation model is also focused on returning excess cash to our shareholders through a combination of dividends and buybacks based on their intrinsic value relative to the market. As a company, we are focused on deploying capital in a disciplined and structured manner to ensure the best outcome. Next slide.
This slide, it was brought up at the first half results, and I don't propose going through this in detail, but I'm happy to answer any questions later on. David.
Thank you. Next slide, please. All right, thanks, Liam. Next slide again. Okay, this slide shows our strategy coming to fruition. The historic view of Select Harvests has been based on profit in growing. This is the first time the company has decided to show profitability along our value chain. The company strategy is generating returns by broadening value creation beyond horticulture to encompass processing and sales. The investments we have made are low cost and high returning. This slide gives you more of a segmented view of where Select Harvests makes money. Our strategy is about firstly having substantially greater almond volume, secondly, leadership in processing scale and efficiency, and thirdly, maximising the return from the crop.
You can see value is created through not only almond horticulture, and in fact, in a year where we've had lesser almond supply, the profit results have been supported by our ability to process with excellence and maximize the value from the market. Most importantly, the three streams, when leveraged collectively, create the opportunity for cereal to perform superior returns. We continue to innovate and have new opportunities, which we will run through our project management office, and they position the company well to take advantage of the almond macro. Now, I'll talk about progress on strategy execution over the next slides and then connect it to the PMO and the value created. Next slide, please. The traffic light shows performance. The first strategic priority is substantially greater almond volumes. Whilst there's less green in 2025 than 2024, it's the result of the lower crop.
The 2026 crop will be the first full year of our improved horticulture approach. As we benchmark our farms against others, we are confident we'll get more yield over time as we optimize fertilizer, bee density for reduced flight distances, and water. There's a meaningful price for improvement, and an extra 1,000 tons comes with limited incremental costs. Controllable costs are being kept tight as we improve on-farm efficiency for sprays, seasonal labor, and organizational design. However, we are seeing increases in water, bee, and fertilizer costs going forward. A smaller Australian crop means a lower external grower volume. We have added an external grower liaison resource and expect to see some incremental supply growth in 2026.
We have this year continued our investment at Piangil to improve water drainage with phase I complete, and we will likely undertake a phase III drainage project and start to plan for the replant of some of the Monterey trees at Piangil. We have also invested in Mountview drainage dam improvements, along with a 12-hectare replant of an area previously lost to the 2022 floods. We are restoring productive land capacity. In effect, what you are seeing is improving the defensive capacity of the farms to weather events. The second priority is leadership in processing, and as with the farms, processing cost and initiatives continue with less line stops, packaging line efficiencies, and labor, etc. Having increased the capacity of Carina West to 40,000 tons, the investment in Optimus phase II is nearing completion, and I will talk about this project and some new initiatives on the following slides.
The third priority is maximising returns from the crop. Now, you have on the earlier slides seen the results of our price optimisation stream at AUD 8 million. Customer optimisation has seen an increase in direct supply, which is now approximately 50% of our business. From a selling perspective, it has also allowed us to build new quality grades specific to customer needs. By way of example, historically, mixed variety almonds were sold as manufacturing or standard five grade. By dealing directly with customers that use mixed nut and fruit combinations in bars and packages, we can sell mixed variety almonds at a lower price supreme grade as a lower price supreme grade almond. Instead of selling at, say, AUD 10 a kg, we're achieving AUD 10.90 a kg, and for the customer, they win with a discount on their sourcing of supremes because they are a mixed variety almond.
To our enabling pillar, logistics has been turned into a strength. We have data and analytics starting to roll out, and I think worthy of quick comment is our culture, with our employee alignment and engagement scores sitting in the top quartile of all Australian businesses. I mentioned continuing innovation being run through our project management office, so the next three slides will give you a flavour of those activities. Next slide, please. Let's start with Project Optimus. If you'll recall, we announced Project Optimus phase II, which was a 10,000-tons capacity expansion at the end of last year. There are, in essence, two stages to this piece of work. Stage one is complete.
We've automated the roller speed of our shear rolls to match their rate of wear and then balanced each of these shear rolls across decks to get the optimal throughput and not overload any one deck. We've also upgraded our hulling and shelling color sorter, so we take our lower quality product earlier and, in the process, ensure we do not overload the decks when run at faster speeds. The second stage is being installed as we speak, increasing the capacity of what was decks seven through nine so we can further balance flow volumes and get optimal throughput. Finally, increasing the conveyancing capacity to utilize our downstream sorting assets. This 10,000 tons will be operational for 2026, and we will have a total capacity of 50,000 tons. Next slide, please. Let's talk about kernel recovery.
During the year, we started to consider the possibility of extracting further kernel from our hull piles. In the picture, you can see us pilot testing a new approach to reprocess hull and recover any salable product. No other processor in Australia is doing this, and we have proven it's possible and expect to see a yield gain of approximately 3%. This will immediately drive increased profitability for our own crop and that of our external growers. It delivers an outstanding payback and, again, will be operational in 2026. Next slide, please. We trialled six new Harvest shakers in 2025 and have decided to back this up with another 24 shakers for the coming harvest. The new technology has improved efficacy for getting nuts off trees and may lead to lower costs if we can reduce the number of blocks of land that require reshapes.
The new machines will increase our ability to capture wind chill and ensure higher quality nuts as they are more quickly collected and removed from farms to minimize the risk of insect damage and mold. This investment also has a quick payback with the money recovered in less than two years. A number of the new shakers are already on water, and they are steaming towards us. Next slide, please. The project management office. We continue to use the PMO to drive outcomes within the business. It's becoming part of our DMA. The PMO in 2025 has net of inflation delivered AUD 16.7 million of value, and 2026 will see a continuation of the PMO with each initiative individually tracked and monthly board reported. Next slide, please, as we talk about the outlook and one more again.
Now, I haven't, in previous presentations, made a comment that crop forecasting is a fool's errand, and so I'm not intending to repeat this approach. We note the U.S., based on this year's crop forecast accuracy, is as equally challenged as Australia in this regard. This year's bloom was good, but it was relatively quick. We've not experienced the frost damage that we saw in the prior year. The single biggest challenge this year was bees, particularly in South Australia. The company mobilized and secured sufficient bees across all farms to allow a successful bloom, including sourcing bees from Western Australia. Based on a slow start to summer and cooler weather, we expect this year's harvest to commence approximately two weeks later than normal. A view on the California crop remains consistent.
We think they've reached peak acres, and ultimately, we will see the crop size reducing given the limit of replanting. The California crop receipts at the end of October, as I noted, are 7.97% behind prior year. There may be some catch-up to this number, but a 2.6 billion-2.7 billion pound crop seems likely. Quality is expected to be affected by insect damage and rain during harvest, and we see an implied carryout of 300 and something million pounds at the end of the California crop year. Let's move to talk about margins. We're seeing strong demand in India and China in the segments that we play. This, combined with a lower-than-expected U.S. crop, is positive for prices. In fact, prices are increasing now, and our prognosis is supply and demand dynamics will see prices continue an upward trajectory.
To provide some price direction, if you had a normal crop profile and the entire crop available to sell today, we would expect to see an average price of about AUD 10.30 per kilogram. I note this is higher than the current market consensus of AUD 10.07. Our long-term view remains there's continued global growth and demand at 5%-7% CAGR. Going forward, however, we do see some headwinds in our uncontrollable costs for bees, water, fertiliser, and energy. We'll endeavour to offset these through the investments in capacity, yield recovery, shakers, and our PMO. Select Harvests has already commenced selling its 2026 crop as we continue our approach to price optimisation and sales velocity and expect to continue to outperform the pricing benchmark. We have approximately 55% of the 2026 crop hedged at AUD 0.6485. Next slide, please.
I think to bring it all together, the company profitability is increasing with an almost AUD 150 million recovery from 2023, and our business model is evolving. The balance sheet is strong, and the company is looking to further reduce debt. The gains from our PMO are coming through, and we have more to deliver. The macro environment for almonds is positive, and we expect it to remain this way for future years. The company remains focused on maximising yields, processing, and expanding our midstream capabilities, capturing as much price as we can and staying tight on costs. Thank you, and I'll now hand back to Andrew Angus to manage just through the questions.
Thank you, David. We've got Josh Kannourakis from Barrenjoey. Josh, over to you.
Thanks, Andrew. Can you hear me okay?
Yeah, we can, Josh. Good morning.
Great. Thanks, guys. Appreciate you taking the time today. Just first question, just around into next year. You mentioned on the cost side, obviously, a little bit of a step up across a few of those things, but also some of the PMO activities. How much of that do you think you'll be able to offset of the sort of cost structure into next year? Can you just run us through maybe a little bit of a breakdown or a waterfall of how you're thinking about the sort of cost profile into next year?
You want to try and take that one?
Yeah. In terms of cost, we've highlighted there are some pressures, particularly relating to water, bees, and electricity. Roughly, at a higher level, we're seeing water specifically being quite a big number in 2026 as an increase. The total lowest total costs are sort of roughly around AUD 20 million that will go into the cost base in terms of just the hard inflationary increases. In terms of offsetting those, we've got initiatives that really are driven around improving yield, as an example, through kernel recovery and the shakers project, just to name a few, to really offset those. We would be targeting to offset as much as possible, but probably a large portion of those will be offset.
Okay, great. Thanks, guys. Second question, just in terms of the value-added and third-party processing side of the business. I know you guys don't split it out separately, but can we just talk a little bit about maybe the delta from 2025 into 2026, how you're thinking about that? Because it feels like that also could be tailwind into next year.
Yeah, I think correct. We think there will be some tailwinds on that. There will be a couple of things that drive it. One of them is that, as I mentioned, we expect to get a little bit more volume in terms of third-party volumes through the business. That will translate and it will come through. We have previously said it comes through at about AUD 1 a kilo, and we would imagine that number will continue as we grow those volumes. There will be some profit tailwinds. The other thing that has really changed is that in our value-added part of the business, we have had some fairly meaningful price increases in the last couple of months. In some respects, that, as much as anything, is reflecting the fact that we often sign contracts, particularly for things like Pace, which might run for a full year period.
The acceleration that we've seen in almond prices, that's now starting to flow through into those contracts for some of our value-added products. We'd expect to see some upside in that as well.
Okay, great. Thanks, guys. I'll pause now and jump back in the queue.
All right, David, we've got Mark Topy from Select Equities. Mark, can you hear us?
Yes. Good morning, Jens.
Good morning, Mark.
Just my questions, firstly, around the global trading. China, you've talked previously about the third-party relationships and the direct you're building there. Can you talk us through just how you're seeing the China market and also the India sort of global trading and just that background to the compound growth that you're seeing in the market on the demand side?
I think yes, absolutely. If I sort of refer to my comment, we're seeing both China and India being strong for us in terms of the way we run the business. We have actually increased, I'm slightly guessing at the number here going from memory, Mark, but I think we increased our volumes in China by about 3%-5% actually year on year. We remain very positive about China. We're certainly conscious of the fact that people do sometimes talk about the China economy suffering a bit. As I think I've noted in other conversations, we just haven't seen that in the way that we operate. We think that's because we've increased our customer base and that we've increased the amount of direct supply that we've got. We've got a much better insight into the marketplace and better connection, I think, with customers than we ever had before.
I think those things really help support our pricing position in China. I gave an example during the presentation around one of the ways, but we have several that we use to ensure that we maximize the price position that we're getting out of that market. In India, we again are seeing good, strong demand, noting, of course, that India is more of an in-shell market. Again, we've got a lot of inquiry and demand coming through, and we've made sales to both India and China as it relates to our pre-selling of the 2026 crop.
Great. As a follow-on, just on the tariffs, I know the flux around the tariff sort of position changes all the time, but can you give us a read on that U.S. tariff sort of position at the moment in the China market?
Look, the U.S. tariff at the moment is sort of operating at about 45%. We're not acting on any basis that says that we think it's either going to increase or decrease. If it did, let's just go to the positive. If it did increase, I think the practical reality is that there is a certain price that the Chinese consumer is prepared to pay. Almost no matter what happens to that tariff, it becomes academic because we've sort of reached the point where people aren't going to pay more. Equally, if the tariff went down a little bit, I think there's still a bit of room before we'd start to see any impact in pricing.
The other thing that's, I think, key to ponder about the U.S. tariff decision or the retaliatory tariffs more so as it relates to China's response is that whilst direct U.S. supply into China has greatly reduced, you've essentially seen the fact that China always, if you like, always finds a way. You have seen volumes going into China via Vietnam and via Malaysia, and they have greatly offset the direct supply that was going in. It is just an alternate channel that has become the route to market for U.S. supply.
Great. Just your pricing around that, so I suppose we sort of factor some tariff benefit in our future pricing, I guess that is where I was getting to.
Sorry, say that again, Mark.
Yeah, just factor in some future benefit on the tariff pricing in the current year. How would you see that in China?
I think I'd say definitely, Mark. I think I'd say we're not forecasting any further benefit from tariffs. We're operating on the basis that they'll probably continue as they are, but we will capture value by virtue of our sales and marketing processes. That's what I was trying to describe with that AUD 8 million of gain because we've backed out effectively in those calculations any of the advantages that you might get from tariffs.
Great. Secondly, just on that crop, I know you've been conservative on not giving an estimate, but I guess, do you foresee that you might give us a bit more feel about how the crop's progressing at the AGM? Is there anything sort of negative at all that you're seeing in the crop at the moment?
You're quite right. It's way too early to start thinking about forecasts for the crop. We may well give an update. In fact, undoubtedly, we'll give a market update and outlook update when we get to the AGM. That will certainly occur. Specific to your question, there are no negatives that I've got to report around the crop that we've seen so far.
Great. Thank you. All right, I'll jump back in. Thanks.
All right, David, we've got James Ferrier from Canaccord Genuity. James, over to you.
Hey, good morning, James.
Thanks, Andrew. Good morning, David and Liam. Thanks for your time. Can I start on the transformation items that you ran through and third-party volumes in particular because there's probably a sort of a cyclical recovery element to FY 2026 if you assume the industry crop size is going to go back to normal levels. Plus, you've got that extra capacity to chase some more volume as well. If that eventuates, is 7,000-8,000 tons extra volume a realistic outcome for you?
It is a very good question. I think if you did a sort of, if you like, bounce back to normal on crop size, you'd probably end up with an external grower volume of somewhere around the 10,000-tons level. Of course, we're aiming to see that number go up a little bit as we attract additional growers to the company.
Yep. Okay. That's helpful. That kernel recovery line investment, less than a year payback, so you're basically looking at AUD 5 million extra EBITDA in FY 2026. I'd assume that would come through in the form of a higher crack-out rate.
No, because what we're doing is, if you, for anyone that's been to one of our plants, and if you think, if you can think about going outside the factory and you can see a pile of hull and shell, which we typically are either using to fire our cogen plant or it's going to compost, or some of it is going to be sold as feedlot input for cattle, what we've realized is in that pile, there is some kernel that actually remains in there. We have devised a process that allows us to inline extract that before it gets to the hull and shell pile. It's not a crack-out issue as such. We're taking it out of that stream.
Okay. Understood. Understood. That's helpful. Thanks. On the outlook, probably a couple of follow-ups here to Josh's question. Liam, you talked about water, bees, and electricity as the three main drivers of the uplift in production costs in FY 2026. Where does fertiliser sit, given you did not mention it there?
In terms of costs on fertiliser in 2026, marginally up on 2025, but we are planning to use some more as well, as well from what we have previously used. Subject to the cropping after takeout, our plans are through our horticultural program to invest more in our fertiliser from a quantity perspective, where it makes sense and where the crop is able to respond to it.
Yep. Understood. You mentioned on the value-add items, David, you mentioned that.
Gone mute, James.
Apologies. Yeah, I just muted myself somehow. You mentioned that there were some recent price increases implemented across the value-add product lines. Can you quantify the earnings benefit you are expecting in FY 2026 from that?
Probably no. James, probably given that we do not do that sort of segment level of reporting, I probably would not do that. It is certainly some catch-up that is, if you like, reflective of the rate of increases that you have seen in shell and kernel prices over the last 12 months.
Okay. Lastly, just in the context of that capital allocation framework, why did the board not decide to return excess capital in the form of a dividend or a buyback given where the gearing is and the significant improvement in earnings? What am I missing on that framework that would have prevented that outcome of eventuating?
We might both have a go at this. I think that essentially what you're seeing in the no dividend for this year is, we've got our gearing down and we've got it down to sort of 15.1%, but we'd like to get it a little bit lower still. All you're really seeing is the company trying to get to a lower level of gearing. Once we get to sort of an internal target number that we might have in mind, then we'd go to resuming dividend payments. We just want to make sure that the business is robust for any cyclical shifts that may happen through the cycle. The company had been through a period wherever it could survive one year, but you go back over recent history, when you get two or three challenging years in a row, it really put the balance sheet under pressure.
It is really a decision around making sure that we are as robust as we can be. Absolutely, there is recognition from the company and a desire from the company to actually return to paying dividends back to the shareholders. Liam, do you want to talk about that within the capital framework?
Yeah, sure. I think just the one thing to add in, 15.1% is our year-end number. It is the lowest point of the year. We do have a big fluctuation as we go through in our working capital throughout the course of the year as well. The desire is to see it lower and see it a bit lower for longer.
Okay. Understood. Thanks.
We have another question from Mark Topy at Select Equities. Mark, are you there?
Sorry, can you hear me now?
Perfectly. Yes.
The cash flow you've achieved this year was a real step up. I'm just wondering, how do you see that going forward? Can you repeat the sort of cash collecting you achieved in the current year and maintain that really strong cash flow trend?
Good question. The answer is absolutely yes, we think. In fact, we think there's still more to be taken out of our working capital. I think we've sort of proven to ourselves the value of sales velocity, getting our logistics piece right, and we've got the next crank of the wheel to do over this coming year to try and shift our working capital position. It kind of goes to a couple of years ago, we started that pre-sales process. We're underway this year. In fact, we're a little bit further ahead this year than we were last year. We are very keen to see more cash generation from the business. Obviously, it will be helped by higher prices as well.
Great. Just as a follow-up, Liam, just to clarify that debt level. What is the target debt level across, I suppose, a year allowing for that increase in working capital in the first half?
Yeah. We are not publicising what the target is at the moment, Mark. Suffice to say we want to get it lower than 15.1%, which is where it is at the moment. In terms of, yeah, it does, as I said, fluctuate quite a lot during the year. I think we've seen even in 2025 and the half-year results, you can see that the debt level remains stubborn all throughout the year, and it really only drops down in sort of August and even September each year before it ramps up because of the cycle that we're in.
Great. Maybe again, you might give us a bit more sort of detail around that at the AGM, perhaps, in terms of where you see that target debt level being in terms of the dividend payments and so forth.
I think, Mark, you're right. There'll certainly be another at that time of year, certainly at mid-year, there's another moment for the board to consider the company's debt position and its view on paying dividends. I think that's exactly right. We'll respond at that time.
Very good. Thanks again for your time.
Thank you.
David, we've got one last question from Chris Brighton-Bark, who's a retail holder. Chris, are you there?
Hello?
Chris, are you there?
Hear me now?
Yep.
Yeah, we've got you. Good morning, Chris.
Good morning. Thanks for the presentation. Seems to say you're on the right track sort of moving forward. I guess just a few questions just on the presentation on page 14 when you talk about the EBITDA, the source of the changes. I guess the biggest contribution is in relation to pricing. Where you've got AUD 62 million there. This EBITDA is just in relation to, obviously, the prior year. This being the AGM, is this the contribution in relation to the increase in prices, for example, and then the lower volumes, the change in relation to the volume change? It's not in relation to the latest forecast, for example.
Yeah. It's the year-on-year changes, Chris, and the increment. Yes, you're right.
Yes. Really, the biggest contribution to the results this time has been the relationship with the prices, which is sort of out of your control to a large degree. The second question is just in relation to bees. I'm just wondering with the Varroa mite and whether it was possible to have more control over the situation with bees on the property. I guess they need to be shifted around. They're always looking for pollen. I'm just wondering if there's any initiatives there to increase the pollination from bees and what effect that would have had on your production if you didn't have the issue with the bees and the Varroa mite. What increase in production there would have been or pollination and consequently the almonds, I guess, if you can give some color in relation to that.
Sure. Yeah, we'll do so. To your first point, I mean, as the chart points out, you're quite right. The two big things that really start to drive the number relate to the crop size, and you can see that in the volume orange bar, and you're quite right, the almond price. The almond price is the actual price that you get. You've got a piece, there's a chunk of that, which 100% is the movements in the commodity price of almonds, but then you've got the things which Select Harvests does above that. Particularly that, there are two things that are critical for that.
One is obviously our sell price, and I spoke about AUD 8 million of that bar would be made up of the premium that we've got over the global market position. Then another chunk of it, which we haven't broken out, is our ability to sort and pack product for the highest possible value. You have a couple of things that are sitting in that price bar, which are beyond the impact of the commodity price changes, but you're 100% correct. The commodity price change is a very significant determinant of how the numbers flow through in terms of the profitability of the business. To your second point about bees, that is a super question. The biggest challenge around bees relates to South Australia, if I was to put a geographic boundary on it.
With Varroa mite, the Australian government has moved to treating Varroa mite as something that's in place, and it's got a managed response to it. South Australia is slightly unique because in some respects, and by managed response, what that means is they're accepting that Varroa mite's in the Australian geography, and it's about how it was best managed. There are some protocols around that. South Australia has, if you like, been of the view that it's Varroa mite-free and therefore is trying to structure itself to stay that way. As a result, it has effectively put up a border between South Australia and the rest of Australia to prevent bees being able to travel from, say, New South Wales or Victoria into South Australia unless they undergo a very significant evaluation and testing regime.
The result of that is, I think, not only for almonds, but more broadly across South Australia, there's an issue where there is not enough bees locally within South Australia relative to the demand requirement. That's certainly true for almonds. The Select Harvests response to that has been that for the bloom that we've just been through, we did some scrambling where we—I spoke about mobilizing—but in effect, what we did was we took some bees out of Queensland, went through a very rigorous process to get those bees authorized to move into South Australia. The other thing that we did, which no other player did, we sourced bees out of Western Australia. Western Australia is Varroa mite-free, so actually bees can effectively transfer from Western Australia into South Australia reasonably comfortably.
We have this mechanism that has us trying to work with our existing bee suppliers for the way that we would normally source bees, and then we have extended out of that to find ways to try and bring them out of Queensland, but also Western Australia, or more importantly, Western Australia as a go-forward position. We are now doing some work for the next bloom period where we are trying to make sure that we have got more security around bees. Particularly, we are in the process of looking to purchase bees. We historically have not been a bee owner, but we are trying to source bees out of Western Australia as the majority of those bees so that we can bring them to South Australia and ensure that we are protected for the coming season.
There is a lot of activity going on around bee management to ensure that—because the effect of not having bees is a major event for Select Harvests and, in fact, any almond grower, because it means you will not be able to pollinate across your various varieties. It is a big deal event. We have put some really significant energy and activity into solving for it.
Thanks, David. Look, we are going to have to wind up. We have a couple of outstanding questions, which I will follow up separately, but we are due somewhere in five minutes. I think it is probably time to end.
Okay. Perhaps I might conclude simply by thanking everyone for attending and participating. We appreciate getting the questions, and we hope you found our 2025 results presentation useful. Thank you. Bye-bye.