Earnings Call: H1 2021

Aug 24, 2021

Thank you for standing by, and welcome to the Scales Corporation Half Year Results Conference Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Andy Borland, Managing Director. Please go ahead, sir. Good morning, all. I'd like to welcome to the Scales half year results announcement for the 6 months ending 30 June 2021. With me today is Steve Kennelly, our CFO. Earlier this morning, we lodged our results for the NZX, which included a presentation pack, and we'll base our comments on this call. Stephen, I'll run through the slides, and we'll take questions. On agenda, let's move on to Slide 2, showing the agenda. And moving to Slide 4 and some first half financial and operational highlights for the group. Despite a period with significant challenges, we're extremely pleased to report a half year underlying NPAT of $33,300,000 and an underlying EBITDA of $54,800,000 up 15.4% and 11%, respectively, on the prior period. Please note that we've amended a definition of underlying in line with current market practice so that it now includes the effects of NZ IFRS 16 leases. Steve will touch on this in more detail later. The reported impact was $32,600,000 up 17.5%. Scale Logistics has continued to prove its strategic worth, managing to procure sufficient containers to allow its customers to export their product. This was a significant achievement in the current supply chain environment. Mr. Apple made an extraordinary effort to pick and pack its harvest despite uncertainties around labor. Its forecast export volume of 3,600,000 TCEs was affected by inclement weather during the key growing period. However, to date, it's achieved strong prices on those volumes. There was continued strong demand within food ingredients with increased volumes resulting in an excellent outcome for the period. I'll touch on each of the divisions in more detail shortly. Moving on to an update on both COVID-nineteen and sustainability. The subtitle of Slide 6 says it all. Without our team, we wouldn't be able to operate either in or out of lockdown. So the safety of our people was their primary priority. As has previously been the case, businesses are privileged to be cast as essential and so have continued to operate during this current lockdown. Whilst picking and packing of our harvest was completed prior to the lockdown announcement, our pandemic preparedness policies once again showed allowed the remainder of our business operations to transition smoothly to lockdown procedures. Notwithstanding the current situation, COVID-nineteen protocols had remained in place throughout the apple harvest and packing season. This included procedures such as increased sanitation levels, gloves and masks. However, we expect disruption to domestic and international operations to continue including labor availability, global supply, global markets and supply chains. We continue to focus on environmental matters together with the health and safety of our team members and market regulations. In terms of environmental projects, we're nearing the end of our carbon sequestration project in respect of apple tree plantings with Auckland University of Technology, AUT. We've seen some pleasing results and look forward to sharing more details of this in our annual report. Health and safety of our team continues to be of the highest importance, particularly given the recent COVID-nineteen outbreak. It's imperative that our people feel safe feel they are safe when coming to work. Projects that we've worked on over the last 6 months included a pilot scheme with a number of industry participants, WorkSafe and ACC to develop a multidisciplinary approach to injury prevention and reduction during the peak harvest period and mental well-being strategies to support team members at all levels. Mental welfare is as important to us as physical health and we're keen to ensure there's a culture of overall well-being within our businesses. Meeting or exceeding market and customer requirements for food safety continues to be imperative to our businesses and we're pleased to be asked to take part in a pilot project with MPI and others to develop a product type digital supply chain. This was the aim of helping NPI build an end to end digital supply chain allowing projects to be tracked and traced. We also continue to ensure compliance with relevant certifications and audits and recently completed a China customs audit ensuring continued access to China markets. I'll now pass over to Steve to discuss the financial results for the first half of the year. Thanks, Andy. Turning to slide 9 in our group financial performance. As Andy previously noted, group underlying NPAT for the 1st 6 months to 30 June 2021 was $33,300,000 with underlying EBITDA of $54,800,000 As shown in the table on this slide, we've included the effects of NZF for 16 leases within our underlying results and this is in line with current market practice and we've restated our comparative figures accordingly. Also shown on the slide is the reconciliation of our underlying earnings to our reported results. And I'd also refer everyone to Appendix 1 of the presentation for a more detailed reconciliation of the effect of IFRS 16 both on NPAT and on EBITDA. At a high level for the half year, the effect of IFRS 16 is to add $5,500,000 to underlying EBITDA, but to reduce underlying impact by $200,000 Moving on to slide 10, you'll see a summary of our divisional performance, highlighting the excellent results achieved by our Horticulture and Food Ingredients divisions. As Andy mentioned earlier, the horticulture division benefited from strong prices on lower export volumes, resulting in a 2.9% increase in underlying EBITDA. Maintaining diversified markets and varieties has assisted the division to achieve this result. Food Ingredients continue to benefit from increased pet food demand, together with changes in its product mix and margin, resulting in an increase of $5,100,000 in underlying EBITDA. Unfortunately, logistics was affected by lower export volumes, particularly stone fruit. However, its strategic value is difficult to quantify, and Andy will touch on this again later. Turning to our balance sheet on slide 11. Our financial position remains strong. Whilst net cash decreased by $16,800,000 to $38,000,000 this was primarily due to 2 factors: CapEx spend, including investment in our new Wacatu Cool Store and ongoing Autogree development together with other projects and an increase in working capital, specifically food ingredients inventories due to shipping delays at overseas ports. The value of our agricultural produce inventory at 30 June 2021 compared to the prior year remained steady. Whilst there was a lower volume of unsold crop at balanced date, it was valued at a higher price compared to the prior year. As noted on the slide, around 27% of fruit remains to be sold as at today's date. I'll now hand you back to Andy who will give you a further update on each division. Thanks, Steve. Turning to slide 13. As previously mentioned, the horticulture division delivered a strong result despite being impacted by a shortage of skilled RSC workforce as well as increased labor and shipping costs. The RSC scheme is incredibly important, not only to the horticulture division, but also to the industry as a whole. Mr. Appel employed approximately 14% less RSC workers over the key February to April harvest period compared to 2020. But we're pleased to be able to supplement our workforce with New Zealanders and working holiday scheme workers. We're extremely grateful to the entire Mr. Apple team for their extraordinary effort to pick, pack and export this year's harvest. At our ASM, Tim Goodacre noted the vital role that RSC workers have played in enabling our overall company growth, A 37% increase in RSC workers over the period 2012 to 2020 has helped Mr. Apple to increase its permanent staff numbers by 111%. We're also aware that the skills acquired and wages earned are highly beneficial to RSC workers in Whanau and their home communities and we're delighted to support the recent announcement by the government to allow additional workers into New Zealand from selected Pacific communities. Whilst continuation of the ROC scheme continues to be critical to our operations, the overall landscape around the availability of and cost of labor has changed. We believe efficiency and returns can be improved through automation. And as a result, we've commenced a 10 year investment in automation plan at Mr. Apple. Our initial focus is on post harvest activities with the first step being the commissioning of our new walk to cool store earlier this year. The cool store is already delivering a number of efficiencies including reduced power consumption, decreasing the double handling of fruit, which lowers the amount of fruit damage as well as labor cost and reduction in transportation costs and carbon emissions. The next stage of our plan is to fully automate the Orcutou pack house, a 3 to 4 year project that will significantly increase labor productivity, reduce the number of human touch points and potentially lead to 20 fourseven packing, allowing greater freight and labor efficiency. On Orchard Automation and Technology Solutions, we're also actively being monitored and considered and these are likely to follow the packhouse upgrade project. Turning to Slide 15 and details of Mr. Apple's volumes. As mentioned, this year's crop was affected by inclement weather during the key growing season, resulting in a lower own growing volume of around 3,600,000 TCEs. Our export pack out is approximately 73%, also slightly lower than last year's rate of 76% with our equipment efficiently grading the fruit for export. Importantly, non export grade fruit does not go to waste but is sold domestically, juiced for pro fruit or sold for further processing. Premium variety volumes continue to grow with a 9% increase compared to last year and there was considerable growth in the sales of our new premium Dazzle and Pozzi apples. There was a drop in volumes of traditional varieties this year due to a combination of our planned redevelopment program and weather impacts. Moving to Slide 16. As in previous years, our strategy of varietal, geographical and channel diversification proved to be a benefit during a period of worldwide uncertainty. To date, the Asia and Middle East markets and U. K. Markets have been positive. The European market has been impacted by the lower volumes of traditional varieties available, but a lower European crop is expected to both improve and lengthen the season for us. Pricing has remained firm with prices being achieved that are mainly above or in line with last year. And Fern Ridge Fresh continues to ship a pleasing level of alternative produce including kiwifruit and pears. Moving to Slide 17, the horticulture division continues to build its branding and marketing strategies with one of its strategies being to maximize its appeal to consumers as well as wholesalers and retailers, particularly in Asia and Middle East markets. Some initiatives Mr. Apple has implemented are noted on this slide, including increased social media, increased store promotions and packaging innovations to appeal to consumers customers as shown in the photos. This has proven to be successful with our retail, e commerce and omni or multichannel sales accounting for a significant 76% of China sales in 2020. To support these channels, our flagship Tmall store is now operational and selling a range of Mr. Apple products directly to China consumers and sales of Dazzle also being made through selective high end Chinese retail such as Hema. Let's move to Slide 18, the next slide demonstrates some of the social media activity carried out by our marketing team. Mr. Apple has a presence on a variety of social media platforms across Asia and has been undertaking campaigns since May that are designed to build a brand with consumers. These campaigns are expected to run through to September. Moving on to the Food Ingredients division on Slide 19. Food Ingredients experienced another strong performance in the 1st 6 months of the year with 46% increase in profitability. Together with increases in volumes sold compared to the same period last year, the division benefited from changes of product mix and margin within the individual business operations. Our Australian operations were somewhat affected by the publicized supply chain issues. However, a geographical diversification again proved to be advantageous with Shelby benefiting from having a domestic customer base. Whilst ProPro also encountered supply chain difficulties for its export sales, strong domestic sales helped largely helped to offset these effects. Turning to logistics on Slide 20. The current domestic and global supply chain issues have been widely reported and scale logistics was not immune to these problems. However, an exception with it by Kent Ritchie and his team to procure sufficient refrigerated containers for the horticulture and other primary sector customers ensured the successful shipping of all harvests. The team's expertise continues to pay dividends for all their customers. Whilst there is a slight decrease in earnings for the division, primarily due to reduced volumes of agriculture exports, the strategic value of the business far outweighs any financial benefit. Given the likelihood of ongoing supply chain disruptions having expertly managed and dedicated international freight services business is expected to be highly advantageous. Lastly, moving on to the full year outlook on Slide 22. Following a strong first half period, we're pleased to report that we've upgraded our previously advised guidance for the full year. We now anticipate that our full year underlying net profit will be between $32,000,000 $37,000,000 inclusive of the effect of our NAND IFRS 16 leases. This implies an underlying EBITDA range between $65,000,000 $72,000,000 also inclusive of the effect of NZ IFRS 16. We expect that the horticulture division will experience ongoing disruption in global markets and logistics together with difficulties around the availability and cost of labor. However, as mentioned, we've commenced a significant investment in automation and technology in order to increase efficiency throughout the business. A positive full year performance is expected from Food Ingredients. Whilst we incurred significant transaction costs following an unsuccessful acquisition of Villa Maria, we continue to proactively seek and review potential investment opportunities. We believe we're well positioned to take advantage of opportunities, although we'll continue to proceed with caution in the current business environment. Looking forward further, we expect the 2022 financial year will continue to feel the effects of COVID and particularly in respect of the availability and cost of global supply chain logistics. We will obviously continue to monitor this situation and develop strategies to minimize its impact. That concludes today's formal presentation. I will point you towards Appendix 1 of the presentation pack which provides additional financial information and reconciles underlying earnings to reported earnings for each of our divisions as well as the group. We're happy now to take questions. Thank Your first question comes from Guy Hooper of Foresight Bar. Please go ahead. Yes. Good morning, Steve and Andy. Congrats on a strong result in what must have been a pretty challenging period. I guess the first question for me is just around margin expectations. I remember at the all year result, the FY 2020, you had a chart of EBIT margin and sort of outlook. And for this year, the suggested EBIT margin was around 8% give or take. I mean, you're clearly tracking the balance sheet of that for this full year. I mean, what's been different versus your expectations? And what can we expect to see going forward? Well, I think that Guy, I reckon I think the main impact has obviously been in the horticulture business has been the prices. New Zealand had a reduced national crop due to the huge hail event in Nelson, but also we had some lost volume. And also there was less volume picked because of the labor shortage across the country. So I think, yes, I mean, a lower New Zealand crop did help hold prices and lift prices across the sales season, but also hugely impressed by the Mr. Apple performance around seeking a premium for our premium apples and getting them there on time in a difficult range environment. So I think from that perspective, it's been a great outcome for the team. How are those premium varieties pricing compared to the expectations? I guess, now you've got more commercial volumes there? Very pleased with them. The dazzle, Posey, even though we had a very strong year with Queens again this year. And we're very pleased with the way those premium apple prices are going. Okay. And I guess the other part of my question was just about the margin outlook. Is that kind of track that you had in the last result, is that still relevant or have we got to move on from there? Well, I think it is still relevant because it's the efforts we're putting into restoring margin are around the replanting more efficient orchard management practices through both the thinning, the pruning and the harvesting, but also moving towards lower more automation. And also even the new walk to cool store kicked in this year operational from day 1 and having a large cool store right beside our biggest pack house has been a benefit. Absolutely. Okay. Thank you. I guess just one more. I mean, the big obviously, a big lift in volume from food ingredients, but also there seems to be a reasonable lift in either dollar margin per kg. I guess mix changes are called out. Can you give us a little bit more color on the drivers of this? Well, clearly, the strong performer in food and grains was the Shelby business. I mean, the team there have absolutely continued to operate under a credibly difficult COVID environment. But so our Amarillo plants continued on and commissioned their Dodge City the new Dodge City plant that got operating. And then just strong demand coming out of all those big customers up there in the U. S. And Brett Franklin and his team just continued to find good markets for the product that they were moving and very pleased with that performance. And the rest of the business back here, the New Zealand and Australia and international business has been strong as well. With demand, where is the supply coming from? Are you able to are you clearly able to source product to beat that? Yes. Well, clearly, I mean, because that's where you've seen the big in production and the volumes traded. It was more volume both out of New Zealand and Australia, but also significantly out of America out of the U. S. Market. Again, strong connections with the meat packers and the ability to move more volume through like, so that Dodge City plant. All right. Thanks. So I'll put this in. Thanks for taking the questions. Cheers, Scott. Your next question comes from Joshua Dale from Craig's Investment Partners. Please go ahead. Good morning. Just three questions from me. First one, you've upgraded underlying impact guidance at the midpoint by around 13%. A good part of the upgrade appears to be from food ingredients, which is partly owned by Shelby's minorities. My question is what is the upgrade to scale to equity holders? Steve, do you want to take that one? Yes. Good question. We've only when we've advised guidance, we've only ever given the impact including minority interest level. So we don't give guidance on the impact attributable to our shareholders. So yes, it's just it's inclusive of minority. Okay. Is it reasonable then to look at I guess there was probably about an 8% lift in underlying particularly how it's in the interim result. Is that probably fair for the full year just sort of a step? I would have thought it's higher than that. I'd have to go back and work that out. It's not yes, we haven't focused on that number. Okay. Thank you. And second question, is there any comment you can make on Brazil given the upgrade? What was that question again, sorry? Is there any comment you can make on dividends either for the interim result or the full year given the upgrade to guidance? Well, I just think we'd continue to reign our policy of paying dividend at that. I think it's we declared 65% to 75% range, Steve, of NPAT. Yes. 65% to 75% and having that minimum of 19% whilst supported by NPAT. But we consider the dividend November, December. But I don't think the expectation is for any change to that. Great. Thank you. And last question from me, you sort of talked about the Feeding Ingredients division and an earlier question, but obviously, volumes have increased 30%. But I'm curious about the pricing environment. Are you, for the most part of a price taker or is there some scope to lift pricing as the pet food brands compete for your supply? Look, I think the point there is that we are a strong player in the market. We have strong look very strong relationships with both the meat packing, freezing the meat industry of Australia, New Zealand and America. And very good customer base who are looking for the proteins that we're sourcing for them. So I just think it's a strong strategic positioning is assisting us meet our customers' expectations and requirements. Okay. That's great. Thanks, Jonathan. The range product we've got is, I think, advantageous to us as well. Sure. Okay. That's all from me. Thank you and well done on a strong half. Thanks. Your next question comes from Christian Bell of Jarden. Please go ahead. Hi, Andy, it's Steve. Sorry, a number of questions for me. So please be with me. First one, supply chain now was compared to earlier updates in the year. And then does your guidance for the remainder of the year assume disruption as it is now? Or do you assume some sort of easing at some point in the remainder of the year? I think that I don't know if they're getting worse per se. I think they just continue to be bloody difficult. So that would be and that's our assumption that they carry on being difficult. But we have got more 27 odd percent of the apples to sell, probably less so to ship because some of it still in the market, but we've got to get those last apples across there. We've got to continue getting the pet food across there. We've got to continue to servicing our customers across the scale logistics customer base. And it hasn't stopped the supply chain, so it just continues, but in a I guess a disruptive way. And it's really probably a combination of as you without repeating it all the extra demand, but also the disruption in the ports. So we sort of factored in that continuing, but not deteriorating super further for the next half. Cool, cool. Thank you. I mean, it looks like the new profit to cold store generated some pretty decent savings. Would you be able to quantify that? Probably haven't got it just off exactly down to the last dollar, but just the common the rationale that we were used to be tracking bins into that area for packing and now they can just be forklifts that are across the concrete platform. It's absolutely adjacent to the pack house. So that has as we said lowered the so it's probably helped lift air fruit quality lowering the damage. You put a new plant in like that it's way more electricity efficient, energy efficient. So it's just Andrew Van Werten has been asking for that building to be built for 20 years, probably 30. So finally got his way and it was always a good idea. We're just finding the time and the capital to do it. And now we've done it. We're pleased. So just as a dent, in terms of saving like just a few million or something like that before you consider the fact that it's creating better fruit? Yes. I mean, this isn't it would be in the millions for sure. And it's just a very good way to get more efficiency in our business. Cool. And then just on ROCs, I don't suppose you've got any more visibility over how many you're going to get next year. Any sort of update? No. Well, the inference we got from the announcement that government made was that it would be a meaningful number because they were obviously clogging up the MiQ system. So the hope was that they would come across vaccinated ready to go and not having to go through a hotel in Auckland. So clearly that's subject to current issues. But we from a the workforce that we've got in the country can get us through till early next year. So clearly, we're hoping for a return to some sort of normalcy in the next few months. And the work towards you've currently got, they're happy to sort of stick around? Yes. Yes. Yes. Well, they can't go far anyway at the moment. But now they are they're keen to work. I mean, it's a great scheme because it's all in one scheme. They work hard. They're paid well and they take that money home when they go. Right. And then just turning to the I guess the investment the automation investment strategy. Has that become more of a focus given difficulty with the M and A stuff, has the automation and the horticulture business become more of a focus now? I don't think it was anything to do with the M and A. I think it's more to do with the reality of that and the government announcements and policy that they're not going to encourage any agribusinesses to expand expecting easy access to migrant labor. I mean the RSC scheme has been fully supported by the governments here and in the Pacific Islands. It's a well organized scheme. But there's more plantings going on of apples. There's more kiwifruit and other horticulture practices. I don't see the labor force from overseas increasing as those crops are extra growing extra growth in those crops. So all of that all the horticulture industries need to start thinking about automation in the and wherever they can. So I just see this more necessary due to the rising or the shortage of labor, I mean, and we've got to be realistic about that and the cost of it. I'm sorry. Sorry, what are you still doing? No, just the right yes, just the rising cost of the labor, yes. That's fine. Because I mean the 3 to 4 year project in the Farquhar to take out and then also the On Orchard investment, that was sort of the first time you guys have mentioned that before. Just wondering, I guess, building off what Guy had asked previously, had those initiatives been built into your EBIT margin track? Because in the past, it was more just the bucket to cool store that had been mentioned. So I mean, is there upside to those I do see them being built into that the margin improvement or restoration if you like, absolutely, because they're big initiatives and we're going to put the capital to work to get that efficiency. But literally, we're just using our capital for for example, in that walk to coal store we haven't taken it out of there. But if we did find an opportunity of scale like highly likely to sell and lease that walk to pack house and that would just about fund the walk to automation sorry, sell the cool store and fund the automation. So the M and A opportunity sort of remains real and full and not being if you like reduced by these initiatives? Surely there must be some upside to the to your existing margin track though given that there is a lot more planned automation in this part of the business? Well, there will be when it's finished, but it's going to take as we said 3 to 4 years. Some of the equipment is coming from overseas. We just physically haven't got the time and resource to do it all in one big bang. Yes. Cool. Fair enough. And then when you say you're monitoring the post harvest technology, does that include things like robot pickers similar to what Turners and Growers have got? And I guess, are they just quite expensive at the moment? Turners and Growers haven't got robot pickers. They've got some sort of machine that goes down the rows and sucks the apples off the trees. Oh, you should send it to me because it's not what they've got platforms. They had a robot picker that the invent has gone broke. So it's a lot unfortunately, the industry across the globe is quite a way away from having robotic pickers under current technology. But this pressure across the globe may speed it up. Maybe Tesla is going to make us one. I've been watching him and he's building robots, isn't he? But yes, I think that on Orchard, we're really looking at our planting style and lowering a lot more of the apples picked by people standing up not on a ladder. More efficiency is the first port of call and then any sort of automation platforms or robotic pickers that will be coming down the track. Okay. Just I mean just the I guess, in case of your own interest, Tuners and Growers just did their result last week. They said that they have bought 8 more automated because I don't maybe it's something a little bit different. I'm not too sure. And then just moving on from that, you mentioned more orchard development this year. I thought that both things had finished last year. Have you guys sort of started doing that again? It was the end of it? You've just got to in the second year of your first year of the planning, you've just got to finish it off. Okay. So just a bit. Okay. It was really explaining the reduction in net cash. Okay. Cool. So that is currently just we're having a pause there on that as we do go dive into this book to automation. Okay. So I don't anticipate that the current lockdown will impact you too much given the main part of the harvest is done now. Most of the apples are sold in the market. Yes. That's our thinking and that's where we change their guidance because obviously the rigway we recorded our half year result. It's we have to put a value on all of the stock as though it's sold. So we've assessed that. And the risk is to someone's earlier point, can we get it to the market and get it sold for the money we think we can and that's all being factored in. We can't cover every risk, but we think we've given it all the consideration. Yes. Clearly, you've done it up for now. And then just on food ingredients, have your volumes remained elevated to date? Yes. Look, it's seasonal business. I mean, in New Zealand, this is the slow season now, but we have built that stock up. So now I think we'll have a we're not expecting a materially different slowdown. Okay. And then just on that then, I guess, your guidance range, it looks like it's more reflective of the food ingredients performance with the toppings like a repeat of what you've done in the first half? Yes. I think that's right Steve. Have you got a comment on that? Yes. That would be fair. But certainly Food Ingredients has got the biggest outperformance. Just got to be careful. And I'd reiterate just looking at the guidance, the fact that we are now including IFRS 16. So it does look like a big step up, but $10,000,000 to $11,000,000 of that on an EBITDA basis is IFRS 16 and that's simply just doubling the effect at half year. So still a significant increase in guidance, but just be very conscious of the fact that we are now including the IFRS 16 effect in there. But food ingredients, you didn't got any effect from IFRS 16? No, you're right. So it is yes, definitely an increase in our underlying guidance and of that Food Ingredients does have a good effect. Yes. Okay. And then sorry, just if I could squeeze it in just to record up. Just in fact, the water culture, you're expecting, I guess, a strongest second half given the support in the European market despite the ongoing conditions? Well, clearly, I think the second half for horticulture is not a big impact because we put most all of the crops sold in the first half result. So Steve what is that impact? It's pretty minimal isn't it? It is very small. We've obviously estimated the value of the crop at half year on a selling price basis. And we're using that based on what's happened to date and on our expectations. And you'll see from previous years that the actual the contribution from water culture in the second half of the year is generally very small, if not slightly negative. And that really is dependent on how accurate we get that half year valuation. So but we think we've been as usual, pretty realistic with that valuation. Nice one. Awesome. Thanks guys. What an awesome result. So, and thank you for taking my questions. Your next question comes from David Oxley from ACC. Please go ahead. Good morning. I had a couple of questions, if I may. Firstly, I'm just looking back at my notes. When you bought Shelby a couple of years or so ago, it was doing about $10,000,000 of EBITDA and you sort of set out an aspiration at the time of you would have spent another $15,000,000 you could maybe make it into a $25,000,000 EBITDA business. And you're clearly going to obliterate that aspiration this year as far as I can see without actually spending anything. So is there any kind of upgrade or update you could give us as to what those aspirations might look like now in terms of the medium term potential for that business? Hi, David. Look, I think the aspiration to 25% was for the division actually. So but yes, look, clearly, the Shelby business is performing incredibly well for us and for absolute credit to the team. But yes, we've I guess, we've helped the business with more people, a lot a bit more systems. But down at the end of the day, the core business is going incredibly well. We're in the process clearly COVID has held us back from getting back up there. We're continuing to talk to a couple of different players as an add on bolt on sort of opportunity. And we're also talking to the Shelby about there's more room to expand, put more equipment into the Dodge City plant that we're operating out of. And also, we still haven't expanded at Amarillo. The delta variant is in the community there in Amarillo and we've got the vaccination rates where they could be. But so those sort of things are disrupting us. There's no doubt about from that. But yes, we do have an ambition to take it move the bar. David, we just sort of haven't got the detail on that yet in terms of the $25,000,000 and the CapEx. But certainly looking at it as a very viable opportunity for spending more of our for investing more in that business. Okay. And I guess the aside from the good execution, the fact that volumes have been presumably higher than you expected at the time you made the Shelby acquisition, aided I think from what you said in the past by more packs being acquired during lockdowns, etcetera. Because that's there's no risk that that's a kind of one off, I could say, that ought to being sustainable going forward as a kind of underlying volume base, you think? Look, we sort of had a query on that ourselves this year, and we're just being very pleased with the continued demand. I mean, you just need to have a look. If you look at the American market, for example, or in the Chinese market, there's huge more investment going into plant, new plants in America. I think there's 5 new plants, pet food plants planned, multimillion dollar ones in America today being and in the process of being built. And that's the other plants that we supply. So I think the increased consumption of pet food is certainly we're getting a benefit from that. Right. Okay. Thank you. And second question, if I may. Am I right in thinking that your earlier guidance when you were looking at the uncertainty around securing ROCE workers and the cost you would incur in, I think, paying for them to come through MiQ, etcetera. At the time, you, I think, were assuming that you would wear the cost entirely of your workers, whereas the hope was that they would work for you during the apple picking season and then move on. And at the end, there'd be some kind of wash up where all the companies that employed these guys would share in the cost. Has that panned out as I understand? And does some of your guidance upgrade reflect the fact that you now are not assuming the full cost of putting this through with MiQ? No. We still accommodated in our first guidance. We were accommodating the fact that we would share them out. Yes, for sure. We'd had the extra cost of them factored in. So I think the reality was that didn't quite get as many as we thought we would. So in a way save us money. But there was an additional cost also which we tried to factor in. We may not have counted for all of it though. But of the this time last year, we still had 500 or 600 ROC workers that normally would have gone home that we did carry through. So we had them playing in volleyball competitions and doing odd jobs around the orchard. So there's probably a bit of extra cost there that has been incurred. But I think we did try and accommodate for most of it. All right. Okay. Okay. And finally, in terms of full year CapEx outlook, am I right in thinking double the first half will be about right? It depends if we get started on this automation, but Steve, what did you say then? Yes, that should be about right. The initial spend on automation because of the 3 to 4 year project, it won't be a hugely material number. Yes. No, definitely not. And have you I may have missed it. Have you said what that automation spend is like to be over the life of the 3 to 4 years? It's in the order of 25 to 30 with contingency included. Right. Okay. Cool. Thank you very much guys. Thanks, David. Your next question comes from Christian Bell of Jarden. Please go ahead. Hey, guys. Sorry, just something popped up. Just 3 ingredients, are there any signs of more competition in your part of the market? Know there's a lot of downstream manufacturing plants opening up, but what about in your neighborhood? Not that we're off. It's competition in the air. So we're sort of sitting there. No, probably not. This gets compared to space. There's no doubt about that. And in a way, Christian, the competition can come from the meat companies themselves using more of the product and edible. So in New Zealand here, putting more product that could have come to us like the bones on the the meat on the last of the bones can sometimes be carboned up and sent to China, for example. So the real competition for us is that as the alternative use from the meat companies themselves. Yes. Yes. But we're not seeing them necessarily heading into the pet food area. In a way, we are well, we expect to export less out of New Zealand going in the next few years because if you've been watching this 3 or 4 new big pit plant big food manufacturing plants being commissioned now. Ziwi are finishing one off and there's another one going on in China one in Taramanui. And another one China based one going on South Auckland. So they're going to we'll be hoping to supply them before we export. Well, I guess, as more of these guys get built, the competition for your supply usually gets quieter. Therefore, it should be able to sustain pretty strong margins. That's the plan. Don't tell them that though. Yes. Cool. All right. Thank you. There are no further questions at this time. I'll now hand back to Mr. Borland for closing remarks. Well, thanks for taking part in today's call. Clearly, we're very pleased with the results of across all our group businesses and for another what was a very turbulent period of trading and would like to recognize, of course, the leadership and management of all of our teams. That's what wouldn't be talking about this result without their efforts this year and every other year. So thanks very much, and we look forward to updating you later in the year. Goodbye. That does conclude our conference for today. Thank you for participating. You may now disconnect.