Canopy Growth Corporation Price & Performance (CGC)

Good morning, everyone, and welcome to the Costa Group Holdings Limited results presentation for the first half year in the calendar year 2023. My name is Mark Werner, and I'm the Deputy CEO of Costa. Joining me in this presentation is Wayne Johnson, Costa Group's CFO and Harry Daphne, our Interim CEO, who will be available for Q and A after the presentation. Now onto the presentation, and I'd like to begin with the key highlights. The international segment delivered plus 32.8 percent revenue growth versus the previous period offsetting the mixed domestic performance contributing to a group EBITDA of $150,200,000 which is a plus of 7.2% versus the previous period and an NPAT S of $37,800,000 Pleasingly, both China and Morocco contributed to an impressive international performance further demonstrating the superiority of Costa's blueberry genetics. International segment EBITDA was plus 43.5% versus the previous period. As noted at the AGM in late May, the citrus season was circa 3 weeks behind starting, meaning virtually all the citrus harvest earnings will fall into the second half of calendar year twenty twenty three. Despite the early 2 pH Citrus season food being well received in export markets, there has been a disappointing deterioration in outlook for later season food quality contributed to by calendar year 2022 weather impacts.

Together with southern region volume downgrade and La Nina overhang Contributing to FoodSight being below expectations, full year EBITDA as impact is currently estimated at $30,000,000 Industry wide table grape harvest was circa 40% lower versus the previous period due to calendar year 2022 weather with an EBITDA impact of $9,000,000 in the first half. The Monato mushroom facility continues to consistently exceed production capacity, averaging 2 59 tons per week over the first half, which was a positive plus 3.3% increase compared to the previous period. The Myrna facility yields were lower compared to forecast mainly due to weather impact on compost contributing to flat category revenue growth compared to the previous period. The performance of the Berry Farmado sales volume was positive to forecast With a greater snacking sales share compared to previous period, however, lower than expected summer months pricing and demand meant Overall, aggregate pricing was subdued for the first half, resulting in lower revenue and earnings compared to the previous period. Avocado saw a recovery from prior year with pricing at improved levels versus previous year for most of the first half. And we saw the successful completion of first trial shipment of East Coast product into India.

As per the announcement to the ASX on the 24th August, 2023, discussions with Payne Schwarz Partners are continuing And they were advised of the latest trading conditions as part of the ongoing due diligence process. It remains uncertain if a transaction with pain will eventuate And at what price? Costa expects to be able to provide an update in relation to the transaction in mid to late September. Costa shareholders do not need to take any action at this time. Moving to the financial headlines for the half year. Revenue was 8.7% higher against the previous period With an EBITDA of AUD150.2 million, which is 7.2% up compared to the previous year. And Pet S was at $37,800,000 which is 6.2% lower compared to the previous period. Segment earnings performance by EBITDAS saw the International segment deliver a 32.8% increase on the prior year. The produce segment was down by 53.5% on the prior year and Costa Farms Logistics was down by 36.1%. Moving to the next two slides, which detail the performance of the international segment for the half. As noted, revenue for the segment was up by 32.8% compared to the previous year, which EBITDA is growing by 43.5%.

China revenue growth was a strong 53% with African Blue growing revenue by 13% and genetics licensing revenue was up 24% on the prior year. The share of revenue for the half saw China contribute 54%, African Blue 41% And genetics licensing, 5%. Now moving to the international segment highlights and starting with China. There was strong and sustained demand over the entire season, supported by 46.3% increase in blueberry volume compared to the previous season. This was made possible by the newly planted AgriPark development producing volumes in excess of forecast. Volumes from the Basurran and Banna Farms were also ahead of expectations. In African Blue, the increase revenue was driven by higher overall pricing for the duration of the season, helped by reduced volume across the industry. Oftar's own farm volumes were 16.8% lower compared to the previous year, mainly due to northern farm replantings with respect to yield and pricing, including Cascade, Breeze, Eterna and Velvet varieties. Genetics licensing activity continues its upward trajectory and over the first half was driven by VIP varieties and higher China volumes. Work is continuing on expanding Costa's global blueberry licensing network into potential new regions. The performance of the domestic product segment was mixed over the half.

This was reflected in marginal revenue growth of 1.6% with mushroom growth being flat, tomato revenue declining 11%, Berry revenue up 12%, citrus and grapes being down 1% and avocados up 11%. In the citrus category, the first half revenue was marginally below the previous year. Table grade yields were affected by downy mildew, which also affected quality. As noted, the citrus season will circle 3 weeks behind starting with approximately 600,000 less cartons sold in the first half as a result. The 2PH Amyrid harvest was completed in June with invoicing and revenue booked in the second half. The early season fruit was well received in export markets. Unfortunately, there was a deterioration in outlook for the later season 2 pH fruit quality contributed to by calendar year 2022 weather impacts. This has included the Mercott Mandarin call. The southern region forecast season volumes were downgraded and the food size affected due to La Nina overhang. Meaning, the combined 2 pH and Southern regions issues are expected to contribute a current estimated full year EBITDA as category impact of circa $30,000,000 In the berry category, there was a challenging period over the Q1, which takes in the Tasmanian season due to crop timing and competitive industry wide volumes pushing prices lower.

However, volumes were overall positive for the half. Blueberry volumes were 26% higher on previous year And raspberry volumes were up 37.2%. The F and Q blueberry season saw favorable yield and pricing. Arana exports also delivered a strong return of plus 20% per kilogram versus the previous period. At the end of the half, more than 50% of all Costa Dometic blueberry plantings are now in substrate. As mentioned, mushroom revenue was flat compared to the previous period. Pleasingly, the Monado facility averaged 2 59 tons per week over the first half, which is plus 3.3% compared to the previous period. Due to weather impacts on compost, the yields from the Myrna facility were lower than forecast And although largely offset by above forecast monato yields, sales volume was marginally below expectations for the first half. Prepack as a share of total sales continued to grow being up 6%. In the tomato category, lower than expected Summer months pricing and demand meant aggregate pricing for the first half was subdued. Sales volume was down compared to the previous period, reflective of softer consumer demand, while production volume was positive versus expectations, but still marginally down versus the previous year.

In avocados, revenue growth was aided in steady pricing recovery from the previous year. Own farm sales volume was also well ahead of the previous year. The average avocado trail sale price was up by 42%. Our review of the avocado portfolio is ongoing. And during the first half, we completed the sale of the Igonalda F and Q farm. We also remain focused on continuing to drive efficiencies across our remaining farms. WA exports to Japan continue to increase year on year, but our overall volumes are still small. Lobbying is ongoing for East Coast access to increase export volumes. The final segment to report on is Farms and Logistics. Although there was positive revenue growth year on year, weakness in wholesale market margins and increased energy costs over the half contributed to reduced EBITDA versus the previous year. Farms market trading was marginally below forecast with servicing revenue driven by strong berry volumes, including from 3rd party customers, which saw increased revenue versus the previous year. In logistics, there was additional third party warehousing volume by the underperformance of retail facing trade. I would like now to hand over to our CFO, Wayne Johnston, to talk to the financial slides.

Thank you, Mark, and good morning to everyone on today's call. Starting with the group financial results. Revenue for the 1st 6 months of calendar 2023 was $770,700,000 an increase of 8.7% over CY 'twenty two. As Mark discussed, our international segment was the standout performer the period with sales up $51,000,000 China contributed $39,000,000 of this increase underpinned by additional harvest land at AgriPark in Beau Chan and strong yields across the entire portfolio. Average yields of 21 tonne per hectare were 6% up on prior year, which was above industry and also our own original expectations for this season. Pricing in China was also robust with realized blueberry pricing up 6.5% on CY22 And a strong premium for jumbos also continued. It is equally pleasing to report an improved harvest year for Morocco with our African Blue Increasing net sales despite lower volumes given our repainting program, with low industry volumes across Europe and Northern African farms delivering lower yields and assisting with improvement in average pricing. Our domestic produce segment reported a 1.6% improvement in sales versus prior, Reflecting improved pricing in yields from the avocado category and berries also increasing net sales versus prior year from higher volumes.

Tomatoes were down 11% as high industry volumes in quarter 1 impacted average pricing and slowing demand started to have an impact quarter 2 for our snacking varieties. As discussed at the AGM in May, our citrus business had a delayed Start with the impact of approximately 600,000 less cartons sold in the first half versus internal expectations. Mushroom sales were flat on lower yields, mainly from our Munda facility, which experienced compost issues for most of the first half and slightly improved average pricing on robust demand. Group EBITDAREST of $150,200,000 was 10,800,000 above prior year. The international segment delivered a record result for Costa, up by 37,000,000 or 43% versus the prior year. As I discussed, strong sales in China from improved yield and average pricing led to an exceptional result. African Blue also saw earnings improvement year on year after a difficult couple of years due to poor climatic conditions. The produce segment was overall was down versus prior and our own internal expectations. The delay in the citrus Season and low average price realization in tomatoes outweighed the positive impact of an improved result in avocados relative to the prior year. Berry experienced a slow start to the year with the Tasmanian season impacted by high mainland blueberry industry volumes And also above average raspberry volumes across all growing regions impacting net margins.

We will discuss costs the later slide, but as envisaged, we did see increased costs across most cost categories that also impacted net returns. NPAT S of $37,800,000 was below prior year by $2,500,000 Material items include costs relating to the responding to Payne Sports Partners takeover proposal and impairment loss on the sale of the avocado property at Canola in Far North Queensland and other restructuring costs. Interest expense increased by $8,000,000 in the half year with the majority of the decrease related to bank debt of which $6,100,000 related to rate increases and the remainder from an increase of average daily debt balances. Lease interest of $14,200,000 was in line with prior year. In the appendices of the presentation, we include a full year for our total interest cost for CY23 of $56,000,000 Given the level of growth CapEx in the last 24 months, particularly in China And Morocco, depreciation and amortization increased to $69,600,000 from $65,500,000 last year. Moving to cash flow. We delivered a strong operating cash result relative to the prior year despite the traditional working capital investment in the first half that was accentuated by the delay in citrus sales. In keeping with our Traditional harvest seasonality, we would expect the majority of the working capital build to be released in the second half.

We did receive the benefit in the first half of the tax refund from last year's return of $28,000,000 Operating CapEx of $33,100,000 was in line with expectations and include Barra plant costs of $18,900,000 Growth CapEx was only $3,700,000 as the main CY23 projects are largely related to our international assets, for which the capital works are primarily performed in the second half of the year in our non harvest period. Additionally, as foreshadowed, the company has completed the additional Conningans land option at 2BH just this week at a cost of $37,000,000 We expect total CapEx for the full year to be approximately $110,000,000 This is lower than the previous guidance of 125,000,000 As a number of the projects won't be completed this year and maintenance CapEx will be managed lower given the weaker outlook for the financial performance in our domestic produce segment. We will have tax payments of approximately $33,000,000 in the second half, resulting in a net $6,000,000 for the full year. And whilst largely an internal transaction, we will bring back dividends from China Back to the JV partners in the second half. Although still below the cash generation of the business units given we are still Rebuilding and retain earnings and have remaining growth plans that will need to be funded by existing cash on hand.

The next slide is the balance sheet. As discussed on the previous slide, we had a higher investment in working capital in the year versus prior, mainly due to the citrus season delays. This should reverse in the second half. This is most evident in the increase in receivables and inventories. By December year end sorry, relative to December year end CY22, net debt has improved by $2,000,000 to $350,000,000 The international earnings and strong cash conversion was a standout. Cash balances reflect the international result in Timing of pay down our debt. As discussed, we will bring some cash out of China in the second half through internal dividends. I would expect net debt will increase in the second half given the growth CapEx, the Connegan transaction and tax requirements, And I'll discuss these a little bit later. Sorry, I'll discuss those earlier. On capital and debt management, given the debt refinancing last year of our main corporate syndicated debt facility, the first maturity date is still 24 months away. Unused debt capacity for this facility was $160,000,000 at half year. As always, we appreciate the continued and ongoing support from the group's banking syndicated members. Our total leverage ratio improved from December to 2.31x from 2.46x.

The long term preferred levels remain within the range of 1.5x Given discussions with Paintswater continuing, the Board has deferred any consideration of an interim dividend. The next slide provides a summary of cost impacts on our key farming inputs. The foreshadowed increase in these costs largely played out as expected, but regardless, we did see significant inflationary Pressures, including birds and cans, domestic freight and packaging. Energy costs specifically, electricity and gas were up $13,700,000 to $20,800,000 Although in part this increase reflects the rollout of long term contracts that were set at favorable rates in CY 22 versus the underlying market conditions. Relative to prior year, farming labor included harvest including harvest labor were impacted by minimum wage determinations With the June 22 increase of 5% impacting the half on year comparisons. The increase from 1 July 23 is approximately 6% and slightly above the original expectations that we called out in February. On a more positive note, we are starting to see some release relief from various input cost lines. Shipping costs have fallen in the last 6 months relative to the sharp increases we saw in CY 21 2022. This will benefit the second half given the weighting of our citrus exports, and we are hopeful for further improvements over the next 12 months, Given the refrigerated container pricing tends to track behind dry container pricing movements and as more capacity opens up.

We are starting to see input costs for packaging, fruits and chems Come back, although further reductions may stagnate in the short term given the AUD U. S. Dollar exchange rate. The graph on this slide highlights the key movements versus prior year avocados and citrus of approximately 5%. That concludes the commentary on the financial slides, and I'll now hand back to Mark to conclude the presentation.

Thank you, Wayne. To conclude with the outlook for the year, as noted, a deterioration in late season 2 PH, Food quality in Southern region volume and food size downgrades are currently estimated to have a $30,000,000 impact on full year EBITDA. The contributing factors are considered non structural with the ongoing health and productive capacity of the trees unaffected. There has been stable weather and positive pricing over the early part of the main Northern New South Wales berry season, together with an expected solid harana crop pointing to strong second half berry earnings versus the previous year. Mushroom demand steadily improved consistent with cooler winter months with demand overcoming period expected to level off. Monato facility production remains ahead of capacity, while Myrna facility volumes continue to improve aided by more stable compost supply. The softening in tomato demand is expected to continue through the second half impacted by higher industry wide volumes, including from field crops. Insourcing of Pacific seasonal labor continues, which is contributing to ongoing improved security of labor supply. Taking into consideration the above, full year calendar year 2023 EBITDA is expected to be ahead of calendar year 2022 results. Thank you very much.

We are now going into the Q and A session.

Please go ahead.

Good morning, Michael. I just wanted to ask a question, if I could, about the citrus. In that outlook slide, you said that the factors contributing are considered nonstructural with ongoing productivity of the trees unaffected. Can you give us some justification or further details to explain that for us? Thanks.

As we refer to in our presentation, we currently estimate A deterioration versus our previous expectation in the vicinity of $30,000,000 The tree health is intact as both as far as the health is concerned as well as productivity is affected. So from our perspective as of today, we do not see any substantial deterioration of the trees going forward.

So just to be clear, is the $30,000,000 impact, Yes. Any attribution or sense we can get of the contribution from Reduced volumes versus lower prices received?

It's Wayne, Craig. Good morning. Predominantly, it relates to Somewhat volume, particularly in the southern parts of our farm our portfolio. The 2 pH impact is more around a quality mix And therefore, price realization. So we saw in TBH, what we're seeing, particularly with our Murcots at the back end of their season, A downgrade in quality and therefore what's ending up in the particularly the premium boxes is below expectation and therefore a price realization. So, yes, as I said, more the Southern Farm is probably more related to a volume issue. The Northern Farm is more around quality. Okay.

And lastly, just what's the rationale for delaying the dividend by the Board?

Nothing other than that I think given there is a potential transaction coming up for a change of control and any Dividend or potential dividend that the company may pay this year will I'll clearly be part of that conversation. It was best just to defer that until that potential transaction was to be clearer to us. As I said and as per the slides, we're not expecting any update in relation to that until mid September and at that time we'll give the market more updated.

Okay. Thanks, Ryan. Appreciate it.

The next question comes from Richard Barwick from CLSA. Please go ahead.

Good morning, guys. Can we just thinking about some of the quality issues that you talked about with citrus and relating to last Jeez, weather. Is there anything that you could have done differently to have identified this problem earlier? Well, I guess, the flip side of that is, is there anything that you've learned having sort of been through this Experience now and so you're backward looking going, hey, yes, last year's weather did impact this year's quality. Is there a learning there that would better equip you going forward so we're not caught with this sort of surprise?

The Costa Agronomy team is applying best industry practices when it comes to Pest and Disease Management in particular. So the deterioration of the crop quality only unfolded Late in the season, there are certainly some learnings to be drawn. But overall, we can confirm that we are So what are those learnings? So for example, if you were to go through a similar experience, have you learned anything here that would Give you an earlier warning of crop quality issues or is it one of the things that you It's impossible to identify until so late in the season. And so if you're cycling similar conditions and you'd go into the next crop more cautious.

We had 2 severe wet weather events at the beginning of the year, which contributed And to the deterioration of the quality, which only became apparent late in the season. And these are Definitely and learnings that we are looking into going forward.

And Richard, no two seasons are the same. So clearly, whilst we'll the team will always will do a very deep dive as we always do on all Farms, whether it be citrus or other categories, certainly, the learnings we felt we come up with for this year will certainly be applied in future years. But As Mark implied, it's important that we have we have experts who we believe are Best in class in Australia relation to each of our categories and we heavily rely on that team to deliver The best economical practices. So yes, we'll do learnings, but it's no 2 seasons are the same. And as Importantly, as per the previous questions, I mean, the tree health remains Robust and we feel confident in relation to as we move into next year.

Okay. And can I just clarify The volume component that you're talking about contributing to the $30,000,000 EBITDA impact, you talked about Southern region volume downgrade, but then La Nina contributing to smaller fruit size? Is the Southern region volume downgrade, Is that relating to La Nina as well or is the southern region volume, Is that an impact from last year's weather? Just trying to are the 2 are the 2 are those last two volumes the same or are they different drivers?

The same issue.

No, it's La Nina's issue.

Correct. Yes. It's Harry, Richard. Just to add to that, La Nina had a long overhang. It didn't complete till about the end of March, which was later than almost expected. And the early season fruit Actually about 1 to 1.5 size grades down, which was manageable. But as we got into the later crop, particularly The Lake Nobles as well as the Aphora mandarins, we were down 3 to 4 size grades and we attribute that to continuing Fortnightly cold wet weather going right through to most of the growing season, particularly affecting the late grades, The light varieties.

Okay. All right. That's helpful. Thank you.

The next question comes from David Pobucki with Macquarie Group. Please go ahead.

Mark, Wayne and Harry, hope you're well. Thanks for taking my questions. Just on citrus and sorry to harp on it again. In terms of the volume issue in the Southern Farms, was there a portion of the crop that was just thrown away?

It's Wayne, David. Good morning. Yes. As you'd appreciate it, in any trade, there's varying grades or quality on any trade. And What we saw, as Harry suggested as well, fruit downgrading in size means that The quality levels of the grading of the fruit does change. It does imply that less fruit ends up in a box, correct.

Okay. Thank you. And what's the on a go forward basis, what's the risk of sudden death in some of those trees? I mean, I'm not a horticulturist, but Reddit can occur months or even years after bad water damage. How do you think about the risk around that?

Yes. I'll take that one. So we've got very good subsurface drainage on all of our farms in the three regions. So We didn't suffer even though we've had heavy rainfall and continuing rainfall from any, if you like, retained water in the root zone. So that's not an issue. In fact, most of our soils are more like sandy loins than clay soil, so no issue there.

Thank you. That's very useful. Maybe just one last one for Wayne. You mentioned you expect non controlling interest For SIGARRA to be $20,000,000 for the full year, do you have the post SIGARRA number on hand for that non controlling interest?

I think it's about 25, I think. So but I'll confirm that for you and drop you an email.

Okay, great. Thank you very much guys. Appreciate it.

The next question comes from Evan Carrasos with UBS. Please go ahead.

Good morning all. Wayne, maybe for you to start. Just on the chemicals, just on that cost side that you gave, which It was pretty helpful. I mean just on the chemicals and Firths, I'm a bit surprised they're up sort of 30 odd percent in the half, Just given, I guess, how weak they've been in the last 9, 10, maybe even 12 months, can you just talk to the procurement practices for Chemicals in First? Do you lock in prices in advance or purchase in advance of the season there, please?

Yes. I think our procurement practices, we're obviously one of the largest buyers of 1st in Canada in Australia. So We certainly, I think, overweight our negotiation ability with the key suppliers. We're coming off a period as Sort of getting back to the citrus messaging, a lot of wet weather meant that Our levels of spraying programs and management of trees were at a heightened level, so the usage is certainly component of that increase. Price decreases, I guess, you're correct. And I think I might have highlighted in my script that So we are seeing start to see some decreases, particularly as international freight costs are coming back. So prices are coming back. I wouldn't Evan, I wouldn't have said that kem and thirds have been Prices have been coming back, I think you used the word up to 6 to 9 months. I think that's probably a little bit probably beyond really where the market was at. So But very comfortable where we're at around our ability to negotiate and looking forward to further opportunities around price Reductions as I guess as we see further input cost reductions in the next sort of 6 to 12 months.

Okay, great. So maybe just sort of for next 6 months, just one more on those Canfield costs. Should we I guess, in terms of The first half, should we annualize most of those numbers and maybe add a little bit except for, I guess, Kempen first? Or is it I'm just trying to understand how they sort of play out the next 6 months, some of those key input costs.

Yes. If you look at that graph that's on Slide 20, I think the one that you wouldn't just double and say that's the annual cost is shipping, the natural shipping because there is a bias Towards our export program in citrus towards the second half. So that will be slightly higher in relation to 2nd half cost versus first half, but the others largely are usage across the entire portfolio Largely fairly smooth.

Yes, okay. That's super helpful. Just last one for me. I won't touch on this, but just on Berry, pretty impressive performance, I guess, globally from the Berry Business, I guess, reflection of the IP you have. Just on the domestic berry business, can you just talk to the drivers of the really strong Domestic volume or berry volume growth, please, if you can?

The key drivers are certainly our ongoing Focus on not only blueberry production, but definitely across all the 4 different berry types and Leveraging the high standard of quality that we have as well as our world class Genetics in that space, which enjoy high demand and thereby generate premium pricing. Also, we are paying a lot of attention on export opportunities, in particular from Jumbo and Arana Export opportunities that we are leveraging and we are seeing good progress in the Southeast Asian markets in particular.

Well, I'll just add to that. I think that we were very pleased again with our Far North Queensland blueberry crop. As we called out in February prior year that last year was a very successful program and I think this year was equally successful. So first half, certainly impacted by positively impacted by another strong Thank you, Seeserman. As we sort of implied through the presentation, we're moving into the Northern New South Wales crop and with our main Korindi farm. And So far from what we're seeing around, I guess, the condition of the farm generally and also the condition of the plants and we're quite excited around The remaining season, we're obviously towards the back end of the year. We start our Tasmanian season. So that's still very too early to call, but again that's something that is quite important to the overall results of the group.

Okay, great. Thanks, Yi Tom. I'll pass it over.

The next question comes from Jonathan Snake with Bell Potter. Please go ahead.

Yes. Hi, guys. Can I just ask on a different side, the grapes business in the first half, like I'm assuming that's called the citrus balance of crop number? And the tonnage looked like it was back down towards the I guess the 2021 levels when you had all that hail damage Rip through and I think at the time that cost you about $25,000,000 back then. How big an impact was a great yield issue in this mill juicing in the first half, because it looks like it was quite material.

No, that's a good call, John. And I think Mark did mention through his presentation and maybe just to clarify those comments. So The industry was down about 40% and largely related to a mildew issue that Well, it's quite prevalent through particularly the Sunrays area. So volumes down considerably. We Mark called out I think $9,000,000 being the impact, so that's the EBITDA impact versus internal expectations. So quite material to the group. And as I said that the mildew issue, We believe largely related to the La Nina conditions that we saw for CY 2022.

Okay. And look, can I just ask on Cigaraway Way there? I think back at the Full year, if memory serves you, you were looking for like a $13,000,000 odd dollar number coming through in 2023 and was quite a big negative drag In the first half, how you're thinking around the contribution from Cigara for this year?

Yes. So it's obviously a point in time calculation, John. And so if you think about the first half, 2 major Matters that impact, I guess, that P and L line. One is that which is A positive thing in Raichin in that, we at the beginning of the year, we have, obviously, our crop in international businesses that is yet to be picked. So for Sagara purposes, we put a value on it. As we pick and harvest that crop, obviously, we that Sagara line unwinds and we take a charge to the I guess the other thing, which is more of a negative issue and sort of gets back to the theme of citrus is that our expectation of the value of the crop at 30, but Yes, that balanced day 1 July, this year is below previous expectations. So A greater charge to the P and L relating to expectations for citrus for the second half.

Okay. So when I'm thinking about the full year, it's likely to still be a drag?

That's correct.

It's not going to reverse and be a massive positive visit.

No, it's not. All right. Thank you.

The next question comes from Ben Gilbert with Chardan. Please go ahead.

Good morning all. Just first question, just on the dividend again, just following up from Craig's question. I thought The pay under the indicative proposal giving you guys the option to pay up to $0.04 divvy. So It just surprised me and I don't know if I'm reading too much into it. Is it concerns around cash flow or is it just surprised me. I'm not really sure how to interpret it.

Yes. It's Wayne, Ben, and good morning. Yes, ready too much into it. It's simple as we the Board Deferred any consideration of the payment of dividends subject to receiving A proposal, a binding proposal of paying for it. Clearly, we don't have that binding proposal. And as implied by the ASX release and also today's commentary, We may not receive a binding proposal, so we just have to see that plays out. And just the Board will consider a dividend at the appropriate time. But Please, there's no hidden messages other than we just it's appropriate for us to see If there was to be a binding proposal come and the structure of that proposal before we consider what we do in relation to A dividend to the shareholders.

Okay, thanks. And then just a couple of others. Just on the Moroccan business, so you obviously had some impact. I think You did some replanting, you put in your packing ship about a year or so ago. The new plantings, should that get you up to run rate where you should be able to grow that volumes Pricing or what's equal to next year from your own farms in Morocco?

Yes. Look, we've had This is the 2nd year of replanning. So it's about each year is about 4 50 tonnes less than the prior year. We would see expect another year of replannings, but we're quite excited about where this business could go once those replannings are done. As you'd appreciate Ben, not only are we replacing older plants, but we're also replacing them with our newer genetic varieties, so which we've got High degree of excitement about. So yes, we do expect this business to improve. And once we get for the We're very pleased. And I think it's probably one of the highlights of the results is actually the result of Morocco. It has had a couple of difficult years and the team have exceptional this year. And as I said, the replanning program Well, so we've probably got another 12 months of that, but from the year after we'll start to see growth in that business given the replanning program that we finished and also we'll be taking advantage of the better varieties.

Thanks, Ryan. And then just final for me, just on freight. I appreciate freight costs in terms of outbound freight is going up, but Your citrus volumes have all been pushed into the second half. And as you said, your export outbound The export freight, since your shipping is pretty big cost given where it's going all over Asia.

Why did it go up so much? Because on a like for like basis, if it's Just like the outbound, it must be up like 30%, 40%, given the shift in volumes in citrus, isn't it? Just seems like a big increase given what your citrus volumes are doing seasonally.

Yes. I think if you're looking at Slide 20, I think you're probably looking at freight, which is domestic freight.

But that's all domestic there, is it? There's no international in there. Okay. Correct.

Yes. And look, I won't be surprised to anyone on this call that domestic freight is challenging For any major users of it, we the consolidation that's gone on recently, but certainly the Withdrawal of Scotts from the refrigerator space probably means for at least 24 months, We don't expect any real relief around pricing in that space, although As talked through in our slides, we are seeing some benefits in international freight. So the only real issue there is whilst Dry containers have pricing have probably gone, if not at least or below pre COVID levels. The availability of slots for refrigerated containers is not back to where it was 2 years ago. So whilst we have seen some improvement in pricing until further swaps or capacity opens up, we're not expecting too much further reductions. But I think market forces will probably mean the capacity will open up over the next 12 months.

So one final one, because you touched on it there, the Scotts the material distribution, because I think Willie has picked up a few of those facilities. Did you look at those?

No. No, no. We weren't they weren't a supplier to us. So it actually Didn't actually touch our supply chain, but I think as it's probably implying, it's going to it will impact, I guess, the ability for Generally for that industry to have any full price release for a couple of years.

Yes. Okay. Thanks. Appreciate The next question comes from Belinda Moore with Morgan. Please go ahead.

Thanks for your time guys. So, Wayne, I think you said net debt will increase year end just given your funding costs. Can you give us a bit more flavor how you're thinking about your gearing metrics at year end? Then also just on tomatoes, can I get clarity? I mean, is it sort of is it unprofitable? And then On avocados, if you wouldn't mind going through your outlook expectations for the second half, just given industry supply? And then Lastly, just given planting sort of pause in China and still replanting Morocco. Is it fair comment to say international earnings will be down in Yes. Good morning, Linda, and thanks for joining the call. I might answer the first and last question and then pass to Mark on Tomatoes and Avocados. So I guess your question on where I think gearing wind up sort of implies that I'll be giving guidance on earnings. So I won't go there, but certainly I think that will increase largely because we had a lower Expectation around citrus earnings and second, we are funding the Conningans land deal for 2BH, which we'd already I think it's important to point out that these are investments in the future.

So whilst we will have some Mine is adjusted to our gearing level and leverage ratios. In the short term, they are transactions that will Better the group and we'll take although we'll take a number of years for the earnings to come through. In relation to China and international, Look, it's fair to say it was an exceptional result. And whilst in head office, we always probably ask the management team To develop plans to continue to grow the business, to deliver that type of pricing and yield outcomes year on year with growth in it embedded It will be a challenging number. So very difficult for us to be able to repeat that number on the same footprint That we have in both China and Morocco. As envisaged, we still have growth plans in relation to extra land in both of those regions. We have been able to identify some of our 100 hectare expectations for 2025. We haven't got all the land yet for China. And we continue to look for land, particularly in the Agadir, so Southern Morocco. Both regions around finding suitable land The right price is challenging. There's a lot of competition across all growing categories, but Yes, we still see growth in those businesses.

So, but I like to like to answer your question, difficult to sort of see an improvement In that business, given how strong the result was, but our growth plans remain on track and we see definitely see growth Beyond where we are now in the category beyond the next few years. I'll pass back to Mark on.

Yes. Thanks, Wayne. Maybe starting with tomatoes. So as I was referring to in my presentation Earlier on the tomato category is expecting or has seen some lower summer months Pricing compared to our internal expectations, in particular, off the back of significant trust Supply from field crops, which we haven't seen arguably in the last 2 to 2.5 years. So that is something that the team is currently working through when it comes to making the necessary production adjustments in the glasshouse. So it's certainly something that we are on top of in order to manage supply and demand going forward. And as far as rat snacking is concerned, we have seen significant production yields Over the first half year and we'll continue to do so with off the back of favorable growing conditions, life conditions in particular. And so as far as the tomato category overall is concerned, we have to make production adjustments When it comes to trust, but overall, we are quite optimistic about the fourth Coming months in particular as we move into the summer months where we generally see a significant volume and demand Increase as per the previous years. When it comes to avocados and again referring back to the presentation, Just some highlights.

We have spent a lot of significant time in terms of optimizing our avocado Footprints, as well as we sold 1 avocado farm in FNQ And we will continue to do so in terms of reviewing our optimal footprint when it comes to avocado farming As well as looking at export opportunities, we have been quite successful in securing WA avocado supply, which is able to which we are able to export into Southeast Asian markets, And we'll continue to do so. Also pricing compared to our internal expectations has been favorable. And so overall, I think we are on a pretty good path as far as avocado and the Cabo Cabo category is concerned going forward.

Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.