Announcement PDF REALISING GLOBAL POTENTIAL SUNRICE GROUP ANNUAL REPORT 2024 SUNRICE GROUP ANNUAL REPORT 2024 — REALISING GLOBAL POTENTIAL REALISING GLOBAL POTENTIAL In FY24 we achieved another year of strong growth across the SunRice Group. We made significant gains, as we look to lay the foundations to realise further potential ahead. FY24 H I G H L I G H TS Revenue CONTENTS About this Report ^15% $1.88b EBITDA1 Chairman’s Report Group CEO’s Report 5 11 How we create value Our People & Communities 15 Australian Rice Pool Business 19 International Rice 25 Rice Food 31 Riviana Foods 35 CopRice 39 Corporate 43 Our Outlook 44 Our Operations 45 ^24% $68.2m Our Approach to Risk Corporate Governance Corporate Management Team Directors’ Report Remuneration Report Auditor’s Independence Declaration Financial Report Directors’ Declaration Independent Auditor’s report Shareholder Information Sustainability Performance Data 1 3 ^23% $143.9m Net Profit After Tax 2 1. EBITDA is defined as earnings before net finance costs (asset financing charges are not considered a finance cost/income for the purpose of the EBITDA calculation), tax, depreciation, amortisation and impairment. Corporate Directory 49 57 63 65 67 87 88 134 135 141 143 153 ABOUT THIS REPORT The SunRice Group seeks to continuously improve the way we communicate long-term sustainable value to A and B Class shareholders and other important stakeholders. Our financial and non-financial reporting is combined to provide information on all aspects of our performance in one report, the Annual Report, supported where required by supplementary information (see 2024 Reports Portfolio). SUNRICE GROUP ANNUAL REPORT 2024 — ABOUT THIS REPORT Reporting boundary and period 2 SunRice’s Annual Report covers Ricegrowers Limited ABN 55 007 481 156 and its controlled entities. Unless otherwise stated, all disclosures in the Annual Report relate to the Financial Year ended 30 April 2024 (FY24). In this report, “the year”, “this year”, “crop year 2023” and “CY23” all refer to FY24. The “2024 harvest”, “crop year 2024” and “CY24” all refer to the rice crop harvested in 2024, which will be processed and marketed in the Financial Year ending 30 April 2025 (FY25). “SunRice”, “SunRice Group”, “Group”, “we” and “our” refer to Ricegrowers Limited ABN 55 007 481 156 and its controlled entities, as defined in this report. Reporting frameworks The FY24 Financial Report (on pages 88–133) and Directors’ Report (on pages 65–86) have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. The Operating and Financial Review, which is a required element of the Directors’ Report, can be found in the CEO’s Report on pages 5–10. This Annual Report has been prepared and reported in accordance with the 2021 Global Reporting Index (GRI) Standards and the 2022 GRI Agriculture, Aquaculture and Fishing Sector Standards. The GRI Index (see 2024 Reports Portfolio) lists the disclosures and where they are located within this report. Report assurance The Remuneration Report on pages 67–85 and the Financial Report on pages 88–133 have been audited. All disclosures in the Annual Report have been subject to SunRice’s internal review and approval processes by management, the executive and the Board, as appropriate. Stakeholder engagement and materiality SunRice undertakes both a formal materiality assessment to identify the issues that are significant to the business and to key stakeholders, as well as informal engagement throughout the year, in order to respond to our stakeholders’ insights. In FY24, SunRice commenced a refresh of its stakeholder engagement framework. An update of this process is provided on page 14. A double materiality assessment was undertaken in FY24 and is included on page 13. The Group’s existing material topics are reported against for the purpose of this report and in the Sustainability Performance Data on pages 143–152 as they formed the foundation of the current sustainability strategy. 2024 Reports Portfolio • Annual Report – provides information on SunRice, • Sustainability Reporting – provides further information on SunRice’s sustainability framework, strategy, policies and other mandatory reporting, including our Modern Slavery Statement, Environmental Protection Agency (EPA) Monitoring Data and The Australian Packaging Covenant Organisation (APCO) Report and Action Plan. sunrice.com.au/sustainability-reports • Sustainability Performance Data – provides information on SunRice’s annual sustainability performance across our commitments to environment, communities, our people and nourishing products on pages 143–152. Other reports and information • GRI Index – is an index of where to locate 2024 disclosures made in accordance with the 2021 GRI Standards and the 2022 GRI Agriculture, Aquaculture and Fishing Sector Standards. sunrice.com.au/sustainability-reports • Tax Transparency Disclosures – SunRice is a signatory to the Board of Taxation’s Tax Transparency Code. The Tax Report (issued annually) complements the Group’s tax disclosures and enhances our stakeholders’ understanding of the Group’s compliance with Australian tax laws. sunrice.com.au/financial-reports including governance, strategy, key risks, financial and non-financial performance and outlook, and includes the Annual Directors’ Report and Annual Financial Report. sunrice.com.au/annual-reports • Other information – presentations and information on SunRice’s half-yearly financial and non-financial performance and outlook. sunrice.com.au/financial-reports About SunRice’s structure • Interim (Half Yearly) Financial Report – provides • Corporate Governance Statement – provides an overview of our policies, procedures and practices to ensure application of the ASX Corporate Governance Principles and Recommendations (4th Edition). sunrice.com.au/corporate-governance One of the conditions of the Company’s admission to the official list of the ASX in 2019 was the provision by SunRice of an undertaking to the ASX that it would disclose, in this year’s Annual Report, whether it had considered removing the Non-Standard Elements from its structure and operations, and if it had decided not to remove the Non-Standard Elements for the time being, its reasons for this. The SunRice Board periodically reviews the NonStandard Elements of the Company’s share capital structure to assess whether the structure continues to be in the best interests of the Company and its shareholders generally and whether any changes should be made. The business is currently conducting a strategic review which will include a review of its structure and operations, including the Non-Standard Elements of the Company’s share capital structure. Any significant recommendations arising from this review will be the subject of discussion with the ASX and may ultimately require shareholder approval. It should be noted that the interests of A Class Shareholders are in achieving returns through Paddy Prices. The interests of B Class Shareholders are in achieving dividends on B Class Shares and improvement in the market price of B Class Shares. 3. The Company’s constitution outlines the composition of the Board of Directors. The Directors are required to act in the best interests of the Company as a whole. SunRice’s Directors have actively managed the interests of both A Class and B Class shareholders, in a listed environment on both the NSX and ASX for more than 17 years and the Directors believe they have demonstrated a strong track record in balancing the interests of both classes of shareholders. In addition, the Board has adopted procedures to manage any potential conflict or divergence of interests which may arise, including establishing a committee of non-grower Directors (the Independent Committee). These procedures are set out in the SunRice Conflict of Interest Policy and the Paddy Pricing Policy. Copies of both policies are also available on SunRice’s website. Details of these Non-Standard Elements are available on SunRice’s website. For more details of the Non-Standard Elements of SunRice’s structure see investors.sunrice.com.au. announcements made to stakeholders during the year. See the Results and Reports section of the SunRice investor website. investors.sunrice.com.au The structure of Ricegrowers Limited (trading as SunRice) contains Non-Standard Elements, including: 1. The Company has a dual class share structure with differential voting rights; 2. The Company’s constitution imposes shareholding limits on A Class Shares and B Class Shares; and SUNRICE GROUP ANNUAL REPORT 2024 — CHAIRMAN’S REPORT Chairman’s Report 3 A strong FY24 performance Paddy price for medium grain rice FY22 $428 FY23 $461 CY23/FY24 $430 per tonne Fully franked dividend per B Class Share FY22 40c FY23 50c FY24 60c ^20% 2 Dividend yield 3 FY23 FY22 5.8% 8.1% FY24 It’s a pleasure to report another year of strong financial returns for the SunRice Group and our shareholders. 9.2% In FY24 we successfully navigated a challenging business environment, characterised by inflationary pressures, increased competition and ongoing supply chain disruption to deliver improved profitability and record revenue. The naturally-earned paddy price of $430 per tonne for medium grain and total fully franked dividend of 60 cents per B Class Share for FY24 reflect our ongoing focus to deliver value to both classes of shareholders. In particular, the business was able to realise this solid performance through continued market expansion, including volume growth in key international markets. In FY24, more than half of our Group revenue was realised outside of Australia and New Zealand (ANZ), with the international rice segment making the largest contribution to our results. I am pleased that our performance on the international stage was recognised by the Australian Government through awarding SunRice the Australian Export Award in the Agribusiness, Food and Beverages category. The results across our Group reflect the hard work of our 2,100+ strong team, which is ably led by Group CEO Paul Serra. I acknowledge the Board’s oversight of the successful appointment of Paul, following Rob Gordon’s decision to retire and step 2. Includes a special dividend of 5 cents per B Class Share. 3. Dividend yield based on the B Class Share price at 30 April each year. down as CEO in August 2023. Paul has made a significant impact in his first year with the Group and has led the review of the Growth Strategy commenced in recent months to identify and pursue the next phase of growth for our company. In addition to the work that commenced on our strategic direction, the Board oversaw a range of environmental, social and governance activities, including the Group’s progress towards its commitment to Net Zero by 2050 and the submission of its emissions reduction targets for validation to the Science Based Target initiative (SBTi) using the baseline year of CY22/FY23. Driving Australian rice industry productivity Ensuring the Australian rice industry’s longterm viability remains a high priority for the Board. The role our Riverina rice growers play in SunRice’s success and that of the Australian rice industry cannot be overstated, and we continue to support efforts to improve grower yields and water productivity. Drill sowing increased across all regions for the CY24 crop (as discussed in the Australian Rice Pool segment later in this Report). This is a positive outcome for the industry, as drill sowing has been shown to achieve the same grain yield potential as aerial sowing, but with better water use efficiency and reduced emissions. Data for the CY24 crop also showed that of the 57 crops that yielded over 14T/ha, 70% of them were drill sown. These encouraging results show that Australian rice can be highly productive, and an efficient use of finite resources whilst contributing to the nation’s food security. CHAIRMAN’S REPORT FY22 SUNRICE GROUP ANNUAL REPORT 2024 — CHAIRMAN’S REPORT 52% FY23 FY24 60% 62% 4 Australian rice industry challenges and opportunities outcomes for the farming communities of the Southern Murray Darling Basin. Consistent themes of my recent Chairman’s reports have included water reform and the NSW rice vesting arrangements (including our Sole and Exclusive Export Licence). The news on both fronts presents challenges and opportunities for the Australian rice industry. Despite these challenges, SunRice has continued to advocate for a better understanding of the socioeconomic impacts of this reform, to better balance the long-term sustainability of rice industry, communities and the environment. We have now commenced a consultative committee with the Federal Government to help them understand, and better mitigate, the downstream supplychain impacts of water recovery. In addition, we continue supporting the Ricegrowers’ Association of Australia (RGA) to advocate on behalf of growers regarding the impacts on rice production. After many years of discussion with successive governments alongside other industry stakeholders for a more balanced outcome, the Federal Government’s Restoring Our Rivers Act, which became law in December 2023, mandates further removal of water from productive agriculture. To provide some context, about the same volume of water we use to grow the Australian rice crop is targeted for water purchase for the environment. As forecast by a 2024 ABARES Report,5 this recovery will likely have a greater impact on annual crops like rice, pastures and cotton and place further pressure on allocation water markets. This water recovery in the Southern Murray Darling Basin comes in addition to the recent growth in permanent plantings which require consistent water regardless of weather patterns and on a continent that has some of the most ephemeral rivers in the world. I fear the combination of the above factors will negatively impact the economic 4. 56% when excluding the special dividend of 5 cents per B Class Share. 4 Basic Earnings per B Class Share Payout Ratio 5. Australian Bureau of Agriculture and Resource Economics and Sciences, ‘The impacts of further water recovery in the Southern Murray-Darling Basin’, June 2024 accessed at www.agriculture.gov.au/abares/researchtopics/water/the-impacts-of-further-water-recovery on 24 June 2024. Further, after multiple vesting reviews, in April 2024 the NSW Government released the 2023 ABARES ‘Independent Report into NSW rice vesting arrangements’ and the NSW Government’s Response to that report. In essence, the NSW Government recommended a partial deregulation of NSW rice vesting arrangements, creating two sets of rules for growers in Southern NSW and Northern NSW and also proposed additional regulatory compliance obligations over an indefinite period. Given the outcome on water reform, and the impacts of partial rice export deregulation, we believed that our Riverina rice industry would be better served by accepting an end to rice vesting. We will be working with the NSW Government, our growers, RGA and other industry partners to ensure a well communicated and structured transition in the lead up to 1 July 2025. FY22 77.2c FY23 83.8c FY24 97.5c ^16% NSW rice vesting arrangements have undoubtedly played an important part in the creation of the Australian rice industry over the last century. However, the world has changed and I believe SunRice will go on to a bigger and better future and continue to deliver value to our growers and shareholders in a deregulated operating environment through our proactive response. For our growers, we are now looking at ways to introduce greater flexibility and initiatives to continue to grow rice through the seasons and maximise paddy returns. For our shareholders, we will continue the evolution of our global food company in an effort to drive strong returns and continue the recent value growth of the business. Acknowledgments Board renewal and succession planning also continued to be a focus during FY24. This included facilitating the Group’s Grower Director Elections, which included Leigh Vial’s decision not to seek re-election and the subsequent appointment of Melissa De Bortoli to the Board. I also acknowledge former director Jeremy Morton and thank both he and Leigh for their strong contributions to the Group and the Australian rice industry. Also as part of this process, we focused on supporting initiatives directed at increasing gender diversity on the Board, and during the year conducted an internal Board review facilitated by an independent provider. Water efficiency 0.91T/ML 44.5% average CY23 water use effiency achieved of CY23 crop drill sown I want to thank my Deputy Chairman John Bradford for the guidance he provides to me and the Board, including in his role as Chairman of our subsidiary business Trukai. SunRice has had a long association with Papua New Guinea (PNG) and Trukai continues to be an important part of our company. We take our role in contributing to food security in PNG seriously and have one of the most extensive supply chains in the country. Throughout the challenges that PNG has faced recently, including civil unrest and natural disasters, we continue to support our loyal customers and local communities and John and our CEO of Trukai, Alan Preston, are at the centre of this. I also extend my thanks to my fellow Directors, our growers, shareholders, the Chair of the Rice Marketing Board of NSW (RMB) Rowan McMonnies, the President of the RGA Peter Herrmann, and the RGA more broadly. I also sincerely thank Group CEO Paul Serra, the Corporate Management Team and all employees for their efforts in FY24 and the exciting strategic plans in motion to take the SunRice Group, and all our stakeholders, into the future. Laurie Arthur SunRice Group Chairman SUNRICE GROUP ANNUAL REPORT 2024 — GROUP CEO’S REPORT Group CEO’s Report 5 Revenue FY23 FY22 $1.64b $1.33b FY24 $1.88b ^15% EBITDA6 FY23 FY22 $117.0m $91.3m Net Profit After Tax FY23 FY22 $48.7m $54.8m FY24 $143.9m ^23% FY24 $68.2m ^24% “As an ambitious and resilient global branded food business, the SunRice Group is well positioned to continue to grow and expand.” As I close my first year with the SunRice Group, I have been privileged to have been part of a year in which the Group delivered yet another strong performance across key metrics. Revenue for FY24 was $1.88 billion, up 15% on FY23, while Earnings Before Interest, Tax, Depreciation, Amortisation and Impairment (EBITDA) was $143.9 million, up 23%, and Net Profit After Tax (NPAT) was $68.2 million, up 24%. These exceptional results demonstrate the strength of the Group’s brands and our talented team, as well as our operational excellence in navigating a volatile business environment to deliver further growth globally. 6. EBITDA is defined as earnings before net finance costs (asset financing charges are not considered a finance cost/income for the purpose of the EBITDA calculation), tax, depreciation, amortisation and impairment. GROUP CEO’S REPORT Our performance drivers in a strategic and global context Group Total Recordable Injury Frequency Rate 11.26 FY23 6.93 FY24 6.87 1% ^ SUNRICE GROUP ANNUAL REPORT 2024 — GROUP CEO’S REPORT FY22 Senior Management roles held by women 7 41% Employee Engagement Score 76% 7. Senior Management includes Senior Executives and their direct and indirect reports, who have responsibility for the creation and implementation of long-term strategy, autonomy to operate and/or leadership responsibilities. FY24’s performance was driven by the efforts of our team and underpinned by our: • Ongoing successful implementation of the SunRice Group’s Growth Strategy: We continued to realise the potential of our previous key portfolio acquisitions and strategic operational decisions, while exploring additional opportunities; • Connection between our brands and supply chain: Specifically, the relevance and strength of our consumer brands, our continued focus on product diversification and innovation, and the connection of both to our integrated supply chain, which underpins our resilient business model; and • Discipline and agility in navigating challenging conditions and turning opportunities into advantages: Including being nimble in overcoming supply chain challenges and adaptive to volatile market dynamics, while seizing opportunities for our diversified portfolio and sourcing model to satisfy consumer demand in global markets. Combined, these factors supported our international market expansion with more than half of our Group revenue realised outside of Australia and New Zealand (ANZ) in FY24. 6 Revenue Volume growth Approximately 70% of the Group’s sales related to branded product in FY24. Our strong portfolio of brands, together with our discipline in balancing our branded and unbranded product mix to maximise returns and our operating plant efficiencies, meant that we were able to grow volume during the year. These factors were a key driver in both the Australian Rice Pool Business and International Rice segment and allowed us to expand our branded product offering in the Middle East, take advantage of abundant rice supply in the Riverina to support growth into Europe and the United Kingdom (UK), and to participate in additional government tenders, primarily in Japan. Value growth The strength of the Group’s brands was further demonstrated in the revenue growth achieved in FY24, with sales pricing strategies implemented to help absorb inflationary impacts that weighed on profitability in the prior year. In general, the Group’s performance continued to be impacted by the high inflationary environment in FY24, with indications of consumers trading down and cutting discretionary spending, resulting in market share erosion to lower price offerings in some categories. This was particularly prevalent in Riviana Foods, however product innovation and a broader, diverse and stronger portfolio of brands resulting from acquisitions in previous years (including KJ & Co Brands) helped to mitigate these impacts. Profitability In addition to being boosted by the strong revenue improvement, our profitability growth in FY24 was supported by the Group’s ability to navigate challenging and volatile conditions and to implement cost saving initiatives. The Group was also able to generate operational and manufacturing efficiencies across our various businesses, and CopRice’s strategic actions from the current and prior years continued to deliver margin improvements. Our extensive supply chain network also enabled us to source at competitive prices and to react efficiently to changes in supply and demand dynamics by adapting strategic sourcing strategies as required. Our supply chain and logistics excellence also allowed us to capitalise on improving global freight conditions, although supply chain disruptions in the Pacific and the Middle East partly offset these gains. The stronger United States Dollar (USD) throughout the period also placed pressure on the margins of our import businesses, particularly Riviana and Trukai in PNG. GROUP CEO’S REPORT Australian Rice Pool Business Profit Businesses Rice Pool Volume growth in key international retail and tender markets, together with favourable foreign exchange on exports drove a significant uplift in revenue. However, the return of Northern Hemisphere supply post drought increased competition and triggered a significant drop in international tender pricing as the year progressed. This affected the CY23 Paddy Price outcome, as did carry over volumes in the Riverina. International Rice Volume growth in key international markets, sales pricing strategies to help absorb inflationary impacts, improved shipping conditions and cost savings supported a strong revenue and profitability uplift. This growth was achieved despite ongoing challenges, including supply chain disruption, significant foreign exchange impacts and affordability pressures in key Pacific markets. Revenue Revenue FY24 $335.3m $384.9m $735.0m Paddy Price (Medium grain) EBITDA ^15% CY22/FY23 $461 per tonne CY23/FY24 $430 7% per tonne Riverina crop size (000s) CY22/FY23 ~688 7 FY23 paddy tonnes harvested CY23/FY24 ~500 paddy tonnes harvested FY23 $39.9m FY24 $893.8m ^22% FY24 $56.7m ^42% Rice Food Product innovation, a more optimised raw materials sourcing mix and manufacturing efficiencies supported positive growth in earnings, despite increased competition from lower price offerings in some categories. Riviana Foods Product innovation and brand strength helped to offset the ongoing high cost of globally sourced products, unfavourable foreign exchange on imports and a shift in consumer spending patterns towards lower price offerings in some categories. However, these factors continued to impact FY24 profit overall. CopRice Challenges in the equine and ruminant sectors, particularly in New Zealand, impacted CopRice. However, volume growth in the companion animal and agricultural retail sectors, sales pricing strategies to help absorb inflationary impacts and the ongoing execution of turnaround activities supported a significant uplift in CopRice’s performance. FY23 FY23 FY23 FY24 $113.0m $121.0m ^7% FY23 $11.1m FY24 $14.0m ^26% FY24 $215.0m $221.8m ^3% FY23 $6.3m FY24 $7.1m ^13% Corporate The sale of non-core assets allowed the business to absorb non-recurring costs associated with the refresh of our Growth Strategy and other costs associated with an increased risk of doing business in some markets. Profitability was however negatively impacted by impairment charges. FY24 $236.1m $252.7m ^7% FY23 $12.4m FY24 $17.2m ^39% FY23 $47.3m FY24 $48.9m ^3% NPBT FY23 $27.8m FY24 FY23 $42.5m $9.0m ^53% FY24 $11.8m ^31% FY23 $4.7m FY24 $5.2m ^11% FY23 $5.5m FY24 $11.0m ^98% FY23 $22.7m FY24 $16.3m 28% ^ FY23 ^ SUNRICE GROUP ANNUAL REPORT 2024 — GROUP CEO’S REPORT Segment performance drivers GROUP CEO’S REPORT Other operating expenses Capital management and dividend declared Other notable changes in the Group’s consolidated income statement for FY24 include: We continue to maintain a responsible approach to our investment, divestment and corporate development strategy to acquire value-accretive businesses and monetise non-core assets. • An increase in financing costs, primarily due to ongoing interest rates rises in the earlier parts of the year; SUNRICE GROUP ANNUAL REPORT 2024 — GROUP CEO’S REPORT • An increase in employee costs, which was magnified by the late harvest of the CY23 crop, causing some costs to be incurred by the Rice Pool Business in FY24 instead of FY23; 8 • An increase in contracted services, primarily associated with work undertaken as part of the refresh of the Growth Strategy; • An increase in energy costs arising from general energy price inflation and, in the Rice Pool Business, from the CY23 crop having been harvested during wet conditions and therefore requiring more intensive drying and aeration; • An increase in advertising expenses, as we continued to invest heavily in building brand equity and awareness, especially in the context of increased competition; and • An increase in other expenses, primarily driven by the increased risk of doing business in some of the Group’s markets and jurisdictions as well as foreign exchange losses incurred primarily in Pacific countries where no hedging opportunities currently exist against the depreciation of local currencies against the USD. Effective tax rate The Group’s effective tax rate for FY24 was 21%, similar to FY23. This rate continues to reflect the blended nature of the Group’s local and international operations. During FY24, this approach resulted in the sale of some properties (recognised in other income), which generated $12.2 million (FY23: $3.3 million) of profit before income tax. This income was, however, offset by the impairment of a number of other non-core and under-utilised assets for $10.0 million (FY23: $5.2 million) in aggregate. These non-recurring items highlight the Group’s operational discipline and ongoing focus on areas where we can create value in the future. In addition, we commenced investing significant strategic capital expenditure to upgrade our Leeton, NSW manufacturing operations and bolster capacity and productivity. This investment will also support the delivery of some of the Group’s commitments to transition to 100% recyclable, reusable and compostable packaging. We continue to explore a well-developed pipeline of potential strategic merger and acquisition opportunities, however the majority of those under consideration in FY24 were not pursued further due to lack of alignment to our strategic and financial objectives. Delivering consistency and quality of earnings through the cycle and value to our B Class Shareholders remains a focus for the Group, and a fully franked dividend of 60 cents per B Class Share was declared for FY24, comprising: per B Class Share8 Interim Dividend 14 December 2023 15 cents Final Dividend 27 June 2024 40 cents Special Dividend 27 June 2024 5 cents TOTAL DIVIDEND 60 cents 8. The Group’s FY23 total dividend was 50 cents per B Class Share. GROUP CEO’S REPORT SUNRICE GROUP ANNUAL REPORT 2024 — GROUP CEO’S REPORT Other financial metrics 9 Operating, investing and financing cash flows We continued to exercise financial discipline during FY24 and to proactively manage our net working capital9 requirements. Operating cash inflows of $103.4 million in FY24 were largely driven by the strong EBITDA generated during the year and a slight reduction in the net working capital balance compared with last financial yea