Announcement PDF Appendix 4D: Half-Year Report Ricegrowers Limited (ASX – SGLLV) ABN: 55 007 481 156 Financial Half-Year Ended: 31 October 2023 Lodgement Date: 14 December 2023 Lodged with the ASX under Listing Rule 4.2A. This information should be read in conjunction with the Annual Report for the year ended 30 April 2023 and any public announcements made by Ricegrowers Limited (“SunRice” or “Group”) since the start of the current financial year, in accordance with the continuous disclosure requirements of the Listing Rules of the Australian Securities Exchange. About SunRice’s structure The structure of Ricegrowers Limited (SunRice) contains non-standard elements, including its dual class share structure comprising A Class Shares and B Class Shares. A Class Shares confer on their holders the right to vote at general meetings but no right to dividends. A Class Shares are not quoted on the ASX and may only be held by rice growers who meet the production quotas prescribed by the SunRice Constitution. No person may hold more than five A Class Shares. In practical terms the voting rights held by A Class shareholders give those shareholders the right to control the election of directors and any changes to SunRice’s Constitution. B Class Shares are quoted on the ASX and confer on their holders the right to receive dividends, as determined by the directors from time to time. Holders of B Class Shares do not generally have the right to vote at general meetings of SunRice. This means that B Class shareholders have no right to vote on the election of directors of SunRice. No person may hold more than 10% of the total number of B Class Shares on issue. For more details of the non-standard elements of SunRice’s structure see investors.sunrice.com.au. Reporting Period and Reported Information The current reporting period is the half-year ended 31 October 2023 (1H FY2024) and the previous corresponding reporting period is the half-year ended 31 October 2022 (1H FY2023). Results for Announcement to the Market $000 Revenue from ordinary activities Up 21.2% TO 918,773 Profit after tax Up 56.3% TO 30,552 Profit after tax attributable to B Class shareholders Up 69.4% TO 29,966 Current period Previous corresponding period Net tangible assets backing per B Class Share ($) 7.61 6.91 Basic earnings per B Class Share (cents) 46.9 28.3 Diluted earnings per B Class Share (cents) 45.8 28.1 Amount per security (cents per B Class Share) 15.0 10.0 Franked amount per security (100% franking rate applicable) (cents per B Class Share) 15.0 10.0 Interim dividend Date the dividend is payable Record date to determine entitlements to the dividend 25 January 2024 20 December 2023 Ricegrowers Limited Dividend Reinvestment Plan (DRP) is in operation for the interim dividend SUNRICE APPENDIX 4D 1H FY2024 / 1 APPENDIX 4D: HALF-YEAR REPORT Commentary on Results for The Period Details of the results of the Group for the period ended 31 October 2023 are included in the attached Interim Financial Report. The 1H FY2024 Financial Results were driven by a range of factors: • The Group's successful implementation of growth initiatives, including product innovation, further international market expansion and the award of overseas government tenders. • A weakening Australian dollar, supporting revenue from Australian rice exports but weighing on the profitability of our import businesses (magnified by the rapid devaluation of the PNG Kina during 1H FY2024). • Cost saving initiatives and improvements in shipping conditions and costs as supply chains continue to normalise post COVID-19. • Sales price increases to help partially offset inflationary pressures on costs. • The continued recovery of CopRice, delivering volume growth, market share gains and margin improvements. • The strong performance of the Australian Rice Pool Business and its flow-on impact on the level of Brand and Asset Financing charges supporting the profitability of the Corporate segment. As in prior years, the first half results are not expected to reflect the proportional full year results of the Group, because the second half of the year is generally more positively influenced by seasonal factors and consumption habits during festive periods. Details of associates The SunRice Group has the following associates: Name of associate Pagini Transport (incorporated in Papua New Guinea) Principal activity: Transport Rice Breeding Australia Limited (incorporated in Australia). Principal activity: Research into the delivery of new and improved rice varieties Reporting entity percentage holding Pagini Transport 30.44% (31 October 2022: 30.44%) Rice Breeding Australia Limited: 33.33% (31 October 2022: 33.33%) Controlled Entities There have been no changes in controlled entities in the six months period to 31 October 2023. Other Information Required Please refer to the attached Interim Financial Report and the 2023 Annual Report for other information required. SUNRICE APPENDIX 4D 1H FY2024 / 2 Interim Financial Report For The Half Year Ended 31 October 2023 Ricegrowers Limited & Controlled Entities ABN 55 007 481 156 Contents Directors’ Report 2 Auditor’s Independence Declaration 8 Consolidated Interim Financial Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Consolidated Financial Statements Directors’ Declaration 9 9 10 11 12 13 14 24 Independent Auditor’s Review Report 25 This interim financial report covers the consolidated entity consisting of Ricegrowers Limited and its controlled entities. The interim financial report is presented in Australian dollars. Ricegrowers Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Ricegrowers Limited 57 Yanco Avenue LEETON NSW 2705 Its shares are listed on the Australian Securities Exchange (code SGL/SGLLV). SUNRICE INTERIM FINANCIAL REPORT 2024 4 DIRECTORS’ REPORT Your Directors present their report on the consolidated entity consisting of Ricegrowers Limited and the entities it controlled at the end of, or during the half year ended 31 October 2023. Most of these items were accretive to EBITDA and contributed to the marked improvement in the Group’s profitability in 1H FY2024, which was also supported by: 1. Directors • Cost savings initiatives as well as improvements in shipping conditions and costs as supply chains continue to normalise post COVID-19; The following persons were Directors of Ricegrowers Limited during the financial period and up to the date of this report: LJ Arthur (Chairman) RF Gordon (Chief Executive Officer – retired 23 August 2023) P Serra (Chief Executive Officer – appointed 23 August 2023) JMJ Bradford (Deputy Chairman) L Catanzaro M De Bortoli (appointed 23 August 2023) AJ Crane ID Glasson JJ Morton (retired 23 August 2023) IR Mason LK Vial (retired 23 August 2023) JL Zanatta • The continued recovery of CopRice, with turnaround actions delivering volume growth, market share gains and margin improvements in ruminant stockfeed in Australia, and in companion animal pet food in both Australia and New Zealand; and 2. Company Secretary However, the Group continued to manage a number of headwinds during 1H FY2024, including: K Cooper 3. Review of operations The SunRice Group overview The strong momentum of the second half of FY2023 has continued into the first half of FY2024 (1H FY2024 1). The CEO transition has been successful, with Paul Serra taking over from Rob Gordon in August following a two-month handover period. Revenue for 1H FY2024 was $919 million, up 21% on the prior corresponding period (1H FY2023), while Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) was $63.3 million, up 48%, and Net Profit After Tax (NPAT) was $30.6 million, up 56%. Key drivers of performance and global context The Group’s revenue growth in the first half of FY2024 has been supported by some favourable conditions and the ongoing execution of the Group’s Growth Strategy. Key highlights include: • The performance of the Australian Rice Pool Business, which led to a $5.7 million increase in Brand and Asset Financing charges received by the Corporate segment compared with 1H FY2023, which again illustrates the complementary nature of the Group’s dual class share structure. • Foreign exchange volatility, with the ongoing depreciation of the Australian dollar impacting the Group’s import businesses. This was compounded by the rapid devaluation of the Papua New Guinean Kina, without any available hedging opportunities to mitigate it; • The combination of the current high inflationary environment and high global interest rates, causing a significant increase in the cost of funding across the Group and impacting consumer spending habits in discretionary categories, with the retailer’s private label products gaining market share. The Group is actively working on addressing this issue and continues to invest in marketing initiatives and product innovation to drive brand equity. This investment is highlighted by the 11% increase in advertising and promotion expenses in 1H FY2024 compared with 1H FY2023; • The successful implementation of growth initiatives, including product innovation, further expansion in international markets and the award of a greater number of overseas government tenders; • Delays and inconsistencies in the supply chain of the Group’s products into key Pacific markets, resulting in the Group holding higher levels of inventory, increasing costs such as storage and demurrage; and • The positive effect over the full period of sales price increases which had been enacted part way through FY2023 to help partially offset inflationary pressures on costs, together with further pricing reviews completed in 1H FY2024 across the Group; and • The recovery from drought conditions in the Northern Hemisphere, which is increasing competition (both on volume and price) in some of the Group’s international markets. • A weakening Australian dollar, which is supporting Australian rice exports and has a favourable impact on the translation of the results of the Group’s foreign operations on consolidation. 1 Unless otherwise stated, all disclosures in this report relate to the Financial Half Year ended 31 October 2023 (1H FY2024 or the current period) with the prior corresponding period relating to the Financial Half Year ended 31 October 2022 (1H FY2023). Crop Year 2023 or Other operating expenses Other notable changes in the Group’s consolidated income statement for 1H FY2024 include: • Surging energy prices, which are adding to the cost base of the Group’s manufacturing operations, particularly in the Rice Pool Business where the CY23 crop was harvested during wet conditions and therefore required more intensive drying and aeration; CY23 refer to the Australian rice crop harvested in 2023 and which is being marketed during the year ending 30 April 2024 (FY2024), while Crop Year 2022 or CY22 refer to the Australian rice crop harvested in 2022 and marketed during the year ended 30 April 2023 (FY2023). SUNRICE INTERIM FINANCIAL REPORT 2024 2 DIRECTORS’ 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 1H FY2024 instead of 2H FY2023; • An increase in equipment hire expenses as major shortages of pallets in the prior period started to ease in the current period Progress against strategy The strong performance of the SunRice Group over the past few years has been delivered through the sustained execution of the Growth Strategy and has positioned the company favourably to pursue the next phase of growth. • An increase in insurance costs due to higher insurable values and ongoing increases in commercial insurance rates; and The Group is refreshing its Growth Strategy and is identifying new opportunities as it looks to continue the momentum. The Group expects to provide more details of this review in its FY2024 Annual Report. • An increase in other expenses, primarily driven by an increase in the loss allowance for trade receivables in some of the Group’s markets. During 1H FY2024, further progress was made against the SunRice Group’s Sustainability Strategy. Key highlights include: Effective tax rate The Group’s effective tax rate for 1H FY2024 was 23%, compared with 18% for 1H FY2023. This rate continues to reflect the blended nature of the Group’s local and international operations and was influenced by a change in the contribution of each of those various operations to Group profitability. Capital management and interim dividend The Group continues to maintain a responsible approach to its investment, divestment, and corporate development strategy to acquire value-accretive businesses and to monetise non-core assets. During 1H FY2024, this approach resulted in the sale of a number of properties (recognised in other income), which generated $1.3 million (1H FY2023: $3.4 million) of profit before income tax. In addition, the Group is assessing an upgrade of its Leeton manufacturing operations to bolster capacity and productivity, and to help support the delivery of some of its packaging waste reduction targets. The Group continues to explore a well-developed pipeline of potential strategic opportunities, particularly acquisitions. As the Group seeks to deliver consistency and quality of earnings through the cycle and value to B Class Shareholders, a fully franked interim dividend of 15 cents per B Class Share was declared on 14 December 2023. Seasonality As in prior years, the first half results are not expected to reflect the proportional full year results of the Group, because the second half of the year is generally more positively influenced by seasonal factors and consumption habits during festive periods. • Continued work to prepare the submission of the Group’s Science Based Target (SBT) for validation with the SBT initiative; including development of a roadmap to meet the SunRice Group’s commitment to net zero by 2050; • Establishment of a cross-functional Packaging Working Group to support the SunRice Group in meeting its commitments in relation to the Australian Packaging Covenant Organisation’s packaging targets and to oversee the identification and implementation of packaging-related initiatives across the Group; • Progression of the socio-economic impact assessment project with Social Ventures Australia. A review of the SunRice Group’s social impact-related data from across its countries of operation has been undertaken and findings will be reported on in the FY2024 Annual Report; • Identification by Rice Breeding Australia of several traits to improve cold tolerance in rice, which will now be tested and piloted. The introduction of varieties which are tolerant to cold events will contribute to water efficiencies; and • Progression of the project to measure on-farm greenhouse gas emissions. Deakin University has established gas flux monitoring trials at Rice Research Australia to measure both methane and nitrous oxide emissions under different sowing and irrigation practices. The Department of Agriculture Forestry and Fisheries has supported the SunRice Group, through a National Traceability Grant, to progress from the feasibility study with OpenSC to the next stage of calculating and verifying emissions for the Riverina based on the findings of the gas flux data measurements. Risk management The Group has reviewed its exposure to climate related and other emerging business risks as detailed in its FY2023 Annual Report, but has not identified any new or significant change to existing risks that could impact the financial performance or position of the group as at 31 October 2023. SUNRICE INTERIM FINANCIAL REPORT 2024 3 DIRECTORS’ REPORT Segment performance Revenue from continuing operations Rice Pool Profit Businesses International Rice Rice Food Riviana CopRice Other revenue Total 1H FY2024 $000's 195,482 720,381 420,947 58,792 111,190 129,452 2,910 918,773 1H FY2023 $000's 145,787 609,997 334,772 55,824 107,332 112,069 2,185 757,969 Variance $000's 49,695 110,384 86,175 2,968 3,858 17,383 725 160,804 % 34% 18% 26% 5% 4% 16% 33% 21% EBITDA Rice Pool Profit Businesses International Rice Rice Food Riviana CopRice Corporate Total 1H FY2024 $000's 63,274 26,430 4,578 1,811 7,909 22,546 63,274 1H FY2023 $000's 42,620 12,888 4,539 2,110 4,046 19,037 42,620 Variance $000's 20,654 13,542 39 (299) 3,863 3,509 20,654 % 48% 105% 1% -14% 95% 18% 48% Profit before tax Rice Pool Profit Businesses International Rice Rice Food Riviana CopRice Corporate Total 1H FY2024 $000's 39,656 19,629 3,397 774 4,684 11,172 39,656 1H FY2023 $000's 23,829 7,464 3,535 1,355 542 10,933 23,829 Variance $000's 15,827 12,165 (138) (581) 4,142 239 15,827 % 66% 163% -4% -43% 764% 2% 66% Rice Pool Following the crop of 688,000 paddy tonnes harvested in CY22, the CY23 crop of circa 500,000 paddy tonnes continued to provide ample sales opportunities for the Rice Pool Business in 1H FY2024. Volume growth was realised in a number of premium markets, particularly in the Middle East, as well as through additional participation in government tenders, primarily in Japan. The Rice Pool Business benefited from higher sales prices (which were required to partially offset the ongoing inflationary pressures on costs), the weakening AUD (which supported USD denominated rice exports), cost savings initiatives and improvements in shipping conditions and other logistics costs in the supply chain. These benefits were partly offset by a higher level of asset financing charges delivered to the Corporate segment, predominantly due to the high interest rate environment. Operationally, the NSW flooding events in the last year caused challenges at the Group’s Riverina manufacturing facilities and storage locations. However, proactive management of these issues resulted in minimal damage to the Group’s inventory and property. These challenges occurred at the time that the CY23 crop was planted and resulted in the final tonnage received being below initial expectations, requiring the Group to source alternative varietals from international markets to meet customer demand. Flood conditions continued during part of 1H FY2024, when road closures impacted short term supply and delayed harvest. The resulting higher moisture content of the CY23 crop then required more intensive drying and aeration than normal, adding cost to a production cycle already impacted by surging energy prices. During 1H FY2024, the Australian Rice Pool Business welcomed a number of positive developments, including: • The Australia-United Kingdom Free Trade Agreement (FTA), which came into effect on 31 May 2023 and represents an opportunity to develop a new market for Australia’s high quality medium grain rice varieties. While some opportunistic trades were realised during 1H FY2024, the FTA is expected to yield greater benefits in the future, once the Group’s business model and route to market are established; and • The signing of a new Sole and Exclusive Export Licence Agreement for a further period of five years (until 30 June 2027), which will allow the Group to continue to service high returning markets outside of Australia with premium Riverina rice. International Rice Overall, the International Rice segment was able to capitalise on favourable conditions during 1H FY2024, resulting in a marked improvement in revenue and profitability compared with 1H FY2023. The positive effect over the full period of sales price increases enacted part way through FY2023 and additional pricing reviews completed in 1H FY2024 helped to partially offset inflationary pressures on costs and contributed to this improvement. Other factors however had a mixed effect on the segment’s results. In particular: • The cost of shipping progressively returned to more normal levels during 1H FY2024, which provided margin relief. As a partial offset, the supply chain into key Pacific markets was impacted by unreliable and constrained delivery patterns, which required the holding of higher than usual levels of inventory during the period, in turn leading to higher storage and other handling costs. These supply challenges also required the activation of some higher cost contingency plans to mitigate the risk of product availability; and • Generally higher global rice prices and the depreciation of the AUD and other Pacific currencies such as the PGK against the USD also placed pressure on the margins of the businesses relying on USD denominated rice imports in 1H FY2024. This was particularly relevant for the Trukai business where currency hedging opportunities do not currently exist and where this situation is testing the pricing resilience of consumers facing a generally difficult local economic environment in Papua New Guinea. As a partial offset, the stronger USD contributed to a better outcome on the translation of the results of some of the Group’s foreign operations on consolidation, which was primarily beneficial to revenue. At a revenue level, these gains were reinforced by volume growth in some key markets. This included the Middle East, which recorded the strongest Ramadan sales period in three years, and the United States, where the Group was able to continue with the sale of Australian rice that had been distributed during drought in 2H FY2023. However, the Group is now facing competition in the US market due to the faster than expected recovery from drought conditions. This trend, which is expected to accelerate into the second half of the year, coupled with a change in product mix towards higher volume and lower value trades, impacted profitability of the segment during 1H FY2024. In June 2023, the Group announced that Ricegrowers Ltd had entered into an agreement to buy-back the shares held in Trukai Industries Limited by the minority shareholder, making Ricegrowers Ltd the sole shareholder of Trukai. Completion of this transaction remains subject to the resolution of regulatory matters. SUNRICE INTERIM FINANCIAL REPORT 2024 4 DIRECTORS’ REPORT Rice Food During 1H FY2024 the Rice Food segment benefited from higher sales prices (enacted to help partially offset ongoing inflationary pressures on costs) and the improvement of shipping conditions and costs in the supply chain of imported products. However, general cost inflation, the higher cost of energy impacting the Group’s local manufacturing operations and the weakening AUD against the USD (which impacted the cost of imported products), worked against these benefits. The overall performance of the segment was driven by the following: • In flour, improved manufacturing performance and the lapping of supply shortages in the prior corresponding period supported incremental sales and a lift in profitability in 1H FY2024. Through its local production capability, the SunRice Group is in a good position compared to some of its competitors who rely primarily on imported products and are impacted by a weaker AUD; • While some operational challenges remain, a pathway to improve the profitability of the Group’s cakes and snacks categories has been developed and is already delivering benefits through improved manufacturing performance and the execution of several asset utilisation and profit improvement programs throughout 1H FY2024. The Group also continued to bring new innovative products to the category, which contributed to the in-market volume growth achieved during 1H FY2024; and • New products were launched in the increasingly competitive microwave rice category. However, the return to shelves of the retailers’ private label products which had been out of stock for part of 1H FY2023 meant that the tailwind sales realised at that time did not continue during the current reporting period. In addition, price relativity between SunRice’s branded products and private label competition widened during 1H FY2024, which impacted volumes and market share as consumers started to trade down in the current high inflationary environment. This weighed on the segment’s performance during 1H FY2024. The Group is actively working on initiatives that will help improve its market positions and continues to invest in marketing programs to drive brand equity. Riviana Foods Riviana Foods continued to grow revenue in 1H FY2024, with the strong performance of the Toscano brand and the sale of products in the Food Service sector. Even as the cost of some of Riviana Foods’ products started to ease compared with 2H FY2023, ongoing difficulties in the sourcing of other products due to drought conditions in some of the sourcing locations in the Northern Hemisphere meant that product costs in 1H FY2024 remained generally higher than in the prior corresponding period. This situation was compounded by the ongoing weakening of the AUD against the USD and EUR during 1H FY2024, which continued to place pressure on margins and limited the offsetting effect of sales price increases enacted during FY2023 and in the current reporting period to help partially offset ongoing inflationary pressures on costs. While the normalisation of shipping conditions and costs during the current period provided further margin benefits, the higher sales prices across Riviana Foods’ portfolio of branded products widened the price disparity with competing private label products in 1H FY2024 and created opportunities for value offers to further enter the market in some categories. Combined with the current high inflationary environment impacting consumer spending this pressure resulted in some market share loss during 1H FY2024, mainly in the pickled vegetables category. Riviana Foods is actively working on initiatives that will help restore its market positions, including through increased promotional and marketing activities to support the strength of its brands. The timing and extent of this additional investment contributed to the reduction in NPBT during 1H FY2024, as did some non-recurring operational challenges faced in Riviana Foods’ local manufacturing facilities. CopRice During the current reporting period the CopRice business was able to capitalise on a number of turnaround actions that had been commenced in previous years. This continued momentum was achieved through volume growth, market-share gains, and margin improvements in the segment’s key lines of business, including: • Volume growth in companion animal food in Australia and New Zealand. This was delivered through increased market share in CopRice branded dog food within the agricultural retail channel and through increased distribution within speciality pet retail. The growth was also supported by increased demand for CopRice’s private label range and underlying category growth; and • Margin improvements in both companion animal food and ruminant stockfeed, due to a combination of plant efficiency, improved freight cost recoveries, price increases in line with the increased cost of doing business in Australia and business optimisation in New Zealand. CopRice’s overall recovery was achieved despite a number of challenges faced by the business during 1H FY2024, which tempered results. These included: • Wheat quality issues driven by a wet harvest in the Liverpool plains, which had a detrimental impact on the segment’s horse feed volumes. CopRice addressed the quality issue by sourcing higher priced alternatives for both wheat and barley and the business is now focused on rebuilding market share and margins since the quality issues have been resolved; • Contraction in the New Zealand dairy stockfeed market, driven by a combination of subdued milk prices and increased farm operating costs, which have driven dairy farmers toward greater reliance on pasture and lower quality feed alternatives. This impacted volumes at the CopRice Hamilton mill compared to the prior corresponding period, with CopRice now working on mitigating actions including focusing on building its direct-tofarm business; and • Subdued meat and livestock prices faced by Australian beef and sheep farmers, which impacted ruminant stockfeed volumes and efficiencies at CopRice’s mills in the Riverina and in Northern Victorian region. SUNRICE INTERIM FINANCIAL REPORT 2024 5 DIRECTORS’ REPORT Corporate The higher interest rates (which impact the Group’s cost of capital) and higher branded sales levels in the Rice Pool business in 1H FY2024 combined to drive an increase in the brand and asset financing charges that were received as income by the Corporate segment from the Rice Pool Business ($16.3 million combined in 1H FY2024 compared with $10.7 million in 1H FY2023). This increase was however largely offset by increased financing costs driven by the high interest rate environment, a reduction in proceeds received on the divestment of non-core assets ($1.3 million in 1H FY2024, compared with $3.4 million in 1H FY2023) and an increase in the loss allowance for trade receivables. Operating, investing and financing cash flows The Group continued to exercise financial discipline during 1H FY2024 and to proactively manage its net working capital requirements. Operating cash inflows of $81.9 million in 1H FY2024 were largely driven by the strong EBITDA generated during the period as well as the lower CY23 crop and a reduction in the Group‘s debtor days, which both supported a reduction in the net working capital balance compared with the prior corresponding period. In 1H FY2023, operating cash outflows of $70.6 million were, on the contrary, primarily driven by the significantly increased inventory levels that followed the receipt of the larger CY22 Australian crop. Investing c