Announcement PDF ANNUAL REPORT 2023 Growing Adapting Thriving A SUNRICE GROUP ANNUAL REPORT 2023 About this Report The SunRice Group seeks to continuously improve the way we communicate long-term value to A and B Class shareholders and other important stakeholders. Our financial and nonfinancial 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 2023 Reports Portfolio). Reporting boundary and period 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 2023 (FY2023). In this report, ‘the year’, ‘this year’, ‘crop year 2022’ and ‘CY22’ all refer to FY2023. The ‘2023 harvest’, ‘crop year 2023’ and ‘CY23’ all refer to the rice crop harvested in 2023, which will be processed and marketed in the Financial Year ending 30 April 2024 (FY2024). ‘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 FY2023 Financial Report on pages 76–131 and Directors’ Report on pages 54–74 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 on pages 14–51 and includes Our Strategy, Our Financial Performance and Position, Our Outlook, Our Approach to Sustainability, Our Approach to Risk and Corporate Governance sections. The content of Our Approach to Sustainability section of this report and supporting sustainability information have been prepared with due consideration for the United Nationals (UN) Global Compact’s Ten Principles and the new GRI Standards. The GRI Index (see 2023 Reports Portfolio) lists where the applicable FY2023 disclosures can be found. As of 1 January 2023, the UN Global Compact introduced new standardised online Communication on Progress (CoP). The Group’s CoP will be publicly available on the UN Global Compact’s website.1 Report assurance The Remuneration Report on pages 56–73 and the Financial Report on pages 76–131 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 process to identify the issues that are significant to the business and to key stakeholders, as well as informal engagement throughout the year, through a variety of channels in order to respond to our stakeholders’ insights. In FY2024, the SunRice Group will refresh its stakeholder engagement framework. SunRice’s material topics are discussed in the SunRice Stakeholder Engagement Statement at sunrice.com.au/sustainability-reports and the six sustainability priorities that address these material topics and provide a framework for the Group’s response, are described in Our Approach to Sustainability on pages 28–37. 1. SunRice (listed as RiceGrowers Limited) | UN Global Compact sunrice.com.au/AR23/sunrice-un-global-compact (unglobalcompact.org) 2. sunrice.com.au/AR23/introduction-to-the-gri-standards (globalreporting.org) CO N T E N TS 2023 Reports Portfolio • Annual Report – provides information on SunRice, including F Y2 0 2 3 H I G H L I G H TS 2 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 C H A I R M A N ’ S R E P O RT 4 G R O U P C E O ’ S R E P O RT 6 • Interim (Half Yearly) Financial Report – provides information ABOUT THE SUNRICE GROUP 8 on SunRice’s half-yearly financial and non-financial performance and outlook. sunrice.com.au/financial-reports OUR PEOPLE 10 • Corporate Governance Statement – provides an overview of O U R B R A N D S & P R O D U CTS 12 our policies, procedures and practices to ensure application of the ASX Corporate Governance Principles and Recommendations (4th Edition). sunrice.com.au/corporate-governance O U R ST R AT E G Y 14 O U R F I N A N C I A L P E R FO R M A N C E & P O S I T I O N 16 O U R O U T LO O K 27 O U R A P P R OAC H TO S USTA I N A B I L I TY 28 O U R G R OW E RS 38 O U R A P P R OAC H TO R I S K 40 CO R P O R AT E G OV E R N A N C E 46 CO R P O R AT E M A N AG E M E N T T E A M 52 D I R E CTO RS’ R E P O RT 54 R E M U N E R AT I O N R E P O RT 56 AU D I TO R ’ S I N D E P E N D E N C E D E C L A R AT I O N 75 F I N A N C I A L R E P O RT 76 D I R E CTO RS’ D E C L A R AT I O N 132 I N D E P E N D E N T AU D I TO R ’ S R E P O RT 134 S H A R E H O L D E R I N FO R M AT I O N 140 S USTA I N A B I L I TY P E R FO R M A N C E DATA 142 CO R P O R AT E D I R E CTO R Y 152 • Sustainability Reporting - provides further information on SunRice’s sustainability strategy, initiatives undertaken during FY2023 and future commitments, including our commitment to the Science Based Targets initiative. 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 142–151. Other reports and information • GRI Index – is a summary of how the Group has addressed, or is addressing, the GRI Standards, and includes references to where the detailed information can be located. On 1 January 2023, the new GRI standards came into effect requiring the Group to report on universal, sector and topic standards.2 We will continue to improve our reporting against the updated standards and the applicable sector standards in FY2024. • Tax Transparency Disclosures – SunRice is a signatory to the Board of Taxation’s Tax Transparency Code. This 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 • Other information – presentations and announcements made to stakeholders during the year. See the Results and Reports section of the SunRice investor website. investors.sunrice.com.au 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. SunRice Group Product Development Manager Alessandra Macri and Insights Analyst Andressa Oliveira Growing Adapting Thriving “ Despite the inflationary environment, the SunRice Group successfully adapted its approach to limit cost pressures and increase revenue and profitability. The inherent resilience of the SunRice business is based on our people and partners; some of the world’s most skilled rice growers, our dedicated and innovative employees, and our business partners, locally and around the world.” Laurie Arthur SunRice Chairman 1 F Y2 0 2 3 H I G H L I G H TS SUNRICE GROUP ANNUAL REPORT 2023 FY2023 Highlights Record Group Revenue $1.64b 23% 3 $54.8m 12% 3 EBITDA4 $117.0m 83.8cents 28% 3 2 6.93 45% Record employee engagement score 77% 9% 3 Record fully franked dividend per B Class Share 60% $461 8% per tonne Senior Management 6 roles held by women Basic Earnings per B Class Share Payout ratio Water 3 Group Total Recordable Injury Frequency Rate Net Profit After Tax 50 cents Record naturally determined paddy price for medium grain Reiziq 5 25% 35.4% 3 Community 1.06 t/ML $1.1m Climate Human Rights average irrigated water use efficiently achieved across the CY22 Riverina rice crop. 1MW solar photovoltaic installation commenced at Woodlands Mill (California, USA). donated to community organisations across the Group.8 Third-party SEDEX Members Ethical Trade Audits (SMETA) completed for our CopRice pet food manufacturing facility in Wangaratta, Victoria and at five Australian Grain Storage (AGS) sites in the Riverina. Waste Food Security & Quality Foundation Supporter of the National Plastics Recycling Scheme (NPRS)7 SunRice entered a public-private partnership A project developed by the Australian Food and Grocery Council (AFGC) with support from the Federal Government, to design Australia’s largest industry-led plastics recycling scheme. with the Australian Centre for International Agricultural Research (ACIAR), The University of Queensland, An Giang University, Cuu Long Rice Research Institute, Can Tho University and Vietnamese provincial government agencies. The project aims to encourage the adoption of sustainable practices with indicators measured within the Sustainable Rice Platform framework. Australasian Reporting Awards The SunRice Group received a Silver General Award and Bronze Sustainability Reporting Award in the Australasian Reporting Awards for our 2022 Annual Report. 3 Dividend yield 8.1% 3. Year-on-year. 4. Earnings Before Interest, Tax, Depreciation, Amortisation and Impairment. 5. Comprising an interim dividend of 10 cents per B Class Share declared on 15 December 2022 and a final dividend of 40 cents per B Class Share declared on 22 June 2023. 6. Senior Management includes Senior Executives and their direct and indirect reports, who have responsibility for creation and implementation of long term strategy, autonomy to operate and/or leadership responsibilities. 7. sunrice.com.au/AR23/national-plastics-recycling-scheme (afgc.org.au) and sunrice.com.au/AR23/closing-the-loop-on-soft-plastic-packaging (afgc.org.au) 8. Total monetary value of cash and in-kind/product donations during FY2023. 3 SUNRICE GROUP ANNUAL REPORT 2023 CHAIRMAN’S REPORT Widespread inflationary pressures continued to impact the Group across its operations for most of FY2023, including raw materials, labour and financing costs. For example, the Rice Pool Business experienced a $44 million (102%) increase in freight costs compared to FY2022. Yet despite this inflationary environment, the company still achieved a record naturally determined paddy price. The Board would like to acknowledge our people for their skill and effort in successfully navigating these challenging economic conditions. The inherent resilience of the SunRice business is based on our people and partners; some of the world’s most skilled rice growers, our dedicated and innovative employees, and our business partners, locally and around the world. We continued to strengthen our global supply chain and our multi-origin, multi-market sourcing strategy, evolving our product range to match global consumer preferences and reducing earnings volatility. The SunRice management team, ably led by Group CEO Rob Gordon, has continued to further diversify our source markets to act as a hedge against climate and market variability and building new global destination markets. Chairman’s Report I am pleased to report that the SunRice Group has posted record financial metrics this year. In FY2023 the company achieved the highest naturally determined paddy price for our A Class shareholders and Riverina rice growers, record dividends 9 to our B Class shareholders and an overall group revenue of $1.64 billion, which is the highest recorded revenue in the SunRice Group’s 70+ year history. The Australian Rice Pool Business had an exceptional year, generating revenue of $335.3m which is a 36% increase on FY2022. A strong CY22 crop of 688,000 paddy tonnes, our largest crop in five years and 65% larger than the CY21 crop of 417,000 paddy tonnes, allowed the business to achieve higher sales volumes of Australian rice in premium markets both domestically and internationally. This also positioned the company to realise new opportunities in global government tenders and supply Australian rice into drought affected markets such as the U.S. and Europe. The strong performance of the Rice Pool Business resulted in another record naturally determined paddy price in CY22 of $461 per tonne for medium grain Reiziq (exceeding the previous record of $428 per tonne in CY21). I believe this performance firmly validates our rice pool model which, although subject to commodity price fluctuations, can adapt to market conditions to maximise returns for both classes of shareholders. 4 9. The Group’s total fully franked dividend of 50 cents per B Class Share includes an interim dividend of 10 cents per B Class Share declared on 15 December 2022 and a final dividend of 40 cents per B Class Share declared on 22 June 2023. On behalf of the Board, I would like to thank Rob and recognise his achievements ahead of his retirement from the date of our 2023 Annual General Meeting. Particularly, Rob was instrumental in listing the company on the Australian Securities Exchange in 2019 and continued the expansion of our Global Rice Business. He successfully guided the business through drought, floods, record low crops, and multiple rice vesting reviews, to leave the SunRice Group in a stronger position. At the conclusion of our Annual General Meeting on 23 August 2023, Paul Serra will commence as our new Group CEO and Managing Director. Paul brings a wealth of experience from previous global food manufacturing businesses, and we look forward to having someone of Paul’s capability and expertise join the SunRice Group at this exciting time. As a Board and as representatives of a community of rice growers, in FY2023 we continued our focus on embedding sustainability into our business across our six priority areas. During the year, the Board supported the business in its commitment to set a Science Based Target (SBT) through the Science Based Target initiative. This will lead to the development of a roadmap in FY2024 outlining how the company will meet its medium and long-term emission reductions targets. Many rice growers have moved to drill sowing with delayed permanent water, continuing to reduce our carbon footprint and enhancing our international reputation for rice growing water efficiency. We have just concluded harvesting the CY23 crop of approximately 500,000 paddy tonnes which should continue to underpin supply into key premium domestic and international markets in the coming year. The outlook for the CY24 crop plantings, which will be processed and marketed in FY2025, also remains positive with Southern NSW water storages currently over 90% full. This is expected to result in a fourth consecutive year of abundant Australian rice production in FY2025, with the Riverina storage and milling asset footprint expected to fully recover its operating costs. While many of our growers were affected by flooding and wet conditions in FY2023, the relentless march of inequitable water reform remains front of mind for the Board. Riverina annual irrigators are the most impacted water users in the Murray Darling Basin and yet the Federal Government is buying back another 10 gigalitres from the NSW Murray Valley. This is the first Murray Darling Basin buyback program in over a decade and may push temporary water market prices in the Southern Basin above $1,000 per megalitre, making annual cropping unviable in dryer years. With prices fluctuating from $2 per megalitre to greater than $800 per megalitre across seasons, this undoubtedly makes the Southern Connected water market one of the most volatile globally. As a former National Water Commissioner, I can assure you that this was not anticipated and should be addressed by policy makers. Managing these fluctuations in water market prices is one of the largest long term risks to Growers and our business, as we have seen in drought. The SunRice Group, working with the Ricegrowers’ Association of Australia (RGA), has put solutions in front of the State and Federal Government and will continue to seek outcomes that will benefit the Australian economy, regional communities and the environment. These outcomes are not mutually exclusive. Last year, the former NSW Government announced its decision to continue the structured marketing arrangements – known as rice vesting – for another five-year term to 30 June 2027. However, in making this decision, the former NSW Government called for another independent review to consider some of the issues identified in its 2021 rice vesting review. The Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES) was commissioned to prepare this independent report (ABARES Report) which was delivered to the NSW Agriculture Minister in late May 2023. Put simply, these structured marketing arrangements have for a number of years underpinned the prosperity of the Riverina rice industry and are crucial to its future longevity. International rice markets are highly complex and have significant trade restrictions which means rice is not freely traded. This is why our Riverina rice industry has had a coordinated approach to market access in the form of vesting or single desk arrangements for many years. Importantly, these arrangements enable Australian rice farmers to compete globally by collectively marketing under a premium brand, returning export price premiums directly to our growers. Finally, I want to acknowledge Leigh Vial, who has decided not to seek re-election to the SunRice Board and will step down as a Grower Director in August 2023. Leigh had served as a Grower Director on the Board since 2015, and made a strong contribution not only to SunRice, but the broader Australian rice industry. I extend my sincere thanks to my fellow Directors, our growers, the Chair of the Rice Marketing Board of NSW (RMB) Victoria Taylor, the other RMB Directors, the President of the RGA, Peter Herrmann, and the RGA more broadly. I also thank SunRice’s strong Management team and look forward to working closely with our incoming Group CEO Paul Serra as the Group looks to continue this year’s impressive performance. Laurie Arthur SunRice Chairman 5 SUNRICE GROUP ANNUAL REPORT 2023 GROUP CEO REPORT Financial Year 2023 (FY2023) was an outstanding year for the SunRice Group. I am proud to report that we have delivered the highest Group revenue, naturally determined paddy price and total fully franked dividend in the company’s history. This financial performance was underpinned by the strength of our business model, the realisation of a number of our Growth Strategy initiatives and the efforts of our employees across the organisation to deliver value for both classes of shareholders. Our record Group revenue was $1.64 billion for FY2023, up 23% on the prior year. Earnings Before Interest, Tax, Depreciation and Amoritisation (EBITDA) was $117.0 million, up 28% from FY2022, and Net Profit After Tax was $54.8 million, up 12%. The Group achieved a naturally determined pool paddy price of $461 per tonne for medium grain Reiziq. This strong financial performance and uplift in profitability in FY2023 was driven by a range of factors including: • The abundance of Australian rice, with the CY22 Riverina Group CEO’s Report rice crop 65% larger than CY21, supporting strong sales volumes in key premium markets and expansion in new and existing territories impacted by drought. It also improved the profitability of the Group’s segments that rely on inputs from the Australian Rice Pool Business; • Sales price increases across most of the Group’s segments and product categories, which helped to offset inflationary pressures. Revenue growth was also supported by favourable changes in product mix in some markets; • The continued recovery of the CopRice segment which returned to profitability in FY2023, driven by the positive impact of turnaround actions implemented, notably in the Australian ruminant business and companion animal portfolio; and • The first full year contribution of Pryde’s EasiFeed, which was acquired in January 2022, further supporting the uplift in the CopRice segment’s revenue and profitability. FY2023 was not without its challenges, with the ongoing disruption to domestic and international supply chains resulting in a $79.0 million increase in freight and distribution costs compared to the previous year. The Group’s operations were also impacted by widespread inflationary pressures which drove a material increase in key input costs including raw materials, labour and financing. However, the strength of the Group’s brands and market positioning, coupled with the various organic and strategic growth initiatives delivered in recent years, enabled us to withstand these headwinds throughout the year. Continuing to embed sustainability across the business remained an important focus for the Group in FY2023. We made progress against our Sustainability Strategy and our six focus areas, including becoming a founding member of the National Plastics Recycling Scheme in Australia and the launch of the Australia Vietnam Mekong Delta Sustainable Rice Value Chain Project, a novel public-private partnership that connects smallholder rice-growing communities in the Mekong Delta to high-value international markets, giving farmers economic incentives to grow higher-value rice sustainably. 6 The Group maintained a strong balance sheet and selectively pursued strategic growth opportunities in FY2023, with the acquisition of the Australian Waffle Company by Riviana Foods in August 2022. The acquisition complements Riviana’s portfolio and provides some onshoring manufacturing capability in the baked goods category, which may help to mitigate the impact of increased costs associated with imported products. The quality of the SunRice Group’s results over the years and most recently our FY2023 Full Year Results reflects the efforts and capabilities of our people across the business. We have built a talented workforce who are aligned behind our Growth Strategy, our values and our purpose: To make a difference to places and lives everywhere through nourishing and delicious products. After navigating drought and the disruption of COVID-19 in recent years, with our highly capable management team, I believe now is the right time for me to retire as Managing Director and Group CEO, with the business in a strong position, following an impressive financial performance in FY2023 and continuing momentum into FY2024 given the positive outlook. It has been a privilege to lead the SunRice Group over the past 11 years. I am proud that during my tenure, the team at the SunRice Group has built a resilient business model, moving from largely selling an Australian rice crop to a truly global, multiorigin, multi-market food business which sources from 12 different countries. The Group has evolved and grown significantly over the past decade, acquiring our Lap Vo mill in Vietnam, listing on the Australian Securities Exchange, establishing a substantial global trading hub in Singapore, diversifying our earnings through the acquisition of several businesses, new market expansion including under the Australia-United Kingdom Free Trade Agreement, and establishing our Global Rice business. I am proud of everything our team has accomplished for our shareholders, growers, people, customers and the rice industry. I am pleased to welcome the new Group CEO, Paul Serra, into the business in July to commence a substantial handover period. Over the next two months, we will work closely together to ensure a smooth transition of leadership ahead of the Annual General Meeting on 23 August 2023, where I will step down as Group CEO and Managing Director at the conclusion of the meeting. Finally, I want to sincerely thank the Board, the Management team, our employees, growers and investors for your support during my tenure as Group CEO. In particular, I want to acknowledge our Chairman and the Board for their assistance and guidance over the years, and I look forward to seeing the SunRice Group seek to continue its momentum and capitalise on its Growth Strategy investments in the coming years. Rob Gordon SunRice Group CEO 7 SUNRICE GROUP ANNUAL REPORT 2023 ABOUT THE SUNRICE GROUP As one of Australia’s leading branded food exporters, the SunRice Group has significant markets in the United States (U.S.), the Pacific and the Middle East, and expanding markets across Europe and Asia. About the SunRice Group The SunRice Group is a global food company, with its parent company Ricegrowers Limited (SunRice) listed on the ASX. It began with the pooling of resources of a small group of rice growers in the Riverina region of New South Wales in the 1950s. The Group has offices and operations globally, including in Australia, U.S., Singapore, United Arab Emirates (UAE), New Zealand, Solomon Islands, Jordan, Vietnam and Papua New Guinea (PNG). Our unique global presence and multi-origin strategy allows us to source close to 1.5 million paddy tonnes of rice annually from 12 countries including Australia to meet global demand. Our purpose To make a difference to places and lives everywhere through nourishing and delicious products. We pursue value creation for Our values Integrity Dynamic Collaborative Our vision Innovative With roots in Australia’s food bowl, we transform nature’s goodness into healthy, enjoyable and nutritious foods that meet the needs of discerning consumers around the world. Community Our behaviours Customer focused A Class Shareholders Growers B Class Shareholders Investors Australian Rice Pool Business Profit Businesses Receival, milling & selling of Riverina Rice International Rice, Rice Food, Riviana Foods, CopRice & Corporate Shared costs Asset financing charge Brand use charges Rice growers Doug Fasham, Emily Fasham and Steve Fasham What drives us A purposedriven global workforce of 2,000+ employees spread across 10 countries. Our objective is to optimise returns for both classes of shareholders. Our shareholders SunRice’s structure supports the interests of both A and B Class Shareholders. Our A Class Shareholders, who must be growers and meet the production criteria in the Constitution, are paid for their paddy through the Rice Pool Business, and have control of the company. Our B Class Shareholders or investors have the right to receive any dividends generated by our Profit Businesses and other distributions made by the Company from time to time. Revenue – Expenses = Paddy Price Revenue – Expenses = Profit Payments for paddy rice to A Class Shareholders and growers B Class Shareholders entitled to dividends For more details of the non-standard elements of SunRice’s structure see: www.investors.sunrice.com.au/investors/ The two business groups, while separate, have mutual benefits and purposes. They complement each other, strengthening the alignment between our investors and growers. Intellectually curious Decisive A & B Class shareholders Good communicators SunRice Group Electrician Paul Waterhouse and Apprentice Electrician Sunilkumar Prajapati Food and non-food suppliers, including growers Customers and consumers Peers Employees SunRice Group Office Manager Roslindah Mohamed, Administration Assistant Nur Hazwani Johar, Procurement Category Manager, Packaging, Bralee Taeng-On and Legal Counsel Phuong Tran Non-government organisations (NGOs) Government and regulators 8 Media and financial analysts Community Our stakeholders We are committed to providing our stakeholders with credible, transparent and timely information. We engage with them on the topics that matter most through a variety of channels and respond to their insights, both directly and as a Group. The refresh of our Stakeholder Engagement Framework scheduled for FY2023 was delayed. However, we are committed to updating our framework and material topics in FY2024. Our 2020 Stakeholder Engagement Statement, which outlines the material topics identified by our key stakeholders and business, can be found at: sunrice.com.au/sustainability-reports. 9 OUR PEOPLE SUNRICE GROUP ANNUAL REPORT 2023 Our People At the heart of the SunRice Group’s success and ability to implement our Growth Strategy is our purpose-driven culture with more than 2,000 passionate and dedicated people across the world. Working together, the team seeks to deliver on our purpose to make a difference to places and lives everywhere through our nourishing and delicious products. The capability of our people to remain focused on this purpose, while readily adapting and responding to the external dynamics faced by the business, is reflected in the strength of the FY2023 results and the Group’s capacity to withstand the global challenges of ongoing supply chain volatility, inflationary pressures and geopolitical conflict. Fostering a high performing and engaged workforce Fostering a high performing and