Ridley Corporation expands into the domestic and international pet food industry

About Pro Medicus Limited

Ridley Corporation Limited (Ridley, the Group, ASX: RIC) is Australia’s largest provider of animal nutrition products and supplies the dairy, poultry, pig, aquaculture, sheep, and beef bulk feed sectors, as well as the equine, canine, and home layer markets in the packaged product sector. The Group commenced operations in 1987 and listed on the Australian Securities Exchange that same year.

Acquisition of Ocean Meat Processors

The impending acquisition of Ocean Meat Processors (OMP) for A$53 million positions Ridley as a leading supplier of premium inputs to the pet food industry. OMP is a producer of high-quality mechanically de-boned meat frozen blocks and other raw materials that are key to Ridley’s global pet food industry aspirations. The strategic significance of the OMP acquisition is its specialist capability to provide lamb, beef, venison, veal, and other ingredients sourced through established supply chains to produce bespoke, higher value nutrients that meet the demands of the domestic and international pet food industry.

Established in New Zealand in 2002, OMP produces two-thirds of its premium pet food product in Melbourne, adjacent to Ridley’s existing Ingredient Recovery facility in Laverton, and the remaining one-third at its operations in Timaru, New Zealand. The purchase price represents a 5.4 times EBITDA multiple, and the anticipated transaction completion date is 28 March 2024. The acquisition will be fully funded from existing debt facilities and is expected to be EPS accretive in the first year post transaction. By drawing down debt to fund the acquisition, the Group’s core net debt/EBITDA ratio will rise from 0.33 times to 0.7 times. This is below Ridley’s target core debt range of 1.0 – 2.0 times.

Importantly, the acquisition will provide Ridley with the mechanically de-boning processing equipment to segregate homogeneous raw materials from suppliers, enabling it to provide the domestic and global pet food industry with superior quality, higher value meals and pet food products full of protein and nutrients for pets. Leading the way in animal nutrition with premium quality bespoke products through careful sourcing and selection of raw materials builds on Ridley’s existing product range that includes tallows, meals, oils, and now frozen block meat products.

Looking ahead

Pursuing growth by acquiring an established business that has long-standing relationships with international blue-chip pet food customers presents Ridley with co-selling opportunities that leverage existing operational scale to boost margins.

The Group’s conservatively geared balance sheet with a leverage ratio that remains comfortably within the 1 to 2 times guidance as stated in the Group’s Capital Allocation Framework provides resilience through the business cycle and during times of macro-economic uncertainty.

Ridley’s thirteen feed manufacturing sites, two ingredient recovery sites, extrusion plant and supplements plant form the largest animal-feed production network in Australia. This means that Ridley can produce high-quality feed at scale and distribute its products through various channels and quantities into the hands of end-customers safely, reliably and on a timely basis. Ridley’s large operating scale and premium quality products focused on highly sought after proteins and nutrients that are attractive to blue-chip pet food customers is likely to support earnings growth into the foreseeable future.