Ridley earns 2.6 percent higher profit in December half-year to $21.4 million

About Ridley Corporation Limited

Ridley Corporation Limited (Ridley, the Group, ASX: Ridley) 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.

Marginally higher profit and dividend for December half-year

Ridley earned a net profit after tax of $21.4 million for the December 2023 half-year, slightly ahead of the $21 million after-tax result of the previous corresponding half year. The Bulk Stockfeeds segment performed strongly and contributed $23 million EBITDA, an increase of 28.5 percent on the previous corresponding period. Improved procurement margins and the higher volume of supplementary beef and sheep feeding during the dry conditions in the first quarter were key drivers of the improved financial performance. On the other hand, the Packaged Feed and Ingredients segment contribution fell 4.6 percent to $31.5 million EBITDA, due to lower sales prices for tallow, compared to the elevated prices received in the previous corresponding period and the under-performance of Aquafeed sales.

Finance costs were also higher which reflects higher interest rates and higher net debt of $43.6 million, up from $25.7 million six months earlier partly due to a $11.2 million increase in working capital. Higher working capital requirements contributed to the lower operating cash flow of $35.1 million in the half-year, down from $56 million for the six months to 31 December 2022. The Group also experienced a lower cash conversion ratio of 73 percent for the December half-year, down from an average of 96 percent over the previous two years. The increased working capital relates to the Group’s raw material procurement strategy that accumulated higher inventory on shorter payment terms to support better margins. It is important to recognise that the increased debt was not used to finance the shareholder dividend or capital expenditure, which were funded out of operating cash flow. The level of net debt remains conservative with the gearing ratio at 13.6 percent and a leverage ratio of 0.47 times. These metrics allow for the intended debt funding of the Oceania Meat Processors acquisition scheduled for the end of March 2024.

The interim dividend has been increased slightly to 4.4 cents per share. The dividend is fully franked and will be paid on 24 April.

Outlook

Macro-economic conditions are likely to be challenging in the short-term and the business is taking necessary steps to reduce the adverse impact of industry inflationary pressures and changes incommodity prices. However management anticipate earnings growth in the second half-year, from premiumisation in the Packaged Feeds Ingredients segment, including a contribution from the previously announced acquisition of Oceania Meat Processors (OMP) which is due to settle in March 2024. OMP is a premium producer of de-boned meat frozen block product and other raw materials for the global pet food industry. The business complements Ridley’s existing capacity to source and process raw material for pet food.

Ridley is experiencing higher demand for protein for both human and petfood consumption and feedstock for renewable fuels. This growth in product demand, together with Ridley’s geographical spread and conservatively geared balance sheet and its proven resilience through weather, disease and market cycles should support higher earnings in the medium term.