Cobram Estate Olives Ltd
ASX:CBO
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Cobram Estate Olives Ltd
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This meeting is being recorded.
Heads up technical and production. We also have Russell Dmytrenko, who is our CFO, online in case the questions are too tricky for Sam or someone must ask Russell for something specifically. And after I said a few words then our joint CEOs will take you through the presentation, which will take around 30 minutes. We then encourage questions. [Operator Instructions]
I'll take you through that again anyway so that you -- the full bottle will get through the presentation before we take any questions.
For those who follow our company, I might sound like a broken record, but it's really critical that everyone understands that olive trees naturally be fruit in 2-year cycles. And what reference does an on-year or what we talk about as an on-year is a high crop year, and following that high crop year is what we call an off year, which is a low crop year. And every olive tree around the world does this to differing degrees, but it's reasonably material.
And after the next low year, we get a high year on crop or a high crop and so on. And because our production costs across all the drives, they are a big cost I mean stay at $40 million i.e. pretty fixed, regardless of the crop that you get because you have to look after the trees, you have your own head, you have your appreciation, all of those things.
So regardless of crop size, our costs at the grove are pretty fixed. So when you're assessing the cost reduction and what it takes to produce in the leader of olives you can see what margin you're making. If you just look at any 1 year, the cost of production per liter will be misleadingly high in an off year because we didn't produce much we have all the costs and misleadingly low in an on year because we have a lot more oil. And you really have to get the true cost of production, you have to have the average of any 2 years alone high or high and low divided by the cost for that 1 year. '22, which is the harvest, we finished in June, was an off year and '23 the year we're in now, which will start in April there's an on year. And the reality is that unless you use a 2-year rolling average profit, the result will be misleading to the overall business performance. It will really understate our true position in an off year and overstated in an on year. And we'll keep saying this, but it's quite in the crop and it's reasonably unique to all of us.
From a production point of view, the biennial bearing is easily managed. Obviously, our customers want oil every week. We manage a small harvest at a shorter period and long harvest, Sam will cover this in more detail. And a trending profit monthly and sales to customers daily, weekly is pretty consistent and predictable and therefore, size of cash flow.
I'd like to highlight a couple of things. One is that we are a unique business in many ways. And hopefully, you'll sort of continue to better understand that as we talk to you and you read about us. But thanks to our strong brands and supply position, we have real market domination and real pricing power. And we don't have commodity risk. So we don't have to worry about, really about the currency overall the world global market or anything.
And we have one of the most iconic brands in Australia being Cobram Estate, which you'll see the details same. The second thing that makes our business unique is that we're globally the lowest cost producers, but our produce is in the top 10% of quality, and that's pretty unique and unheard-of across any crop. But it's really important because high-quality olive oils so much more valuable to consumers than low quality. And it's the quality of that oil that drives that value to consumers.
So the help the flavor and the smell all come from essentially the antioxidants are in the olive oil and the fresh the olives when you crush them and the healthy the olives are on the trees, the more antioxidants, so that's how the value we're giving to consumers is much, much greater from every angle than if it was poor quality, and that's our key advantage. We cross every olive wood in 4-years of harvesting with our methodology and systems.
And we also -- the last thing I want to say -- or sorry, second last thing was that the strong earnings growth is pretty locked in for this business, particularly in Australia because we have a lot of immature grows and our cost of operating them are pretty fixed. They won't increase anywhere near as much as a reduction coming through. So extra production each year as they mature flows to the bottom line.
And I think this point not well understood is that we own the farm. We have $655 million of tangible assets with the majority of this being farmland and real assets like commercial properties. And that doesn't include any value at all for our brands, Cobram Estate, Red Island, over $100 million in branded sales. So we are very asset rich even though [indiscernible], when you look at intangible assets per share, there's a lot of those things just not counted for real reasons.
A couple of -- I just never missed the opportunity to sort of talk to people about extra virgin olive oil because that's the reason we exist. And extra virgin olive oil simply the juice of fresh olives. The only mainstream cooking oil has been produced without heat chemicals and solvents, which make it really healthy and it means all the antioxidants are lost. It's the antioxidants, as I said before, that drive those health [ encephalitis ] smell and health benefits. And it's the most adulterated sadly, it's the most adulterated food on earth.
And consumers now wait our understanding that if you don't know and trust your brand of olive oil, you almost certainly get ripped off is unfortunately, sad to say, there's so many facts and then there's extra [ line ] pure, which are passed off like totally inferior products been refined with heat chemicals and sold and selling to the same price extra virgin. We really only produce extra virgin oil in our brands is all extra virgin, and that's a really immense opportunity as consumers wake up. So if you don't know and trust your brand of olive oil you might be certainly ripped off.
So if you don't own or buy or hold our shares in any way, having been on a journey a long time and really passionate about health, even though I don't look at despite the highest quality extra virgin oil, if you can, even if it's nobody asks, but I'll still be happy.
I'll hand over to you, Sam. Thank you, and I'll come back at the end, and we'll host the questions, but I hope you enjoy today's presentation.
Thank you very much, Rob, and thank you to everyone for joining us. The next 2 slides, we've got some key highlights from our operations and from a financial perspective. I'm not going to read through all these highlights because Leandro and I will cover off on a lot of these throughout the presentation.
In terms of today, I'll be taking you through the financial results. And then I'll also touch on or cover off on sales and marketing. And then I'll throw to Leandro, who will talk through the operations. Rob will sum up at the end. And of course, we'll have plenty of time for questions.
In terms of the financial results, before I get into the numbers, I'd just like to reiterate what Rob said. And that's that olives are naturally biennial bearing and this year was a low cropping year. FY 2021 was a higher cropping year. And how this actually impacts our results is that under accounting standards, we are required to measure the fair value of the oil in the year of harvest that we then deduct the actual cost of production, and we take that increment or that value increment to our profit or loss. And then that inventory sits on our balance sheet at that fair value, and we take that through our cost of sales as we sell the oil.
So what it means in a line cropping year like this year will have a lower reported profit and in a higher cropping year like last year, we'll have a higher reported profit. And really to get a true feel for the business performance, we encourage investors and we think about our business over a 2-year rolling cycle just taking into account both high and a low crop in year.
In terms of our Australian business, and this is the driver of our profitability at this stage and cash flow. But we were very pleased that our Australian business reported a 2-year rolling average EBITDA of $53.9 million, and that was up 19.7% on last year. And these numbers have been adjusted for long-term average water costs, as you can see in the chart on the bottom right. In terms of the graph on the left, this maps our 2-year average oil yield from our Australian groves. And against that, the purple bar is our 3-year rolling average EBITDA. And not surprisingly, our EBITDA maps the increase in grove production. And Leandro will touch more on growth performance through his slides.
In terms of our reported profit, we reported flat sales at just under $140 million. And we had an increase in Australian sales and offsetting that a decrease in U.S. sales. From an EBITDA perspective, Australian EBITDA dropped from $77 million to $32 million. And the reason for this was the decrease in crop this year been a low cropping year, which I've previously touched on.
We did see an increase in farm gate return per liter sold. And of course, there's some cost pressures that we're seeing around fertilizer, electricity, fuel and wages. A pleasing with vast water remains at historically low levels, and that's offsetting some of our cost increases.
In the U.S. business, we dropped from a small profit to an EBITDA loss of $4.7 million. And really, there's a couple of main reasons behind that. Our sales dropped as a result of not having the oil to sell. And just as a reminder, we source our oil in U.S.A., 3 ways, firstly, through our own grows, which is, at this stage, is small but growing each year. Secondly, from contracted growers. And thirdly, we also purchased spot oil from California millers. In FY '21, we're able to purchase a material amount of oil, which helped drive our sales.
Unfortunately, in FY '22, we're unable to secure that oil, which led to a decrease in sales. We also saw a decline in gross margin due to the rapid inflation in the U.S., particularly around packaging and freight. And what we're doing about this as a business, we've put through a price increase on our packaged goods sales. This has been implemented and -- sorry, will be implemented in the first half of this financial year, so FY 2023.
From an Innovation & Value-add perspective, we decreased an EBITDA loss $5.3 million to $2.6 million. We continue to refocus this business on ingredient sales of the value-add product and also sales of biomass products. And also, we've continued to rationalize the cost structure. So overall, from a reported perspective, our profit after tax dropped from $35.2 million in our 2021 on year to a small loss of $700,000.
From a cash flow perspective, our cash flow is much more consistent. And the reason for this is because of the way we manage our oil. So in and on cropping year like 2021, we actually sell our oil over 16 to 18 months. And in a lower cropping year like this year, we'll sell our oil for between 8 and 10 months. And what that means is that we are able to supply our customers very consistently month in, month out, but it also means that our operating cash flow is more consistent and not as up and down as reported profit.
Our operating cash flow actually increased to $33.8 million before interest and tax. And the reason behind this is really the strong performance of the Australian business, some improvement in working capital, offset by the performance of the U.S.A. business. Cash flow after interest and tax of $27.4 million, up from $16.3 million.
In terms of where we invested our cash, we spent $36.7 million on capital projects this year, mostly growth CapEx. And of course, we raised [ $50.7 ] million net of costs during the year through an institutional placement in December and a share purchase plan in January of this year, and we paid out a dividend during the year.
At the end of June this year, we had cash and undrawn facilities of $43.4 million, which will be used to fund growth projects.
From a balance sheet perspective, our net assets increased from $190 million to $287 million. A couple of reasons for this. One being the revaluation of our real property assets. I'll touch on that in the next slide. And also we -- the equity we raised during the year.
Just a reminder that our olive groves and irrigation equipment is carried at cost on our balance sheet, not at fair value. Only our land and buildings is fair valued. Our intangible assets are carried at cost, which is our brands, Cobram Estate and Red Island based on what we originally paid for them.
And probably the other important point on that balance sheet is a $74.8 million tax liability, $63.5 million that relates to the accounting write-up of our land or buildings. So it's a deferred tax liability and only would be crystallized if we sold the assets outside of the group.
So as a result of all this, our tangible assets have increased to $543 million, and our borrowings net of cash $135. So our gearing has actually dropped from 37% to 25%.
I think it's really important to highlight this, and that's the asset backing behind the shares. 90 -- just under 98% of our groves are free on freehold owned land. So we own everything from the land irrigation through to the trees. So only 2.2% a barrel of groves we lease from third parties.
If you look at the chart, the bar on the left, this is our tangible assets per our balance sheet, plus the green section is the external valuation relating to the trees and irrigation equipment that's not recognized on our balance sheet. So if you add the 2 together, we've got tangible assets of $665 million. Importantly, this doesn't include any value of our brands and equally as important, we now have global sales of our Red Island and Cobram Estate brand of just over $100 million.
This table, I'm not going to read this out, but this is a summary about the external valuation we had done on our assets in Australia and the U.S.A. and land in Argentina. Our assets were independently paid at $440 million, which was $189 million increase on book value. Because of our accounting policy of carrying our olive trades and irrigation at cost, there's no revaluation on those items. So there was only $67.9 million that was recognized as a valuation uplift. This doesn't go through our P&L. It's goes through our asset revaluation reserves.
Moving on to sales. We were pleased with an increase in brand in sales across Australian Olive Oil division, olive oil sales, including bulk. We reported $105.8 million, which is a 7.8% increase on last year. If you just look at the brands, Cobram Estate and Red Island, we increased from $84 million in sales up to $90 million.
Cobram sales were flat, but we did see an increase in price per liter and the growth driven by the increase in Red Island sales. The chart on the right is based on supermarket scan data and what consumers pay the checkout per liter of oil. The gold bars at Cobram Estate sales and the blue bar is the Mediterranean Olive Oil in Australian dollars per liter at supermarket and the purple bar is what consumers pay for Cobram product. And as you can see, we're receiving roughly double the amount per liter for every liter sold through supermarkets. And it's really a testament that consumers are willing to pay for high-quality extra virgin olive oil.
In terms of market share, so this is based on external data from the supermarkets in the extra virgin olive oil category, which is where we play. Our share increased from 45% up to 49%. And in the overall olive oil category, which includes refined olive oils, our share increased from 33% up to 36%, which was very pleasing.
From a marketing perspective, we launched a major marketing campaign during the year and really calling out Cobram Estate as Australia's most loved extra virgin olive oil. You may have seen it running on television. We've also done advertisement through digital, social and some print. And really, we're calling out our 4 key pillars being: quality and taste; health, Australian and family; and sustainability. We've had some pleasing early results from this campaign, and we certainly hope that this will continue to drive sales growth.
From a U.S. perspective, I touched previously on the olive oil supply, and that's really driven the decrease in sales. We were able to prioritize our oil into our Cobram brand, particularly the oil that goes into supermarkets. And so the drop really came from private label sales.
In terms of wholesale sales, so sales that go to our warehouse to our supermarket customers, they actually grew by 11% for Cobram, and at scan, so the external data that we get from the supermarkets, our sales actually grew by 12.9% up to just under $18 million.
In terms of our outlook, we're really excited by the position the company is in. We've invested a lot of capital into all of grove assets both in Australia and in California, and we're certainly looking forward to the organic growth that will come over progressively over the next 10 years. We're seeing really strong demand for high-quality extra virgin olive oil, both in Australia and in California. You may have read about the Mediterranean Olive Oil situation due to hot and dry conditions. So we certainly think that will put a downward pressure on supply coming out of the Mediterranean areas, which is a positive, certainly for us.
On a slightly negative, we are experienced rising costs like, I think, like any business at the moment. But we are, rest assured, actively managing that. There's some costs, particularly water, which is a big input cost of ours that are at historical low levels. So that's taking some pressure off costs. And of course, the price increase that we're putting through in the U.S.A. will offset some costs in the U.S.A.
Looking ahead, 2023, financial year 2023 is and on cropping year, the olive groves are in right condition. Leandro will talk more about this. So we are expecting our 1-year EBITDA to be materially higher than FY 2022.
And lastly, we haven't formally declared a dividend, but it is the Board's intention that will pay a $0.033 dividend in December 2022. So full details of that dividend will be announced at our AGM in late October this year.
I'm going to pass over to Leandro, who will take you through some of our business operational highlights. Thank you.
Thank you very much, Sam, and thank you very much to all of you for joining us today for this presentation. Come over to the next slide, Sam. From the operations point of view, this financial year 2022. So arguably some of the most challenging external factors, not just to our business, of course, but to many other companies across Australia and the world with a very tight labor market, worsened by corporate restrictions, and sometimes raising inflation, supply chain disruptions, well above average rainfall conditions in Eastern Australia, particularly in harvest and the extended dry in California, just to name a few. And that is why the good overall results I'm aware to detail are so encouraging and reflect the resilience of our business model and extraordinary group of men and women within our staff that makes it possible.
Despite being a low cropping year in Australia, we have produced almost 12 million liters of olive oil between our mills in Victoria and in California, with most of that all converted into finished goods by our bottling lines. These figures consolidate Cobram Estate olives as one-off, if not the largest fully vertically integrated olive oil company in the world. If you go to the next slide.
Going into a little bit more detail about some of those challenges that I mentioned before. We have seen input cost pressures across our entire business, particularly around fertilizes, fuel, electricity, wages and freight. But fortunately, in the context of our operations, most of those higher costs were partially offset by lower water prices.
As you can see from the graph on the right-hand side of the screen, we have paid on average $88 million per mega liter for all our water requirements in this past financial year, which is just over half of what we paid last year and a bit under half of our long-term historical average product. And as Sam said, we anticipate that water prices will remain below long-term average for this financial year. After water storages across the Murray Darling basin at 96% capacity at the moment, which is around 25% higher than this time last year.
Those same cost pressures, as Sam mentioned, particularly around freight and packaging have been felt in the U.S., a bit earlier and with more intensity in Australia, having that negative impact on the financial performance that we discussed before.
Our fully vertically integrated model, and this is really important, controlling over 85% of our global olive oil supply by growing it, milling it, and bottling it, has been actually instrumental to minimize any potential supply chain disruptions. And this has been really well supported also by our policy of conservative stock management and quite limited reliance on imported packaging materials.
To the next one. Well, as we discussed in the previous presentations, we were always expecting our 2022 harvest to be down or off years [indiscernible] in comparison with the record crop that we had in 2021. But having said that, we're actually very pleased with the 9.5 million liters of oil produced. As this production was actually 53% higher than the previous comparable off year back in 2020. I will discuss some of the reasons for such improvement later on as it is actually highly relevant for the long-term productivity expectations of our plans.
As you can see in the graph on the right-hand side of the screen, this could have helped us to lift our 2-year rolling average production of oil by 15% for second year in a row. And as I mentioned before, the 2022 have was certainly a challenging one with over -- just to give you an idea, with over 150 millimeters of rain that is 152% higher than average rainfall for that harvesting period and over 37 rainy days in that 69 harvest window. So that's nearly 70% more than average.
So in this quite difficult context, our permanent staff brilliantly led by Ruth Sutherland, our General Manager of Horticulture and well supported by [ Darrel Smith ] and Rachel Walker as grove managers stepped up and deliver a really, really great performance both from the operational and cultural point of view.
Rob touched on that, but the fact that our olives are picked directly from the trees and crushed on site within 4 to 6 hours, combined with some technology like our automatic fruit sorting machines in each receive line of our mills, allow us to achieve very good oil quality this year despite the challenging circumstances that I mentioned before.
And Sam also touched on the fact that naturally 2023 will be higher yielding crop year on our Australian groves and a very good current condition of the trades combined with great weather so far allow us to anticipate a substantial increase in the olive oil product.
Move to the last. Well, to wrap up the presentation, I'll touch on the key aspects related to our 4 growth pillars. These pillars are quite simple and focused on producing more oil from our Australian groves through maturing trees and efficiency gains, growing our business in the U.S.A., growing branded product sales with a focus on improving the net price per liter of extra virgin olive oil and capitalizing on all our really great sustainable position and upside of our olive oil byproducts.
I can -- go on to the next one. That second consecutive year of 15% growth of the 2-year rolling average olives that I mentioned before, is actually a key indication of the strength of our first growth pillar with 29% of our trees still immature and a further 7% yet to come into production. We certainly expect this 2-year rolling average yields to continue growing proportionally to our maturing groves.
One actual very exciting thing that we consider worth highlighting in this presentation is the fact that the groves seen over the past 2 years was not only driven by the maturing younger groves, but also due to the improvement of the average yields of our already mature orchards.
As you can see from the graph on the bottom right-hand corner, the 2-year average year of all our mature groves, this is every tree that is older than 8 years old across all our groves, considering an on and an off year, went from just under 14 tonnes of olives per hectare in 2017, 2018 to 16.2 tons of fruit per hectare in 2021 and '22.
So this is an overall increase of around 16.5%, mainly driven by, as you can see there, by [indiscernible], which has slightly decreased the yields on the on-year and more significantly increase the years of the off years. At this point and probably again, it is also worth explaining that biennial productive cycle is very common in many fruit trees, including olives. And it's due a combination of genetical and environmental factors as well as some management practices.
In the case of olives to make it very, very simple, the fruit development process requires a high amount of energy. Such energy requirement determines that in years of heavy crop, there's less we serve left for growth. And obviously, because of that, on cropping points, points where the trees can actually produce. And the opposite of the reverse occurs in low crop in years where most of the energy goes to supporting a lot of growth and a much larger cropping potential.
The reason why our production over the past 5 years was showing somewhat of a synchronized alternating pattern -- it's because most of our adults trees were mainly in a single location at Boundary Bend, and this growth was negatively affected by frost energy event back in 2018, sort of resetting all the trees to a simultaneous off and then on cropping.
Having said that, it's easy now to explain that the overall improvement of the other trees yields and reduction of alternative is a result of specific management practices that we implemented over the past 5 years, such as the installation of 180 frost fans to protect more sensitive areas of the groves, the replacement of lesser performing borates with more productive cultures and a more efficient management of the pruning and irrigation with incorporation of additional technologies such as satellite imagery, for example. But also quite important is the gradual larger participation of maturities trees from a different location like our both grove.
Move to the next slide. This has been explained before, obviously, as many of our production costs are fixed. This first growth pillar is directly related to the improvement of the company's financial performance with the value of any additional oil mostly flow in directly as profit.
Consequently, we will continue investing in this area with 2 main projects on the go. The first one with the upgrade of our on-site mill at the Boort grove, where by the beginning of the next harvest in April 2023, we will be operating a largely new facility, and that will increase our overall capacity by over 160%, making this mill actually one of the largest malls in the world. And preparation is also underway to plan another 415 hectare grove at Boort immediately to the southeast of our existing groves there, increasing the future productive area of the grove by 13%.
Move to the next one, Sam. As we have heard from Sam, oil supply continues to be our main growth limitation in the U.S.A. And because of that, I'll just highlight key operational achievements that we have secured over the past few months, aiming at improving that situation. Firstly, in December 2021, we have settled on 2 parcels of land, adding approximately 180 has of suitable land for planting olives to our portfolio.
In May 2022, we have acquired 50% share of a mature grove in California that we call the Riddle Ranch, and we are planning on planting 202 hectares in financial year '23 and a further 182 hectares in financial year '24. This would take our total growth in the U.S.A. to approximately 790 hectors or just shy of 0.5 million trees and almost equally important in terms of securing future olive oil supply. We have increased our third-party grower area under contract to 2,100 hectares. That's up from less than 1,300 hectares in FY '21, which is a growth in contracted area of more than 60%.
And the final slide, Sam. This is an area that I really, really like. 2022 has been a very active year in our sustainability and value-add growth pillar. In terms of people, definitely Rob, Sam and I as well as the rest of the Cobram Estate Board, congratulate and thank our team for the amazing work ethics and the incredible commitment that they have shown throughout this financial year, particularly as we transition to an ASX-listed company. And one of those things was helping us to identify and formalize our company values of honesty, passion, and humility.
When it comes into a positive impact on the planet, we completed 2 independent carbon footprint analysis of our entire Australian business with a very positive outcome as they revealed that our carbon sinks at our groves, both in the below and above-ground biomass entirely offset the emissions associated with growing and marketing the olive oil, leading to a net removal of about 4 kilos of carbon dioxide per liter of oil produced and sold.
In other words, Cobram Estate is able to sink more carbon than the emits with those studies also identifying several opportunities to further improve on this position. And one of those opportunities was the reforestation of already clear land in our properties. That wasn't quite suitable for olive farming and to do this in a cost-effective way, we partner with a non-for-profit Carbon Farming Foundation to start the first 500 hectare Mallee reforestation project at our Boundary Bend grove with the first 200 hectares plant being finalized this week, which is a great achievement.
We also continue optimizing our zero waste initiatives by signing a pomace treatment project with Sustainability Victoria, bringing operations output ends up in landfill to just 0.1%.
And finally, from the business perspective, we continue our new product development plans, reaching the production phase for several new functional foods. We partner with Monash University achieving the Low FODMAP Certification for all our infusion range, and we continue a very important education and promotional activities through the Olive Wellness Institute and also the Cobram Estate health care professional and educational program.
This promotional and educational activities, including us, and this is a really great achievement and efficiently breaking the Guinness record for a number of people attending an olive oil testing in October last year with over 18,700 testing kits dispatch and more than 16,900 unique viewers of that now.
Presently, all those efforts were independently recognized by the Australian Financial Review and Boston Consulting Group by naming us as a sustainability leader in agriculture and environment, and we also featured in one of the opening episodes of the Planet Shapers television documentary. I think that is all that I have for today.
So happy to hand it back to Rob for any closing remarks and to help us coordinate any questions you may have.
Thanks very much, Sam, and Leandro. Terrific and personally a big thanks to you both and a great credit to you on how well you work together for the greater good of the company and how good friends you really are. Also a big call out to Russell and our audit committee members and the whole accounting team that it's a reasonably rough time line to get the annual report out as well as the results, literally a few days after the end of the financial year. I know it's a few more than that, but it seems like that.
So really, we've led the audit committees led by Tim Jones, and he does a really magnificent job. I'd also like -- announced today was that Paul Riordan, who is the co-founder of Cobram Estate Olives, Boundary Bend in the day with myself, is resigning as a director. There's absolutely no issues. He's his own person. He's living a lot of the time in the U.S.A. on the East Coast, which makes the time being not ideal for joining into stuff here. And he's a very modest person when he doesn't have ego. He doesn't need to be is not a corporate animal that needs to be [ humming bird ] or anything like that.
And it really feels genuinely that -- and we've been talking doing for a couple of months, but just really made his mind up that he just thinks sort of be a great opportunity for Board renewable and bringing your gender diversity and that he's got a number of other businesses that he runs and he's [ motorbikes advisory board ] professional motorbike riders in the U.S.A. So he's just really enjoying that while he can and finds its directorship being a bit distracting. So really like to thank Paul, terrific fellow, and he's not going anywhere, staff want to rein to us for advice or anything else. He's good friends with everyone. So we'll touch on sort of more of that at the AGM. And I think -- I'll leave him.
I'll open for questions. [Operator Instructions]
So we've got plenty of time. So we'll get into it. So Piers Flanagan, can you ask your question?
Rob, Sam and Leandro, just a couple for me, if I could. Just firstly on the increased market share in Australia during the year. Can you just touch on some of the drivers behind that and also the sales mix between Cobram Estate and Red Island? And also any views on any market cap market share ceilings?
Yes. I'm happy to touch on this one. Yes, in terms of our market share, we were obviously very pleased with that increase. And a lot of that was driven by the growth of the Red Island brand. We have seen and probably due to cost pressures, we have seen less discounting from the our imported competitors, which has obviously decreased their sales and market share. And conversely, we've been able to hold the line with our promotional strategy.
In terms of ceilings, we still think there's room to grow in this category, both converting consumers from lower grade and healthy cooking oils into olive oil and also from refined olive oils to extra virgin olive oil and it's certainly a key part of our marketing strategy.
And to add to that, Sam, a bit of that growth of Red Island, the participation share of the 2 brands is sometimes a step of that strategy to bring customers or consumers through that journey of trading off from seed oils to olive oil and then obviously, a higher quality than the track.
Great. And then just on the -- just the tangible assets and the uplift there. Are you able just to maybe talk through some of the methodology behind the olive tree and irrigation value?
Yes. So LAWD did our valuations in Australia, and CBRE in the U.S.A. In terms of the olive oil -- sorry, the olive grove valuations, basically, they -- they look at it 2 different ways. Obviously, comparable sales and also from a DCF, a discounted cash flow perspective, it is quite difficult to gain market data on comparable sales in Australia because there's not many olive groves or a transaction. In the U.S., there's better data on comparable sales.
And in terms of the your question on the olive tree, so what they do is they value the whole olive growth and then may have portioned it into land and buildings and then olive tree and irrigation assets. And then it's our accounting policy that means we don't take the increment on the olive trees to our balance sheet, but the increment on the land and buildings we have to record a fair value. So that's what's gone through our balance sheet.
Peter Parker.
Can you hear me okay now?
Yes.
A good presentation again. A couple of things. One came out by, I think it's a select [ Tom ] was talking about availability of bees as far as getting pollination for their almond crop. Is that an issue for us going ahead?
No. Fortunately, no. Olives are mainly wind pollinated. So olives do not need bees or any other insect to achieve good fruit set result.
Actually, that might be something the market might be confusing with the olives and the almonds?
The pollen of the other trees is very, very small and tend to travel a lot better with wind and the pollen of an almond tree.
Okay. In fact...
To add to that sorry, Peter, but to answer that, research is showing that these don't improve the pollinations that rightly?
Correct. They have no impact on pollination for almonds.
Okay. But for almonds, it is a big issue?
Yes.
Okay. Have you had cost pressure on. When we turn the TV on every night and we hear about extra cost of in our supermarkets. Have you found like private labels has put more pressure on for you to supply olive oil to them?
Look, we've seen consistent growth in private label. It's a relatively small part of the olive oil category in Australia. We supply private label to the 2 major supermarkets, the Australian private label. But no, we haven't seen a huge increase in demand.
Okay. Final question, probably to Rob, as we're seeing the share price down about 30% since listing. Any factors behind that? Was it capital raising? Is there a particular sell? What's made the weakness in the share price? We all love to know.
So it's never one thing, as you know, Peter, but I believe the material volume of the shares sold even right down to the lowest level traded has been by those that paid $2 back in December. So you probably have to ask them. But I don't know if the ceiling is finished or not. But it is what it is. The market is the market.
Yes. The joy of being listed, isn't it.
Joy if you can try shares and directors, obviously can't do that very often. But yes, I appreciate that payout.
John Walt, are you happy to ask your question?
Yes. Yes. I'm curious about -- you can hear me okay?
Yes, perfect.
I'm curious about some of the financial decisions that have been made, I guess, you guys have gone out to the market and cap raised, and yet you paid a dividend and you're possibly considering paying a dividend at the end of this year. I'm just curious as to why you pay a dividend when you go out on a cap raise if you feel that you can get a greater rate of return on the money, why don't you just pay debt?
There's a few questions in that. I'll have a bit of a go then Sam can [indiscernible] We've been going for 20 more than 20 years and have had 700-odd shareholders in met our business when we listed and our existing shareholders sort of liked to have the dividend, a lot of them are in a super fund as well. And the major shareholders must itself haven't ever sold any shares, and that's a way that we can get some money out.
And when we were talking to advisers around listing, and we plan to do a traditional IPO and raise some equity to get institutions in because we've never had any institutions in [indiscernible] that we needed to raise an amount of money, get more liquidity in the shares or advised, I should say, and get some in-store on and strengthen the balance sheet a bit that you just -- you won't be putting in position with short tail a bit.
So I suppose, well, you might be but you're in a better position to handle it or not have to raise. And coming from acquired, the private company to listed that we took on the view that we have a fairly aggressive expansion program in U.S.A. We think there's a lot of opportunities there. We were happy with $2 a share. I think it was really good value all around for those, putting their money into an existing shareholders.
Now hindsight might tell you that it was a bit too much. So the new shareholders might be very happy and the ones who are existing are probably happy. But we don't want to stop paying the dividend in my view, but personally, we don't because it's important to get a drink.
Sam, do you want to add for me personally and for a lot of other shareholders as well. Sam?
Yes. And I think just adding to that, we obviously raised capital largely to fund growth projects. And the business is reporting really strong operating cash flows. So we still are reinvesting some of that operating cash flow into CapEx projects as well as obviously paying out dividends and ultimately tax.
Are there any other questions, John.
No, I think that's fine.
Ben Rodman?
Can you hear me?
Yes.
Just a question about your growth plans, I guess, the conditions in the U.S. Obviously, water is an issue over there. What are you expecting in terms of your production or your availability to oil in the coming year?
And secondly, I guess, a longer term strategy, are you seeing the drought over there caused growers to shift from almonds or other fruit trees to olives? If you could just talk to those 2 points, please?
I'll have a first go. Certainly, California, as you know, obviously, is a very large state. And talking about water as a single thing is quite complex, lots of different catchment areas, lots of different micro [ spanning ]. If we talk for a second about specifically our area where we are under catchment there. The drag that we're experiencing now is nothing unusual. It's part of a normal happen going back 100 years, which end up with restrictions to the allocation of surface water for about 20%, 30% of the time.
And that's why we have purposely chosen sites where we have also access to underground water to potentially supplement those needs when required, which was the case sort of this year to be able not to compromise the obviously, the life of the trees and the productivity. Certainly, that becomes a fair bit more dramatic to other permanent crops like almonds, or the walnuts that actually use significantly more water than olives, not just to produce but even to survive. And especially if you're in a location where there's no water available from other sources to be able to supplement that.
So having a very long story short. In terms of the oil supply, we are not expecting any major increase of the overall supply in this sort of coming harvest. It's a low cropping for California, but we have a lot more groves coming to us and our trees maturing more and we definitely expect some substantial growth based on the amount of area contracted and our own plantings for '23 onwards.
In terms of the conversion of other groves into olives, working on that, highly likely, certainly olives are much more efficient user of water is a much more probably planting tree to convert and add value per each mega liter of water available down the track.
And if I can just comment on that future supply. Harvest over there is starts in October, so we're a couple of months away. And the 2023 crop, which is 14 months away, is expected to really, really materially increase because of the contracted growers and coming into on-year. So the supply is definitely coming there and double or triple should be almost certain, which will make a big difference to that business, just scale enough to cover overheads and get into profitability.
So an important -- an important point, and those growers a contractor to send their fruit to us to crush on a long-term contracts, but the year we've just passed they were sending to other processes who, in turn, were selling oil to us, but they decided not to. So that really caught us out because we thought we had our boot on quite a lot that we didn't end up getting. So and if you read a half year probably, you can sort of see how that -- that's explained there reasonably well as well. And probably you've already done that.
Yes. Great. Maybe just one more on your Wellness division that you've obviously half the loss there. Can you guide to when that becomes profitable? Or I mean if it's not profitable, when to cut it?
Do you want to talk about one side or [indiscernible]
Certainly happy to talk about the numbers, but we're certainly expecting to continue to improve the results in that Wellness division, and we've got some exciting prospects on the -- both the ingredient side, but also the biomass side. And we hope that in the next 12 months, that pushes closer to breakeven.
I'm not sure if you want to add anything else on the Leandro?
No, that is the same thing. It is really [ aiming ] approaching a breakeven within this financial year, mainly driven by ingredients and biomass.
I think the opportunity there personally seeing what's in the pipeline of things that are changing. Like if you put carbon into that as well is pretty materially profitable. It's certainly not something that we want to cut and it's also our responsibility that we have to shareholders and our customer or particularly our customers in Cobram to deal with their waste in a really sustainable way. And we would have a cost there anyway if we were just trying to bear it or something else that makes sense to all the olives [indiscernible].
All right. So anything you gave me more, Ben?
No, that's great. Thanks for your answers you gave me. And congratulations on your strong results.
[ Dylan Adrian or Adrian Dylan ], I'm assuming.
You guys can you hear me?
Yes.
Sorry for that. Thanks for the presentation on -- probably a very quick one for Sam. Would you be able to comment or give a rough guide on the breakup of CapEx between growth and maintenance?
Yes. Look, I don't have the specific numbers in front of me, but the well over 90% is on growth CapEx.
Meredith Woods?
Do you have any intention of producing an organic olive oil?
No. Definitely not in the short term and probably it's work, expand a little bit more on that. Not so much from the point of view of the integrated management of pest and diseases, which is currently what we do is very almost equal and compatible with an organic production system. It really comes down to the management of the nutrition of the trees.
Trying to be able to achieve and maintain the high production levels that we do on an organic fertilization basis, particularly with some stories like the ones that are going to [ ban ] which are in poor soils will be extremely difficult. And arguably also from the point of view of sustainability as well, the fertilization with large volumes of organic material, tracking them and moving them and the fuel usage that go with it. Could be also seen as a negative factor as well.
So in the short term, no. Although the general management practice that we plan groves actually quite compatible to organic farm, particularly when it comes down to the integrated management of pest and diseases.
Is there any other questions? All right. Well, sincere thanks to everyone for attending and everyone who has hung on and for your support today, and we'll talk again at our AGM.
Thanks, Sam and Leandro and Russell, you got let of likely no questions. And Sam and Leandro didn't have a fight. Sam had out of a skin cancer removed if you're wondering why that mark on his head is. And I'm very raising the checks because I'm up at our long range or a called a farm and I've been on [indiscernible] I had a couple of tech asking better run a marathon this morning, but I haven't. Thanks, everyone.
Thank you, everyone. Thanks, Rob.
Thank you, everyone.
Bye.