Australian Vintage Ltd (AVG) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Australian Vintage First Half FY '23 Investor Call. I would now like to hand the conference over to our speakers today, Belinda Sieben, Communications Manager; Craig Garvin, Chief Executive Officer; and Adam Rigano, Chief Financial Officer. Please go ahead.

Good afternoon. This is Craig Garvin, and welcome, everyone, to the results for the half year. I'm very pleased to be presenting them and very pleased to say that we believe that our business is well on track strategically. We continue to grow market share, our premiumization strategy is on track and despite some one-off inflationary costs that we believe in the short term, we've been able to deliver an OpEx of $16.7 million. Further to that, we've been able to grow share, whole volume and take price in all key geographies, which I think really underpins what we're all about. Reported no parts, as you can see on Page 3 of the deck -- up 29% than prior year 12.9%, which includes SGARA loss as well in that number. When you're looking at our EBITDA 17% are at $28.3 million, and net debt has improved significantly over the prior year at $53.1 million due to the actions that we've taken during the year, in fact, is significantly better than the prior year. In an inflation period, we're very conscious of managing debt very closely, and we've been well advanced on this for some months. If you look at our role in the ROCE it's 7.4%, it's consistent with the key messaging we've been giving about our journey towards 10. And obviously, no interim dividend will be declared at the half year. Our overall market share gains for AVG, we're very proud of and very pleased with. And it shows that our strategy is working. The example there of -- in the U.K., our [indiscernible] tradition and very much in Victoria, and we've had a key focus on that during the year. As I said, we've taken price in all key geographies. At the same time, we spent an incremental $2 million on marketing, which shows how confident we are in our strategy over the long term of investing in our brands, our pillar brands. Significant inflationary costs, as I talked about and referred to, and I think we're all aware of the market and the significant short-term hyperinflation that we've seen. For us, that turned out at about $11 million at the EBIT line, and we -- it's very consistent with what we outlined at the AGM earlier in the year, hence the efforts we made to find a short-term solution in terms of that. Importantly, our ESG strategy is very well advanced, and I'll refer to that a little later on. So you can see the balance that we are delivering in our results, not only P&L, not only return on assets, but we're investing in people, in our environmental footprint and our corporate social responsibility. We're very proud of some of that. As I referred to, we did do a sale and leaseback of commercial vineyards, -- and I want to point out, these are commercial vineyards, they're not our primary premium vineyards that support our premium innovation strategy. And this was a sensible commercial decision in our view. And Adam, as I said , will talk to the effects of that as we go. But you can see the numbers there that are driven through quite healthy into the results and more than offset the -- what we are considering to be short-term one-off inflationary costs. Those inflationary costs pleasingly, we're seeing it already, and we're very confident as we move into our F '24 financial year that will more than offset those costs. When you put that against our brand performance, and our share growth, and our price taking, we have a number of other innovation initiatives, which give me great confidence leading into F '24. Okay. Turning the page to Page 4. As I said, our strategic plan continues to position us well for growth. If I look at these key headings here, consumers and brands winning in the marketplace, and our numbers show that by growing share of and holding volume flat, but more importantly, we continue to have the confidence to invest in those brands. Both brands, we will expand over the coming couple of years as we look to do bolt-on acquisitions. We very recently missed out on that acquisition, we're very close to securing, but we're just a bit to that. But it remains core to our strategy that we expand those pillar brands. Our markets and customers. We are winning in each market we plan from a share perspective, and we are winning with our customers. Later on, I'll talk about our innovation pipeline. I've actually never been more confident in the ranging decisions we've just taken in the U.K., and I just got back from there on Sunday, so that's very positive for us. People, we're now a top quartile employer and winning with engagement, will talk more about that. ESG, as I've mentioned, this quarter, everything we're doing, and we will talk about the internal assets as we hear from Adam. So a good balanced scorecard from my perspective overall, and we are achieving the pillars and the Board is very confident in our strategic plan. You can see there that our pillar brand sales are largely flat in a post-COVID environment, especially the U.K., where that market decline, we're very pleased with that, to be able to hold our pillar brand volume is largely flat. Because our gross margins dropped to 29%, very much driven by those one-off inflationary costs I talked about, which we believe is short-term, add them back in and you're back up over 35% in terms of our gross margin. So we see that as a short-term issue. As I said, we continue to invest in our marketing, and that shows the confidence we have in our core business and the resilience that we're driving towards our strategic plan. Markets and customers I've alluded to, we are winning the key geographies. In Australia, we're flat, very competitive market. Sub-15 dollar segments have declined post-COVID boost, and you can see there that in the U.K., we've actually grown 2% points, and our zero product has grown at 44%. We're very, very optimistic about our U.K. market moving forward. More to come on that. Ireland is turning into one of our most significant growth businesses, and it's grown at plus 19% points. That's a simple result is a very profitable business for us. Canada, we've grown 10% and Asia and China is flat. We expect some very positive news in regards to Asia and China for that matter as part of our '24 confidence in our growth plan. Top quartile I've mentioned around people, there's a whole lot of initiatives that are very significant against these. There's not least of which we've been a credited as mental health first aid skills in the workplace. Post-COVID, this is really important to us and we've made sure that we are looking after all of our people [indiscernible]. As I've said, the main point here is to become a net positive business by 2040, no shortcuts and to become big corp accredited as soon as possible. We expect to be big corp accredited in the next 6 months. We're very excited about this, and we think this is ticket to the game for the future. Again, leading to F '24 sets us up well as a supplier to our customers and to our markets. If you look at our financials, which are the outcomes of all that effort, we're very pleased with those numbers and I may pass over to Adam, just to give you some review on it.

Yes. Thank you, Craig. As you can see now on Slide 5, we talk about our EBITDAs, EBITs and NPATs. As Craig has already alluded to say, they include the asset sales of the racial vineyards that we've done with Coldridge and Grande Junction, but also within those numbers, we've absorbed $30 million worth of incremental cost, $11 million inflation, $20 million worth of marketing that underpinned our strategy, as Craig has already said. So the some outcome of that in all those measures is a higher result than the prior comparative period and sets up pretty well from a balance sheet perspective to continue to work through the rest of FY '23 leading into what we see as a good FY '24. ROCE, which Craig's already mentioned, is averaging around about those mid-sevens. And so that's important for us because as we said, we're not going backwards around that, we're actually continuing to maintain, which means we've actually achieved a step change in where our ROCE is on a good journey towards the 10% in the medium term, which is kind of safe.

And that's certainly a number that underpins our strategic intent and our strat plan as an organization is a 10% ROCE over the coming couple of years. That's always been consistently our message over the last couple of years to the market, and we really are well on track for that. Again, we don't see the inflationary costs that we dealt with this year as an ongoing issue from '24. So if you move to Page 6, you'll see there that our investment in pillar brands continues, as we've talked about, and also it's important as we come out of total lockdowns where we saw a growth phenomenon, especially in the value brand segment. That's why I'm so pleased with our results around our dollar sales being largely flat as you can see there, that's a fantastic result. And you consider that the U.K. market has declined 10%, and we stayed very well on the growth share. I'd also point out that we took the initiative to increase our inventory in the U.K. in that period and that served us well because we would increase post Brexit when others won't. And we have one of the best service levels in the market, which helped us retain that level. You'll see a destocking in the second half of this year to make sure that we don't carry too much working capital, working inventory into F '24, as I've talked about. So we're really well placed and it's for what we've been flagging signaling to the market from an inventory cover perspective. A premiumization strategy, if we just look into a little bit of the detail, remembering that we've launched in the U.K. with Tempus plus Mcguigan, et cetera. So that plus 2% growth number is very good considering the UK 10% overall as a market. The Tempus plus 22%, we're seeing real growth in our Australian market in this brand, this brand has huge potential, given its Adelaide Hills, emerging segments, very, very popular with new entrance into the market, especially younger wine drinkers. The younger wine drinkers actually spend more per cap on wine than older drinkers, so we're very, very confident about this. We've invested capital into our [indiscernible] in our Adelaide Hills and those numbers show that is the right strategy. We expect a lot of growth out of this brand. In '24 onwards, will also take this brand international as we will with Barossa Valley Wine Company, and you can see the growth there. The Barossa Valley Wine Company is a perfect brand for China as that market starts to open up, and we've got a lot of aspiration as we reset Asia to grow that brand. So I think for '24, we'll see some double-digit numbers around Barossa Valley Wine Company. But we can see a minus 11%, much more in the value brand segment, much more impacted by the U.K. market declined even though we grew share, and we grew significantly again in a zero range. Australia competitive landscape remains very, very strong around zero. And on that basis, we have some plans and mitigation strategies around that. But a lot more to come on the lower alcohol ranges as we talk and move forward. So I'm very, very bullish about our brands actually moving forward. And I'd like to think we can add a couple of bolt-ons over the next 6 to 12 months to contribute to that overall premiumization strategy, which is really, really important as you want to take better margin in the marketplace, and we know well in the March to 40% GM, as we've talked about before.

I'll just bet on that, Craig. I think one of the important things for you to note, as you look at this and look at Slide 6 is our sales are flat from a [indiscernible] perspective. They are 77%. So even though commercial volumes of McGuigan have declined, we've more than offset that with the premiumization traits come through. So what ultimately that will translate to once we get over these short-term inflationary pressures we're receiving is a much higher margin that has been going through, which is why the premiumization strategy is working for us as a company.

Yes, well said, Adam. As we move on to the ESG page underpinning our strategy. You can see we've really broken that into the 3 segments, obviously, of ESG. So environment, what are we doing around that in terms of our footprint, social, our corporate social responsibility and the communities we plan and the overall governance to make sure that we are transparent as ASX was as -- turning to the following page, you can see that what does that really mean in terms of some headlines. So we are committed to net zero by 2040, we think that's the right approach, and we're taking the high ground here, not looking for short-term options. So we've set our organization towards that target. All premium owned venues we certified a sustainable one. In Australia, we're very close to that, and we're in that process right now, and we are part of sustainable packaging review, which is underway to meet our 25 packaging target commitments. So we are well underway. We are not just talking about it in a nice PowerPoint. If you look at what we're doing, we're mentally health first, certified organization, now it's official. We think that's a great step forward, and we would encourage all the organizations to go on that path. Employee engagement rising to employer of choice and staying above that status is very, very important. And we're part of DrinkWise responsible in joining the campaign moving forward. If you think about what we're doing to be transparent, we're partnering with the procurement review of all suppliers incorporating ESG and moving forward. If companies aren't able to demonstrate a Phase III capability to us, then they won't be our partners, that's how serious we take this. We're obviously starting our environmental and social reporting, which is underway, which will be transported parent and part of ASX format and part of our annual report. And underpinning that will be our B Corp certification that I've talked about before. So you can see that we're taking that very seriously. There will be a whole range of products, which we will see develop against our ESG strategy, and that will be part of our long-term innovation. We think the consumer need for these products is critical. And we think there's a great economic benefit to embracing the strategy moving forward. If you go to the next slide, Slide 9, we are the industry leaders as I've talked about in the -- our wine category, and it is a growing category. There is no doubt about it. Post-COVID, all our [indiscernible] research tells us that health benefit well-being is right at the forefront of all consumers. Whether it be baby boomers, whether it be Gen Zs, whether it be millennials, you have to be agile in how you target and market these consumers because there's a lot of value to be had. To really drive this space with our innovation, we don't need to spend an extra dollar on capital. We are already well leading and equipped in this space. So the investment we've done in the last couple of years sets us up really well for innovation in this category. I've talked about our first-mover advantage and the market share gains that we're making in the U.K. Yes, Australia is under competitive pressure, but we have some fantastic innovation, which we see coming through, a couple of which I'll talk to in a minute. There's also been ABV tax changes announced in the U.K. very recently. And we see this as an opportunity for our industry, we see that there's an opportunity for export and each bottle of mid-strength wine will be significantly less taxed. Every bottle at zero is significantly less taxed, which gives the Australian exporter, we believe, a competitive advantage. You can see on the bottom right, there's 2 products I want to highlight there. One is Not Guilty, which is a targeted range that we're launching for Gen Zs, the market is super excited. I got back from there last week. We have got ranging now confirmed the 60% of our outlets in the U.K. First orders are very, very encouraging and already producing, which is why I'm able to say that our innovation for F '24 is looking very positive. Australia marketplace will follow. One of the reasons that the U.K. has been so embracing of this is the ABV changes make this very attractive for their margins. When we are the first producer to bring this kind of innovation through for millennials and Gen Zs, who frankly don't want to drink what their parent drink. So we think this is a serious growth opportunity. On the bottom right there in the tier format, you'll notice a product called Mid. We want to own the Mid category and call it out as a -- as an innovation destination. So right now, when you look at both bottle saying that we can zero, the consumer understands this zero product. At the moment, if they're talking midstream, it's confusing for them. Now on the shelf care of a product that stands out in [indiscernible], again, in Ireland and the U.K., incredible customer interest in this product and a strong ranging to come. So we expect this to be well underway for us '24 as I've said before. So very, very excited about that innovation. And we are not just talking about this. We've got ranging in orders for this coming into '24. As safe as we're seeing now, that sets up for a profitable outcome and hence, why I'm talking about '24.

Can I just add to that, that we're excited about innovation because from a financial perspective, we don't need any capital. So no capital at all ...

You're really been excited about that.

And it basically means that we've got the opportunity to drive market share without spending a lot of money or investment to get there. And I think for me, as the market changes, that's going to be crucial for our success going forward.

Thank you, Adam. And that sets up well into Slide 10. How do you leverage the great assets without adding a lot more investment when you've got this know-how in raw alcohol plus high margin growth categories, which we play in. So again, if you look at our structure in pillar brands, 10% depend in Barossa, you'll see Not Guilty as new pillar brand. That is simply because of the scale of orders that we've already had confirmed for our launch in the U.K. business, its main strength. It's not just token. So that's great. As I said before, you'll see more bolt-ons come in the next 12 to 18 months as we look for more aspirational brands. The good news is there is our core premium brands are all in growth, which I talked to you before. Our drinks business, which we started given that we had surplus alcohol is being a very successful journey for us. Mr. Stars in particular, is very positive, and I'll talk to that, but we've secured a huge number of ranging distribution points already. We also bring the Keg format. We've been very successful in on-premise on that, especially in racecourses and other areas. Collaborations, you see out there, I'm not going to go through all of them, but a number of partnerships we've got across the world. And it's also in each key geography, you'll see more collaborations coming soon around branded products. If I move to Page 11, I'll let Adam talk us through the financials.

Thanks, Craig. So we've got a set of graphics here as we've provided previously, just to give you all a bit of a runway in the last 5 years on all the key metrics. If I look at the top left graph revenue, you can see there that quite consistently, we've been delivering revenue at similar levels at this half for the last 5 years. And what's really important, though, is our share of the pillar brand contribution to that has increased. And we've seen that increase our gross margin. As Craig pointed out earlier in the deck, our gross margin would have been 35% for the half but for the inflationary pressures that are short-term that we've seen come through. So coming out the back end of inflationary pressures, we expect our gross margin to continue at that level, if not grow further with the continued premiumization that ...

Especially with our innovation product line.

Especially with the innovation product line. What we've done in our EBITDAs, EBITs and NPAT graphics, is we pulled out the contribution from the asset sales. Now we've done this in particular because the contribution from the asset size was large for the half. We've had asset sales in every period in the last 5 years, however, they've been about $2 million, $3 million. So we've actually made it nice and transparent for these, so you can see the contribution. Importantly, if you add back the inflation back on to these numbers, we are comparable with where we were previously. So -- and that's $11 million that Craig has spoken about previously. Again, our ROCE at we spoke about earlier, has had a step change of the mid-sevens . On to the next page, Slide 12. Again, what we've done is we've broken out our performance to give an indication of the indication of the incremental M&A activity against the prior year. So revenues within 1%, as I pointed out on the prior slide, $3 million of increased costs over the prior year, $11 million was inflationary pressures, $2 million of incremental marketing, which has enabled us to take price and continue to grow share. We've offset inflation with the sale and leaseback of [indiscernible] actions in commercial vineyards. So not only has that delivered us quite a significant after-tax profit, it's actually brought in about $56 million worth of cash. And so, when we talk about cash a little bit later, what that's done is it's actually enabled us to lower our debt significantly, especially to prior comparative periods, and actually provides an [indiscernible], as we've spoken about at the AGM and in other presentations for acquisition activity or activity we may. Inflationary pressures are easing. So we're seeing that already. So it's going to set us up very well as we come into FY '24. And you would have all heard that inflationary pressures, especially sea freight prices are easing in some of the other stocks that we may otherwise be investing. We've been able to offset our tax position in Coldridge and Grande Junction, so being utilized losses from prior years, which basically means the full proceeds that are coming through from that sale are going to go straight to our cash bottom line. We've only received 90% today, we expect to get the other 10% in this half, which is about $6 million, so we're looking forward to actually getting that in the next few months. Craig mentioned before about the SGARA, the SGARA estimate we've put through. We are hearing and seeing across the media that estimates are down across the region of about 3% to 5% to 50% down the yield. We're quite pleased that we've been auto managed mid through, and we've been able to manage our yields such that we're estimating to be down on 5% as compared to what we're seeing across the industry. Unfortunately, that still translates into a SGARA loss, and so we've estimated that at $5.4 million pretax or $3.8 million after tax. Vintage is only just starting, so we'll see how that pans out as we go through [indiscernible] from prior years. What you'll also see at the bottom of that slide is a pre-asset sale pre-inflationary pressure view around our results. And you can actually see from looking at that, that on a like-for-like basis, so far geographic inflation in Australia and the U.K., so sea freight and bottling costs, et cetera, are included, and then we are pretty much in line with what we've actually said before if you take into consideration the incremental marketing investment.

Yes. The other point I'd make about SGARA, we believe relatively conservative with that estimate, given all of the recent rains and floods that Adam has talked about, we know that in that region, especially through the river, we have fed considerably better than the overall market in this regard. So that number you see in there should be or worse position on that.

Thank you, Craig. So on Slide 13, which is the next slide, we've mapped out a quarter change. And so we've been pretty open about and transparent about the inflationary pressures we have received. So you can see that there as we walk up from the one-off costs that we talked about last year versus the inflationary pressures that we've incurred in this half, you can see the marketing all this is after tax, by the way, as opposed to the numbers we've spoken about previously were at an EBIT level. So we've got incremental marketing investment. We've had some off-trade declines post-COVID, but we're actually starting to see growth back again in future years and especially with innovation coming through. So what that's given us is a December '22 NPATs pre-M&A of $2.3 million. Then when you take the M&A activity into consideration, so the incremental sale leaseback and other M&A activity, we're sitting at $16.7 million NPAT, which is significantly higher -- 52% higher, than where we were like at 10.9% level. And then with SGARA, we come down to $12.9.

So Adam, just to build on a point there, if I'm looking at this independently, if I look at sea freight as a cause of change, sea freight is coming off, everyone knows that. But we've absorbed a tremendous amount and it's very transparent in our business, given that half of our business almost is U.K. So we're very confident about that number coming into '24, which is why I can say I have confidence coming out of this year. We're already seeing a significant reduction in our rates today. That will fully blow out by '24. If I look at higher distribution costs, we're seeing an easing of that. That's largely the Australian business and we're seeing if you'll come back on that, as I'm sure you are, and interest -- and higher interest costs will come down because we've actually reduced debt. So if I look at those 3 things, they're real, they're tangible, they're not just a one off see what happens. So I'm very confident about that. Marketing investment will be tuned to what our strategic need is for innovation and growth on our premium pillar brands, but they self-fund. So that is in our control, depending as we come into '24. The post-COVID declines, I think we've seen that. I think the markets are resetting and hopefully now COVID is a historical discussion, not a forward featuring discussion. When you look at that, those changes are quite straightforward and quite tangible. And when I overlay then our innovation pipeline and our ranging decisions, that's why I'm very confident about '24 moving forward. Some of that will take the second half to flow through, but you can see there, even after the big SGARA number and provision, it still leaves us ahead of the same time last year in a very good space, which is why we made the strategic call as commercial vineyards. Moving those commercial vineyards, not only reduces debt, not only it gives us cash to support our strategic plan, it also improves our P&L operating costs moving forward. And there's a benefit there that we'll outline at the AGM moving forward. So it all sets up well for our '24 moving forward.

Thank you, Craig. So on to Slide 14, which is the balance sheet. Pretty proud of our balance sheet. It's very strong. The sale leaseback transaction where we managed to achieve an outcome, which was double what we had on our balance sheet 4, has actually translated quite well through to our NPAT. So our NPAT per share has gone up to $0.97, which is a $0.04 increase over where we left 30 June, but more importantly, it's a $0.09 increase over the same time last year. So that's excellent. And more importantly, what's actually happening there is because of the value that we've received for that sales leaseback of the commercial vineyards, our balance sheet itself for our leases are actually lower than what they would otherwise be on right-of-use assets. So with that, we right down net debt, which you can see there. So we're about $29 million of the same time last year, $20 million off where we exited in 30 June, and I'll talk a bit more about cash on the next page. We've got excess capacity in all of our covenants. On a net debt EBITDA basis, we've got 1.1x, our gearing and our leverage, 17% and 15%, respectively, really low numbers and leads us quite well. The other thing you notice there is our facilities. So we were paying some of our facility debt as well from where we were before, which therefore means we've got excess capacity if we do want to take it up again. So I want to cash on to the next slide, Slide 15. So Slide 15 and Slide 16 are 2 views of our cash flow. So Slide 15 looks at it from a June 30 position to December position, and Slide 16 looks at it on a rolling 12 months. And the reason why we've provided 2 views on this is actually what happens in the wine industry is 70% of our growers are actually paid in the second half of a calendar year or the first half of our financial year. And so what you can see is you've got about $20 million, $21 million that you're paying out in that half. And so actually walking our way through from our 30 June position down to our operating cash flow, if you start at the top, which is cash from operating activities before inflation and before movements in your balance sheet, we're sitting at $16.2 million versus $20 million at the same time last year. Now bear in mind $2 million of that in marketing investment. So we're like-for-like before the other things that have come through. Then as you work your way through inflationary pressures, you can see that we've actually decreased our inventories. Our inventories of $10 million decrease should have actually been more than that, but it's about $3 million of inflation costs in that, so it was actually closer to $14 million worth of reduction or $13 million worth of inventory reduction. And our receivables have actually been impacted because we're waiting for the residual 10% for the SGARA and waste back of COVID so you take that out, and again, we're like-for-like. But if you wrap all that up and we've got net cash from operations of minus $18.5 million. With the proceeds that we received from the asset sale of about $56 million, you see $58 million. In the presentation deck, there was some hangover from some asset sales in the prior previous year that came through into this period. We've actually generated total cash flow before meeting debt of $21 million as compared to a negative [indiscernible] last year. Now in that negative $39 million from last year, we had the capital return of about $24 million. But when you take that out, we're still $21 million versus -- minus $15 million. So a very positive result in total cash generated itself coming through. Inventory, we're working on. We actually want to get that down strategically, and we have got an inventory reduction program in place, in particular, and what we're aiming to do is not have an increase in inventory over the prior year, if not getting a decrease. So we want to try and offset any inflation presence coming through. And we think we'll be able to do that with the sea freight prices easing on top of utilizing more of our inventory coming through. So then on to Slide 16, same but on a 12-year -- 12-year rolling average. As you can see from here, again, our cash from operating activities, taking into consideration incremental marketing is like-for-like from where we were in the prior year. What's important about this slide is that we are actually addressing our working capital. Our receivables are getting better, our payables are getting better, the one that we're working on is exhibit through, which we've got a plan in place to reduce that, which will therefore should leverage some good operating cash flow for us in the second half as we work our way.

I'd also highlight, as I said before, that inventory position largely driven by the U.K., was a deliberate move to ensure that we had all the inventory required past Brexit on which we gained share. Now we shift into it as planned, the reduction phased by June 30. And that's well underway, and we would expect to reduce our entry in line with prior numbers or close to about 1/3 of inventory over there. So very confident in that, and it was a very deliberate move.

Great idea.

Okay. So if we move to the outlook, which is Page 17, really in summary, the F '23 is forecasted to be in line with prior year subject to FX, of course, and the normal SGARA issues that the industry faces, although we think we've been quite conservative with the current provision on SGARA. But we're yet to go through harvest, but we're quite confident about that. If I turn to the strategic plan, as I've talked about, our strategic plan is on track. Our premiumization is in growth on all 3 pillar brands as I've highlighted, in a declining global market post-COVID. Our innovation is actually market-leading and exciting, and it plays to the AVG tax changes that we're seeing in the U.K. So we're very well positioned for that without needing an extra dollar of capital to do it. And that all sets up for a great innovation pipeline as those inflationary costs come back as we've talked about. So we're well positioned. The Australian market, we continue to see inflation, we continue to see interest rate rises, and we continue to see the value segment under pressure. So we expect the Australian market to be a 6 to 12-month challenging market, then following the U.K. into a growth period. We have also growth opportunities that we will report in the full year that are coming to fruition in Asia, hopefully, China, but also our Canadian business is growing, as you saw. Pleasingly, our Irish business is emerging as one of our most profitable businesses we have in the world with a lot more growth to come there. I was very pleased with my meeting last week in Ireland, where an example that agreed to take out, and we're going to Mid range as a priority. So as I talked before, our innovation is in good shape. Growing confidence in China, now China, as we all know, is not a sure thing, but certainly the moves that we've seen from the Australian government of recent times and the interactions suggest that there's some positive news on the horizon. We're well placed to do that. I'll be up in China in March, and I'll also be spending some time in India working on new business and strategic growth platforms. Our partner in China is very, very keen to get going. But obviously, that depends on those government decisions, which I highlighted before. We're certainly now ready to go in-waiting. We've talked about inflationary costs a lot. I mean I've broken them down in the previous slides into quite tangible, obvious areas: sea freight, interest cover, increase in marketing investment and some Australian distribution costs. They're no more complicated than that and we are seeing positive signs on every single one of them. The one cost that we'll continue, we think, is we've had an increase in glass blowing costs in our circuitbusiness in the U.K. of a few million dollars on an annualized basis. We expect that to continue because we think it's driven by war in the Ukraine. So that's the one that we think will remain, the rest we're very confident we'll come back. We're already seeing that move. But we won't rest there. We need to insulate the business and we're looking for further cost out strategies, which are underway. We have a couple of big announcements on that, which we'll talk about at the AGM full year, but a little early to talk about them. We have some consolidation options. We have some trading benchmarking options we're looking at and we're very confident that we have further set of value need to be delivered on that front on top of the reduction in inflationary cost and inventory reduction we talked about. So I'm very comfortable in our F '24 outlook. I think we'll see some tough trading in the second half as those inflation costs come back. The Australian industry is flat, but all of our other business regions have very, very exciting growth prospects, and we're on track with our strategy and our premier brands well on growth. So that's where we see it, and we're looking forward to the coming couple of years and our strategic plans in very good shape. Okay. So that's the formality of the deck, and thank you very much for letting us take you through that, and I'll hand back to our host.

Our first question comes through from Andrew Johnston, MST.

A couple of questions from me. So look, apologies, I had some technical difficulties getting on, so if you've addressed this already, just please just pass on those, and I'll catch up with you on them later. First up on the sea freight issue. Can you talk about how you see that -- from your perspective, how you see that declining over the next 6 months. The Shanghai Container Index is almost back to -- well, getting close to back to pre-COVID levels, but can you talk a little bit about how you see that declining and when that gets back to what your contract is? And then secondly, just 2 issues, and I'll squeeze 2 questions into 1 here. 2 questions around market share. One on McGuigan in Australia in a 25% decline in the McGuigan sales and then the second one is the U.K., there was a comment about a 44% point -- a 44% improvement in the U.K. now and low or the zero alcohol. Is that 44 -- you went up by 44%. Just trying to understand what those -- what that amount actually mean.

Yes, I'll answer that one straight up. Yes, we went up by 44%.

Okay. But you were already a leader, right?

Yes, we were, but we had tremendous growth in Ireland as well, and U.K. combined. Yes. So that's a strong growth story for us, full stop, and more to come. Because remember, in the U.K., alcohol and the supermarkets are the same outlet. And seeing the percentage of zero and low alcohol, which also has spirits leadership in there is very strong. Whereas Australia, it's a little more separated and a little less visible and not as much growth. So from a competitive perspective in the U.K., some are trying, but not having the breakthrough success they'd like to have. In Australia, a more competitive market in Woolworths and Coles. Okay. In terms of the sea freight, what are we saying? Yes, the Asian numbers are very close to getting back to pre-COVID. The European shipping and North American numbers have a little bit of a lag effect, but we've already received quite a discount percentage rate of their peak already. So the reason we're not calling it in our second half of the quarter in '24 is it will depend on the number of containers we used in the second half as to how would that number looks versus prior year. So we're being a little conservative there. We expect it to probably go through another 2 discounts from the one we've already looked at, but I would like to think in '24 is getting back much, much closer to the pre, let's call it, peak levels, but we have already received a significant discount in our freight rates as we speak today.

Our next question comes through from Jason Palmer, Taylor Collison.