Bega Cheese Limited (BGA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Bega Cheese Limited Half Year 2022 Results Conference. [Operator Instructions] I would now like to hand the conference over to Mr. Barry Irvin, Executive Chairman. Please go ahead.

Thank you, and welcome, everybody. Delighted to have you here for us to report our first half results for the financial year 2022. Very pleased to be speaking to both long-term shareholders and new shareholders. It is -- it has been a very interesting time, we could put it that way, in terms of the period of time we've been living in ANZ with the execution of what was the largest transformation of -- that Bega Cheese has ever done in terms of the purchase of Lion Dairy & Drinks, which we now refer to as Bega Dairy and Drinks. So in the context of an extraordinarily challenging period around COVID-19 and significant changes in the business, we would like to report our financial results for this first half. As you would expect, with the purchase of Lion Dairy & Drinks, our revenue is at a record high for the first half of $1.5 billion and with a statutory EBITDA of $97.2 million, normalized EBITDA of $106.4 million. Paul and Pete are -- Paul van Heerwaarden, our CEO; and Pete Findlay, our Chief Financial Officer, are on this call, and they'll speak to you during the presentation, and we'll go into more detail on the financial performance of the business. But from an overview perspective, very pleased with the performance in the context of what we have been dealing with in the last 6 months and, to a certain extent, continue to deal with. The balance sheet continues to strengthen. And our leverage ratio of now 2.2 is where we're expecting it to be, and we look forward to further strengthening of the balance sheet in the coming periods. In terms of the integration. We've been very pleased that despite the restrictions related to COVID-19, we've been able to integrate Lion Dairy & Drinks very successfully and the synergies that we're expecting to achieve are on target. And so that's, I think, a very good performance by the team in terms of bringing the 2 companies together and executing on synergies in a period where quite often we were working from home. In terms of the global dairy market, I think everybody would be very aware that we're seeing extraordinarily strong commodity prices, and they have certainly strengthened in recent months and continue to do so. So in terms of global dairy commodity, very pleased to see that strengthening. Interestingly, we're obviously also seeing that in terms input prices of other commodities that affect both the company and our farmer suppliers that are exposed to those commodities. And obviously, there are a number of factors for that, not the least of which is the disruption associated with COVID-19 and indeed the need for companies to secure their suppliers and make sure that they have inventory on hand in what is now a slower supply chain than what it traditionally was. I think the other is, of course, uncertainty related to some of the geopolitical tensions that we're also seeing that market strengthening in case there are further challenges in that area. And I'll talk a little bit about that later. But the truth is, it is a very positive signal for us to see those global dairy markets are strengthening in the way that they are. It should be said that global supply is relatively flat. And certainly in Australia, Australian supply is flat to decreasing a little. It was pleasing again in the context of the 6 months we've just been through that we have been able to successfully transition from our Reckitt nutritional arrangements. We made that announcement in the last period that those arrangements were coming to an end. Again, Pete will talk a little more about that later in terms of the financials, but it was -- it's very pleasing to have been able to transition from Reckitt and not have any interruption for our other nutritional customers. I think many have spoken about this and it is truly, I think, common knowledge that the Australian foodservice demand continues to be significantly disrupted by COVID. We are pleased that we are beginning to see some recovery. But certainly, the advent of Omicron caused even further disruption both in the supply chain and in foodservice, in particular, in the convenience channels. Driven by that milk supply issue that I was talking around earlier and the strong pricing that we are seeing in dairy markets, farm gate milk competition continues to remain very robust and we obviously continue to monitor our competitive position in that area. I think from my perspective, they are the key issues that I would like to highlight out of the first half as I said, Paul and Pete will expand on a number of those. But for those following the presentation, if I move you to Page 3 of the presentation. It is always the slide where we talk about the value of Bega Cheese. And I think it's really important to talk about it in the context of the first half because the discretionary effort that we have asked of our people and they have willingly given is why we have been able to achieve what we've been able to achieve in the first half, both in terms of long-term strategic projects and dealing with the issues that have been at hand and immediate for us. But I think of all the values, the passion for the customer and the consumer on the one end trying to make sure we got product to them as required, when required and the other one that's supporting each other have been the 2 bookends, if you like, that have ensured that the business has been able to be very resilient and continue to perform in really unpredictable circumstances. Slide 4, many listeners would be familiar with, but it is always worth recognizing the growth of Bega and the transformation we've been looking to execute with our latest acquisition. We now feel very comfortable with the business that we have. Importantly, in a period such as this where you suddenly see commodity prices moving up very quickly and some disruption in retail and indeed some heavy cost burdens in that area, it is good to have that balanced business that is able to both manage milk and other commodities in the most effective manner to take advantage of various markets as they change, but also just manage a very disrupted supply chain. And we've been very pleased with how we've been able to do that with our capacities in manufacturing and our distribution capabilities and our processing capacity in terms of our brands and the Australian market. And really, that does go, if I move you to Slide 5, that is talking about how we look at this company and the key of having an integrated value chain that goes right back down to our farmers and our juice growers and our peanut growers and our dairy farmers to make sure that we understand all the issues that are occurring at the very beginning of our supply chain and then right through owning our manufacturing capabilities, owning our distribution network and then working to make sure we are meeting the expectations of our customers and consumers. And those expectations, of course, include things such as sustainability and reliability. So our ability to actually deliver to our customer, work with our customer, make sure that we can meet any challenge has very much been tested in this first half, but I think been tested and proven to be strong as it always has been. It is important that we continue to talk about our Sustainable Development Goals and indeed our alignment with the UN Sustainable Development Goals and the announcements we made at the full year around our emissions targets and the work to continue there and indeed the circularity project that we have that we are championing in the Bega Valley. I think those subjects remain top of mind for us, and we continue -- even with lots of activity in the business, we continue to make sure that we do work and work with others to make sure that we are delivering to the expectations of the community and our customers and indeed ourselves. From my perspective, that is the overview of what's happened in the first half. I think there is more detail, which I'm really pleased to hand over to Paul, who will elaborate on the financial performance and the operational aspects of the business. And I'll come back to talk to you at the end following the presentation from Pete and Paul. So for those that are following the slides, if you would move to Slide 7, and I'm very pleased to hand over to our CEO, Paul van Heerwaarden for further detail on the first half.

Thanks, Barry, and good morning, everyone, and thank you for joining us on the call. We are on Page 7, and I would like to take you through the financial performance highlights. Revenue has more than doubled to $1.51 billion following the acquisition of the Dairy and Drinks business. This is a very different business to a year ago with a significantly larger and more diversified customer base and a product portfolio across our various channels. EBITDA for the first half of FY '22 has increased to $106.4 million. This is an increase of $45.7 million -- 45.7%, sorry, in comparison to a very strong first half in FY '21. The statutory EBITDA was increased by 47.7% to $97.2 million. Pete will explain the adjustments between the normalized and statutory results later in the presentation. You'll also note that the dividend has increased by 10% to 5.5% -- $0.055 per share, which was a decision supported by a strong balance sheet and confidence in the medium- to longer-term outlook for the company. Page 8 includes the table aligning our brand portfolio with the relevant categories that they compete in from fresh milk and yogurt down through the plant-based milk and water ice. It's difficult to summarize the various trends across these areas and categories as over the past 12 months and the prior comparison period impacted in many ways due to COVID. For example, the spreads category, which is down slightly in the past 12 months is cycling off a very strong prior year comparison, which includes the initial lockdown period across New South Wales and Victoria, which we saw a lot of pantry filling. Importantly, we have seen underlying growth across our categories, and we have maintained our strong market share positions. I'm now on Page 9, which provides a status update in the market, which has been well reported on with regard to the ongoing disruptions across several channels in both the domestic and international markets. It is very pleasing to make it, despite these challenges, we've been able to maintain momentum of new business development, including a range of new products and leveraging our consolidated product portfolio across our team distribution network. I'll draw your attention to a couple of points, including the range of the sparkling cold brew products that we launched during the first half and No Added Sugar extensions that were launched with the Double Expresso range. These examples of responding to market trends in terms of both nutritional content but also with the consumption occasions across today. I'd also like to acknowledge the work done by our commercial and supply chain teams with the implementation of contactless delivery was implemented to limit the risk of transmitting COVID across our network and ensure that we're able to maintain revenue and service through to this important channel. As outlined on Page 10, despite the various challenges and disruptions in the first half, we have continued to progress margin initiatives across our supply chain, including the DuPont safety behavior leadership program, which is now being rolled out across our Dairy and Drinks sites, major capital works at several manufacturing facilities as well as the efficiency programs at our sites and across the chilled distribution network. The termination of the arrangement with Reckitt announced about 12 months ago has now been completed with the final payments that Reckitt received recently. We've reset our cost base at Tatura and initiated alternative arrangements for canning and blending that supports the ongoing supply of infant formula products to our customer base. With regards to the integration of the Dairy and Drinks business and having recently reached the first year anniversary post acquisition, it's pleasing to note that the synergy program we announced in November 2020 is well on target and we've recently completed the transition services agreement with Lion. This required an extensive effort by our IT team to replace service at all of the Dairy and Drinks sites. And I'm pleased to say that due to this commitment and some long hours, this transition was completed successfully with minimal disruption to our operations and was maintained within our budget allocations. If you turn to Page 11, you'll see the Fresh Agenda dairy export index that we include in each of our investor update presentations. We typically like to see relatively uninteresting charts with slowed price trends over significant price movements. If you look back at January a couple of years ago, you'll see a spike in the mix, 275 which declined rapidly to about 195 in just a little over 6 months. This was followed by a recovery over the past 6 months, but even greater spike in index to 300. An explanation of these movements, we look at the global supply complex rather than global demand, which has been relatively stable. Milk supply in all major regions, including Europe, New Zealand and the U.S. is down for a variety of reasons unrelated to price. As an example, milk production in New Zealand last month was down over 6% compared to a year ago. In Australia, milk production is expected to be flat to a 2% decline compared to the prior year. The market remains very competitive with processing over capacity continuing to be a challenge. While we were able to realize some of the global returns in our bulk commodity business, the majority of them were related to grocery and our channels, which has taken longer in realizing price increases. It was also interesting to report at this time, the sanctions placed on Russia in 2015, the time when the European Union was removing production caps for milk production, which resulted in a material increase in supply. In 2015, Russia was a large export market for the Europeans, which is no longer the case. As we start to see further sanctions placed on Russia this week, the situation is very different than 6 to 7 years ago. We continue to monitor the situation closely. Before I pass on to Pete, if you can turn to Page 12. It's worth taking a moment to reflect on business model, which Barry touched on earlier in the presentation. You will have seen this model presented previously, and it is referred to extensively within the company to explain our value chain from farm gate to the consumer. The importance of having a level of control and transparency across our supply chain has never been more relevant in the past couple of years and more specifically, the past couple of months. An example of this is the ability to direct milk solids relatively seamlessly across our bulk segment and the branded segment during periods of significant channel disruption. This has been particularly beneficial as dairy commodity prices have spiked, and we've been able to realize strong returns on milk redirected from our [indiscernible] and foodservice channel customers who recently have been facing labor availability shortages. Another example of the positive impact of our business model is the capacity and capabilities of our chilled distribution network, reflecting the various challenges and provide a level of service that would not be achieved if we were entirely dependent on third-party operators. Thank you, and I'll now pass you over to Pete.

Thanks, Paul. If we just go into the first slide, which is our segment performance, which ties in with the business model that Paul just talked about. The branded business, you'll see there increased earnings by $42.6 million on prior year. And a lot of that was -- or most of that was due to the addition of the Lion Dairy & Drinks business to the branded segment. I guess the highlights here have been really strong performance in grocery. Spreads retail growth was up 4.6% and yogurt grew 4.1%. The grocery channel within the Lion -- the Bega Dairy and Drinks business actually grew at about 1.5%. So very strong growth there. Offsetting that, though, were the challenges in our non-grocery channel where we saw a lot of our market close or operating below full capacity for the first half due to COVID and also demands in those areas being down, and we were actually down nearly 3.5% across our non-grocery channel in BDD. What we did see also was some price rises that we've pushed through that will come into play in the second half, and those have been agreed with some of our larger customers. Also saw a significant increase in costs in the branded business. And I'll go into that in a little bit more detail, but that was really attributable predominantly to the impact of COVID-19. In the bulk business, we'll see there down on prior year by -- with $16 million. That was really impacted by a suppression of our powder business, infant formula powder business across nutritionals, which we called out some decrease in lactoferrin pricing on prior year, although I would note that our lactoferrin numbers are an expectation with what we expected this year from a budget perspective and also a high increase of milk that will be equalized with increased commodity prices in the second half. In fact, we think that we'll see a significant lift in our bulk earnings performance in the second half of very, very strong commodity prices as they start to flow through. If we go down to the next page, which is just a reconciliation of our normalized result. As you can see, the 2 key factors playing out there have been the termination of our agreement with Reckitt. We received about -- just over $22 million of revenue that came through for the half. There's another $2.5 million to come in January, then that will end that process. You'll see there though that we did have some costs that we netted off against that of about $5 million separation costs and restructuring costs. And it's good to know that a lot of work has been done around our footprint at Tatura and our capability at Tatura to take out any excess costs or lack of capability in the business. The LDD transaction-related costs were just over $27 million. Most of that related to separation costs, which, as Paul stated, have now been completed. And so that train leaves us. There was some consulting and legal costs involved in that. And just some few more separation costs, but that -- there'll be a little bit of that left in the second half, but most of those costs are now done. If we just move on to the next slide, which is our balance sheet. You see that the balance sheet looks quite different. I guess the main difference around that is really the addition of the Lion Dairy & Drinks assets into our division, Bega Dairy & Drinks. There was about 602 -- we started at $602 million in net assets, and that accounts for most of the lift there. Trade receivables has come down a little bit, mostly off the back of a little bit more use of our trade receivables fund. But apart from that, not a lot of change to the balance sheet. If we move on to the cash flow. There was a cash strain for the half of just under $36 million. A lot of that is seasonal, and we would expect a fairly big seasonal swing and some positive cash flow generation in the second half, up to sort of $60 million or $70 million. We also lose the drain of the TSA agreement that would transition off that. So those 2 same charges come away. So we're looking forward to some positive cash flow being generated in the second half. If we just look at COVID-19 now. We've called out that COVID-19 costs in excess of $20 million. They are across a variety of different areas. There's probably -- most of that relates to direct COVID costs that were incurred during the half. And then for items such as absenteeism, testing programs, additional logistics costs to ship product around, loss of margin just due to customers being closed and a number of other ancillary costs such as cleaning, security, and warehousing set up. There was also additional indirect costs involved in that. We had increased the material costs through availability. We had to close plants because suppliers couldn't meet our windows with production, and we have people away sick. And then with our demand changing, we also struggled with some recoveries and not getting the volume through our plants. But overall, those costs were in excess of $20 million for the half. We do think that we'll incur more costs for the remainder of the year. In fact, January was a particularly bad month. And we have factored in some continuation of those conditions through February and March, and we anticipate that there will be a substantial improvement in the last quarter of the year. Obviously, a lot of our route channel was closed down. We did have problems getting our international supply with materials and packaging. We'll anticipate a little bit more of that. But we're hoping that, that's done and have some fees across our plants reach up to -- and warehouses reached up to 30% during the period. We are confident those changes in recent government regulations about allowing people to get back to work will help us on that recovery in the last quarter. I'll just pass back to Barry now.

Thanks, Pete. And look, really pleased to just provide a little bit of a wrap up around where we are today and what we see as the way forward or what we see is in front of us. And it is fair to say for those that are following the slide presentation, we're now on Page 19, and we've got a wonderful picture there of Ash Barty. So we're delighted with our association with Ash, and I'm sure as the rest of the country is we were delighted to see a successful one in the Australian Open. So that's a nice thing to be able to talk about where we are today, one of the placing yards that we have in the [ Australian Chairs ] within the Australian Open, which is great. But perhaps more specifically into our business -- to our business, we are we have been, as Pete just described, significantly impacted in operational costs and in the market as a result of COVID-19 and particularly in our domestic operations and business. And we are still managing that, we are not through it. But we do see signs of improvement. We've certainly seen some time in February, and we are expecting that to continue. As Pete mentioned, we're seeing that our markets open back up and we're seeing our staff more readily able to staff our plants and get back to normal operations. But certainly, we are still managing it. And from that perspective of all the costs, some of them which we will expect to decrease. But others will stay with us, particularly around those input costs that we talked about, particularly in the commodity input costs, it will be important for us to get price realization as we move forward. And many have spoken about food inflation, and I think it is well and truly with us, as has been spoken about by others. We are very pleased and has been mentioned by both Pete and Paul that the integration of Bega Dairy and Drinks into the business has been very successful and it is worth calling out. The transition of the information technology systems, always a worry, I think, for anybody that's been engaged with or following large business carefully, it's always something that tends to be very difficult to bring in on-time and on-budget and the fact that the team have managed that in such challenging circumstances is a credit to them. We do have a strong balance sheet, which continues to strengthen. It is worth mentioning that we have expanded our banking syndicate. We've been delighted with the support of our traditional banks, Rabo and Westpac have a great many years who continue to support the business and there is no change in their willingness and support. But given the size and scale of the business, we thought it appropriate to strengthen up the flexibility around our banking options, that we've expanded the banking to make dedicate them accordingly and giving us security and flexibility around our funding. It is also on the theme of balance sheets, we do have that very substantial property portfolio on our balance sheet at the moment as well, which is -- it obviously further strengthens the overall position of the business. When we think about where we would like this business to be and when we think outside the challenges of the immediate and getting through COVID, we continue to be delighted with the brands that we have in growth categories, and we still see that there is great opportunity there. We see that there is opportunity for further growth and further business improvement across the entire business, but that integration will continue to yield opportunity for us. There's no question that both the geographic positioning of our business and the diversity of our customers, be they in Australia or internationally has helped with business resilience. It has created our ability to manage product and manage difficult circumstances and manage supply disruption well. And we think that, that will stand in very good stead for the future. As Paul mentioned, very significant competition for farm gate milk as we do not see growth from suppliers in Australia or around the world, and we expect that competition to continue. Geopolitical tension is something that we continue to monitor. And obviously, there's plenty of commentary without me adding to it around those tensions except to say that clearly they will impact imports both for our farmers and for the business itself. And indeed we will continue to monitor and be ready to respond to any changes we might see, but it is a very changing environment. Just moving to [ Page 45, ] and my last slide. Obviously, in terms of the priorities of the business, I think the strategy is very clear. It is unchanged, despite the challenges of COVID, we remain very confident with the medium-term outlook for the business, but there are indeed short-term challenges that are being spoken about across the food industry, I think. So -- and part of that is the ongoing management of the impacts of COVID-19. We are -- as we said, we did see -- we have seen that settling down a little in February and signs of recovery, and we expect a recovery, but we think that we'll be killing this at least into the fourth quarter. It goes without saying that, but it is appropriate to emphasize, that the safety and well-being of our people is our first priority. And we -- and during this COVID period, that has been our priority. While we have tried to juggle all the things that we need to worry about in terms of not only safety, but the well-being of our staff, many of whom have been working from home, many of whom had no choice but needed to attend factories, and we needed to make sure that we made them feel safe, and that continues to be a priority for us. We are confident, as I mentioned earlier, that we will continue to realize the synergies that we modeled to Bega Dairy and Drinks. We are continuing to invest in brands and markets with that long-term view continuing to make sure that we have a good pipeline of new products that will engage our customers wherever they might be in the world. We think there are still opportunities to optimize the capacities and the capabilities across the bulk and branded supply chain and how those 2 segments of our business can work together to create even greater value. We think there is great opportunities into the future in leveraging our cold chain scale and reach to customers and the options that we can offer customers and indeed the full service capability of our business. We, of course, continue to support further diversity and inclusion in our business. And we recognize that we've got more work to do there. But it is something that we continue to focus on and work hard. And as I mentioned in the conclusion of my initial presentation to you, the sustainability and circularity initiatives continue to be champions within the business from the leadership of the business, and we're very pleased with the progress we are making there. So ladies and gentlemen, that concludes the presentation. Very pleased to take any questions that you may have. And Paul and Pete are on the line with me to assist with the answers to those questions. So feel free to -- I'm happy to hand over for questions.

[Operator Instructions] Your first question comes from Michael Peet from Goldman Sachs.

Barry, Paul and Pete, just first question, just on the guidance from December, it's probably pretty obvious. I assumed, but I just wanted to confirm that given January and Omicron sort of throwing a bit of a spare in the works that's probably backed away from that guidance from December?

So Michael, we don't have any further update on guidance at this stage. Obviously, the issues that we're dealing with are immediately in front of us, but we don't have any further update today. But I think as per the presentation, there are challenges that remain with us around COVID that were very much there for us in January. We are seeing recovery and we are seeing some opportunity in commodities. But we're obviously keeping that guidance under review.

Okay. Just if I may, on BDD, I'm just trying to get the revenue line, I probably overestimated it in the first half. But I'm just trying to get a sense of if I sort of take the $787 million, try to annualize what you've booked in the second half last year. I'm getting around $1.3 billion of revenue. Is that the number -- is that impacted by the current situation in COVID?

Mike, Pete can elaborate on that in terms of what we're forecasting.

Yes. No, Michael, we've got a bit more forecasted than that. So we'll have a slightly stronger second half. So we'll be closer to process of the $1.5 million -- $1.5 billion net sales revenue number.

And the seasonality, notwithstanding the disruption at the moment, but the EBITDA seasonal, can you just sort of remind us what that normally is sort of first half, second half? And whether that's just irrelevant at the moment given the situation?

Yes. Look, it's usually slightly weighted towards the first half. And BDD has traditionally been a bit more heavily weighted towards the first half of BCL. So -- but this year, that gets equalized a little bit. We've got some price increases coming through in our retail business and our branded business. And we've also got significant commodity price increase in the second half in our bulk business. So your point, it will be a bit flatter than when it [indiscernible], so bit more, I guess, first half, second half.

Okay. And final one just for me. Just you called out the $20 million. It sounds like most of that's cost, but just trying to also get a sense of -- you did mention that some of your customers were shut. Just what revenue impact there was in the half?

Gross margin was around about $6 million.

Your next question comes from David Errington from Bank of America.

Barry, Paul and Pete, very interesting times to follow the company. The first question I've got, first of all, I think, to be only impacted by $20 million in that first half is a terrific performance really, given what the world has thrown at you to only be knocked around by $20 million, given what's happened to other companies. So you obviously -- you're on top of your game in terms of operations and managing the absenteeism there. But my question is more from the point of view of raw material cost increases. Now I would imagine that because post the acquisition of LDD, you're more leveraged to things such as the commodity and the plastics, the sugars, the coffee, packaging all that sort of stuff. How did those cost increases started to impact your bottom line? Or is this something that's now likely to feed through coming in, in the second half and beyond? Because there's been some pretty significant increases in costs, what are we likely to see there? Probably, Pete, I don't know whether it's to -- this question is towards you. But yes, what sort of things can we expect going forward for that?

I might try to pause for some initial commentary. But yes, so look, Paul, I won't bother adding an overview. You might just provide some initial commentary on that.

Thanks, Barry, and thanks for your question, David. And yes, as you were providing some background thinking on that, it did feel like a lot more than $20 million, that was a pretty tough. I see what's been -- what has been as you rightly pointed out, would add fuel cost in very much in terms of our expanded chilled distribution network and reliance on and exposure of fuel cost that's another one under the list that you now provided. Those prices that you would have seen increase came through pretty early in the year. So they were starting to hit some of our business in the first quarter. And they didn't hit us in the first quarter, they were certainly well and truly live by the second quarter. And one of our challenges across particularly our consumer and food service business is how quickly we can utilize price increases in a pretty dynamic market where there's a lot going on. So one of the sensitivities, for example, particularly across Victoria and New South Wales is we've got customers under significant financial pressure. And so just being sensitive to that as well. So it certainly -- it's hard to put a number on it, but it's fair to say that we've been chasing costs through that first half. As Pete mentioned, we have seen price increases coming through this quarter and in the fourth quarter. And just with what's going on around the world at the moment, we expect that, that's going to be a continued theme going into next year. Indeed, if you had a look at the polls on all those announcements over the last 48 hours, you'll see that's one of their key call outs as well, just in terms of through price inflation and cost increases and how they get absorbed across that value chain. So it has been a bit of a challenge for us. And there's no doubt we've had some impact in our business with the timing of -- the timing gap between those increases and price realization. And we've got a bit more work to do there as we sort of prepare for next financial year.

I suppose it's always an ongoing challenge to get those price rises where, as you say, route customers are under financial duress, and the supermarkets are always kicking and screaming to pass it on. So I suppose it's just a case that it's a business as usual, you just got to get those price rises through. It's a challenge as to whether you can get the full cost pass on, but I suppose that's following on to my next area with the dairy price. And I don't know whether Paul or you, Barry. But I mean, that really big increase in farm gate milk prices, and you mentioned you've got an overcapacity, not you, but -- you do, but I suppose everyone's got an overcapacity of processing. What's going to be the end game here? Because that's -- as you say, it's like a wane, almost 10-year event or 2 and 10-year event that you see such a big spike, you seem to highlight that it's almost a structural increase in price now. What's the end game in that milk processing game, Barry?

So David, I think there's 2 things. And without wanting to think too old, I have seen these spikes before, and I am always a little careful to not make too many judgments on how much those really click up, spiked, how long they will hold for at their peak levels. I think in terms of where we are in global supply and demand, as Paul mentioned. I think we will see a strong base and I think pretty solid returns to farmers for further foreseeable sort of medium term, if you like. But in terms of that competition to milk, look, my view is always one and the same, we're actually pleased to see strong prices for farmers because that will generate profitability, which ideally generates milk. Now one of the things that we have seen, particularly in this year is that we are actually seeing the competition come from as much is the challenge the overcapacity in processing, it is the alternative use for the land, particularly the beef industry, where for the first time in many, many years, we've seen dairy farmers tempted to have an easier life and run beef cattle. So with these exits from the industry, which is creating that additional challenge is what you would normally see in a circumstance like this with pretty strong price and a pretty good season, you would see supply growth, and we are seeing that growth. But we would say that, that is more down to exits and alternative uses. I think as we go forward, you will see further consolidation. And I think the thing that we are doing and Tatura is a good example, we are rightsizing some of our facilities. So for us, some of that is right for our own capacities and capabilities and making sure that we're focusing on high returning products. I think we have seen some level of consolidation within the Australian industry already with -- and we've also seen the closure of some plants. And I think that will probably continue. But I expect to have robust competition for some period of time, which from our perspective means that, quite frankly, what we've got to make sure we're doing is having a product mix, whether it being commodities and bulk dairy or indeed in our retail branded product, that is more than able to compete with -- for milk against our other competitors. So it is really about us making sure that we've got a product mix and a supply channel, and that allows us to make a very competitive and consistent offer to our farmers. Now when you see a big commodity spike like that, it's hard and indeed dangerous to just follow it up because it can quickly come down again. But we think we generally get the balance right. [indiscernible] there.

Well, well done in running the business the way you have in such tough conditions, guys, you seem to be navigating your way through in unprecedented conditions. So well done.

Thanks, David.

Your next question comes from Phil Kimber from E&P.

I just wanted to ask some questions on those COVID costs. So the $20 million that you called out, and I think you itemized $6 million of it from lost gross profit from shop customers. Are they -- I mean, have you sort of given them on a net basis? I'm sure you're working hard to take other costs out. So what are those numbers or what are they netted off against, sort of discussion...

So look, I'll just add a slight refinement, Phil. Our wording was in excess of $20 million. So it is above $20 million, but we didn't want to go to the higher side of the number. $20 million is probably conservative. But we thought that it was appropriate to be conservative as we call out the number, but I'll throw to Pete to add some more flavor in terms of how those numbers were -- that number was right there.

Yes. Thanks, Barry. So that's the total number. So we have tried to -- if you look at our results and somewhere between $20 million to $30 million back, that's the cost of COVID to us, that is the gross number. What I would say is that January was a very, very difficult month. And to David's question earlier, so we started -- and the way -- we did start to see material cost increase through the first half. What's really hit us late in the first half and in January were the spread of the Omicron virus and those high levels of absenteeism. And so we've had a big chunk of cost in January, that cost will be reduced in February and reduced again in March. And then we start to see, hopefully, revenue come -- or revenue starting to come back already in February. So that is the total cost. When you extrapolate the cost over the year of all material increases, the big hit we've had laboring in November, December and January and probably some in February, we expect that we're forecasting our total COVID cost to be more in the second half. But that's built into our numbers. So we're having a slashed quite a bit of -- quite a few other costs in the second half to cover that.

Right. And that's -- I guess where I'm going is, I mean, where this year ends up now and given what's going on. But trying to look out to '23, I mean if we assume that hopefully, fingers crossed, we're all likely through this. Whatever those costs are and let's call it $40 million for the sake of the argument for the full year. I mean, is that -- does that pretty well just drop back into the business? I guess that's what I'm trying to get at how one-off these really are and how we should think about '23.

So it will probably be a bit more than $40 million. I think -- and we don't know yet because it's still playing out. And then the way I look at it is there's a direct chunk of those costs that should go away. I mean, hopefully, we're not spending a couple of million dollars on masks and testing and security guards and cleaning and those sorts of costs. Hopefully, we don't have 30% of our workforce away again. So we would like to think that a lot of those costs will exit the business, where global fuel prices that impact [indiscernible] where shipping costs go, those sorts of things we'll need to sort of assess over the next 6 months.

Yes. Okay. And then I guess following on from that, you talked about some initiatives having a material benefit in FY '23. And I just wanted to make sure I'm not double counting here. I think there was an extra $5 million or incremental $5 million of Lion Dairy synergies coming in the second year. But I get a feeling that these initiatives you're talking about might sort of capture some of that $5 million. So I just wanted to make sure I didn't double count.

No, no, that's a little bit separate. So we did go to the market with $36 million of synergy savings in the first financial year and $41 million in the second year. So there is an additional amount. What we're referring to is we've got a really good yogurt program happening at more, while we're investing $15 million down there in a new pouch filler line that will start to really reap some good benefit in 2023. We've also got some packaging initiatives that are happening on site in New South Wales. That's another sort of $10 million, $15 million of spend. So 3 large capital projects that will add to the business next year.

Right. And then CapEx, is that coming through in the second half? Just if that was the...

Some of it came through in the first half, Phil, but most of it comes through the second half.

So do you have a sense of what the full year CapEx round number?

It's sort of around that $70 million, $75 million mark.

Okay. And then my last question, sorry to be so numerical focused. Yes, the tax rate was really low in the first half, and there's a note as to why in your appendix. So I just wanted to know whether in the second half and looking into '23, we should assume you get back to a sort of normal tax rate?

Yes. Yes, we will.

Okay. So the second half, I don't expect that to 23%, again, you're sort of -- your head back or you just go straight? .

No, head back. 23%, but head back. We've just gone through the P&A work, it will definitely be heading back towards a normalized rate.

Your next question comes from Jonathan Snape from Bell Potter.

Yes, can you hear me okay?

Yes, Jonathan.

Just a couple of questions if I can, first, and I know there's been a lot said on these COVID costs. But distribution in particular, if I have a look at the segment notes, it looks like it's jumped about 300 basis points as a proportion of your revenue. I think it's quite a material jump by almost $50 million by orders in the second half. Trying to just figure out how much of that is fuel costs and stuff like that relative to truck drivers being out and things like that.

I'm -- Pete, I think we'll leave COVID [indiscernible] in your wheelhouse at the moment.

So I would say that around 70% of our COVID costs are people not being there, having to pay contractors extra money, testing, security, extra washing and those things associated with that. Then the other 30% would be lack of recoveries in factories through demand changes, price and material increases that have happened as part of this process. Does that sort of make sense?

Yes, yes. And look, just on your marketing costs as well. They've seen a step change in the first half. And I'm referencing to the second half of '21 because I think you can look back at the first half, you didn't have Lion. But they're up around $54 million. Is there any particular phasing of how the marketing investment goes in that Lion business?

Well, no. We will -- no, there's not. We -- obviously, we will pull back on marketing costs in the second half, but we had a number of initiatives in play and you'll see by the strong category performance and our strong performance in grocery that those -- we thought it was really important to continue to invest in our brands. So we'll see a little bit of a decrease in the second half, but that's -- we haven't really completely slashed in burn marketing.

Okay. And look, I just want to make sure I got my head around the second half and looking at them because I'm just piecing together kind of, I guess, what you guys have been saying today. I mean it sounds like $20 million COVID in the first half, it's going to be probably close to $30 million in the second half, like January, December and maybe February half of January or something like that. So you've got a headwind sitting there that maybe wasn't as big a headwind back in December when you gave the guidance. The second thing is, I think you mentioned some price increases too. And if I recall correctly, there was a fairly material set price increase pushed on the house label white milk products that you guys haven't yet followed. And I'm guessing you're referencing that. Have you got something in the system on your white bill product at the moment to come through?

Without giving away too much detail, we have put a price increase across probably 90% -- 80%, 90% of our portfolio that was put in play before Christmas. It would be fair to say that we think there's probably more price pressure to potentially look at passing through moving forward. So in the second half, we've also got significant lift in commodity prices, Jonathan.

Yes. And that was the next bit I was going to ask is -- I mean typically, your ingredients business has a pace into the first half, I guess, your balance day adjusted at December 31 valleys at December 26 in this case, but farm gate price is lower due to the season we see that margin in the first half, you don't necessarily get in the second. But it sounds like you're expecting that to be quite different this year given the commodity price they were up almost 20% since you would have rolled off balance. So how are we meant to think about that ingredients business? Like it sounds like it's -- I though it was almost going to be flat half-on-half because of the benefit. I guess what I'm trying to piece together, is you got a $30 million headwind in one bit, which put some price increases coming through that probably would give you a bit there and then you got ingredients as well, which is going to have an unseasonable bias to the second half, but just how deep is this entity.

Yes, the way I think about it, Jonathan, you're 2 big leaders, you're exactly right. That cost in cost that we had in the -- that we've got around COVID in the second half being neutralized by a significant increase in commodity prices across our bulk business, and that comes back to the point Barry made about heavy exposure to those 2 markets, which has been terrific. We've got increased pricing coming through in the second half, the full half year run rate of that. We've got synergy benefits flowing through in the second half, second half weighted. We've got cost control around marketing and other costs that we've got in place around headcount and so forth. So those equal that sort of cost pressure from COVID.

Yes. So Jonathan, the only overview I'd add to that is that -- so there's a lot of dynamics going on, obviously, actually -- and then -- and the only other dynamic is obviously, which we've touched on a couple of times, but not to be let go, which because you're very aware of it, it's the competitive position for milk procurement as well. So obviously, when we see those big commodity spikes, we see a lot of activity in farm gate milk pricing, and we've seen that happen in the last week or 2. So we've got -- we're keeping that under review as well.

And look, Barry, where farm gates are at the moment, I mean farmers are sort of implying about everything that it's probably as good as it's ever been in terms of milk prices. And you've talked about supply issues this year. I would have thought there'd be a fairly reasonable incentive for farmers to expand at this point, they've got water, they've got feed, they've got record milk prices. How are you thinking -- or how are the discussions -- because I imagine those people getting ready to dry off pretty soon. How are you kind of talking to your farmers at the moment? What indications are they giving you going forward for their plans on expansion or contraction of those?

So interestingly, Jonathan, I'm about to hit the road now that I'm actually allowed to have gone -- do the traditional farmer meetings that I haven't been able to do for a few years. I mean, my observation would be, we've sort of got 2 categories if you like. So a good indication of one of the challenges around expansion is the guys that are looking to expand or acquire dairy cattle, they're hard to find. So that -- so we've got -- on the one hand, we've got people that are thinking about expanding and getting sold -- getting good market signals that they can be confident, as you say in favorable conditions. And that's 1 category. And then on the other category, we've got the people I mentioned earlier that are close to retirement, the circumstances now as good as they've seen and unfortunately, that is that being then -- be excited they're thinking if they don't have succession plans in place, they're seeking -- they look at land prices, they look at cattle prices and they think this might be a good retirement. So one of the things that is impacting the industry is, as I mentioned earlier, the fact that to that. I think we've got a component growing, but it's either people saying I've never seen land prices like I've never seen cattle prices like these, I might retire completely or indeed, I might flip my dairy to beef. Now I think those of us that have been around a lot stick with our knitting because we know that dairy is more traditionally stable than beef. But yes, so I've got a couple of competing teams that make me hesitate in saying I think we'll get good growth in the industry. There's no question we've got confidence in our farmers, but growth is -- it's been a little hard on the farmer, we wouldn't expect growth this year and we haven't seen it. Now some of that was weather conditions, Jonathan, because we had a very wet start to the season that did affect a number of things.

It's worth -- sorry, it's worth adding also there, Jonathan. One of the major levers for farmers has been -- that will come online soon will be just availability of labor with the borders opening up. That has been a significant challenge with -- as you've seen across our entire supply chain and it is very evident at farm gate and that availability of labor. Moving cows has also been quite a significant contributor to that decision around production. And it's pleasing to see just even this week seeing students at universities and then pooling back into the country. So it's a time when we've got record low unemployment rates, that is a challenge. But hopefully, we'll start to see some relief with people returning to [indiscernible].

All right. Great. And look, maybe just one to round it all up. If COVID or Omicron hadn't happened, I mean, would you still be comfortable with the initial $56 million number that BDD was going to do plus the synergy target, which I think was $41 million, which would have been up more than $90 million, I guess, on a pro forma basis? Because it looks underlying that you've actually gained a little bit of share in some of the categories, particularly cream and juice. I'm looking through your numbers in the 6 months. And really, it's being COVID more than anything else.

Yes, we would entirely agree, Jonathan. I mean, I think, yes, we would have been probably more than confident. If no COVID even without Omicron. I mean really it was quite frankly, and I'll ask Paul to add something in, but quite frankly, I think the rubber band was stretched as tight as you could stretch it in terms of the cumulative impact of COVID. And when Omicron hit, it just -- there wasn't any more stretch left in the rubber band and that's why I think plenty of people sort of commenting that December, January period and -- was really -- it hit hard might be the right way putting it, Paul, but I'm not sure whether you'd like to add anything.

Jonathan, what you've asked about and what Barry just responded to is the main aspect of this. But back to David's earlier question, we are seeing commodity prices continue to saddle up. And that's something that we're just -- I would just qualify the answer with that comment, but that's something that's putting a bit of pressure. But I would say on that, that we're -- as I answered in response to David's question, the market and the supermarkets, there's that expectation around inflation pressure and price increases is reasonably well sort of established. It's going to be challenging, but it's not a significant fight like it would have been previously with price increases. But we are seeing that pressure continuing, and that will be our challenge, but one that we are much better placed to deal with than we were 6 to 12 months ago.

Your next question comes from Paul Jensz from PAC Partners.

I think it's mainly to Barry and maybe on to Pete, is there was a review, and I think it's probably unfair question to ask at the moment with all of the short-term issues going on, but there was a review across the supply chain, the cold supply chain and so on, and whether that has been completed and whether there's some initiatives going to happen in the next sort of 6 months or so apart from the CapEx programs Pete outlined.

Yes, look, Pete has been leading that review. So I'll go straight to Pete. But we've continued to work on it, Paul, and probably fair to say pretty positive about what we think the opportunity is. I'll turn over to Pete.

Yes. So Paul, we've focused on -- I guess, the key areas we've looked at has been around successful cost, and we've been at RFP for sort of 60% or 70% of our network, and we've got some very successful results there that will kick off in FY '23. So we're very pleased with that just from a pricing point of view and just looking at how we do things a bit differently with the some of our partners, which has been very good. So that will be a good step change. The other 2 things we've been doing is we've been looking at automating our DCs. So as you know, our cost to serve the route market probably isn't quite where we want it to be. So we've had to go to the [ Board ] submissions to spend some CapEx and a couple that, the DCs to reduce that cost to serve, which we think will give us sort of a much better offering for our customers. And then the other piece that we're looking at is around sort of the front end, and we're actually just conducting a review of our digital strategy and how we engage with customers. We're using pretty old customer portals. It would be fair to say that our customer experience there is not great. So we're currently working with a third party to review that, what that needs and look like for our customer experience to be sort of best-in-class. So they are the 3 areas we will get a good hit on pricing next year. We're really happy about. We've got the automation of some of key DCs happening. And then we've also got sort of leading to a digital strategy. So they are the key areas.

And Paul, it's worth noting too because I know we'll have some of our conventional colleagues listening to the call to point out that a big push from Pete and I is around just expanding around business development and expanding our product portfolio through that channel and also just developing a new customer base because that's where we see the significant opportunity and that can be extended into third-party products as well. So operating a 4PL through that network. So lot of opportunities. They are, I think it's fair to say sort of longer term, some of those. Certainly more tactically something that we've been able to trial reasonably successfully in Victoria before Christmas, notwithstanding the disruptions. And that's something that we'll look to roll out across the rest of the country. And just some good momentum driving behind that with. In addition to the 3 initiatives that Pete outlined positioned us really well in that space.

And Pete, with those costs at 60%, 70% that you've looked at. Is that both, I suppose, the property costs and the operating costs? Or is the property review on top of this?

Sorry, with the COVID costs or...

No, it's just you talked about the 3 areas of review costs, automating DCs, front end. I'm just wondering where the -- I suppose, the property rationalization side might result?

Around DCs.

I mean, you've got a lot of manufacturing sites. You've gone from having, I suppose, 4 major sites many years ago to now sort of 25 plus. And you've gone through a crisis, so you don't want know what waste the crisis, as Barry has said many, many times.

Yes. So certainly, part of the cold chain network we have rationalized some DCs we've sold a few. And there's a very small amount on our normalized result for that, just a small profit on sale, but we've sold several DCs, and we continue to sort of consolidate that area. Barry, I don't know if you want to talk about facilities?

Yes. So I guess, Paul, the broader question you're asking around our property portfolio, if you like, and potential consolidation, that would be outside of work to Pete's talking about there. So that's obviously still something that we're -- we've got some thinking of some of that has been, if you like, in terms of what the operational center dealing with. We've given them a little bit of space to just make sure they can get through the challenges at the moment, which I think is what you're referring to in the beginning of your question and not put additional burdens around consolidation on them. But there are some opportunities to consolidate facilities, which we are -- which we hold under review, but we don't have any sort of -- we're not enacting any in the short term. And then the second part of the answer is in terms of the property portfolio. I guess, it's that standard answer that we know we have some solid options there. We haven't progressed at the moment. So they're all additional to what Pete was describing to you around the warehouse -- the warehouse review and our service review.

Good. And just the final question is just on the international sales. Because we used to sort of break them out in this segment and talk about them. But I would imagine, Barry, I think you mentioned that from a logistics point of view, you've been able to service these customers. And with that service, I would imagine you can now grow, you've been able to go through this tough time and provide that service to the international customers.

So look, I'll let Paul comment. But yes, look, we -- and even the new platform of adding lines international albeit small business to what we had, it increased our offering to customers. And as we say, we continue to see it as important and an opportunity to grow. But Paul, I might get you to add.

It's been -- so for the most part, Paul, we've been able to continue with the service. And it's fair to say that in some markets and some channels, it's been more disruptive than others. And overall, for the 6-month period, although we don't separate out the reporting numbers, it has been a pretty challenging period in that period. But underlying the actual revenue number that we see in that international part of the business has been really good work done around the consolidation of the 2 international businesses with the Dairy & Drinks acquisition, which has got a strong retail focus particularly in Southeast Asia. So just the consolidation of resources and capability in that market is working really well. But we are facing, it does come back to David's earlier question, just some challenges with the immediacy of price increases and the lead time on that international business. So that certainly causes some challenges in that part of our business, which is just sort of resetting as we get into the second half. And Pete, I think as we look into FY '22, I think that will be well sort of managed and settled into the business as we look out. But the first 6 months, Paul, certainly, had a fair few challenges in that commercial front -- well in international business. But its main markets, some important longer-term business will continue to support, including markets like Japan, we've been able to service without too much disruption, but other markets have had some challenges.

Your next question comes from Mark Topy from Select Equities.

I suppose just first question, just if you can talk to the milk intake. Are you getting your share as sort of things stand at the moment in a competitive environment that you've alluded to? And I suppose a follow-on to that in terms of yield management, and I'm thinking particularly around the export side, being able to maximize the return in terms of commodity, the high prices, in particular commodities and give us some insights without flagging too much in terms of the sort of commodities you might have been producing for the export markets, whether that's going to crowd or elsewhere?

Thanks, Mark. Yes. So look, we've lost a little bit of milk this year, which we actually lost in the early part of the -- when the battle was genuinely on. So as I say, we still see that as very, very, very competitive, and we respond appropriately and only to offer -- to make a strong offer to our farmers. But on some occasions, we just decided that we can't justify the return or whatever else it might be. So we had lost a little milk. We're probably a little behind budget that I wouldn't say were sort of material or a substantial amount. But we would certainly -- I think like most dairy companies, we would prefer have a bit more volume than we've got. But in terms of -- and look, these are always challenges around being very responsible around pricing and knowing what's in front of you and taking a judgment about when and where the appropriate time is to get a good read on what we think the future market will be. And of course, when the market goes rapidly up like it has done, you can look very clever if you run out with a high price, but equally it's very dangerous if the market goes the other way. So we're really comfortable with where we are, but I would like to win some milk and have lost some milk in this period or in the year. The -- in terms of product and returns, Paul, I might just throw to you, but obviously, there's some solid opportunities in commodities at the moment.

I haven't seen anything like it before, Mark, in terms of the opportunities. And it's -- what's similar in your world with financial markets, typically we would say you take the stairs in the way up and you take the elevator down. It seems like someone put a lock on the stairway and everyone is just on the elevator these days because it's just been an extraordinary period of spikes and declines dealing with a tremendous amount of uncertainty. And what's really pleasing in our business is the increased flexibility that we have across our product mix to sort of realize value. And it's really important, notwithstanding the front end of our business around brands and where there's a significant growth opportunity. Going back to our business model, we don't lose sight of that bulk complex in our business and how that actually operates. Because having the ability to dial up, dial down in that space has been really important for us in that first 6-month period. And I would also say that if I go back even as recent as 5 or 6 years ago, we saw a really significant shift in the market where longer-term pricing commitments, and when I say longer term, we talk about sort of about 6 to 12 months, a lot of traders, in particular, who drive a lot of the volume were getting stuck with stock, particularly in the Chinese market at the time, and they were losing money as markets came down. So there's been a tendency to shorten up the commitments, and we talk about periods of closer to 2 to 3 months. So our ability to actually hold off and then actually respond to those market signals has been a real positive for us. What's been quite interesting to note is just how the different dynamics and the interplay between the different mixes around cheese, skim and butter and cream cheese, which continues to perform very, very well for us both domestically and in international markets. And just to add, one of the key benefits that we've got with the brand to get the 2 businesses is a significant opportunity we see in fresh cream. And our ability to shift between butter and cream in a regionally dynamic market is also something that we've been able to exploit in recent months, and we'll continue to dial that up moving forward. And I'm talking there, Mark, very much around the foodservice industrial market domestically. So not the consumer market, which is pretty stable and pretty fixed. But the ability to move volumes getting out of those industrial and foodservice market domestically through that Dairy and Drinks capability has been what are the benefits and the synergies that wouldn't be in the numbers that Pete refers to when he talked about the synergy benefits that we get.

And so that flexibility in managing your milk pull that includes perhaps moving milk from around regions now, maybe New South Wales or into plants where they can produce the maximum? Because I'm really thinking about that yield management that you're going to be exercising in the second half.

Yes, 100%. Look, there are some obvious geographic barriers around Northern Queensland, Tasmania and WA in terms of distance. But certainly, when we talk about Southeast Australia across to Adelaide and even up into Southeast Queensland. It's not an all-or-nothing scenario, but it's about how you actually optimize across the monthly buckets, but also the weekly buckets. And not just a cost straight milk, but also very much cream. So without getting into too much detail or [indiscernible] going into too much detail, the Lion business historically would have shipped a lot of cream around the country as it tries to optimize. We are able to do that a lot more efficiently with our much larger milk pool overall, but also the network that we have, particularly across the eastern states where you can actually optimize that within our own network and also ensure better and fresher products across that type of product list as well. So that's been good. And I should point out, Mark, while I've got you on the phone, [ mozzarella ] is not in a particularly good position at the moment. And I think that's off the back of all those factories that came on line of report a few years ago. But -- and I say that somewhat joking, but also importantly, just the ability to sort of dial up and down on that is an example of where we're doing a lot less than what we were a year ago, and we're pushing that into our product mix returns, which is significantly better.

Surely, don't get them all right. I do hear China is eating a lot more of the cheese pool. But just lastly, and perhaps on the farm gate, and obviously, Fonterra has put through their last latest price hike in New Zealand. I suppose my question is, do you see that flowing across into -- pressure into Australia, whether it be from Fonterra or others in terms of those sorts of price pressures now being applied on the farm gate?

So Mark, we -- as you would be aware, we did do a farm gate milk price review and we put through an increase in late December for our farmers. And interestingly, we've now seen that responded to. And in some cases, aggressively responded to, including Fonterra. So in the last week or 2 in Australia, we have seen a number of companies move their price. So yes, so it is flowing through and competition is heating up. And so we'll expect the competition -- there was already strong competition, but it has flowed through. So those signals that you're seeing out of New Zealand around commodities are also driving improved prices in Australia at the farm gate level. And we've just got to continue to keep that under review and make sure that we are in an appropriate competitive position.

[Operator Instructions] Your next question comes from Evan Karatzas from UBS.

I sort of -- I get the 1H, 2H SKU for the branded business. You made that pretty clear. But just with bulk. Obviously, typically, it's been a pretty significant first half sort of earn on business, I guess. But just given the run-up in those dairy commodity prices, so bulk earnings and revenue should be pretty evenly weighted at least? Is that the way we should be thinking about? Is there anything else I'm sort of missing or we need to consider there as well?

That's more likely going to be the situation even -- and if you have a look historically -- and I'm going back probably over 10 years now and I think that, that period since then, we'll typically track the Northern Hemisphere market, and that will flow around the calendar year. So you'll typically see these cycles, and it's been one of the biggest challenges. Not as much these days because more and more milk sales in the domestic market. But certainly, if I go back 10, 15 years ago in dairy, the commodity markets globally were more dictated by what happened in the Northern Hemisphere spring and that sort of stayed the same for the calendar year. So we would often have a financial year of 2 halves sitting in 2 different seasons, if that makes sense. So we're certainly seeing that dynamic play out this calendar year and likely impacting the results accordingly. I should point out, too, though, that the -- there is a bit of a volume impact to second half, first half on milk volumes, which Barry alluded to as well just with regards to the season and milk supply being tight and competitive pressures. So that will have a slight negative effect in late second half. But overwhelmingly, that commodity pricing will certainly benefit us.

Okay. Yes, No, that makes perfect sense. And then just quick my last one. Just on the corporate or the unallocated line. I think it was about $7 million here in the first half. Is that a sort of run rate that we should expect into the second half, and I guess, going forward as well?

Pete, I'll throw that one to you.

Sorry, can I just get you to repeat that again, Josh?

Yes. So apologies. Just on the unallocated, the $7 million or just under $7 million of corporate unallocated. Is that a fair run rate we should use for the full year, and I guess, going forward as well?

Yes, that was about $7 million down year-on-year because we didn't have the $4 million or $5 million of restructuring costs in that last year that we didn't have this year. And then there's just been more of an adjustment around some wages. So I'd say double that is a fair run rate.

There are no further questions at this time. I'll now hand back to Mr. Irvin for closing remarks.

Well, thank you, everybody, for joining us, and thank you for the comprehensive questions. As we've said, I think throughout the presentation, I think many would understand the flavor of what we've been talking about. Clearly, some short-term challenges, particularly related to COVID-19 and the costs associated with it, some challenges around, some significant input prices that will require price realization on the one hand. On the other hand, obviously, record global commodity prices, the effects of COVID hopefully being largely behind us and letting us see the market open up and see some return to normalcy among our Australian customer base. So overall, we would sit here today saying still very comfortable with the strategic position of the company. I feel very comfortable with the initiatives that we've got in place to see continued improvement in business performance. Very pleased that we've been able to continue to execute those initiatives even with the challenges of COVID being around. And we see that we'll deal with the next 6-month period, which will no doubt have still challenge in front of us, but some opportunities as well and go into FY '23 with the business in good shape in terms of customers and brands and markets and indeed, the opportunities that we might find there. So thank you, everybody, for listening, and I look forward to catching up with a number of you soon. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.