Bega Cheese Limited (BGA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Bega Group Half Year 2025 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Barry Irvin, Executive Chairman. Please go ahead.

Thank you, and thank you, everyone, for joining us for this half yearly results conference. I have to say that I'm very pleased with how the first half of the year has gone. And while I'll give you some overview, I'll then hand to CEO, Pete Findlay; and CFO, Gunther Burghardt, to add more detail to the report on the first half result. I think -- and we will tell you for those following along in the presentation that's been issued, we'll tell you which page on. So I think for me, I might move straight to Page 3, which really talks about the long-term strategy of the company. And what I would probably say personally is that, I think when I joined Bega far too many years ago to mention there were 60-odd staff with 1 small factory that produced bulk product in Lagoon Street, Bega and indeed, the plant was about 30 years old that we were producing that in. So it's certainly been a transformational journey for us. I think we talk about building, expanding, making sure that we get the right balance and then building on the strengths that we have. And really, my strong view is that, we've executed that very well over an extended period of time. But -- and importantly, we're starting to see the benefits of that in the results that we're presenting today. That effort of always knowing the key requirements that this business needs to be successful is very much demonstrated in this first half result. We know that over time, and we do always very appreciative of the support we've received from investors over sometimes difficult periods, whether that was a period where we were seeing a very large disconnect in milk price to global commodity returns. We needed to refine the business, but we did that, and we knew that, that cycle would correct itself, and that's demonstrated in this result. And, of course, the really strong strategy of becoming a genuine branded business, investing in brands and making sure that we were investing in brands that were leading brands is continuing to yield for us even in very difficult economic circumstances. So if I was to go to more specifically the result we have on Page 4, as I mentioned, this first half result does demonstrate the successful implementation of the strategic plan that we've shared with investors over time. The brand performance itself has been driven by a focus on key categories and actually savings programs because, obviously, everybody would be very aware of the cost of living issues that we have in Australia, and indeed, that many of them are global. So it's been important that we've had focused promotional programs that we've had really strong cost out programs that has meant that those -- that our brands continue to perform well, as mentioned, and we'll go into more detail later. It has been good to see the bulk business recover as there has been now a better alignment between Australian farm gate milk prices and global commodity prices, but also we have refined our commodity business and done that both in terms of site capacities, but also in terms of the products that we are producing. We do believe that we've got more opportunities within our own footprint at the moment. So we think there's more refinement to come in terms of our assets and our footprint, and that's -- I think that's exciting for us. While we will see that we expect to be successful in the marketplace. We also know that we can continue to improve this business by things that are directly in our control. The financial performance for the first half, it was a strong cash performance. It helps us. Obviously, the leverage that we now have allows us to think seriously about both investment internally, as well as any external opportunities that we may identify. And that strengthening of the balance sheet has occurred even further this year with an improved leverage ratio. We've seen revenue growth again, which is, of course, always important. And we're seeing that, although slightly muted in the branded area, strong in that refinement of our bulk business. First half normalized EBITDA of $110.3 million is a substantial improvement. It's a $33.8 million increase compared to the previous year. And our statutory NPAT also a strong improvement, probably best demonstrated by Slide 5, which actually always nice to present slides that have green ticks on each box. And for those that are following on the presentation, we're seeing our performance be as we would expect it to be within this first half, a little stronger performance than the market might have expected. I won't dwell on these slides individually, except to say that we're pleased to be lifting our dividend. It's been -- I think shareholders have been waiting to see some benefit from our improved performance. So we're pleased to be lifting our first half dividend to $0.06 per share and also pleased to see that our basic earnings per share is improving strongly, particularly from a normalized point of view. From a statutory point of view, last year, it did benefit a little from the sale of some assets. But from a normalized point of view, a very strong improvement in earnings per share. So look, that's probably me, an overview. I will come back at the end of the conference for some closing remarks, but very happy to hand over to Pete Findlay for his discussion and comments. So Pete, over to you.

Terrific, Barry. Thank you very much for that. If we just move on to Slide 7, which talks about our vision and purpose. We usually touch on this slide at each presentation because it is important to us. And it's probably just worth calling out our purpose, which is really about creating great food for a better future. And, I guess, what that means to everyone within the Bega business and the Bega Group is that, we need to ensure that we provide food at the highest quality that meets the needs and high expectations of our customers and our consumers every day. And nothing has been truer than trying to do that day in and day out this first half where we've had a fairly constrained and challenging environment. So it really has been getting back to basics and making sure that we just do everything right, get our die plots right, deliver high-quality product at a very affordable price, which is really what the consumer and our customers have been looking for. And that's something that the leadership team at Bega tries to permeate throughout the whole business. And so, that's really been our ethos throughout this first half. And I think reflects our ability to actually grow the business in a reasonably challenging environment. If I just move on to the next slide, Slide 8, which talks about our 2028 strategy. And as we come through almost the second year of that strategy, second year of a 5-year outlook that we set in front of the market nearly 2 years ago now, we still feel comfortable with where we're heading. We carved our strategy out to 6 key pillars. We still think they're very relevant. We're happy with where we're at as part of that strategy, and we see our way to hitting our 5-year objectives. So the management team is still very comfortable with the direction we're taking. And that was really around the first one there, protecting and growing our core grocery business, continuing to innovate around our 8 power brands, leverage those brands, leverage our scale and our distribution and really meet the high expectations that our core grocery partners are putting on us, and then having that flow through to a good consumer experience. And so, we've been able to work really hard in that space. We've come up with compelling offers. And I think we've moved our brands with the key value drivers or the key drivers that our consumers have talked to us about. So we're pleased with that. Winning on the street was obviously doing well outside of that core grocery business in places like food service, unstructured trade, QSR, government institutions, cafes, et cetera. And we think that we're making good progress there. And we're still reasonably buoyant about the potential in that part of the business despite the fact that we've seen some headwinds in out-of-home consumption. But we still think that there's a real future for us in that space over the next 3 years. Obviously, as Barry just alluded to, streamlining our sites was very much around gaining efficiency, optimizing our productivity and our cost footprint. We've made some terrific inroads there in the first half of 2025. The great news is that, we see significant opportunities over the next 2 to 3 years, and we will start to allocate capital to those. We really like some of those opportunities that we think can play out. And in fact, some of the things we've already got in training. I'll talk about those a little in a minute. Sustainability continues to be important for us to meet both our customer and community standards, which we continue to do. We certainly don't want to be laggards and be penalized for not doing that. We're also trying to ensure that we don't rush ahead into uncommercial scenarios. But interestingly enough, there is a bit of change happening in that space, particularly around packaging at the moment that we remain alert to. Obviously, securing our solids was really around ensuring that we were able to obtain the solids through our dairy network that we needed to continue to grow our branded business. And it'd be fair to say that's working for us quite well. I'll go into a little bit more detail around that. But interesting enough, we actually have seen milk pool stabilize over the last couple of years and our milk intake is forecast to be slightly up this year, which is terrific. And then, obviously, our international branded opportunity, which continues to excite us around North Asia, Southeast Asia and the Middle East. And some of the wins we've had there, we continue to be very bullish around that part of the market over the next 3 to 5 years. So excited about what that might bring. If we look at how we've gone against that strategy. So if we just move on to the next slide, our highlights, which is Slide 9. The market has changed since we came out 2 years ago and spoke about what we wanted to do. The Australian consumer or Australian consumer sentiment has definitely taken a hit in the last 12 months. And that's impacted our business in a number of ways. We've seen a significant channel shift with out-of-home consumption declining, a lot of people shifting back into consuming at home. That shifted volume back into that core grocers. But then within that, that grocery channel, we've seen volumes shifting into retailer own brand and also into some of the more traditional discount retailers being Aldi and Costco in particular. So some significant shifts across those channels. And I've been really pleased with the way the team has managed that. And as I said, the fact that we've been able to get growth in our branded business with all of those shifts, I think it has been a really strong outcome in this challenging environment. We actually don't think that, that volume will change over the next 6 to 12 months. But we continue to be comfortable and confident in the way that we're managing that. Interesting to note that, dairy retail actually had billings accretion by up to 1% during that 6 months. So once again, our growth in that sector, we're really pleased with, and we think we're well equipped to continue that growth in the second half. So if we have a look at it how you battle a constrained environment, obviously, you continue to innovate, and we had some terrific innovation happening across the first half, once again playing into those key consumer drivers. So we had high protein offers across Dare and Farmers Union Ice Coffee, which have been incredibly successful. In fact, the Dare protein launch is our most successful dairy launch to date. And so, we're very pleased with that. We had strong growth in better-for-you offerings around lactose-free and no sugar added, in particular, no sugar added in our Dare intense range, which is also excited with the growth potential there and lactose-free and Farmers Union Ice Coffee has continued to be very strong. And then some really good innovation around our yogurt offering. So we were able to -- we always sort of thought there was an opportunity transitioning from our infant yogurt or children's yogurt into adult yogurt. We felt that there was a play around adolescents, and keeping strong yogurt consumption in that adolescent age group of demographic. And so, we've had a very successful launch of YOP under the Yoplait brand and the Farmers Union no added sugar, high calcium children's offering, which is continuing to go from strength to strength. So some really good innovation there. And very pleased about the innovation we've got planned for the second half. I won't sort of talk to that just yet because of the market sensitivity of it, but we've actually got even more innovation planned for the second half, which we're particularly excited about, particularly in yogurt and milk-based beverages. Increased investment behind our power brands. We thought it was really important in an area where there was a lot of organic growth to really go hard behind our large power brands. We actually increased our A&C spend in the first half compared to the first half last year by a couple of million dollars and continue to really focus on those 4 power brands, particularly around Dairy Farmers, which was -- we had a significant campaign, the OOMPH campaign, which I'll speak to in a couple of slides' time and also just reinvigorating our Dare branding. We've actually been dark on Dare for about 18 months. So it was great to get that back out there and talk about the benefits of Dare being a healthy high energy option. And we also extended our licensing opportunities with Vegemite and Zooper Dooper. One of the key thematics we're seeing globally is the collaboration between power brands from different organizations and where we see the consumer goods growth being fairly challenged globally, there's real opportunity for large brands to come together. And we've also collaborated with other brands in our private conference and as I said, we've got a couple of exciting launches happening in the second half. So that's becoming a key sort of lever for us to pull within that branded piece around strengthening our brands, but using other brands to also drive demand for our products. Really pleased around our bulk segment agility. So, obviously, the bulk segment has bounced back. That's happened through a natural realignment of the farm gate and commodity pricing, but it's also happened because of the terrific work that our team has done around being able to swing into some high-value fat products. We've seen a real lift in commodity pricing around fat value and also transitioning our protein business into higher value protein streams. So natural fat skim milk powder hasn't really driven a lot of the GDT offering. It's gone reasonably sideways. So the ability for our team to utilize those and see those opportunities in the fat market internationally, particularly around butter and cream cheese and move into high dairy protein concentrates has been a really good performance on their behalf. If we just move on to the next slide, we continue to be really happy with our branded international business. Southeast Asia continues to do well for us around yogurt, cream cheese. And we're thinking about how we align now our operational capabilities with those increasing demands over the next couple of years, and that will probably drive some of our CapEx moving forward. We've increased our on-the-ground presence in those countries. So we've continued to hire more people in Southeast Asia. We've now got offices in Malaysia, Singapore and Thailand, and we've recruited a marketing manager for that part of the world. We brought in place some chefs, and we're doing a lot of on-the-ground selling. And we've also restructured our Middle East sales team. We put in place a sales team directly working for Bega rather than using agents as we have in the past. We're hoping that, that will resonate better with the local market. And we've actually started going direct to key retailers in China, which has been really beneficial for us. So direct into retailers such as Sam's Club, Costco [ equivalent ] and getting some really good wins with our yogurt business there. We continue to work hard with our foodservice business. So I did at the top of the presentation, talk about the fact that out-of-home consumption was on the decline, but really pleased to see that we've actually been able to grow our foodservice business by capturing market share. And that's been particularly across areas like cheese, cream cheese and cream. And that's been in a situation where we've actually had a couple of headwinds because the 1 area of foodservice were strong was actually white milk. So we've seen pressure come back against that, we've actually been able to more than offset that with strong growth in those other areas. And also, we've seen a real mix in QSR. So our total QSR business has taken a bit of a hit. So a foodservice growth of high single digits, low double digits has actually been excellent when you consider the mix movements that have been happening within that sector. And we're really pleased about that and continue to be bullish about the level of growth we can get there over the next couple of years. In a time of low growth, it has been particularly important to get productivity gains. And so, our value creation initiatives, as we call it, across the business, we meet on this every month has been substantial and tens of millions of dollars. And some of that has been through the continued refinement of our sites. We obviously sold our Leeton site and did a long-term supply agreement with an excellent partner. They're putting significantly more volume to that plant and actually delivering us cheaper unit cost on the juice we're buying out of that plant, which has been great. It's also avoiding CapEx for us and allowing us to slim out our overhead footprint. We've consolidated the 2 Tasmanian dairy facilities into our dairy plant at Lenah Valley, which has been also very beneficial to us. And we continue to look at our logistics sites. So I'll talk about that in a couple of slides' time, but reducing our fixed overhead footprint of our logistics sites to get more variable costs into our logistics and distribution network has also been significant and helped us create a real benefit and cost to serve, which has obviously helped protect our bottom line in a highly competitive environment where we've had to fight for growth often through promotion. We see our Laverton warehouse project continuing to go well. And that's a $30 million investment that will provide a 3-year payback when it comes into play at the start of 2026. So that continues to go well. And as Barry said, we continue to see some really large bricks that will play out over the next couple of years in this space that will continue to drive significant productivity improvement for us. So we're very happy with what's happening there. Let's just move on to the next slide around consumer trends. Key thematics around consumer trends continue to be the same. So there's 4 key trends that we look at, better value, functional health, the demographic evolution that's happening both here in Australia and in Asia and sustainability. What I would say though is that, over the last 6 to 12 months, we've seen better value and functional health probably overweight against those 4 trends. And if anything, better value has very much come to the front. And so, we've had to react to that. Consumers are looking to potentially trade down either into retailer owned brand or crossing the retailers like Aldi and Costco. They've seen a desire for increased bulk pack sizes and sharper entry points in the categories. And whilst we've seen that, we've also seen probably a heightening in premium indulgence opportunities. So we've probably seen a drift away from the middle. Health and wellness continues to be really strong. Protein is massive and is one of those key macronutrients that retailers are looking for. We think they'll continue to look at trends around gut health and how that plays into brain health and how that then plays in better sleeping patterns and feeling better as they wake up each morning. We're seeing personalized health starting to play out. So people are now looking for -- as they're becoming more aware of their personal health needs, they're looking to find items that will meet those requirements. So whether it's calcium, stronger bone health, whether it's protein for muscle enhancement or whether it's fiber for all the digestive systems, that's all starting to play out. And also one of the other trends that we continue to watch is the impact of weight loss drugs. So significant usage of those is data that's talking about weight loss drugs currently being about 10% of the U.S. population and the impact it has on eating regimes for people on those drugs and eating regimes for the families of people on those drugs. And so, with significant weight loss, we're seeing some really good health benefits for that, but we're also seeing the need for protein as well to continue to build muscle mass around that weight loss to counter some of that weight loss that's happening. So they are all trends that we continue to think about. Obviously, demographic evolution, aged care opportunities, I sort of alluded to that, too, and that sort of links into functional benefits, how we're thinking about the aged population, their specific needs. And then that boomer population, Gen Z population as they enter their 20s, what they're looking for to make sure they're setting themselves up for sort of healthy 30, 40s and 50s and smaller household formats, which is playing into our pouch piece. So that sort of sounds like it's in conflict for value, but in actual fact, we think they're running along in the middle, and you've just got to be aware of them. Sustainability probably come off a little bit. So we're getting strong sustainability focus from our large retailers, but we're finding the end consumer probably not quite as plugged into sustainability as what they might have been a couple of years ago. We think that's timing and that will come back. So we continue to look at that moving forward. But -- so they are the key consumer trends. The next page, if we just move to that is really around our brands, and we continue to hold good strong positions. This information is only for our brands as they sit in core grocers. It doesn't show the impact or the play we've been having around retailer owned brands or in fact, the significant growth we're getting from Aldi. But it does show that our brands continue to play out in good, strong categories across the retailers, and we continue to focus on those core power brands. Obviously, still make up 70% of our portfolio within this part of the market. And we still feel really happy with where those categories sit and the fact that they have enduring appeal and they're able to sort of perform pretty well in this environment. If we move on to the next page, just around our innovation. You'll see there the shift into high protein. We've been really happy with that Dare protein launch and protein iced coffee. We continue to ramp up our protein credentials in yogurt. You'll see a lot more activity of that happening over the next 6 months. But that's play as an everyday affordable protein piece. Lactose-free continues to be important. It's what creates permissibility around dairy. We're actually seeing probably a slowdown in plant-based milk in the U.S. and in parts of Europe, which would indicate that lactose-free is actually starting to lift the permissibility of dairy, which we're quite pleased about, and we'll look to see how that plays out in Australia. And then, obviously, no sugar added continues to be a key theme. And we put no sugar added into our bulk formats for dairy, and we've seen a really nice uplift with families being happy to have that in the fridge. Value drivers. We had a shift out of orange juice into other juices just because of the significant increase that we saw across the cost of orange and orange concentrate. And so, it was really important to transition our Daily Juice brands and our Juice Brothers brands into affordable price points around non-citrus juice. We went to 3-liter sizes as well in orange juice, which is performing strongly for us and bringing some of those sort of fun rainbow flavors that normally would be consumed at petrol service stations and convenience outlets back in the mainstream retail and [indiscernible] brand offering. So you'll see that the Masters Spearmint is an example of that. Obviously, transitioning into the Bega brand into processed cheese to help strengthen our offering around processed cheese. And then with our foodservice offering, actually being able to offer products that, not only is produced with Australian solids, but international solids to help price points there and remain competitive in that space with some of our competitors. So doing a lot of work around value and a lot of work around functional health. And you'll see some really nice activity when I talk to you about our year-end result that plays out between now and June. So if we just move to the next slide, core brand growth, real focus on staying in the consumer space in light of tough times. So we've had some significant campaigns. We've done our first umbrella campaign around Dairy Farmers. It's celebrating 125-year anniversary very, very shortly. We had the OOMPH campaign celebrating Dairy Farmers as a great white milk, flavored milk and yogurt brand and the fact that it plays out around functional benefits and has an everyday use of Australian households. Obviously, we went live on -- it was a big Dare campaign and really focusing on Dare being a high energy solution that has -- that is better for you. And so, the Dare Fix'll Fix it campaign has been launched on TV and large media. And then a real push around our Peanut Butter. We haven't done core Peanut Butter voice for about 6 years. And so, to really get back into that space, talk about the functionality and everyday use of Peanut Butter across a number of applications. And with the Sanitarium peanut butter offering coming off shelves, we've seen some really good growth there, and we're really feeling good about that spread space. Just on to the next slide, you'll see there -- we've been doing a lot around our manufacturing network. So the sale of our Leeton juice plant, which I talked about previously, we have got our 2 strategic -- we have got our 2 PCA plants under strategic review, and we hope that we'll have something to talk about at year-end. Once again, we think that, that will continue to create benefits and efficiencies for our business as the Leeton juice plant did. We've actually reduced 25% of our cool rooms at capacity since we bought the [ Betta Milk ] business in 2021, and we're now down to below 100 cool room sites, which has actually helped create far more variability in our logistics footprint. And we're confident we can actually get our cents per liter delivery down this year in an environment where costs have continued to rise. So super pleased with the work that's been done by our logistics network team there, done a great job. And that combined with our new digital offering, platform offering that we've generated, improving our minimum work quantities and dealing with our customers better and getting more density around our delivery networks. We're really -- we've seen some terrific cost to serve benefits there. And, obviously, we've completed the consolidation of that Tasmanian footprint. So if you think about Canberra a couple of years ago, the 2 sites out of Tasmania, the Leeton site and potentially the 2 PCA sites, we continue to do an enormous amount of work around that footprint and driving a more cost-effective business. And given over that time with the work around those sites, our volume has actually gone up. So that gives you an idea of the efficiency that we're driving through our network. If I just move on to the next slide. Pleased to see our farm gate milk price come down to the Australian commodity price index. And in fact, it's actually in the last couple of months, the Australian price commodity index has actually risen above our farm gate milk price on that index. You'll see there though that, that's why we did actually open with a reasonably aggressive farm gate milk price given where our commodities were at the start of the financial year. And so, the fact that we burst through that, we think that it reflects that our opening price is probably about right. We obviously did a step up a couple of months ago. We feel that we're probably in the right space for this financial year around our farm gate milk price and our commodity prices. The GDT continues to be a little bit -- bounce around a little bit. We've seen a large shift happened in the last couple of months. But in actual fact, we think that the European and U.S. productivity will probably respond, and we may well expect that those commodity prices come back over the next 6 to 12 months a little bit. But albeit we're still really happy with where global demand is happening for dairy. But we're just cautious around where that's bouncing around. But we're certainly happy with where we're at the moment. We're not at the highs we used to be in our bulk business, but we think we're at a pretty sustainable level and that leaves us with some opportunity to continue to invest there to continue to create even more stability around our earnings for the future. If we just move on to the next slide. That's really around our sustainability. We've launched our new strategy. What we've done is, in the past, we've talked around a lot around our ESG commitments, which we continue to be really positive about, but we've now embedded that under a sustainability strategy that really talks about circularity and how we can become a more circular business, and that comes on the great work that the Bega circularity co-ops is doing and our involvement with that. We also talk about our impact on our communities and how we collaborate and work with others. We still remain very comfortable around our carbon footprint emission targets and where they're heading by 2030. And we continue to work to meet our packaging commitment. So we were very comfortable with where we're at around our packaging commitment and that 95% recyclability of product. But what I would say is that, the packaging space is evolving quite dramatically at the moment. We continue to keep a close eye on it, and we have a team that monitors that. And as that evolves over the next year or 2, we will continue to make sure that we meet all those requirements. And, obviously, our diversity targets, our water and waste commitments, we're comfortable with at the moment, too. So it continues to be a really important part of our business. We do want to meet our community and consumer commitments and expectations, and that's something that we're working towards. So look, what I'll do now is, I'll throw over to Gunther to talk about the financial performance. Thank you.

Thank you very much, Pete. And I'm on Slide 18, which is the financial key messages. And as Barry and Pete highlighted, we've got a normalized EBITDA of $110 million, which is up 44%. But what I really want to do is to unpack for you a little bit of the movements in the branded business. And our branded revenue is a little over $1.5 billion in this first half of the year. And I want to sort of look at the levers of the P&L that resulted in our 8% growth in branded EBITDA. Let me start with that sort of revenue line. Now, as Pete mentioned and Barry as well, very challenging consumer context out there. And so, pricing was not a big part of our revenue growth. And in fact, to be transparent, we had less than 1% pricing growth in that first half of the year. And so, the impact of price on our branded business is about $15 million, which is just under 1 percentage point. Volume also grew 1% in our core brands. And when I say core brands, I want to remind everybody of one thing. Within that $1.5 billion of branded revenue in the first half, 3/4 of that is what we call Bega brands, our core brands, and Pete talked about the several core power brands. So those are the Bega owned brands, and they make up about 3/4 of our revenue. 1/4 of our revenue is the third-party contract manufactured brands that we make for some of our customers. So I'm going to spend most of this time really talking about our core brands. So they had a little under 1% price, about $15 million. They had about 1% volume growth, worth about $4 million to us. So together, the core brands actually grew their revenue by 2%. There was still cost inflation. And I know that we're starting to see a little bit of deceleration in inflation. But in areas like labor, electricity, cocoa, coffee, we are still seeing some price increases, right? So on a headline level, cost of goods inflation was around 2.5% for us in our branded business. I think what was -- that would have been worth $30 million of cost increase to us. What I was really excited about in that first half, though, is the cost savings programs that Pete and Barry mentioned. They actually offset 2/3 of the entire inflationary impact. So our cost savings teams in manufacturing, in logistics and procurement, they've delivered over $20 million of savings in that first half of the year, and they've offset 2/3 of that cost inflation. So we're really down around 1% cost inflation, not 2.5%. And it was those really strong programs that really contributed to that EBITDA growth along with innovation, as Pete described earlier. Finally, even in a challenging consumer environment, with that strong innovation program and those strong campaigns that Pete talked about, we actually increased our marketing spend by a couple of million dollars in that first half compared to prior year. And as you see us launch even more innovation in the second half, you can be sure we're going to support that very well also. So that's how we get to the 8% branded EBITDA growth. For that 1 quarter that was sort of contract manufactured business, what happens in that is that, the revenue is set by Dairy Australia prices as we sell to our customers, and that revenue went backwards. But, of course, the cost of goods that we had in that area also went backwards. So there wasn't really a material profit movement in that contract manufactured business, but it does sort of have a negative revenue. And so, it's important to understand that as a separate unit. When we came out a couple of years ago at our Investor Day, we talked about our brand-led strategy. And by F '28, we wanted to have at least $250 million of EBITDA from our branded business. And we said to get there, we would need 6% or 7% growth CAGR in our branded unit each year to sort of deliver that. So it's pleasing to see in a challenging consumer environment that we've been able to keep on track to that 6%, 7%, 8% and post that kind of a result in the first half of the year. So hopefully, that gives you a flavor of how our P&L has moved in that branded business. In the bulk segment, Pete's already talked about strong fat prices in areas like butter and cream cheese. And particularly as we look at cream cheese exports, they continued to do very well in some of our overseas markets. And also that focus on higher-value proteins. I think the one thing I'll add to that, the bulk team has done a terrific job also of cost savings. Across the business, I've talked about the $20 million of cost savings that we had in the branded business. We've also had a few million dollars of cost savings in our already very lean bulk business, which has really underwritten their results and helped to deliver that strong turnaround. So kudos to the bulk team for delivering that. We have the sale of Leeton that Pete talked about, but you also see in our P&L a few billion dollars of normalized asset write-offs, which are outside of our normalized earnings, but within our statutory earnings. We had a program in the first half of the year where we eliminated over 150 products within our portfolio. It was a real effort to focus and simplify, make sure that we're focusing on the big products that matter to consumers. Let's take out ones that are smaller in their velocity and let's clean up the manufacturing facilities to make way for future launches and future innovation. So while the Leeton sale was responsible for sort of $3 million of the total normalized costs, the remaining few million of those normalized costs were noncash asset write-offs as we really focused our portfolio, and that's very much in line with our strategy. Down at the bottom, 1.3x leverage ratio. We do -- of course, in the first half of the year, we take in 2/3 of our milk or more in that first half of the year. So there's always a seasonal inventory build that was worth about $46 million of inventory build, and that occurs each year. But, of course, our earnings rose by the same amount since the end of the year. So our leverage ratio actually stayed in line with the end of last fiscal year in spite of that seasonal inventory build. So we're very pleased with the cash flow position and the leverage position as we finish that first half. On the next slide, you see Slide 19, which breaks down our profit and loss statement. And I just have a couple of comments on this one. Depreciation and amortization at $46 million is up a little against last year. And a couple of things to think about there. The proportion and timing of some of our IT spend was a little greater, and we've really benefited from that IT spend. We went live in that first half on our Bega business-to-business portal. And that's been very, very well received by customers that have now migrated to that portal. Now, when we do IT investments, they tend to depreciate on a 5-year life instead of a 10- to 15-year life that you might see in manufacturing assets. But we're certainly seeing the benefit in the growth of our business and the growth of our margins, and it really supports areas like that foodservice that Pete talked about earlier. So a terrific portal. What do you expect in the full year for depreciation and amortization? It will be a little over double that. So something around $92 million, $93 million is sort of a full year expectation for that. On net finance costs, you see $16.7 million, which is similar to last year. And one question you might have is, if your cash flows improve, which it really has and your leverage is strong, why isn't that even lower, right? And I think there's a couple of things just to note here. We have really 2 sources of financing. We have our core sort of finance facilities, which are shown in this net finance cost. And we also have our trade receivables facilities, which we always disclose very transparently in our cash flow. What we decided to do is, of course, is to draw down those trade receivables facilities strongly throughout that first half. The cost of those goes into EBITDA, whereas the cost of our core finance facility sits here in net finance costs. So very pleased to see that cash flow improvement. And I think at the full year, you'd see a little under double that number is what you should expect. Our tax rate is sitting around 24%, right, which is close to that statutory tax rate of 30%. And we did have some very strong R&D programs, which helped bring it a little below the 30%. So that's things like formulating new innovations. It's also R&D programs in terms of how we invest in our sites with new technologies and new equipment. So that's sort of responsible for part of that variation in effective tax rate. And at the very bottom there, you get an EPS of $0.118. That's actually greater than the entire $0.096 of normalized EPS we had in all of F '24. So pleased to see that result. On the statutory side, I won't spend much time on that. But as Barry mentioned, in the first half of last year, we did sell that Canberra site that had about -- that had a sort of a cash consideration of around $25 million and a pretax profit of $15 million. So that's why you see the statutory earnings growing a little less than the normalized earnings. On the following slide, which is Slide 20, you see key performance measures. I don't need to spend much time here, but I think that branded margin expansion of 0.4 percentage points, as I said, is very encouraging. And in an environment where pricing is not recovering cost inflation to see our margin move ahead, that really shows the focus on innovation and cost savings has really come through and allowed that margin expansion to occur in a limited pricing environment. As Barry mentioned right at the beginning, the $0.06 dividend shows the confidence in the company, and it's about 80% payout ratio on our statutory EPS. So very pleased about that. And, of course, it reminds us all that we have a strong bank of franking credits that allows very efficient returns to shareholders over time. I think the only other comment I'll make on this one is the strong movement forward again in return on funds employed. So you can see that good capital allocation, efficient CapEx spending. And at just under 8%, we're now exceeding our cost of capital, but we recognize that this isn't good enough. And in our strategic plan by F '28, we have to be at least 10% or higher in return on funds employed. So we're very focused on how do we continue to look at our footprint, how do we continue to look at our margins and our earnings so we get to that double-digit ROFE that we're targeting by F '28. That's a very important metric for us. The next slide, which is Slide 21, that simply depicts the EBITDA movements from H1 of the previous year to H1 of this year. And I think we've already talked through the 2 big levers there, the branded business growth of 8% and, of course, the recovery of our bulk earnings. I would say, our bulk earnings are probably still below some historical averages, but we're very encouraged that they're at least recovering, and they seem to be at a reasonable level now, which is good. Slide 22 lays out our segment performance. And on the branded side, you see 1% revenue growth. And as I've said, that's really 2% plus revenue growth on our core brands, but our contract manufacturing brands following those Dairy Australia prices lower. So that's how you sort of unpick those 2 parts of our branded business. Also, foodservice, double-digit revenue growth, which is really encouraging. And Pete talked about that a bit earlier. Milk intake up in the very low single digits, so encouraging to see that as well. And I think the final thing I'd say, unallocated overheads, you see that being very flat. So as a business, there's a real focus on how do we continue to have efficiencies in our back office and our administrative functions to try and make sure we offset that cost. And we're using some of those IT investments to help achieve those efficiencies within our business. It's encouraging to see that work. On Slide 23, a reconciliation of normalized results, and I talked about that a little earlier. So we've got on a before-tax basis, $7.7 million of our manufacturing footprint rationalization. $3 million of that is related to the sale of Leeton. And the remainder, as I said, is really about that portfolio review and focusing and simplifying our portfolio. And, of course, we write some assets off as we go through that simplification. As Barry mentioned at the top of the call, you can expect in second half or future years to see us continue to look at that footprint and bring those kind of rationalization opportunities. And it's great to see them building our earnings and building our cash flow. So expect to see more of that from us. The following slide is our balance sheet on Page 24. Not much to mention here. I think we've gone through the inventory build of $46 million. We're very pleased with that leverage ratio. And you see net debt moving up, which is essentially the inventory movement of $46 million. But as I said, earnings moved ahead at least as much as that, which is why you see that leverage ratio remaining constant. The final financial slide is on Page 25, which is our cash flow side. And I think it's important, as I mentioned earlier, you see on the third row from the top, we've really disclosed the movements in our trade receivables facility. So if I back up on that slide to the first half of F '24, we had actually increased our trade receivables facility slightly a year ago at $6.3 million, and we had a negative operating cash flow of $3 million. So if you adjust out that movement a year ago, it would have been a minus $9 million in that seasonal peak and minus $9 million cash outflow. If you do that same exercise here, $11 million negative operating cash flow, you adjust back the $35 million drawdown we did in trade receivables, the real underlying cash flow is $24 million positive. And to deliver that during our seasonal peak, where we take in 2/3 of our milk, that's very encouraging. So that's really what's driven our leverage ratio to maintain itself at 1.3x. I think the other thing I'd mention on this one is, you see us with $30 million of investments in PP&E and intangibles. And really, that's about growth. That's about efficiency. It's about IT for the back office. It's about business-to-business IT for customers. They were some of the key things that we invested in that first half. We offset 2/3 of that with sale of facilities. So the Leeton sale was over $11 million. And as Pete mentioned earlier, we've reduced 25% of our cool rooms over the last 4 years. Within that, we sold 1 in the first half of the year that was worth $7 million. So that all contributed to that $19 million of asset sales. So what you're seeing us doing quite regularly, and you've seen this over the last couple of years is, if there's assets that aren't really needed for our footprint or network, let's sell those and recognize cash and really have a focused and simplified network. And that's allowed us to offset 2/3 of our investments, which is great. When you look to the full year, what can you expect? We do intend to accelerate our capital investment program a little bit. And we're very excited, as Pete mentioned, in some of the growth and efficiency programs that sit in front of us. We're expecting around $75 million to $90 million of capital expenditure on a gross basis in the full year. So you see a little bit of an acceleration as we get into that second half of the year. And as I said, it's all about efficiency, growth formats and NPD, as well as that sort of IT investment that we're making. We do anticipate even with the step-up in CapEx that we will still achieve about a 1x leverage ratio at the full year. So that shows you some confidence that our good cash flow and leverage performance is set to continue. So plus or minus around 1x leverage is what we look at the end of the year. Back to you, Pete.

Terrific, Gunther. Thank you very much for that summary. So just in wrapping up and confirming the outlook that Gunther sort of alluded to there, we believe that we'll be at the upper end of guidance. We think that we've got some good momentum back with that volume in the second half. We'll continue to compete really hard and offer our large grocery customers and consumers excellent value at good price points with good innovation attached to it. The team have got a lot of value creation projects lined up, not just for the remainder of this half but over the next 2 years. And we continue to invest in those core brands and ensure that they're in good health so that as consumer sentiment turns, we can benefit from that. So we feel very comfortable with where we're going. As I said, it has been a pivot. It's been looking at different channels. It's been looking at how we can appeal and fight for shelf space and how we can manage margin. We think that we are winning and that we're on our way to achieving a 2028 strategic plan. I'd just like to say a huge thank you to everyone in the Bega team. As I said, it has been a period of driving cost efficiencies into the business. It's been an area of focus and having to demonstrate agility, and I thank everyone for their outstanding efforts in doing that. And just a thank you to our shareholders for their support during this period. So, Barry, I'll pass back to you. Barry, I think you're on mute.

My apologies. Thanks, Pete. Thanks, Gunther. I don't think there is much more for me to add, quite frankly. I think I would echo Pete's thanks to the team and obviously acknowledge the efforts of Pete and Gunther in leading that team. I think it's always important for me to make sure that we've got a team that is fit for purpose. And I think Pete and Gunther have demonstrated that, that team is indeed in place, not only in terms of their knowledge, but in terms of the executives and managers and the entire Bega team around them that allow us to continue on the path of executing the strategy. I'd add my thanks to the shareholders for their support and indeed, our customers and suppliers. This is a business that requires a lot of collaboration and indeed, a lot of agility, and we often see that, that agility extends just beyond our own activities and the activities we have with our customers and our suppliers. So I would acknowledge all of them. I think the presentation has been reasonably thorough. So I don't think that there's anything more that I have to add, but of course, very happy to go to questions.

[Operator Instructions] Your first question comes from Josh Kannourakis from Barrenjoey.

Barry, Pete and Gunther, congrats on the results. Just first one with regards to guidance. Obviously, a very strong first half performance. You've cautioned a little bit into the environment into the second half. But can you give us a little bit of an idea just in terms of some of the underlying assumptions into the second half, maybe just in terms of the farm gate environment, the volume environment and in the branded side as well in terms of volumes?

So thanks for the question, Josh. I'd say a couple of things. Pricing environment will remain very challenged in that second half of the year. And so, as Pete said, we remain cautious there. I think it's -- our branded results at $104 million in the first half. We see that being returning to sort of previous year's patterns in terms of the proportion of the full year that, that first half represents. So usually it represents just over 50% of the full year. If it was about 51%, that implies a branded result that's around $205 million, plus or minus a few million dollars, right? The other thing I'd say is, we've had a $2 million step-up in our marketing support for our brands and our innovation in that first half. And we see spending a similar amount to support our brands and innovation in the second half of the year. That would imply that the second half is also $2 million or $3 million higher than the previous year in A&C. So in spite of that consumer environment, you don't necessarily get a payback on your media right in a year. But when you're a branded company, we need to invest. So 2 things, continued [ pricing ] environment, continued success. We will continue to support our brands and that sort of $205 million, plus or minus a few million is a good estimate of where we see that branded business landing.

I think, Josh, just on commodity prices and Barry might want to add something to farm gate. But we have seen a last of the GDT report, this one just gone show continuing fat, continuing runs on fat, so butter and we pretty well have a cream cheese off the top of that high fat numbers are pretty good. Proteins come off a bit even as I think last night or the night before last that came off 3.5% skim milk powder. So we continue to watch reasonably closely. I think that Europe and the U.S. will probably respond in some format to that and that we might be seeing a little bit of now. But we stay close to that. And at this stage, we think we've got a handle on that and farm gate pricing going into year-end.

Yes, Josh, I think just to add a little bit of color to the farm gate pricing, I'd probably say that, we think we are where we need to be for the want of a better way of putting it. You saw in the lead up to the end of December, I guess, the larger players, Fonterra, ourselves and then a little later, Saputo, all moved their pricing. That wasn't responded to by -- if I refer to them as the second-tier players until relatively recently. So there has been a little bit of milk price movement by the second-tier players responding to what we'd actually done a month or so ago. We would say that -- and, of course, as Pete mentioned in the call, we had built in a lot of that commodity improvement in our opening farm gate price. And, of course, whilst we see it going above the line at the moment, the volumes that we have to sell are not enormous and not great. And so, we think our farm gate pricing is in the right place. It's competitive. It's where it needs to be. We're not expecting that there'll be further movement in farm gate milk pricing this year. But I think the environment -- and, of course, it's always a little too early to tell, but the environment on commodities and where demand is and where supply is, you might expect to see an improvement in opening prices next year for -- but I would say that most of those -- that improvement that you're currently seeing in the market will be reflected in next year's opening price rather than further movement this year.

Got it. That's super helpful. And then just second question. Obviously, you guys have been -- talked about the step-up and unlocking growth and some of the capital and efficiency programs. How should we think about, I guess, both the timing and the return hurdles you're looking about -- looking to get within the business for some of those capital investments, especially the ones happening across into the second half?

Yes. So we look at sort of 3-year payback or under, Josh, is that hurdle rate. And then, obviously, you've got a different view on cost out projects where there's probably a bit more certainty than growth projects. So we do try to align our growth projects as much as possible with our key trends in our strategy, high profit categories where we're experiencing growth now, but there's always a little bit of -- a bit more estimation in those. But we've got a nice blend of cost out projects wrapped up. I think that as we look at that, that will increase in the second half. But if we see opportunities now in our balance sheet in '26 and '27, we'll go after them pretty aggressively, particularly the cost out initiatives where we're really, really comfortable with those results and returns.

Got it. And just within that, do you see like in terms of the opportunity you see within the business, how much runway do you think you've got existing within that? You've obviously done a fair bit already, but within the broader business, if we think about things just staying still, how much opportunity do you see in terms of the sort of cost investment to sort of get that sort of cost out and efficiency continuing to grow?

I think there's significant cost out to go at that under 3-year payback. So, I think over the next 3 years, we'll probably get more cost out than what we've got in the first 2.

The next question is from Evan Karatzas from UBS.

Okay. I just want to unpack that 2H bulk. I mean, you did a good job with the brand, so that's perfectly clear. But with bulk, maybe just to start with the first part, can you just talk to, I guess, the FX benefit you've got in the first half? And then how you're thinking about the bulk earnings into the second half, just given it doesn't look like you're going to increase the farm gate price. It sounds like you've still got a fair bit of inventory to sell and, obviously, with this exchange rate being a pretty material tailwind as well. Just -- I don't know, just trying to get fully across all the puts and takes for that bulk number in the second half.

Yes, very good call. So commodities have gone up sort of 15% -- let's call it, 15% since the start of the year. About 6% of that is FX. So FX is driving a fair bit of that commodity increase. We've sold even about -- we sold probably 60%, 70% of our bulk product already. We've actually got -- and in some of our high fat areas with the high values we've actually forward solid more than that. So in actual fact, we're almost to a point where we'll have the year sold probably by March. We're reasonably comfortable with the revenue we're going to pick up and the profit margins we're going to pick up on that bulk business. The bulk business is first half loaded for a couple of reasons. The biggest one being that the recoveries through our factories are far higher during the spring flush. So our factories are far more efficient on a dollar per liter or dollar per liter converted basis. So that's why we tend to be front footed on a first half, second half basis around the bulk business. But we're reasonably happy with where that's at the moment. So with FX won't have too much of an impact on us between now and the [ year-end ].

Okay. All right. Let me just a quick follow-up on that. Like the last 2 years, you've seen the massive disruptions, the 2H has been loss-making. But if we go back, I don't know, 3, 4, 5 years before that, the 2H was a profitable year. Are we in more of that prior year's type environment where you should be profitable at the EBITDA level for bulk? Is that the way to think about it?

Yes. I think, Evan, that's a great question. And I'll sort of reasserting some of the historical trends. So we had $24 million of the EBITDA in that first half. And as Pete said, we've taken 2/3 to 70% of our milk in that first half, and that really the low unit cost you get from that spring flush. You would expect to get something like 3/4 of your profit in H1. So this year, I am expecting a small profit in the second half of the year in bulk. But we kind of think that the bulk outlook for the full year is probably in that low-30s kind of neighborhood.

And so, Evan, going back to '23 where you would have seen a significant lift in the second half in bulk, that would have been off the back of a very regular spike in commodity prices, I think, and that would be unusual.

Yes. No, no. That's perfect. I was going to ask one more. Just around with the cash flow headwind from you guys just unwinding that receivables. So first, I think it's a good thing for its worth to reduce those interest costs that you have to pay. When do you expect, I guess, that to stop being a headwind to cash generation? When does that reduction in the utilization of the facility sort of find a stabilization? Like when are you sort of expecting that, if that hopefully makes sense?

Well, listen, I think what I'd say is, a lot of the last 2, 3 years has really been showing that deleveraging that we've done as a business, focus on payables, focus on reducing unnecessary inventory or simplifying inventory. We still obviously have a utilization of that facility. But what I'd see us going forward is, we're assuming when we give a 1x guidance on leverage, we're assuming that the trade receivables facility remains pretty flat by the end of the year compared to the first half. That's our assumption for the second half of the year.

So it drops -- continues to drop dramatically.

Yes, that's right. And I think the only other thing I just wanted to mention, Evan, it was a good question on the bulk business. The other thing to remember is the price of the milk that we take in is a little different between the first half and the second half. And that's just because -- in that spring peak, you get some farmers that are sort of supplying commodity milk for us, and that's at a certain price. Farmers in the winter time, maybe in May or June who are supplying milk, they're obviously buying feed to be able to produce that milk. The cost of what we call flat milk that goes into a branded business is sometimes a little bit different than the cost of milk in that really big spring peak. So that's the other reason that you sort of see that first half waning of the bulk profit.

The next question is from Phil Kimber from E&P Capital.

Can you hear me now?

Yes, we can, Phil.

Sorry about that. I was just going to follow on around the guidance question. So you've given us branded and bulk. So to sort of hit the top end of your guidance, you're going to really need a big step-up in unallocated overheads relative to PCP. So can I just check that the first half is a pretty good guide for what you're going to spend in the second half on unallocated overheads because it has been quite volatile in the past?

Yes, that's a great question, Phil. I'd say a few things. Yes, roughly sort of double the number from the first half would give you a guidance for the second half. And I never want to discuss incentives on there, but Phil, last year and the year before, you asked us a little bit about how they impact that number. So that does cause some shifts in that second half. But I think if you double the first half number, you're not going to be far wrong. And remember that in the IT investments we've done, which has helped drive growth and has helped on our business-to-business portal. Much of that is capital expenditure. But in the new accounting guidelines, you always get a couple of million that are also OpEx in the new accounting guidelines. So remember that. That's within the kind of $30 million to $35 million estimate we have for the full year.

Okay, $30 million to $35 million. And then can I ask -- I know you're talking about the farm gate milk price, but no one ever knows what's going to happen and maybe people position ahead of next season. If you did have to step up again in the second half, typically, they're retrospective. So I just wanted to understand how the accounting works for that. Have you -- I assume you haven't provided for anything in the first half. So is that something like, I don't know, it's a bigger number, you go up $0.01 a liter or whatever the full year volume that applies to all gets booked in the second half. Is that how it would work from an accounting point of view? I understand that you're not expecting that to happen, but I just wanted to understand from an accounting perspective.

Yes. For the step that Barry and Pete talked about earlier, we actually do allocate to the first and second half when it's retrospective. And so, we would take that step up, which we announced, we would go, here's the amount that applies to the first half. Here's the amount that applies to the second half. The only thing to be aware is, in the first half of the year, we buy the milk, we apply the step-up to the amount of milk we buy. Some of that value sits in inventory. So it's not exactly a 50-50 split, but let's say, 1/3 of the value of the step-up comes in the first half of the year and 2/3 comes in the second half of the year, roughly.

Sorry, I'm just confused. You've already reported your first half results, so you can't go and change that. So if the cost just hit effectively in the second half...

So Phil, it would be -- your assumption is correct. There's no provision for a further movement in milk price, and therefore, it would be -- and, of course, the decision both in terms of how that milk price, whether it happens and in what form it happens is obviously within the company's control. Obviously, we're also in a competitive circumstance, which is what you're referring to. But yes, if -- and as we said, we don't expect -- if there was to be movement, it would basically hit our P&L for the full year, as it could. Yes.

Yes. Sorry, I wasn't -- and I'm not suggesting that you will. I just wanted to understand if. And then last one on the tax rate. Should we assume a sort of 30% rate, which was what you effectively -- your normalized tax rate was last year for the full year. Is that a good assumption? I know you said you had some R&D projects helping in the first half, but does it sort of unwind and so you end up with a sort of normal 30% type range? Or will it be a little bit lower this year because of those R&D projects?

It will get closer to that $30 million, Phil. And so, as Barry and Pete said, if we're in the upper end, and I just unpack the P&L for the upper end of our guidance range, let's say, that's somewhere $197 million, $198 million, right? You've got $93 million of DA. So EBIT is probably about $105 million, plus or minus a few million. You take off net finance costs sort of double the first half, it's about $34 million. So you're going to get around $70 million or so of PBT. And if you assume about a 30% tax rate or a little better, it should be about a $50 million PAT, plus or minus a few million.

Yes. And one last one, if I can, because it's been very successful with your international business. I know you talked a little bit about it. I think from memory, you might have said it might be round numbers, 10% of branded revenue. I might have that wrong. Correct me, please, if I have. Just a little bit more flavor around that because that seems like an area that is performing really well.

Yes. Look, it is -- Phil, so we think about that from -- we split between branded and bulk, obviously, branded revenue, your numbers are pretty much right. And we're getting nice growth in that space, and we're getting good profitability. It's good profitable growth as well. So we're really happy with that. We think there's still much more opportunity there. So if you think about the Middle East has been a place that Bega has played in for a long time, and that continues to go along well. But, I guess, what's really exciting at the moment is Southeast Asia. So just the transition of the people in the middle-class there, you're looking at markets that are now substantially beyond Australia with middle-class consumers. We sort of look at that with people who have got more than $15,000 a year to spend on food goods and places like Thailand, Malaysia, Indonesia and Vietnam as well, Philippines, those populations that we would compare to the Australian marketplace are sort of fast coming up for the same size or accelerating at a dramatic rate. So, we think it's really important to continue to play there. We've been quite focused how we do that in cream cheese, cheese and processed cheese and yogurt across those 4 areas. We're doing a lot of work on the Dare brand. And we think that, that hopefully, in 5 to 10 years' time, that's a really significant part of our business.

The next question is from Mark Topy from Select Equities.

Just first question, just if you could perhaps expand on the sort of the global supply and demand sort of backdrop? It seems though there's some question about the level of supply and also about Chinese demand perhaps coming back into the market. There's some like Fonterra have referred to. What are you seeing in terms of -- and you mentioned S&P maybe has traded flat, but whole milk powder and some of those other products if China comes back into the market in a bigger way?

I might do the supply side and let Pete do the demand side. I think, Mark, and these statements are all probably fairly obvious. I mean, we're obviously seeing that we saw a lot of growth in Europe when the supply caps came off for a number of reasons, but particularly some of the green deal implications for milk supply out of Europe is seeing that it's constrained to say the least, and it's probably likely to stay constrained. I think we would probably say that Australia is very -- is stable, which is good. So it will probably grow again a little this year, but not materially. New Zealand, probably a little the same. Generally strong response out of the U.S. to any price improvement, if you like. So I think while we would say supply in the most immediate period we're in is somewhat constrained, and that's why you're seeing those commodity prices start to move with some reasonable demand in there. We would expect that supply will respond. If farm gate pricing does improve, we'll expect it will respond even in some of those constrained regions, but it will particularly respond in the U.S. So I would probably say as it has always been, generally, the market sorts itself out for supply fairly quickly. You might be looking over a 1-, 2- or maximum 3-year period before you see a response either way. And -- but at the moment, I think you would feel fairly confident if you were producing milk as a supplier that there's reflecting in what we're seeing in commodity prices, you're seeing a reasonable -- a reasonably constrained supply circumstance, which you see that commodity price get stronger. It won't necessarily stay constrained for a very long period of time. It will start to rebalance as farm gate prices improve. But as I mentioned earlier, if circumstances remain the same, you probably going to expect to see some of that improvement in the following year, but that improvement will reflect those commodity prices. Pete, you might sort of talk about demand a little bit.

Yes. We've sort of seen China bounce back a bit recently. That's -- we would see inventory levels dropping in China to a reasonably low -- to a lower point. So I think they're probably responding to that. I wouldn't necessarily think that Chinese demand is back to where it was a couple of years ago where it was driving the market. I think that it's still a little bit constrained like the rest of the world. But certainly, they're responding to low inventory levels. I think the interesting, or the other interesting thing we're keeping an eye on is, cheese production out of the U.S. There's significant capacity coming on sort of really from now. There has been a lot of investment out of back of COVID around cheese capacity. So, I think that may have an impact on cheese prices. You've seen cheese prices doing reasonably well at the moment, but we watch that pretty cautiously. And I think at some point, HEPA numbers are a bit lower in Europe, but at some point to Barry's comments, I think there will be some sort of response. We don't know what the season is going to be like in Europe this spring, but it feels like there'll be some sort of response. So, I wouldn't see China leading a mad tear in global dairy prices over the next 6 to 12 months. I don't think despite the recovery. And I think it will be really fascinating to see the impact that the U.S.'s cheese capacity has on global cheese prices. So we're watching that cautiously because we do bring in some U.S. cheese solids for our processed cheese business.

And perhaps a follow-up on the fat side, like the butter prices seem unsustainable where it is at the moment, but how does that market rebalance?

Yes, yes. So butter prices have been -- and look, we've done well out of cream cheese, but we think that, that's something that will continue because of our branding and the way we position ourselves in the market. But yes, we -- butter prices have definitely been strong this year. Milk protein concentrate has been reasonably strong because as cheese production in the U.S. ramps up, there's less whey and protein around. So -- but we think -- we wouldn't expect butter prices to stay where they are in the long term.

And then secondly, just on the route trade, you've sort of talked about the supermarkets a bit. Can you tell us a bit -- and there has been obviously some changes in ownership there. And how do you see -- and maybe there was a bit of pressure on the route from the tradies maybe not spending as much? Or what are you seeing there at the moment?

Yes. So I think petrol and convenience has definitely found life challenging. So we would say that, that's a channel that has definitely slowed down, particularly with food consumption. And so, people are filling up their vehicles without going and getting the added stack or using that convenience option. So we'd say petrol and convenience and some convenience -- petrol and convenience companies have slowed down a lot more than others, like it's been quite dramatic. So I think that they're adjusting to the new world a bit differently. But there's certainly overall a slowdown. Out-of-home consumption has come back, still growing, but very, very slowly compared to what it was. And so, we're seeing channeling back into supermarkets. [ ROV ] is up, but what's really noticeable is the growth of Aldi.

And on the Dare protein...

[indiscernible] somehow changed your model on how you engage with them. And they're proving to be a really important value customer, and we're very pleased with the emotes that our team have made. And hopefully, they're pleased with our support of them. And we think we're well positioned to grow with them and help and support their product.

Great. And perhaps to the other end, the Dare protein, like the protein specialty milks in the U.S. has been a massive sort of growth category. How much growth do you see you can achieve with Dare protein and other products that you might bring to the market?

Yes. The protein is about -- protein or protein associated products is about an $8 billion market in Australia. And so, we're really, really pleased to be in there with Dare. And it's -- as I said, it's been our most successful Dare launch ever. And so, we think there's plenty of room. We look also at distribution points the other day. Mark, we still got plenty of growth or upside just even in fueling distribution below conversion. So we're really excited about that. We've got some other really good protein offerings coming out of the beverage space very shortly. I can't sort of speak too much about those, but stay tuned over the next couple of months. And we're excited about where that's going. And then, obviously, yogurt is a key vehicle for protein. It would be fair to say we've been underweight in that space. But once again, we've been doing a lot of work operationally, and we think we've got some really good launches that we can make across some of our core brands in that space. I don't want to give too much away, but that will certainly be happening over the next 6 months. So protein is significant. If you look at all the health benefits of protein with bulk following body, all have been performing. Protein 3 years ago was about younger people wanting to sort of help benefit their muscle bulk. But now it's being used across the whole spectrum of the population, and it's a great meal supplement. It's great for retaining muscle mass, which is a challenge for people in their older years. So we see protein continuing to evolve. What we're also excited about though is the evolution of probiotics, gut health, increased fiber, calcium requirements, bone strength, all those things that dairy is playing into. So whilst protein is on Dare at the moment, we think that there's the next evolution of protein coming, and it's important that we get ready for that.

Great. And lastly, and you may not be able to comment, but Fonterra in their last announcement seem to be leaning IPO and there's sort of clarification around the Bega licensing arrangement. I guess, if they did go the IPO route, can you make any comment at this stage of how you might see that or how you'd be thinking about that? Or the structure is still very uncertain, but can you make any comments on that?

Mark, I could give you the really short answer and say no. But I think -- look, I don't think the -- in all seriousness, there's lots of speculation in the press. I don't think there's any value in me adding to it. So -- and really, I can't comment on the court cases obviously before the courts. And in terms of other speculation, I just prefer not to add to it.

Would it be fair to say at Bega's views, if there is a change in control, that license would be in question? Is that still a reasonable assumption?

I can't make any comments, Mark.

Great. Okay. I said they've got a new name mainly, and I'm disappointed they didn't call it Bega 2 or something like that.

The next question is from Jonathan Snape from Bell Potter Securities.

Just 2 questions, if I can. Maybe one follow-up from Mark. I mean, particularly around this Fonterra trademark, I mean, there is a lawsuit, I think, already out there around whether you would alter it, I suppose. Have you got a date as to when that actually starts in the Supreme Court or when it kind of ends? I know it's not for damages or anything, but it's -- is there a date yet fixed on it?

There's directions hearings underway, and those dates are unfolding. But again, Jonathan, really not appropriate for me to talk about something that's before the courts.

Yes. Okay. Got it. And look, maybe just on the branded side. I mean, I'm looking at these house brand contracts, in particular, if I remember right, Murray Goulburn had a few of them, but a lot of these things were done almost 10 years ago to the day, which means I think most of them would actually be probably coming up for renewal in the not-too-distant future. If anything, Lion used to have a lot of them and they lost a lot of them and probably somewhat underrepresented. How are you guys thinking around house brand contracts, your ability to participate in some of that in the future?

I mean, we'll always participate, Jonathan, to a point that it makes sense for us. So where we can deliver the right product at the right price for our customers to meet their needs and it works for us as well, we'll always participate and we'll compete really hard. So that's the ethos we've got in the business. We just -- we really want to compete hard in every aspect of the marketplace and retailer own brand is a really significant part of the marketplace in Australia. So we go very hard at contracts that we feel that we can -- we feel are good for the customer and good for us. We don't always win them, but we're probably winning a lot more than what we had previously.

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

Well, thank you, everyone. I think a comprehensive presentation and questioning means that I should keep my closing remarks very short and allow everybody to have some lunch or get on with their day. So I would just like to thank everybody for joining us on the call, and we look forward to seeing you either on the road or at our full year presentation. Thank you very much.

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