Bega Cheese Limited (BGA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Bega Cheese Limited Half Year 2026 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. I'm delighted that you took the time to join us today, and very pleased to be presenting this result with our CEO, Pete Findlay; and our CFO, Gunther Burghardt. Ladies and gentlemen, I will limit my comments because I feel like what we are delivering today is what we have promised to our shareholders that we will deliver over an extended period of time. The reality is we are -- I am proud of this result. It demonstrates an execution of strategy, and it demonstrates the quality of the team, given the responsibility of delivering that strategy. Anybody that is aware of Bega Group's history will be very aware of the transformational work that we've done over an extended period of time and the support we've received from our shareholders in making sure that we can execute that transformation. I'm delighted with the high-quality brand portfolio we have and the continued progress in making sure that those brands are relevant to our customers and consumers here and around the world, and we continue to innovate to make sure that, that remains the case into the future. We've been investing strongly behind this business because we believe that investment leads to success, and we will continue to do that over the coming years. We're also delighted with the performance of our Bulk segment as we again demonstrate the value of focus and agility to respond to changes in markets and indeed to make sure that we look in all our products to operate at the higher value end of whatever market they may be in. So with those comments said, I think that it is very appropriate for me to congratulate the team that has delivered this result and ask Pete Findlay to further expand on what we've achieved in the last 6 months. So, I'll hand over to Pete.

Fantastic, Barry. Thank you very much. And as we step into the result and in particular, I'd like to draw everyone's attention to Page 6. I think it's worth reflecting on our strategic journey and what we've done. I think we have gone through a transformative period. And I think as we reflect on that, understand what we've done and then where that can take us in the future, which I think is very, very exciting. So if we look at what's been -- we've done over the last 2.5 years leading up to this result, basically, we wanted to get together as a team and really simplify and focus the business. And we had some terrific opportunities as we did that to look at how we might take the business into the future. And so one of the key things was about getting the business ready for growth. And so the first thing we want to do is attack our cost base and our cost structures and our manufacturing footprint, and just make sure that, that was ready. And so we would have -- if we hadn't made any changes, we would have actually had 22 sites operating across Australia today. But by the end of the year, we'll actually be at 15. So, we've taken 7 sites out of our network. That journey started with the closure of Canberra. We then acquired 2 sites with the Betta Milk acquisition, and we closed those sites. We actually sold our Leeton juice primary production facility, and did an offtake agreement with the Grove company, which is working exceptionally well. We then sold our 2 PCA sites. And of course, we're closing our Strathmerton site at the 30th of June this year. What that's enabled us to do is actually reduce our cost structure, but at the same time, actually produce more, which has certainly helped us leverage our operational footprint. At the same time, we also wanted to make sure that we had a corporate head office ready for growth. And so we did a restructure there, aligning the corporate head office around our new manufacturing footprint, but also our new focus on our distribution channels and how we go-to-market. And in doing that, we took 250 roles out of our corporate head office. So if I actually look at the footprint of our business and the people employed, when we started our strategy, we had about 4,300 full-time equivalents and we'll end the year at 3,400. And yet we're producing more product in a more targeted way that we think is actually more relevant to our consumers over that first 2.5 years. We also reduced our logistics network down from over 100 distribution sites down to about 75. So, we've reduced our distribution footprint by 75%, which has enabled us to keep our logistics cost per liter flat over the last 2 years, which has been an outstanding effort by the team. In getting our cost structure right, we've also focused on growth. And so we have actually invested in some of our key areas, particularly around milk-based beverages and yogurt, of course, with the introduction of a new yogurt pouch line a couple of years ago and really pleased to say that we'll have another yogurt pouch line going live in June this year. And we've also invested in our milk-based beverage business up at Wetherill Park with a new blow-molding facility up there producing bottles on site, which has helped our cost structure enormously. And then the evolution of our products has been really exciting. So, we've enhanced our products to fit with new wellness trends. We've developed lactose-free product across our milk-based beverage, white milk and yogurt offerings. And we've also stepped into protein in a very strong way with protein launches, both in milk-based beverages, yogurt and white milk that's actually exceeding expectations. And we now look to the next chapter of what we will bring to our consumer offerings. With that growth -- with the growth though, we now -- and the smaller footprint, we now think that we will switch to very much a growth mindset. And so previously, with a larger manufacturing footprint, probably 50% of our capital allocation was going to maintaining our sites. With a smaller footprint, more efficiency, we think we'll split that to probably about 70% going to growth projects and 30% maintaining our sites. And in fact, we've got some very large capital spend in play around yogurt and MBB, which we think will help meet the significant demand we're seeing both domestically and internationally for our products, particularly around yogurt, cream cheese and milk-based beverages. So, I've just been incredibly pleased with the work that we've done as an organization. I think we're in a terrific spot 2.5 years into our strategy, as you'll see with our financial results. But I'm actually really excited about what that brings to bear, not only over the next 2.5 years as we complete our 5-year strategy, but where we can take the business into the future. Of course, that's played out with outstanding balance sheet performance and Gunther and the team need to take a huge amount of credit for that. We have reduced our leverage back in 2019 when I joined the business. Leverage was at over 3x, whereas we now sit just above 1x, which is a fantastic position to be in. And with that smaller footprint and the growth in our earnings, our ROFE has actually improved dramatically. So, we're at 3.7% return on funds employed when we entered our strategy at the start of the 2024 financial year, and we finished this result at just over 10% return on funds employed, which I think is an outstanding effort and really goes to our ethos of doing more with less and really sweating our assets hard. So, very pleased with how the journey of our strategy is going and where we're set now for the next 2.5 years to complete that 5-year outlook. We turn to the next page, which is Page 7. Key messages. Obviously, incredibly pleased with the result that we've experienced in the first half. Our branded business ticked along very much according to plan with good strong growth in a reasonably constrained environment, and we're extremely pleased with our bulk business and its resilience in an environment where our commodity prices fell away dramatically in the second half or in the second quarter of our first half. We're able to mitigate a lot of that through very targeted selling and a very targeted product mix, which was very good. Our branded business, we've got significant growth through yogurt, MBB and the milk categories with launching onto the protein and better-for-you trends, which we're very pleased about. There was a small recovery in out-of-home consumption, but our foodservice actually continued to beat market trends there and we're extremely pleased with that growth. And that was also another thing that we decided to lean into strategically a couple of years ago. We developed some terrific ranges and recruited some wonderful people, and we're seeing some very good benefits from our foodservice business there. And of course, we have accelerated double-digit growth in our international branded business and we're extremely pleased with the progress we're making there. And in fact, it's now up to our supply chain to keep up with that increased demand, and that actually fits with some of those capital initiatives I was talking about in my introduction. Also benefiting from some investment in feet on the ground in Southeast Asia and Middle East, and we've got some wonderful new people who have joined our business that are very high caliber, and I think will help lead that business into the future. One really pleasing thing was that we actually increased our milk intake during the year. So in an environment where the milk production is actually decreasing in Australia, we've actually increased our milk intake by 6%, which I think is showing that farmers are seeing us as a really good option as a processor to take their milk. We've got a competitive price structure in place, and farmers are actually confident about the industry as we are and where we're heading. And so very pleased about that growth in milk intake and also reflects really well on our farm services team and their ability to get out to farmers and connect with them and share our vision for their businesses moving forward. Obviously, successful implementation of our transformational efficiency programs. We are probably seeing some benefits from our PCA closure and sell-off happening this year. And so we talked about that being a $5 million to $10 million headwind for the business. We talked about that being strategically better in the hands of someone else. And so as we've wound down our exposure to that plant, we're probably picking up some of that benefit this year. A lot of work being done with the transition from Strathmerton to Ridge Street, but we're pleased to say that, that is going well. We just had factory acceptance testing of all of our new lines in Germany. The team have been over there, and we continue to work very closely with both teams, both the teams at Ridge Street and Strathmerton to ensure that, that transition goes smoothly, and we're excited about that. And our new automation and distribution center at Laverton has had some difficulties where it's based, fundamentally moving in the right direction and we're very comfortable with the benefits that it will create into the very back half of this year, 2027, and that continues to be a bit of a game changer as we look to expand our yogurt production and capacity in '27 and '28. Really pleased to say that despite reducing our headcount by more than 800 people and increasing our output, our staff engagement levels have actually increased. We use the Gallup survey across the entire business, and we've actually never had our engagement numbers higher than what they were this year. So, we're incredibly pleased that the people working in our organization who have been with us through this transformational change and have seen significant. Our people often in a lot of their functions are actually more engaged than they've ever been and feeling confident about our future, which we think is a very important indicator for how we want to set up for success moving forward. Leverage ratio at 1.2x. The whole business is linked into that, and we're really pleased with where the balance sheet is positioned. We think it lines us up for some strong capital and targeted capital into the future, but also potentially to take advantage of any corporate activities as they may arise. So it's with that strong first half in mind that we've actually increasing our 2026 guidance range from $222 million to $227 million of normalized EBITDA. That's up from $215 million to $220 million, which was our previous guidance, and we're feeling very positive about the business moving forward. Can we just click on to the next page, Page 8? Obviously, really pleasing to see the numbers that we produced this half. We think that they will flow through, obviously, into the full-year result and are very much in line with what we set out to do when we set the business up for our 5-year strategy. We think we're well in line to achieve or overachieve that 2028 result of $250 million of normalized earnings. But once again, really pleased to see that flowing through to our earnings per share, which has increased at a normalized level quite significantly. Our return on funds employed, which were 10.2%, which is actually significantly up from the 3.7% we recorded at the end of the 2023 year. Our EBITDA margin continues to improve, and it's something that we work upon. And we're getting good growth across the top line. This is not just a cost-out financial shape. It's happening. We get to seeing good results across all lines within the business. And obviously, the terrific work that we did restructuring the business to be a consolidated tax entity, which was quite significant. It was one of the biggest consolidations that we've seen in Australia. That's obviously allowing us to share tax losses across our entities. And you'll see that that's benefited our normalized profit after tax. So, we're extremely pleased with that. If I just touch very briefly on Page 9, we're still very happy with our strategic shape and our strategic priorities. Obviously, the executive team look at those on a 3-monthly basis. We measure ourselves against those. We think that those 6 pillars that we've lined up there will take us to our 2028 plan and beyond. And we have a really exciting set of priorities and things to work on as a management team. So, there are still plenty of things to do in the business that we think can help drive our performance forward. So, I won't spend any further on that slide. We move on to Page 10, significant operational highlights. I was extremely pleased with the new product launches we've had. All of our protein launches exceeded business case within days rather than months, which would normally be the case. And now it's actually -- now that we've got those in market and they have been so well accepted, the focus will be on actually making sure our supply chain can keep up with those. So, we will unabashedly increase capital expenditure, but increase it on those focused areas to ensure that we can meet these significant customer demands. And we're actually working with our customers on that as we speak. But incredibly pleased with that. That actually took a fair bit of effort and a fair bit of work. A lot of our factories were built 20 years ago. And so to ensure that we're able to move with those trends, the team have done a huge amount of work and moved very quickly. And I couldn't be more pleased with the alignment across our organization to make that happen and just incredibly proud of the effort that our team did to pivot quickly. Increased marketing spend by nearly $8 million. We are spending marketing in a very different way than what we have previously. So, really focused on our key power brands and linking those with wellness and performance, and so we had some wonderful ambassadors for our products. And then the great thing about that is that you can leverage that exponentially through social media. And we've invested heavily in our social media presence and having that capability in-house. And we're finding that our ability to reach people quickly with direct messages and reach target audiences has been enhanced. So, we've increased our spend, but we think we've actually increased our reach in a really effective way on top of that spend. Above-market growth in foodservice. We continue to have a very good team who are attacking, I would say, latent opportunities in foodservice and we think that, that will continue to grow. Our growth rate in foodservice is one of our highest growth rates, and we continue to take market share of our competitors. A strong first half bulk performance. The team identified that commodities would probably drop away as the year went on. They were very aggressive in forward selling a lot of our product into markets at a good price. That was part of the story. The other part of the story is we've been working very hard on our mix. And so the team have done an excellent job in creating protein products that are very relevant as ingredients now as we see this protein revolution across the world. And we're also producing a lot of cream cheese for our branded business. So, a lot of the lift in that international branded business actually flowed back into our bulk business. So, significant expansion in cream cheese and lactoferrin. And so those strong product mixes and focus that Hamish and the team have been doing for a couple of years now have helped us alleviate and mitigate some of the drop in commodity pricing. However, it should be noted that commodity pricing, we see that being -- we see that meeting some headwinds over the next sort of 12 to 18 months. But certainly, I was really pleased with the way the team have been able to position us to not be as impacted by that as badly as what we would have been even 3 or 4 years ago. So, continued refinement of our branded assets. I've talked about that massive project going on with the reallocation of Strathmerton into the Bega Valley contract manufacturing site at Ridge Street. We will separate 300 people from the business, which has been difficult, but we're managing that as best we can. And we'll obviously be paying a significant amount of one-off costs to make those people redundant, which Gunther will speak to. We're also spending about $40 million to $50 million on capital improvements at Ridge Street plant to enable a really cost competitive processed cheese facility. And so we're excited about how that might lead into not only more domestic volume, but some international volume as well. And of course, the transition from PCA continues to do well. We're continuing to optimize our chilled distribution network. As part of that consolidation of our distribution centers and warehouses that I spoke about before, we sold our Frenchs Forest asset, which pulled nearly $10 million into the business from a cash perspective and the automation of our 11 warehouse will be significant because all of our yogurt volume flows through that and into our national and international markets. And obviously, significant software investments across our revenue management. So, we are implementing AMI into our business. We're using that for revenue management. We're getting some terrific recommendations and findings out of that already. And we continue to push robotic process automation, in particular, across our back-office functions, but now we're starting to push into our factories. And we're starting to see significant benefits where we can actually smooth our process flows throughout our factories and look to make our factory paperless and our information flows much more efficient. And so getting systems to speak to each other, which is terrific. I'll move on to the next slide, and I'll talk about consumer trends. And so this is what's driving a lot of our domestic performance. We are incredibly lucky that the Australian consumer is now actually really redefining their relationship with food. So, we're seeing significant changes in the way people are looking at food, and they're using food to create health and lifestyle outcomes. So if we go back a few years, people are extremely concerned about their lifespan and how long they would live. Now, we're finding that the Australian consumer is actually becoming far more preoccupied with their health span or their quality of life. So, we're seeing people actually want to do more -- during their life, they want to do more for longer. So, they started to take a far more -- far more interest in how they generate a better lifespan. And food and what they're eating, they're seeing as a key input to that. And so we see the key trends here linked up on the page. So, we're seeing a lot more people eating -- wanting to eat for everyday performance. And that's around helping consumers build their strength and vitality. It's about more than just protein. It's about how do I turn up and be purposeful each day and how do I live my best life each day. And then we see gut health and how that applies to people's mind and wellness. We see people being very preoccupied with their weight, understanding that the weight that they carry at 30, 40 and 50 will impact their health outcomes at 60, 70 and 80. We see them wanting a healthy mind. They're very preoccupied around products that create calmness or create cognitive enhancement and sleep patterns. And we also see them wanting to have treats and rewards, but do it in a healthy way. The great thing is that all of these trends are playing around a lot of the products we make, particularly in dairy, where the naturalness of dairy, the high-protein content, the macro counts and the pre- and probiotic benefits, which are being attached to gut health and healthy mind are actually significant trends. And so we're seeing huge growth in both yogurt and milk-based beverage, which -- and white milk even, which are great vehicles for people's lifestyle decisions around what they're eating. And so if we turn to the next page, Page 12, which is our -- you'll see there that there's significant category growth across the categories that we play in. In fact, in some cases, around yogurt and milk-based beverages, the category growth is actually double digit. And so therefore, if you turn to Page 13, now that we've got a footprint that is very much aligned with where we want to go. We've got a footprint that actually doesn't require as much maintenance capital. We really want to focus on growing our capability and our supply in both yogurt and milk-based beverages over the next couple of years. And so previously, from FY '22 to '25, we're investing about $77 million in CapEx. We actually want to step that up to anywhere up to $110 million a year to ensure that we're in a great position to grow with that category both across milk-based beverages and yogurt. And so we think that if we can get that capital in quickly and we can focus on that, we can actually create a competitive advantage and we can enjoy growth in those sorts of categories for the next 5 to 10 years to come. And so we're very excited about that and how that will shape our decision-making with growth into the future. I turn to Page 14. That just shows you a little bit about the great innovation we've been doing around some of those key trends. You'll see that particularly everyday performance, the launch of protein into our drinks, the launch of -- across both yogurt, white milk and milk-based beverages. We're incredibly excited about that. And the new Dare energy range that we've done, which helps with cognitive enhancement. And then that core brand growth on Page 15, really getting behind our big brands. And we're super pleased to see, particularly the market share improvement in our yogurt and in fact, the wonderful performance of Farmers Union, which just continues to be an amazing product and brand for us in that yogurt category. So, we're really able to leverage some of those ambassador relationships that we have. Obviously, many of you would have noticed the Travis Head relationship that we're able to amplify through social media across the summer, which really helped drive our Farmers Union recognition on shelf. If I move to the next page, Page 16, that just shows the dramatic work we've done. We're down to 17 production sites, and we'll be down to 15 by the end of the year. And we feel that we've got a really good network now that is focused and that we can invest in. We may continue to do more work around this in the future, but we certainly think we've done a lot of the heavy lifting and that's helped drive our result to date and certainly, our return on funds employed. If we move on to the next page, which is Page 17. And this is an interesting chart here. The red line shows the average Victorian milk price. That blue squiggly line shows the commodity milk value, and that's based on product that's being sold. You'll see there that we've had a significant drop away from when we set the milk price in July and a further fall in October. So, that's why that forward selling was so important. You'll also note that a lot of that blue squiggly line, about 50% of Australia's exports are actually around cheese, cheddar cheese and different cheeses. And that's why we're actually able to outperform that blue line, which is far more reflective of the broader dairy industry. We obviously -- a lot of our exports are based around cream cheese, which is slightly different and our high-protein powders and our protein extracts such as lactoferrin. So, we are actually able to outperform that line. So, whilst that line is indicative of where commodity prices are going and maybe indicative of where milk prices are going, we've actually been able to outperform that and break away from that a little bit, which I've been incredibly pleased about. If we move on to the next page, which is just our sustainability strategy. I won't spend too long on that. What I would say is that we've been doing a lot of work around, obviously, meeting our 2030 corporate commitments, and we feel very pleased about our progress there. And in fact, we're working on a couple of significant projects that we hope will transform our rate of delivery to those commitments. But we've also created a broader sustainability strategy incorporating circularity, community and collaboration. And that won't be just about our corporate commitments. It's really about everything that we're doing as an organization and obviously are linked with the tremendous work that Barry has been doing with the Bega Circularity Co-operative. And so we're very excited about how that will play out. And of course, a lot of that gets documented in our sustainability report that comes out in October. So a wonderful -- I think a wonderful first half set up for a strong second half, very much in line with our strategy and very much on target with the outcomes we want to achieve. And I'll throw it to Gunther to talk a little bit more about our key financial messages. Thanks, Gunther.

Fantastic. Thank you very much, Pete. And on Page 19, I won't spend a lot of time on the financial key messages. Pete's covered a lot of those. I will draw out a few points, however. First of all, when we reported our FY '25 year-end last year and FY '25 was a very slow year for the overall out-of-home consumption, foodservice channels, cafes, restaurants. What we've been pleased to see is that we're seeing a tentative recovery in that area. So, out-of-home consumption, foodservice as an overall channel is growing more like 4% or 5% this year whereas last year, it was flat, and we're really pleased to see that. I saw some research showing that, in fact, over 20% of discretionary dollars that Australians have are now going into that sort of out-of-home consumption channels and foodservice area. And that's encouraging, and that represents a little bit of an increase over the last couple of years. So, that's pleasing. As Pete mentioned, in terms of our structural changes with the peanut processing, the primary peanut processing, we have been seeing benefits early. And if you look at sort of the first half and the full year of F '26, there's several million dollars of earlier delivery of benefits from that move in peanuts, and we've put that straight into branded advertising and higher A&C levels. So, let's really cement these great new innovations that Pete talked about with additional support. And it's fair to say we've invested more in supporting our innovation and our brands in the first half than we thought we would at the time of the budget. And that work with our supply network consolidation that has helped to fund that greater support for innovation, which is terrific. Laverton, as Pete said, we are working through going live on that in the next few months. And like any high-technology automation project, that takes a bit of time. We'll see most of the benefits of Laverton next year, which we expect to be several million dollars. And that's great. And that sort of cheese consolidation from Strathmerton into Ridge Street, that will also be predominantly an F '27 benefit. The combination of those 2 huge savings initiatives and network initiatives, they will begin to accelerate the growth of our branded EBITDA in F '27 because they're both fairly large. So, that's pleasing. Pete talked a little bit about the cost of achieving those really significant network consolidations and automations. And we will see some of that in the second half of the year. What you normally see from Bega is in that first half, we invest in inventory as we take in that spring milk. And then this year, the milk prices were up a bit. And so you do see that normal first half investment. We get between 60% and 70% of our milk in the first half of the year. Now normally, in the second half, we then sell down that inventory before we get to year-end. And you will see us sell down that inventory as we do seasonally and the demand has been very good for fats and proteins, which is pleasing. But we will be investing a lot in the second half of the year to make these really important supply consolidation and automation programs happen. So, what you will see in H2 is we will invest between $30 million and $35 million in redundancies as we finish the cheese consolidation, the Laverton project happens and we finish the PCA, peanut processing consolidation and exit. So, about $35 million in redundancies and over $60 million in capital expenditure. And we are unapologetic about that investment. That will lead to the acceleration of branded profit next year, and it's very important that we do that. That will cause leverage to tick up a little bit. We were very pleased with the 1.2x leverage that you see at the half year. I would expect net debt to be around $240 million or so at year-end and leverage will be about 1.3, 1.4x. So, once we do that big investment, that will be the outcome at the end of this year. But as I said, you will see branded EBITDA accelerating next year as we benefit from those very large programs. And we are fully committed and believe in the payout that we will get from that focus in our networks, that automation in our networks. So, 1.3 to 1.4x leverage at the full year and then absent any M&A activity improving dramatically next year as we reap the benefits of those investments. On the next page, Slide 20, it's our P&L statement. Just a couple of points here. Our normalized -- we have a depreciation and amortization, which is roughly flat against the prior year and we're expecting something around the neighborhood of $93 million or so in the full year for depreciation and amortization. You're also seeing our finance costs beginning to improve as our cash flow and our balance sheet improves. I would call out something like $31 million in the full year in terms of net finance cost would be our outlook. And we have a normalized tax rate at 28%, and that's benefiting from things like R&D investments. And actually, in the case of Frenchs Forest, the contract was signed in the F '25 year and settled in the first half of this year. That also contributes to the slightly lower effective tax rate. So if you put all this together, a very strong increase of 45% in normalized earnings per share, and we see the full year landing at around $0.23 per share in normalized EPS, which compares very well to $0.166 for full-year last year. So, very pleasing to see that. If you remember, Pete, was reflecting on the strat plan journey we've been on in the last 2.5 years. When we came out with that strategic plan, we said 5 years down the road, we want to hit $0.25 to $0.30 of normalized EPS by F '28, but we'll already be at $0.23 at the end of this year, and we'll probably exceed that EPS target in F '27 a year early. So, very pleasing progress on that. The next slide, Page 21, is key performance measures. For us, the 2 most important measures are always gross margin and ROFE, right? Gross margin drives our EBITDA margin and it improves our ROFE. Pete has already talked about the great move from 3.7% ROFE in F '23, up to about 10% now. It will come off a tiny bit in the second half as we make those big investments, but we expect it to land in the mid- to high 9% range. So, almost tripling our ROFE in a 3-year period, which is great. Gross margins moved ahead, as you can see from this chart by 0.6 points when you compare it to the first half of last year. And both branded and the bulk business saw moves forward in gross margin, which was pleasing. So, that's very good. The next Slide 21 just shows that both branded and bulk are contributing strongly to the movement higher in EBITDA. But it's really on Slide 23, the next one that we get into the segment performance. And so a couple of call-outs on Slide 23 in that segment performance. First of all, it's great to see both the branded and the bulk business growing 5% in revenue. So, very balanced growth in those 2 businesses, and that's great. If you delayer what happened in the branded business, usually, our pricing is really just recovering milk costs and other input costs. So, that's all it does. It recovers cost structure. So, what you get? It required about 3% price and mix in order to offset the cost that we have in areas such as milk and other input costs. And then we had 2% volume growth. So, 3% mix price and 2% volume, that's how you get the 5% overall growth in your branded business. What are we expecting as we look forward to the full year? We called out already in August at our results at the end of last year that we'd expect around $220 million normalized EBITDA in our branded business for the full year, plus or minus $5 million, and that remains our view in spite of the higher marketing investment levels. We've been able to fund those with the earlier delivery of the PCA benefits, the peanut benefits, and we retained that outlook of $220 million. Bulk has been first-half weighted, and Pete talked about that evolution in commodity prices. So, we've got $41 million in normalized EBITDA in the bulk unit in the first half. That will be the majority of our profit for the full year. So, we expect it could be $45 million or $50 million at the full year, but that implies a second half, which has a lot less milk. It will be about 1/3 of our milk intake for the year. And as Pete said, commodities are lower in that second half. And then, of course, we'll see what happens in milk recruitment season and what that means for F '27. So bulk, we're done about almost 90% of our profits for the year so far. So call it, $45 million to $50 million. And then in unallocated, we're expecting about $45 million in the full year. And within that, Pete talked about some of the RPA and AI initiatives. Some of those are SaaS platforms as well. And so there's $3 million or $4 million within that, that are investments in AI, RPA and IT kind of initiatives. Again, they lead to efficiencies, capabilities in future years, and we're very excited about what they're already bringing to us in terms of benefits. If I flip to the next page, Page 24, it's a reconciliation of normalized results. We had about $9 million of pre-tax normalizations, and you'll get a little bit more in the second half as we complete that Ridge Street consolidation. I won't really say much more on the balance sheet on Slide 25. I think we've covered the really good results and leverage, and we've talked about what to expect at the full year. So, I think those are the key messages on that slide. And I'll finish off before I hand back to Pete on Slide 26 on cash flow. As I said, normally, a negative operating cash flow in that first half as we take in that sort of spring milk and we process that. But if you look at it, we always disclose the movement from our trade receivables facility. And here, you see we've reduced our reliance on that facility by $45 million. If you exclude that, we actually had a positive operating cash flow in spite of that inflow of spring milk. So, we think that's a really good result for this time of the seasonal cycle. And again, the Frenchs Forest sale, a very good outcome. And you can expect more underutilized asset sales from us in calendar year 2026. We've got another 1 or 2 that are on deck that we're working through. And it's really about capital allocation. How do we make sure if there are assets that are not contributing? We recognize the cash from those, and we invest it back in our business. So, I'm going to hand back to Pete, who's going to finish off with our outlook for the year.

Fantastic, Gunther. Thank you very much. So, I think we're very happy with our branded outlook, where our products sit and our innovation pipeline. We've got some terrific products that we'll launch in the second half, and we're planning to launch a lot in the following year. So, that work is being done now. And we continue to really like the way our products are framing up with some significant consumer trends at the moment. And we think that those consumer trends are not short-term trends. We think they're medium- to long-term trends. And we think that we've got a lot of area to playing with, with our product offering and our capability, not just actually in Australia but internationally. It's interesting that a lot of these trends I've talked about around performance and wellness and weight wellness are actually very relevant to Southeast Asia and the Middle East. and Central Asia, where a lot of our product goes. The cost management programs are very much in train. We continue to work on our supply chain, the automation of Laverton. Whilst problematic, it's working well and some of the work we're doing around our factories and our sites around pushing our plate speed of our lines and our manufacturing patterns continues to provide benefit. And I'm so pleased with the way the team -- they just seem to be able to go away and find better and better synergies each year and how we run things. And I think there's actually quite a significant opportunity for us to look at our whole value chain and how our factories are flowing through our logistics network and into our customers. So, still very pleased with the progress to date, but still very excited about what we will do in the future. Obviously, Strathmerton and PCA were significant projects. We really pinned our ears back to get those done within a 12-month time frame. And so far, that is on track and will provide us with significant benefit next year. And we will have -- we're unabashed about our desire to spend more on growth now. So as I look at yogurt, we will commit to spending a significant amount on yogurt capacity throughout the year and into next year. We would love to have more yogurt capacity now. We're currently constraining domestic and international supply. We don't think that demand is going anywhere, and we're working very closely with our key customers to ensure that our consumers have a fantastic yogurt and milk-based beverage offering, both here in Australia and overseas for the next 5 to 10 years. So, we will get very aggressive with our capital expenditure in those places. And the team are doing a significant amount of work on that at the moment. Our bulk segment puts us right -- a lot of the profit happens in the first half. What we're doing now is preparing our product mix for the next 18 months as we think where the market is going to go. So, a lot of work will go into continuing to be attractive to our farmers as we go into milk procurement season in sort of April, May, June, July, continuing to ensure that we can pay a competitive price so that our milk intake stays at very competitive levels that we continue to take milk share in the milk pool here in Australia and evaluate where our ingredients, products will fit the market needs over the next 18 months. We, obviously, as I've reiterated, we will increase our guidance range up to $222 million to $227 million of normalized EBITDA. And I still think very much that we're on track to exceed our 2028 outcomes that we set up to the market a couple of years ago. And I think we're in a really strong position to exceed those, but also set the business up for growth out beyond 2030. So, a lot of the things that we're doing now and that we've done over the last 2.5 years in that transformative program that we put in place, I actually think set us up for a really exciting 2030 and beyond. I don't think some of these trends we're seeing, some of the tailwinds we're seeing around the product categories that we play in are going anywhere. And I think we're ideally situated with a competitive cost footprint and manufacturing footprint in Australia to service not just domestic needs but international needs. So, I remain really excited about that and what we're doing beyond 2028 to take advantage of that. I'll now throw to Barry for any closing comments.

All right. Thank you, Pete and Gunther. I don't think I need to add much, quite frankly. I think that the team, as always, have illustrated, quite frankly, the great brand portfolio we have, the great products that we are delivering to our consumers and indeed, the great products that also we're delivering through our ingredients and nutritionals business that we refer to in the bulk segment and the great infrastructure that is fit for purpose and justifies the investments that Pete and Gunther are talking about in terms of us investing for the future, but also investing for future growth and future profits. And I think what this result really demonstrates is that is both the focus of the team, but also the agility of the team to make sure that we are very aware of what the future holds for us. And I think you can tell by both Pete and Gunther's comments that, that future is a bright one as far as we are concerned. And we are delighted that we are positioning the company to take the opportunities that are clearly there and also deal with challenges as we always have done. And so I congratulate the team on the results that they have delivered. And I thank our staff overall who are -- whilst we talk about the executive team's focus, one thing that I note around our sites and within our teams everywhere is their strong focus and their wish to exceed expectation. And I think it remains our wish at the very top of the business that we do that for our shareholders and our customers. So with that said, I'm very happy to throw to questions.

[Operator Instructions] Your first question comes from Phil Kimber with E&P.

Can you hear me okay?

Got you, Phil.

Perfect. I was just going to ask on -- first question is really on that bulk business and that sort of great work in bringing forward sales while commodity prices were high. I'm sort of moving my vision out to FY '27 and wondering is the way to think about this? The second half, I know it's seasonally smaller, but that's more reflective of the tougher dairy prices and that might flow into the first half of '27. Is there sort of like a 6-month lag behind that chart that you showed? Can't remember what the slide number was, but the chart was the commodity milk value. I just wanted to understand that moving into FY '27.

Yes. So Phil, it's a good question. So, we get a lot of our benefit in the first half is actually driven because our factories are full and recovering. So, we get most of our milk in the first half in those big commodity factories, so they're full. So, there's a number of components to it. Yes, we did get better pricing, but we always make a lot more money in the first half because our factories are full. And then what we do is we usually sell off our lower-yielding products in the second half because they are the products that tend to keep skim milk powder and so forth. So, there is a natural shape that always happens regardless of what commodity prices are doing. So, there's an element of what you say is potentially true. So, we don't know what milk prices will be like next year. We know that we've got a really competitive product offering. And we know that we think we can aggressively complete the milk and keep our volume up. We'll wait and see what milk prices do. We'll wait and see what commodity markets do. But we think that we've positioned the business in a good place to mitigate as many of those as possible. But ultimately, we'll wait and see what both the commodity price and the farm gate milk price do.

Phil, obviously, there's a reset that occurs when opening farm gate milk pricing is announced and then negotiated. And I think it's too early to call out reset yet. And obviously, that depends on where the commodity cycle is as well. So, I think as Pete described the results is correct, and I wouldn't read too much into what '27 looks like because of that reset moment on the [ $30 million ].

Yes. What I would say is, Phil, if you go back to our strategy, we always thought that the long-term bulk earnings average was between $30 million to $40 million. So, we played out at the top end of that this year. We might play at the bottom end next year. But ultimately, if you think about the progression of our branded business from $200 million earnings last year, $220 million this year, you keep drawing that line, we think we're in a good position for the company to move forward with less reliance on that. But having said that, we'll wait and see what the procurement season brings.

Yes. And that was going to be my follow-up because I think in the past, this year, you're going to be north of that sort of range typically on bulk. I just wanted to understand, obviously, branded is going to grow, you're saying a lot stronger in '27 than that has -- will in '26. And I mean, it's growing at, let's call it, 5% to 10% in earnings. So it was really just to understand that missing bulk piece. Had you stepped out of that long-term range of 30% to 40% or that's still the best guide for us to use going forward?

I think it's probably the best guide to use, Phil. Yes.

Yes. And then just one more for me. I'll let someone else ask a question. But I missed the effective tax rate. I think in the past, you said it was going to be around 30%, Gunther. And it was low in the first half, but it was also low in the first half last year. So, should we assume that it sort of normalizes back to that 30% for the full year? Or will it be lower?

It will be pretty -- it should be pretty close to that, Phil. And as I said, there is -- we do benefit from our R&D investments and the encouragement we get there. And we do have that one Frenchs Forest transaction, which for tax purposes was recognized last year. But you'll be pretty close to 30% by year-end, and that's what I assume.

We will have the odd benefit here and there, but I think that's the best example.

Your next question comes from Josh Kannourakis from Barrenjoey.

Can you hear me okay?

Yes, we got you, mate.

Awesome. One on the results, firstly. Secondly, just in terms of the capital projects. So obviously, a bit of a step-up and you've noted pretty clearly around that shift or pivot into more growth-related capital projects. I may have missed it on the call, so apologies if I did. But just in terms of -- can you be a bit more specific around just reminding us and investors just around when you are putting that capital into the ground, what some of the historical returns and hurdles you're thinking about achieving for that will be?

Yes. So we tend to have a -- everything we do is going to be within a 3-year payback. And so we think that we are, as we've compressed our footprint, we've seen growth take off in specific areas as well. And to be honest, we're fortunate that it's taken off in the areas we thought it would take off. So, we actually have been investing in milk-based beverage capability and yogurt capability. But what we're excited about is the growth is probably more than what we thought over a medium- to long-term picture. And so we will accelerate our capital investment to meet that demand. And the demand is happening both here and overseas. And the other thing, obviously, I would say there is cream cheese as well. So the demand is happening both here and overseas. And so we will -- we think we need to move pretty aggressively to meet that demand. And we think that all of the global trends and everything we're seeing, we think that demand will be in place for the next 5 to 10 years minimum. So, we'll take some aggressive approaches, but we'll look for payback within 3 years. And we've already signed off on some of that capital expenditure. We're moving quickly. We have full support of our large customers to do that. They're wanting us to do it. And we think that, that probably makes us a little bit of an outlier in Australia, to be brutally honest, which we think works for us as well. Some of our competitors may not be making that same aggressive capital spend that we are.

And I think Pete's example of the pouch line is really interesting because 18 months ago, we talked about going live on our second yogurt pouch line. It's pretty full now. And so we got another one coming in June, July that will go live on and in the nick of time, I'd say. So, I think there's a national capacity constraint in yogurt, and we need to invest to make sure we're positioned for what we think is a very long-term trend that favors this category.

And so we've been doing some investment around optimizing what we've got, but we'll make some step change -- we're in the process of making step change investment.

Okay. That's helpful.

But Josh, stay within the numbers we've talked about today.

Yes, yes. That's right. No, I understand. I guess it's more so just as we know from prior things when people upgrade their long CapEx that maybe not today, but more so in the '28, '29 and beyond, that obviously, those investments come with corresponding uplift in EBITDA.

Yes. And the nice thing is, Josh, that we're not investing maintenance capital in sites that weren't of key importance. So, we've lost 7 sites. We're refocusing the sites we want to be in. That means I'm not paying $5 million to do a waste disposal system in a site that doesn't really have the returns that we would like. I can actually spend that money on a high-end yogurt plant or a high-end milk-based beverage plant or a new spreads line, and that's where we have our margin. So it's created a far more focused view of the world for us where we want to invest and where we want to grow.

Great. And then just second one, just in terms of other side of investment, the other flip of the coin in terms of M&A and inorganic growth. Obviously, there's a lot of focus around Fonterra as we know. And I'd be interested in some thoughts on what you think that's -- any impact that's had to the market. But more importantly, how should we think about your framework around M&A now? What are some of the areas you're open to looking at? Are there any particular gaps you feel like you need to fill here or leaning more into sort of potential offshore things? Is there any other incremental sort of context you can give investors around just how you're shaping your thought process around future M&A from here, especially given, I guess, the balance sheet strength that's becoming a much real bigger possibility again?

Josh, it's Barry here. And as you'd be aware, we're always careful in terms of the public statements we make around M&A. But obviously, everybody was very aware that we're interested in the Fonterra business, particularly the Australia and New Zealand business and we were not successful in acquiring that, but we congratulate Lactalis on acquiring and indeed congratulate Fonterra on the price they achieved in the sale of that business. I think it does represent some consolidation in the Australian dairy industry, which we have said is necessary. So whilst we might have prepared -- preferred that it was us doing that consolidation, we think we would expect that some consolidation will occur. I think we are not really seeing any of that activity occur yet in the marketplace because, of course, that transaction is still to be settled and go through a transition process that we think will obviously be a quite significant one. So, we are -- we could see value in the acquisition of Fonterra, but equally, we're extraordinarily comfortable with the infrastructure we have and the brand portfolio we have and the opportunities that presents. And I think I've said elsewhere that the completeness of this business in terms of the assets that it has is probably as strong as I have ever seen it, which means that what we do is look at opportunities in adjacencies in our core as well. We stay alert to it as we always have. We think there are some opportunities out there in M&A, but too early to make any specific comments on where we might be directing our focus in that case. But I think people are very aware that my view is always one of either, increasing the scale of what we do or adding logical adjacencies to what we do, and that's how we've operated M&A for a very long time. But I think the difference with where we are now is that I'm not looking at M&A or the team is not looking at M&A in terms of trying to fill a gap in our business. Our business is a very complete and very capable business in its own right. But we obviously -- if we see good strong M&A opportunity, as it has been in the past, we'll always think about how we can add further value to that at the right price, which is always in our focus, obviously. But Pete, I don't know whether you want to add anything to that.

No, I just -- I wasn't aware that Fonterra had been sold, Josh. So, you're still being on something. You're right. [ Fonterra say ] and we hear here. Sorry about that.

No, that makes sense.

I think the team -- I think we've got a terrific team who's good at -- through that transformation change that we've done, I think we've got a great team that's good at adapting asset bases, footprints, integrating, doing systems rollouts. I think that we certainly got -- I feel very comfortable with the capability of the people we've got in our business. And if an opportunity did arise that we would be able to take full advantage of it.

Got it. And so just final add-on, and then I'll hand over. Just in terms of capacity, you obviously had a significant distribution network -- sorry, you still do have a very significant distribution network within there when you think about both the infrastructure installed, but also the capacity. Does that lead itself to sort of those sort of opportunistic branded sort of bolt-ons over time? And maybe just to chat with, where are you at in terms of what you think the capacity for additionally adding on that sort of incremental volume in the branded?

Yes. Absolutely. So, we really want to focus on our capacity in those key growth areas. And that's why to Barry's point, we've got an enormous amount of organic growth ahead of us. But at the same time, we've got a terrific distribution network. We've got great systems and great processes. We've got all of the head office infrastructure you would expect. And the interesting thing, Josh, is as you -- a lot of people talk about AI and bot technology and all the rest of it. But we can push much more business through our shared services functions, through our safety functions, through our customer service functions, through our logistics functions purely through robotic process automation and some of the smarts that we're starting to implement. So, I actually think that potentially, the scope for synergies in the new world is great as what I've ever seen before. And so if we can find something really adjacent, I think that our ability to get more out of that opportunity than we've seen even historically is very much there.

Your next question comes from Richard Barwick with CLSA.

I just wanted to -- if you can refer to that Slide 12. I've got a couple of questions there. You've gained material share within fresh milk, so that's great, moved from 12% to 15%, but you've lost share in milk-based beverages and spreads. So, I'm just making a comparison with the same or the corresponding slide that you presented back in August. The other thing I've looked at is if you look at the weighted average growth across those key categories, and I realize this is an MAT number and it's retail, but you've got that sort of branded business across those categories growing at 7%. Now if I contrast that with what you've delivered in your branded revenue growth across the same time frame, it's only 2.3%. So albeit, you've -- obviously, look like the last 6 months have been stronger at closer to 5%. So, I just wanted to get a sense there. I mean, I -- well, the numbers would look like you are losing some share. You're not keeping up with the market rate of growth and also just contrasting the growth rates. Is there an issue here? Or is there a difference between what the retailers will be posting in terms of sales growth? Are they taking increased margin relative to suppliers? So, there's a bunch of questions packaged in there, but hopefully, that makes sense. Love to hear your thoughts.

Yes. Absolutely. So it's a good question. You can't -- it's a bit hard to reconcile things. So, what you've got in that chart is value and it's value within the key supermarkets. So it doesn't include the discounters. It doesn't include a lot of convenience and unstructured markets, and it doesn't include a lot of foodservice, which we sell through. So if you have a look at that, we would see the spreads were slightly down. Spreads is an interesting one. Our peanut butter and Vegemite are actually in pretty good health. Vegemite hasn't got huge amounts of growth. It sort of runs flat. It's more of a value play. But we've had some growth there. Peanut butter, we've had some growth through volume and value. Where we've fallen down against the category is, we did have a brand called B honey, which we delisted. It just wasn't part of our focus and simplified strategy. I think the honey category is a really nice place to play in within spreads, but we didn't think we had a winning advantage there. So, we delisted honey. So, that's counted against us. So, we're no longer in honey. And also a lot of that growth is actually being driven -- the category growth is being driven by treat spreads, which is predominantly chocolate treat spreads and Nutella, in particular, Ferrero Rocher. So, we actually got pretty good growth, and we're pretty happy with how we've gone on directly against peanut butter. Yogurt, we've had really good growth and we're very happy with that. We're back at #1 for volume. We slipped away from #1 open volume, back at #1 open volume after the last quarter, and I think back in front on value in the last quarter. So, we're really happy about our yogurt performance. Milk-based beverages, we are trailing the market. We grew. We grew both volume and value. It's highly competitive at the moment. We've come out with our protein offerings probably a little bit later than what we would have liked against some of our competitors. And we'll see how that plays out in the second half, Richard, but we're really happy with our offering now and how we're going to market, and we've got some really good plans in place. But overall, we don't -- we're not a slave to market share. You've got to be really careful around pure market share data because you can pump up your market share to the detriment of bottom line profitability quite significantly. So, we won't be a slave to market share. But you're right, we do like to ensure that we're positioning ourselves well for a long-term sustainable profitable growth, and we're pretty happy across all of those, albeit we would probably like to be growing a little bit quicker in milk-based beverages.

And you also -- I mean, just to pick up, I mean, sort of picking up a particular word, you said a reasonably constrained market for branded, whereas, again, if I would contend that 7% growth across those categories is actually pretty buoyant. But you also talked to some great category trends, consumer trends underpinning those. So, can you sort of reconcile that as well? Because I mean, is your expectation that -- would you expect the market to be stronger than what it's looking at now? Just trying to put the different pieces of the puzzle together, please.

I think we -- so I talked about supply constraints. So, we would love to have more yogurt capacity. That's why we're about to spend significant amount of money on yogurt capacity. We are actually not able to -- we're the biggest yogurt factory in Australia and we're not able to service the market. And no one is -- so if you walk up and down your Coles, Woolworths aisles or Metcash isles or Aldi or Costco, there is significant yogurt shortages, which is why we've got a new 5,000-tonne pouch line coming online in 3 months' time and why we will look to make significant investment. So, we just actually can't make enough yogurt, both for our domestic and international markets. So, we've moved back into #1 on a volume and share basis in the last quarter. We're really happy with how our launches are going. We just need to be able to make more, and we've got our factory running absolutely as hard as we can run it, but that's why we'll be bringing on a fair bit more capacity over the next 18 months.

And then more broadly across the other categories, all I'm trying to get a sense of is where the market is tracking today. Do you see -- should we be expecting a sort of a continuation of that same momentum? Or do you think there's grounds to say that the market rates of growth should lift?

No, no. I think we'll be seeing -- I think with -- so when I talk about -- I did show you the last 2022 to 2025 volume trends in our presentation on yogurt, milk-based beverages. That was running at roughly 5% volume growth. I think that's growing faster than that now, and I think it will continue to grow faster. So, I envisage that we will get really strong growth out of those categories for at least the next sort of couple of years. Might steady down after that, but it will continue to grow fast. Off the wellness drive, we think we've had a bit of a rebound in juice this year. We're pretty happy with that. We think that there's some interesting facets to our juice business. But predominantly, it will be milk-based beverages and yogurt with a bit of white milk that will drive our business forward, mainly because those benefits people are seeing in dairy.

Your next question comes from Evan Karatzas with UBS.

Juggling a few calls, so apologies if these have been asked, but maybe it's an extension of that sort of previous question. I think about fresh white milk, yogurt, milk-based, like they are your 3 largest categories, all growing probably above the broader branded. Like where are you, I guess, underperforming, that's meaning that the overall branded revenue growth is just 5%? Does that make sense?

Well, Evan, I actually don't think we are underperforming. We're growing our top line at 5%, which if you do a little scan of consumer goods, that's actually a pretty good result over the last couple of years in a pretty tight marketplace. So, I actually don't think 5% growth is underperforming. We would be performing better if we had more capacity around yogurt. But I think that 5% is sort of what we said. This is a very mature consumer goods business. That 5% to 7% growth is actually straight on line with our strategy. So, that's my response to that question.

Sorry, Peter, sort of underperforming is not the right word. It was more -- it just looks...

Yes. I think it's pretty poor choice of words, Evan.

Yes. Sorry. Apologies. It was just more your big categories seem to be performing stronger than that 5%. So, I was just wanting to know which categories.

Yes. So don't forget, Evan, in our business, we have a large contract cheese processing and manufacturing business. That's declined because of cheese volumes dropping in Australia in the areas we play in. So, what you'll find is that cheese at the moment -- Woolworths have come out with a really attractive proposition at $9.50 non-branded proposition. We don't do that, that cheese for them. It's done by a competitor of ours. We do other cheese for them, but we're seeing significant shifts in volume down there. So, our contract packing business has gone back in volume this year.

Only 5% decline in cheese volumes in the first half, Evan. That doesn't get picked up in the whole ranges, total ranges.

No, that makes -- sorry, that was what I was trying to get to. I was saying, you're performing well in these key categories and that's driving margin expansion. I was just trying to understand, which -- where we are sort of.

Which is part of our strategy, Evan.

Yes, I think -- it's Barry. I think, Evan, one of the difficulties that I know when people look at that branded category, they don't see the cheese cutback and processing. And as you would know, if you looked at that piece of business over an extended period of time, that has been a challenging piece of our business that sits in the branded category. If you took it out, you would see a different picture in that area. It's a little the same as if you go back in the bulk area where infant formula and nutritionals used to perform so well and that came out. And hence, the decision to consolidate Strathmerton into Ridge Street because really, if we look back at what that cutting and packing and processing business used to be in terms of volume and indeed, our leading position in the market, there's been additional capacity coming over the years that has mean that the margin there have been somewhat challenged. And the decision there is to, therefore, consolidate that because that fits in the branded business, it can skew the picture, which totally I understand what you're trying to -- what the puzzle is, if you like, as you're trying to work out.

And Evan, that also pulls down on that EBITDA margin at the bottom end. People look at our EBITDA margin sort of that 7% range and goes low. It's actually pulled down by about $500 million of cut and pack processing.

And I think the final thing I'll just add, Evan, for some color there is, juice has been an interesting category. We're #2 in juice with daily juice, with Juice Brothers, with Mildura. The category is showing 8% growth there in RSV in the majors. What's really happening there is that 12, 18 months ago, we had a shortage of juice in this country from sort of concentrate. And that has alleviated. What's happening inside the category is that volume growth is even stronger, but price competition is elevated in juice. And so there's sort of 2 offsetting factors in that juice category. So, we remain committed to it, but the balance between volume and value in juice, it's a very competitive category like cheese that we've talked about.

Yes, no, no, that's really good guys. You've answered that clear. As I said, I was just trying to understand what was dragging down the growth rate. Okay. And then maybe just a quick extension of that. You sort of touched on the margin profile. You've got it now above or at 7%, I should say. Like just how you guys are thinking about this internally around the branded -- the margins? Conscious of your comments before, some of the lower margin product manufacturing -- contract manufacturing is starting to drop away. You're moving more into a higher margin. Like how are you guys thinking about sort of the margin profile over the next 2 to 3 years for that branded segment?

It's a great question, Evan. And I think we talked about these big investments we're making in the second half and what they mean for the future. As you look at things like this cheese consolidation to Ridge Street, we want to continue to be a great toll manufacturer of cheese, for example. But doing it with 1 big super site rather than 2, it has a huge impact on margin. So if I look forward to F '27 and what we've done in peanuts and what we're doing in Laverton and what we're doing with the cheese business, I'd sort of see gross margin accelerating back up to 100 basis points of growth or more in branded. You could easily -- if you look over the last 2, 3 years, branded has been growing about between $5 million, $10 million, $20 million a year in EBITDA. We now think with these big programs and our margin expansion that, that accelerates. So if we do $220 million this year, can it be $250 million, $260 million next year, right? And that way, even if the bulk business goes from being very high, $50 million this year to $45 million, even if it goes to the bottom end of the range at $30 million or even a little bit below, it's the branded acceleration through margin growth next year that gives us confidence. And so we do expect that acceleration to be there, and we expect it to be margin driven and delivered by the investments we're making today.

Your next question comes from Jonathan Snapewith Bell Potter.

Can you hear me okay? Look, can I just come back on something on maybe what Phil was asking around earlier on the bulks performance? Because if I look at all the parts, everyone associates you as a skim company, skim milk powder. I think from your last Strategy Day, you kind of highlighted you had 35-odd thousand tonnes of that stuff to move every year and the price was down probably somewhere around about 6% year-on-year. And even if you sold them all in June, you wouldn't be up in skim. It would be flat to down by my counts. The farm gate costs are up 8% to 10%. So by all mathematical equation, you should be down year-on-year in bulk, but you're up like 68%. So, there's something else moving in there. And I guess one of the things that I look at is that these prices like MPC, WPC, particularly the high-grade stuff, the pricing is up a lot year-on-year, like some of those food grade products have almost doubled, which is in stark contrast to what's going on in skim. So, what I'm trying to figure out is how exposed are you to these other, I guess, skim derivatives? How quickly have you been able to shift the business, whether it's MOTTs, MPC, WPC, I don't know, cream cheese, all these sorts of things as opposed to skim? Because it looks like you've kind of step changed that mix in the portfolio relative to where it was maybe 3 years ago and it's insulated you quite a lot from what's been going on elsewhere in the market. Is that an accurate description?

Jonathan, I'll let Pete answer the question, but I always like to make when you answer your own question. It's fantastic. And I think your analysis of our bulk business is always spot on, but I'll let Pete give you the details.

So when we went through '23, '24, Jonathan, with that large dislocation between farm gate milk price and commodity prices, which we sat down and said, well, how do we try and change this a little bit? So, we did actually increase our capability around those powders that you talked about. And that was an amazing amount of work done by our bulk team to identify that global trends might mean that demand for those higher protein ingredients would increase. And so we did that work back in '24. And I think it certainly helped us in this year where those prices you're right, have stayed resilient. I think they'll probably be a little bit more resilient for some time to come. But obviously, that changes your mix of that protein powder pretty significantly because you concentrate a lot more of your skim to get those higher protein specs that can be used in drinks and in yogurts and all sorts of things internationally and here domestically. And we also are using more of that product in our own domestic business as well. And it's not material yet, but I suspect that as we increase our capability around protein yogurt and protein drinks, it will become significant. So yes, you're pretty much right here.

So, Pete, maybe the only other thing to add is, so yes, you're right, Jonathan, milk protein concentrate is being extraordinarily important to us. Whilst we mentioned it slightly, we've only touched on it, that asset utilization around bulk and the toll manufacturer that we do has been important to us. It helps us in a number of ways, obviously helps us with margin, but also helps us with cost -- conversion costs over the overall site. So, toll manufacturing has been good for us in the year just gone and continues to be an important part of what we do there.

And then the only other thing I would add to that is that our branded cream cheese portfolio is going very well in Southeast Asia and the Middle East, and that obviously drags volume through our bulk facilities and that cream cheese, higher protein value mix is something that we benefit from.

That was kind of going to be my second question. If I look at your revenues, then obviously, you've got to put through like your intercompany transfers, which is, I guess, mostly moving from your bulk into your branded. That's like 55% of the bulk sales this year, looks like it's gone internally. If I went back a few years ago, it was more like 35%. How much milk these days are you actually putting into kind of generic commodities? Is it much at all? Because it does look like it's changed quite a lot.

So you're right. That was always part of the strategy, Jonathan, to link the 2 businesses together. And so to try and put as much of that commodity milk into branded as we could. But it's mostly -- it's still mostly fat that goes in. So, we've got a fair bit of fat that goes to the bulk business into the branded business either through domestic cream and culinary, particularly in the foodservice, we're doing well or into that export cream cheese business, which is going very, very well. So, we still got a fair chunk of the protein coming back out through the commodity business. We're just putting the high-value items. But that interconnectivity is something that we've always been working on.

Yes. Great. And look, Gunther, just one question around the balance sheet and I guess, the debt position, I think I heard you right, $240-ish million by year-end for the headline debt number. Those off-balance sheet facilities have been coming down pretty consistently in terms of utilization. And obviously, debt, either it's off-balance sheet or on-balance sheet. I mean, where do you expect that kind of number to land? Because if I'm doing the numbers right, it's probably the lowest it's been since the facility is opened. Is it something that keeps winding down? Or do you get back into it?

In general, there has been. You're right, Jonathan, that trend to winding back the receivables facility. And over the long term, you'd expect that to continue, absent any M&A and Barry and Pete opined on M&A opportunities. The only other thing I'd say is remember that the interest rates that we have with our banking partners have a tiered approach. So, there can always be seasonal fluctuations if we decide to dial it up to make sure we're paying the right interest rate in the 12 months forward. So the answer is long term continues to go down unless M&A or other things justify it. But could you see a spike if we're really close to an interest rate tier and we want to get there? Maybe.

Your next question comes from Mark Topy with Select Equities.

First question just to return to bulk and maybe some context on the global environment. And sort of watching the GDT movements in recent times, which seem to have been upwards. Just wondering if you might comment on how we read that and how you're seeing the global context. Are we seeing a sort of an improvement from that bottom? Or is there something else in that GDT in the latest numbers?

So you're right, Topy, GDT has been rallying a little bit, more so around skim and protein. When you look at the supply as sort of global supply as a driver, global demand is reasonably consistent and we're still seeing strong supply markets, particularly out of the U.S. So, we thought the GDT might have rallied a little bit as people might have been buying towards the bottom to potentially sort of inventory store at a better price. I think the result -- the last result actually probably surprised me a little bit because I think fundamentally, supply is still strong. And so with strong supply, I would expect prices to remain subdued, I think.

I think so, Mark. I mean, strong supply out of the U.S. and expected continued strong supply out of the U.S. at the moment and then pretty strong supply out of Europe at the moment as well. So look, we would, of course, like to see that GDT improving as we go into new milk pricing seasons, but I think it's a little too early to tell, but we're not seeing any signals that would make us feel overly confident or wanting to rely on that improvement at this stage because as Pete said, we spend a lot of our time trying to watch out exactly where the supply is and where the inventories are around the world, both officially and unofficially. And at the moment, we're -- I think the foundations of those improvements are a little opaque at the moment, and we would just -- we'll continue to obviously, as we always do, watch it with interest, particularly coming into the new milk pricing season. But yes, I couldn't point you to a particular reason why we've seen those rises, which means that we are quite conservative as we observe them.

Yes, it's a bit perplexing and maybe the Aussie dollar feeding into that, how are you thinking about that at this point in time?

We're sort of projecting. It's come up over 70 in terms of the dollar, Topy, and we kind of think that strength in the Australian dollar remains, and we don't see anything that's going to cause the U.S. dollar, for example, to strengthen against the Aussie dollar in the next 6 to 12 months.

Very good. And then I wonder if you can expand on the international opportunities that you're seeing. One of the other dairy companies got pretty excited this week about the aged care sector in China and not that you're going to launch a product -- a bigger branded product, but the opportunities to act as a key supplier into that growing segment in the China and Asia market. What do you see those opportunities and international growth more broadly?

We do quite a bit of business with China, Mark. So, we have a sales office there. We do ingredients predominantly in China. We do a little bit of our branded products. Our focus is probably more on Southeast Asia and the Middle East from a branded perspective. We just think those markets are easier for us to get our arms around. And we have some really good partners in those countries, and we just want to remain focused. So, you can't do everything. I absolutely -- all the thematic trends I talked about around health span and people being active and retaining strength and vitality into their older age, I completely agree with that company's opportunity. And I think it could well be significant without being close to it. We will look to move with those thematics, but we're not a powder business.

Although I think at the branded end, no. I was going to say, I think, Mark, we've obviously been careful to retain all our capacity and capability in high-value nutritionals and the likes of infant formula. And of course, when you talk about infant formula, you're really talking about that product or the components of that product also meeting the aged care market need. We're well positioned as we were a number of years ago. I referred to it earlier around what we were as a supplier to key brands into that market where I say we're still very well positioned. And this will be a key supplier for our customers that are there. And we've got a number of them that -- and we are seeing them. We're seeing some improvement in performance in that area. But it's always been for us, one of those key capabilities that even when that sort of market was slowing and challenged, we always were very careful to make sure we maintain the capacities and the capability in that area. So, we can certainly respond to -- we can certainly be a part of the opportunity in that part of the market.

Yes. I guess that's what I was thinking about. And yes, if someone came to you and wanted a product for that market that you would certainly have that capability. And then just lastly, just on the spend that you've made on the retail side, how do you see that going forward? And I suppose it's sort of in line with the fact that we've seen some aggressive new competitors come into particularly the sort of protein milk product areas. And I suppose I'm just wondering how they're going about sourcing milk? And is there a chase for milk that's been occurring in the sector that you see going forward, but more particularly, the sort of dollars that you need to spend to stay really competitive in what's become quite an aggressive and promotional sort of sector?

Sorry, that was around white milk and milk-based beverage?

No, more like flavored milk, like protein milk. We've seen Rokeby come in very, very aggressively.

It is. I mean, the good thing is there's plenty of growth there. So, I think there's good growth for all the providers. I mean, we will continue to -- we think we've got great brands. We think we've got a good offering. We think we've got good innovation and pipeline. We just now need to back it up with good supply chain capability, which is why we're investing -- we'll invest heavily in that space. So it's always competitive market. It has been competitive in yogurt ever since we got into the category. It's pretty -- apart from Vegemite, the world is pretty competitive. So, we'll deal with that with great innovation and a great supply chain and great value.

Yes. And I think from a milk procurement point of view, Mark, it's not -- in the end, when you look at our entire milk procurement, it's not an enormous challenge in terms of procurement of milk.

It might be 6%, 7% of our pool.

Yes. So, 8% of that milk pool. Yes. And as we've often discussed, what's our objective to have most of that milk -- as much of that milk pool as possible going into branded or very high-value products. So, that's a high-value product. We're happy to be directing milk into it.

And so to follow up on that promotional spend, how should we be thinking about that going forward? Or are you going to ease back on that or just sort of maintain at the same sort of levels?

Yes. It's been interesting, and it differs by category. So, I'd say a couple of things, Mark. The most important thing is Pete referred to some of the investments we're making in our promotional AI programs. They've been really good. We need to have good offerings in terms of depth and frequency of promotions for our customers and our consumers. And these new tools are giving us even better visibility on how we can delight our customers and consumers. What that's translated into is in categories that are really growing fast like yogurt, you've seen us even lift some promotional price points where we've had great offers. So for example, our new protein pouches. The demand is so high on them that even as we've raised price, demand has risen. And the tools has helped us to sort of see that. Now in categories like milk-based beverages, you do have a lot of competition, as Pete mentioned. And so what's the right sort of balance between depth and frequency of promotions? We respond to that all the time. What I'm excited about in milk-based beverages is even though, as Pete said, we were a little late to protein, where we have launched like Dairy Farmers' smoothies, we came out several months ago. We're now doing 1 million bottles a month of Dairy Farmers' protein smoothies. And so very excited by the recent trends of launches that have happened in the last year and what they could mean for us. And we're using that tool to make sure we get the right promotional price points as we grow those.

Right. Okay. Just in total spend, you see it sort of maintaining just to get some...

Maintain, yes. It's about maintaining its puts and calls. I mean, Vegemite, you put almost not at all. Yogurt, capacity shortage nationally, as Pete said. So, we're trying to get the balance right between price and volume. And in milk-based beverages, we're investing in some of the new categories. And what you see is that some of the beverages that have more sugar, for example, are in decline and the protein and better-for-you products are in growth. And so we tailor our investment that way. But I'd say our total trade spend as a percentage of sales is fairly constant year-over-year, just different by category.

Unfortunately, we do not have time for any further questions and must conclude the call as scheduled. I'll now hand back to Mr. Irvin for any closing remarks.

Well, thank you, everyone. And given that we are over time, I'll limit my remarks to thanking the shareholders for their ongoing support. I'm very pleased to be delivering this first half result, and I think you can all understand from our perspective the enthusiasm and the momentum we have for the business. And we look forward to chatting to you in the full year and talking about what we expect to be a very good performance for the full year. Thank you.

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