Bega Cheese Limited (BGA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Bega [Technical Difficulty] [Operator Instructions] I would now like to hand the conference over [Technical Difficulty].

Good morning, everyone, and thank you for joining us. For those of you that are following on in the results presentation, I'll be very brief, but I'll start on Page 3. Look, obviously, for me, this is a number of years of presenting the Bega Group's story and I think I couldn't be happier with how the company is positioned as I speak to you today. As you know, we've had a singular strategy and focus over a long period of time to build from what was a small cooperative into a largely business-to-business style business and a commodity business into a truly branded business with great opportunities in the future. I think probably the most important thing I would say is that this business is in the position where it has wonderful brands that has great supply chain knowledge. In the year that we've just been through, particularly with events such as conflict in the Middle East, we've been able to demonstrate how agile we can be and how we can adjust to great challenges. And I think we're very well positioned for the future. Pete will talk more about this, but where we are today is positioned for opportunity. We know there is more to do and we know there is great opportunity not only here in Australia but internationally and particularly in our near neighbors. So I think if I move on to -- to the next page, Page 4, I would reinforce that the vision to become a great Australian food company is well on its way. And we have built this company on the basis of values that are very important to us. And if I was to point you to 2, I think very much reflective in this presentation and will reflect in the future, it is that we always invest in our future, and we're positioned for some great investment. We've made some great investments this year. We've got great opportunities to make further investments into the future to further improve this business to meet that strategy that said that we will be the preferred procurer of raw materials from our farmers, particularly our dairy farmers. And the way we've been able to grow our milk supply shows that the strategy makes us very, very competitive when it comes to procuring milk from our farmers. We'll have a low-cost infrastructure that can meet the market and our brands, our much loved brands. We'll respond to the market. They will respond to the consumer trends that we're seeing in health and well-being, in convenience, in value. And we have the brands that can meet and the products that can meet those consumer trends. We have an ever-improving footprint. We're embracing more and more technology to make that footprint even better. And we continue to invest in a business that is extraordinarily well positioned. That said, I think I'll leave that heavy lifting to Pete, and he'll take you through not only some of those strategic things that I mentioned, but also the achievements of the year. So Pete, I'll hand over to you.

Terrific, Barry. Thank you very much for that introduction. And I'll take us through sort of some of the key highlights and how we're thinking about what's happened in FY '26, but also how we think that will play out in FY '27. Gunther Burghardt, our CFO, will jump in and give an overlay of our financial results, and then I'll talk about how we're seeing the FY '27 outlook. Look, if we turn to Page 6, which is our key messages, we're very pleased with where we sit at the end of FY '26. We developed our strategy in the back end of FY '23, and it was really about stripping the business back with a mantra of simplifying focus and applying that to working on our key channels and categories, where we have a right to win, streamlining our asset base to create cost advantage and turning our assets much harder, so making the business more efficient. And it'd be fair to say that at this stage, 3 years into that initial 5-year strategy, we feel confident that we're achieving those outcomes and the pillars or the key direction that we set is actually being executed upon well to the point, where we've refreshed our '28 outlook to 2031, and we still feel very confident about those pillars and the direction we're heading in, and we still think there's a lot of opportunity there. The result this year, driven by really solid branded performance. The key categories we really wanted to focus on was around yogurt, milk-based beverages, spreads, where our strong brands sit and obviously cream cheese into our international markets. And around those key categories, we were able to get some real lift in better-for-you product innovation. and we continue to see that thematic evolving over the next 5 to 10 years. I'll talk about that in a little bit more detail, but we're getting really good growth and tailwinds in that specific space. And the team have done an excellent job positioning ourselves to take advantage of that -- those thematics. Our foodservice channel, which we really wanted to dial up 3 years ago when we spoke about our strategies continue to perform very strongly. We had 6% growth in that channel, which is a little bit lower than last year. But given the constraints we've been seeing in that channel around the more subdued consumer sentiment now that we were actually static, and we think that 6% certainly outperformed the market, and we continue to see good growth and innovation there. And we're positive about that channel moving forward, as I said, even with some headwinds around consumer sentiment. Our international branded business continues to perform particularly well in Southeast Asia. We were actually supply constrained in some parts of the year due to the Middle East conflict and actually demand running further ahead of our medium-term outlook. We are solving those issues as we speak, but we still achieved 4% growth in that market, and we're actually expecting that to ramp up even further in 2026. We still think that over the next 5 to 10 years, that market offers significant opportunity, and we'll continue to focus on more and more. Our bulk had a really strong year. And that sort of continues to be the evolution of the work that the business did out of a very tough year back in 2023. We've premiumized a lot of our offering. We've spent a lot of work value adding to our protein mix and also integrating that business better into our branded business so that we can continue to find different value pools. Our nutraceuticals and infant nutrition business continues to thrive. And so we're beginning to feel better and better about that business and our ability to separate that business from the commodity milk value index, which I'll talk to a little bit later on. And then, of course, underpinning that growth across the top line and our connection into our markets has continued to be a really strong focus on efficiency programs. And that will always be part of our DNA to do things better and smarter. And so if you look at that, we achieved a terrific return on funds employed result of 10%, up 1.6% points from last year, and we actually achieved our 2028 outcome a couple of years early. Our leverage has dropped to 0.8x, which continues to give us optionality about reinvestment in the business, either organically or inorganically. And I'm really pleased with our EBITDA result, which was up nearly 12% year-on-year and represents sort of a double-digit earnings CAGR over the first 3 years of our strategy, which I think we're very pleased about when we look at some of the peers in our sector and I think sort of outlines the momentum we've built in the business. We move to the next slide, which is Slide 7, where we're going to have a look at some of our financial metrics. really pleased that in a year we were able to grow EBITDA, grow top line revenue, increase our margins. So we're actually able to operate successfully across almost those key lines there. Our net revenue was driven by both a growth in volume and growth in price. EBITDA continues to represent that strong double-digit growth, and that's flowing through to our earnings per share. So we're delivering a growth environment, but at the same time, returning more earnings to our shareholders on a per share basis, which is represented in an increased dividend. Return on funds employed is an incredibly important metric to us. We wanted to turn our assets harder. We want to get a better return on all assets employed. We feel that if we can outperform our competitors across a capital life span, that just continues to build momentum in our business and long-term sustainable growth. It also just in its nature, drives a lower cost per unit. So a really important measure that we continue to focus on. As a business, we create alignment across our business on that measure all the time. I'll move on to the next slide, which is Slide 8, and it's really about creating our long-term competitive advantage. If I think about our business and what it represents, we want to have mainstream everyday brands that are ranked #1 or #2 in their category that connect well with our consumers. And then we want to underpin that with operational leverage that's best in market. We want a lower cost per unit. We want better delivery and better basics for our customers that support those brands that meet their needs. That's how I sum up our business. That's what I try to achieve. So we look at that front end of the piece. We do have 5 power brands that deliver #1 or #2 market positions in growing categories across this country. We have excellent marketing capability and sales distribution networks that support that. We are good at dealing with large customers in this marketplace, with major retailers, with food service channels, with distributors and with small business, and we pride ourselves on that. We give them great everyday brands that meet consumers' needs, have excellent value. We then underpin that with a really good low-cost, highly efficient operating network. We've got significant scale across our manufacturing capability that keeps driving our cost per unit down. So we can always go to our customers with a competitive price point. We've focused our supply footprint to be able to deliver on time and deliver innovation as it's required, and we continue to accelerate investment in technology and automation. They will always underpin -- those things always underpin our operating network. And by bringing or reducing our factories down, we can actually accelerate that. The third thing we do is we always maximize value from our key ingredients. We purchased about 1.4 billion liters of milk and the ability to use that milk extremely well, both across our branded business and our ingredients nutritional business provides excellent value and gives us competitive advantage. And milk intake actually grew by nearly 7% this year in a stable market, which means that we're offering farmers a competitive proposition because we're able to use those solids to better value, and we're extremely pleased about that. That is where we need to win. That is where we will focus on. And if we can do that, we will continue to grow our business. If I move to the next page, just underpinning the work we've done around those thematics is the transformation program we've undertaken over the last 3 years. And I'm extremely proud that the enormity of the work that we've done, the speed that we've been able to do it in and the quality of execution. And so we've undertaken a significant piece of work, and the team have done an outstanding job in delivering that work on time to broadly meet the outcomes and targets that we set forth. We wanted to increase yoghurt capability and MBB capability back in 2023. We implemented a new pouch line. We put in new packaging capability to speed up our milk-based beverage network in 2023. We closed sites in Canberra moved 30 million liters of production into our Penrith facility to drive down our cost of production. We acquired the Betta Milk business in Tasmania. We closed both of those sites and integrated those in our Lenah Valley site. We restructured our corporate head office and took out nearly 250 heads, generating more than $20 million of savings, but more importantly, aligned our capability with our strategy. We increased capability across our international foodservice business by going and hiring people that could drive that business forward. And that's what's actually -- we're now seeing the benefits of that from the growth in those channels moving forward. We innovated the lactose-free and no sugar added to start our wellness transitional journey. And in this first half of '25, we actually start to launch protein into the milk-based beverages, which has driven significant growth. We sold our Leeton site for juice extraction and actually created a far better cost to serve for our business. We repurchased our dryer at Tatura this time and actually we geared up to drive protein valorization in our Ingredients and Nutritional business, which has delivered this year in space, and we think we will continue to deliver in the years ahead. We launched our dairy farmers protein smoothies piece out of Orwell Park. We rolled out a new sales portal across all of our customer base that was digitally enabled, that's enabled us to get closer to that customer. And we invested in an infant formula canning plant to gain access to that and maintain our formula business, which continues to thrive today. We've got out of our peanut processing asset business, which enabled us to have a far more competitive footprint in peanut butter. We launched protein, which was completely replumbing our yogurt facility and which is driving a lot of our yogurt growth at the moment, which has been incredibly successful. We closed our Strathmerton site and pushed all of that volume into our Ridge Street site, and that was done within 14 months and at the cost of about $55 million and will deliver $30 million of savings to the business in 2027. But what we're really excited about is it actually opens up volume for our Southeast Asian market by giving us a globally competitive footprint. And I'm pleased to say that over FY 2027, we will make substantial investments in yogurt, cream cheese and milk-based beverages, which all link to either our wellness trends or expansion into Southeast Asia and will come online in 2028 and provide us with significant growth platforms. All of that has been done by the team here. It's being done, as I said, on time and in budget. It's created the outcomes we want. It's exposed us to growth in new markets, and we're extremely excited and pleased with our ability and track record we created to do that work. If I move on to the next slide, which is Slide 10. I'll just talk about some of the work we've done across our strategy. Obviously, significant launches focused on high protein and better for-you products. We've increased marketing spend over that time whilst -- so whilst delivering double-digit earnings spend, we've actually invested in our brands, our power brands. We've grown our international business. We've employed new expertise in those markets, both across sales, market insights, market building and our distribution networks. We've gone above and beyond in our foodservice market, as I said, achieving 6% growth. We continue to create new formats. And one of the benefits of this manufacturing footprint is that we now believe we have incredibly competitive products to offer into that food service market, and we think we can continue to grow that even over the short term with headwinds facing that channel. The bulk business, we're incredibly pleased with that. We continue to integrate more of our bulk business into our branded business. So a lot of that bulk business improvement you see is actually caused by the bulk business selling more [ fat ] products into our growing branded business, particularly in Southeast Asia. And what we're really excited about is the integration of our protein into our branded business. So as we're seeing the growth in our protein branded products that you'll see on shelf, a lot of that protein enhancement will be supplied by our bulk ingredients and nutritional business, so really pleased about that. Our infant formula business continues to do really well, and we continue to be a toll manufacturer of choice in that bulk business, and we actually picked up some money there. And we feel like we're beginning to really utilize that asset base better. And so -- and other businesses have retreated. We've kept our capacity and we're beginning to successfully monetize that. Our manufacturing footprint has gone incredibly well. We did the Strathmerton to Ridge Street change out within 14 months, which was an exceptional effort by the team. We did that at a time when we were shipping product out of Europe through the Middle East. So an enormous amount of work has gone in there to make sure that that's all worked properly. We've obviously closed PCA sites. We've actually accelerated capital investment at our key sites. So Morwell is continuing to undergo a significant transformation. As is that Tatura site around its cream cheese capability. And our chilled distribution network, we continue to optimize through the automation in Laverton and also closing down further sites like Frenchs Forest, which we will settle this year and realize some money. Software investment in AI continues to move ahead, both at an operational point, but also how we're looking at the market. So really pleased to say that we're delivering excellent AI initiatives across our pricing, promotion, our marketing, our back office and in our factories. And we will unashamedly continue to do that over the next 2 to 3 years. And we look on the movement in AI and automation as a significant opportunity for us to continue to drive cost and efficiency in our business and get closer to our customer. If I can move on to the next slide, which is Slide 11. We did relaunch or reinvigorate our strategy taking it out to 2031. The good news is that we'll continue to focus on the key elements or thematics of our 2028 strategy. We will continue to grow our core brands and categories. In particular, we'll have a key driver around milk-based beverages and yogurt and the wellness pieces attached to them. Our treats -- our spreads will focus on treat and wellness as well. And of course, our cream cheese category, which is growing at double-digit growth into Southeast Asia. And so we will invest around those core brands. Win on the street business, as I said, with our cost reduction in place and our focus of our team and the expertise we've built in the back office and our distribution networks, we think we can continue to win in foodservice and so that will provide a significant play for us moving forward. And also our ability to operate well with multisite owners at the lower end of the market -- sorry, the lower end of the market from a turnover point of view, individual turnover point of view, we think also continues to be a hunting ground for us. And so we're geared up to take those opportunities. International, I actually couldn't be more excited about the international business. I'm extremely pleased with the capability we brought into the company. Very excited about the capacity we will unlock at the start of FY '28. And so I see a significant run ahead of us, both in Southeast Asia and in the Middle East. We're focused on cream cheese, processed cheese, yogurt at this stage and certainly unlocking that yoghurt capability and cream cheese capability at the beginning of FY '28 will give ourselves a significant leg up into that Southeast Asian market, Middle East market, where we're probably currently constraining demand. Streamlining our sites, we've done some terrific work there, potentially more work to go. We always want to challenge ourselves to be the most competitive producer in this market and potentially with overseas expansion to have something that's competitive against regional manufacturing. So we still think that there's work to do with streamlining our sites and the team are very focused on that in the background. And obviously, securing solids, we're really happy with the fact that we've been able to grow our milk pool over the last 2 years in a stable milk pool environment. We think there will probably be a good chance of growing our milk pool again in FY 2027. But we continue to look for other sources of solids internationally to help sustain our growth into our international markets and help some of our large customers here in Australia, where they want to use international solids. And we believe we're a supplier of choice in that scenario. Obviously, safety remains incredibly important to us. Quality underpins everything we do. We need to continue to evolve our people not only to take direct advantage of the opportunities in the front-facing part of our business, but also to ensure that our business is AI-enabled and to take full advantage of those efficiencies we can drive through that change that we're seeing. If we move to the next slide, which is Slide 12. The consumer continues to make very deliberate decisions around the products they want to buy and eat and drink and how they create lifestyle outcomes for them. And we're seeing this trend globally. That's why we're also seeing significant shifts in the marketplace around ownership as we see traditional consumer goods companies buying or evolving themselves into these segments. In 2025, we carried out an extensive market research on key trends and thematics driving consumer behavior. And this just really helps us develop a road map for consumers, and we call this [ Project Thrive ]. That's right. And we think that this will direct a lot of our product innovation across our key brands and categories. And so these 5 points are things that we think about all the time. We don't think that this is going to be an overnight trend. We think that this will evolve over the next 5 to 10 years, and it's really important that we're a part of it. And so we look at those trends and in particular, we think about gut health. And that's really about well-being. There's some significant science now around having a healthy gut and the vagus nerve, which attaches the gut to the mind, which creates wellness around mood and overall well-being. 51% of customers in Australia are already regularly choosing food drink that specifically supports gut health and 72% of Australians have now heard of the gut mind connection. So we're seeing this real rise of probiotics and fiber into everyday diets. And we just think that this is going to continue to grow. In fact, digestive health is growing 40% in the U.S. and 79% of beverages -- sorry, there's actually 79% in U.S. beverages that support food enhancement. So we think that this trend continue to stay and it will continue to accelerate. So we're very cognizant of that. We think our yogurt and milk-based beverages play into that space very strongly. Weight wellness is also key. People are moving into weight wellness far more. Body health has actually become just as important as body image. And people are seeing that if they carry this weight throughout their life, it actually helps their health outcomes as they get older, both from an organ health perspective and a joint health perspective. That's why we're seeing the rise of GLP-1 drugs. And our products with high protein based nutrient ingredients actually play significantly into that space. So we're seeing weight wellness become a real trend and our protein yoghurts and protein beverages are really playing that. We think we have some terrific innovation around that. Obviously, everyday performance. I've talked about lifespan and health span. I've talked about muscle retention, and I've talked about that now becoming a thematic across all age groups. in the past, and that continues to grow. So we've moved from sports enhancement to just everyday enhancement across all age groups wanting to have a high protein diet and maintain their muscle skeletal strength, maintain their balance and maintain their active lifestyles. And then treat reward continues to be important. Treat reward is probably moving to how can I have a healthy treat? How can I have a small indulgence outcome in my everyday routine that doesn't break the bank, it doesn't break the health bank, and we continue to play in that space around some of our dessert yogurts, our healthy desserts, ramping up some of the treat varieties around our peanut butter, and we're seeing really good growth there. So that's something that we continue to focus on. So really strong thematics playing out globally, we think we're really well placed for that, and we're actually investing heavily in that space over the next couple of years to continue to drive really good growth in that business. If I move to the next slide, I won't spend too long other than to say those thematics that I talked about before are playing across our key categories. You can see the unbelievable growth there. That is both volume and price. So as we're stepping up the wellness trends and we're adding functional outcomes, we're actually able to charge more for those products. So we're seeing both a really nice balance of growth in volume and price. And of course, we play really strongly across those key categories with either #1 or #2 position. If I move on to Slide 14, just really touching on that protein. We've done a huge amount of work across MBB, white milk and yogurt across those core brands. In 2025, we sold $20 million of product associated with those key thematics calling out protein and gut health. In 2026, we sold $95 million of product with those key trends. And in 2027, we are now close to doubling that again. Now some of that is from our traditional products, but a lot of it is incremental growth. And so we're really excited about that, which is why we're investing in those key factories around that space. Now moving on to Slide 15. Obviously, we're doing some really good work in market. We've increased our marketing spend by $9 million focusing on communicating those functional benefits to our clients across our -- to our customers, across our consumers across our key 5 brands. We're doing that in a really targeted way through social media and very happy with the reach we're getting and the communication of that message, which is reflected in our growth around those categories. If I move on to Page 16. The manufacturing network continues to be really important to us. That Ridge Street site was really a microcosm of how we think about things. We closed down an older site that was under capacity. We've reinvested state-of-the-art technology into another site. We've doubled its volume. We've made it globally competitive. And we think that some is now future proof for the next decade to grow with our expansion in that area. That really reflects what we're trying to do at Morwell. It reflects what we've tried to do with our Orwell Park footprint and our milk white -- our white milk footprint. That project was done in 14 months, the Ridge Street project. It was an unbelievable effort by the team. It's been executed superbly. And I'm really pleased with that sort of that muscle memory that we've built around those sorts of projects and our ability to do more of those projects into the future. You'll see there a photo on that slide of our new pouch line that we put in. That was also executed in just over 12 months. And we're really excited about the work we're going to be doing at Morwell right now that will actually have us ready for another significant expansion in 2028. So really pleased about the way we've been able to execute operationally. I go to the next slide, which is Slide 17, and that's a slide that we often talk about, and it's still very relevant to our business, but it's relevant from a point of view about what we're doing about the relationship that we have with that chart. So that's the commodity milk value for the Victorian milk price there. You'll see the blue line represents the return on a commodity value index, which is the total market index and the red line is actually our plant-based milk price. In the past, when those lines dispersed, particularly when the blue line fell well below the red line, we would feel fairly significant pain. And look, we still have some attachments to that blue line, but we've done a huge amount of work to actually create a buffer against that. And that's probably reflected in the results that you see in our bulk business now, where commodities did actually pull away. But because we've worked ourselves as a higher protein, high-value protein assets, we're doing more with that protein. We're selling more lactoferrin. We have found better homes for our fat in our branded network. We are actually buffering ourselves from that blue line significantly. And so we will continue to work towards that over the next few years, as we grow our infant formula business, as we ramp up our drying capacity through the [ MSD2] dryer that we bought back off Mead Johnson. And so we will continue to move further and further away from that value commodity index and that will become a smaller part of our business. And so we're extremely excited about that. So the bulk business was a great result -- but what was really pleasing it was done in line with a fairly significant gap to that farm gate milk price. What I would also say is that we've actually increased our milk pool by our milk intake by nearly 7% in a stable milk environment. I think what that reflects is farmers are voting with their actions for their feet. We have more farmers wanting to come and join us because they see our cost as a sustainable cost they can grow their businesses with. And our existing farmers in many cases, are actually growing their milk pool for the same reason. So I remain extremely buoyed about the industry. I'm really pleased that our farmers are happy to supply us to the point, where they're giving us more milk. I think it's creating a sustainable environment for both us and them. And I would say that as I get out and talk to farmers, the majority of the overwhelming sentiment about our industry is extremely positive. Thank you for that. I'll now throw it to Gunther Burghardt to push through our key financial metrics.

Fantastic. Thank you very much, Pete, and I'll go to Slide 19. I'll be very brief. I think Pete covered this well. As Pete mentioned, we got together and I cast our minds back to April when we had our Investor Day. And not only did we refresh and extend our time horizon to F '31, we also gave more detail in April about how F '26 would land. And I want to refer back to a few callouts from that Investor Day. One of the things we said is that our net revenue would be between $3.7 billion and $3.8 billion, and we came right near the top end of that guidance. Pete called out yogurt is growing very strongly year-over-year in milk-based beverages. And in our bulk business, cream cheese, infant formula and milk protein concentrate all ends up strong double-digit growth in Q4 compared to the prior year, which helped us to get to the top end of that revenue guidance. Back in April, we also said our branded segment will grow from $205 million in the previous year to a range of between $215 million and $220 million. I'm pleased to report it exceeded the top end of that range and delivered $221 million, again, on the strength of core franchises, but even with legacy categories like fresh white drinking milk performing very well and strength in culinary creams in our foodservice area. So that was very pleasing. We outlined our bulk segment would land at $50 million to $55 million and it landed near the top of that at $53 million, which was excellent. The truth is we could have over-delivered that profit by several million more. But in June, we decided to set aside $6 million in our unallocated overheads for an efficiency program, which is going to benefit us in F '27 and beyond. And Pete talked about our AI programs and our general efficiency programs. So we did set aside inside our results, $6 million for that. We did not normalize that cost because we tend to have an efficiency program in our back office every year. The things we're most proud about, as Pete mentioned, is really our return on funds employed and our leverage. In April, we called out 1.3x leverage and significantly beat that with a 0.8x result, keeping that in line with the previous year. So that's an excellent result. Pete is going to talk in a couple of minutes about our F '27 outlook. And you will have seen from the deck that we have a high level of confidence in delivering another $15 million to $20 million of EBITDA growth next year. That is going to be back half weighted. In the first half of the year, we expect our bulk business to come off a little bit, perhaps about $10 million, but we expect our branded growth to accelerate, and that will at least offset any declines in bulk in H1. So you'll see a lot of our profit growth coming in the second half of the year. In terms of things like depreciation and amortization, for those of you looking forward to F '27, we're expecting around $98 million to $99 million of depreciation and amortization, and we're expecting a normalized effective tax rate of between 28% and 29% for next year. All of those things come together and say that we should have normalized EPS growth just in the double digits, a little over $0.25. So another great year of growth ahead of us, and we're very confident in that. As you move forward to Page 20, really only 2 figures I'm going to touch on, on this page. One is the gross margin. It did come down a little bit. And even though core categories like yogurt were very strong in terms of margin growth. I'll remind you, we do have a cheese, a natural cheese and processed cheese toll manufacturing business. Cheese prices did drop along with butter prices over the last 12 months, and they offset some of the growth in gross margin in our core business. We're very confident that gross margin will continue to climb higher in F '27 and beyond, particularly given the scope of the cost savings that Pete outlined in his presentation. Our dividend of $0.145, up 21%, and we have well over $100 million of franking credits in the bank to allow great future dividends. And I know this has been a very important theme in this results season. I can skip over Slide 21. And on Slide 22, you see a little bit more detail on the segments. And there's really just 2 things I'd call out that haven't been said already. I do want to reflect on the good balanced delivery. Both our branded and our bulk segment both grew EBITDA by about $15 million each, which is very strong and shows the balance and the importance of those 2 segments in our business. The revenue growth for the group at 6.7%, that was about 2% in volume and the remainder was product mix and mix between our categories and of course, prices, which recovered cost inflation. And so that's how that revenue growth breaks down. As you look at '27, yes, we do expect our nutritionals and ingredients business to go back a little bit, and Pete talked about the commodity chart at the end of his presentation. So you might see it go backwards $5 million to $10 million, but we do expect a dramatic acceleration in our branded business to at least $25 million. So that's going to be very positive. The next slide is Slide 23, and that shows the normalization of our results. And in our earnings call at the half year and last year, people asked for a little bit more detail on this one. So the manufacturing footprint rationalization, we had $22 million of onetime costs. $13 million of that was to achieve the Strathmerton to Ridge Street project that Pete talked about. And within that $13 million, about $7.5 million was employee costs and the remainder was other onetime transition costs and inventory costs of achieving that site consolidation. The remaining $9 million related to our PCA exit, our peanut processing exit in Green Plant. That was $3 million loss on the sale, $3 million of employee costs and $3 million of other transition and inventory costs. I'm going to skip the balance sheet on Slide 24 and finish off with a couple of comments on cash flow in Slide 25. And I would just say this, not only did we step up our capital expenditure to $110 million in FY '26, we also had $37 million of cash cost to achieve our various supply footprint initiatives. And in spite of this, we delivered 0.8x leverage. We will continue to have great investment in growth initiatives going into F '27, but we will deleverage further to 0.7x or better. So we're very pleased to see the continued strength of our cash flows and our balance sheet. You've seen in this period, Pete mentioned the Frenchs Forest sale. So as we're investing more in CapEx, we're taking bits of property that are no longer needed. We're recognizing cash from those. You are going to see more of that in F '27. So our net CapEx investment is not as great as our gross CapEx investment in our growth initiatives. So we are very confident next year, we will have over $0.25 of normalized EPS, and Pete is going to talk about the outlook for F '27. Back to you, Pete.

Thank you, Gunther. So I think we've got a strong 2027 outlook of $240 million to $245 million. That's in light of significant cost increases incurred by the Middle East, which we factored into that number. I think it will be driven off a really strong branded new product development pipeline, both across yogurt and milk-based beverages. Obviously, the cost bridge that we've put in place over the last couple of years will bear fruit being the closure of the Strathmerton site and the Laverton logistics program that we carried out last year. We've got some really good work being done around our Nutritionals business in the bulk business there, which we're very excited about. And we're actually going to invest $110 million on growth capacity for FY 2028. So this year will be underpinned by a fair bit of cost efficiency, but we're really excited about the growth trajectory with our innovation and our capacity unlocks that will happen towards the very back end of 2027, the start of 2028. So we remain extremely excited about the business outlook, about our $310 million strategy and the opportunities that we have ahead of us. I'd just really like to thank the Board and our team for their very hard work and alignment. Our people have done an amazing job of transitioning the business over the last couple of years. There's been a huge amount of discretionary effort. I'd like to thank our customers for their continued support and consumers wanting to buy our product, and we really look forward to working and meeting all of their needs in the future. And I'd like to thank our shareholders for their support. I guess now I open this up to any questions.

[Operator Instructions] Your first question comes from Julia de Sterke with Morgan Stanley.

Just wanted to start with your outlook in the branded business and how you're thinking about pricing power there given the structural growth tailwinds that you guys have spoken to today continuing to benefit the category and the significant innovation pipeline that now seems to be baked in over the next couple of years?

Yes. So we sort of worked with our customers to get our pricing set pretty early in the year. And so we're reasonably comfortable with that, and that sort of sets us up for that number that we've talked about. We do keep a close eye on geopolitical events and spikes and falls occur around that, but we try not to be knee-jerk to those headwinds. So we think that we're well priced in the market. We do a lot of work around our promotional effectiveness and making sure that we turn up to our customers and our consumers with value. And then how we think about the next couple of years is we're going to be bringing on a lot of capacity in those growth areas. That capacity will also bring synergies with it, operational synergies with it. So we will ensure that we always remain competitive. And we think that the dairy count is actually pretty well priced. So -- but if you think -- if you go back to those basic things we have, we want to have #1, #2 mainstream brands that really meet our consumer needs, and we want to have the best operational footprint supporting them. And so we think that we'll continue to be competitive and that we'll continue to be able to grow our margin off the back of those tailwinds.

Got it. Very helpful. And then just secondly, just your comments around tracking ahead of your previous F28 strategic plan. I guess looking forward into '28, what now is giving you more confidence on that trajectory there that's kind of leading you to make those comments? Is it around kind of earlier-than-expected supply chain? Or is it around some of the growth you're seeing in the branded business?

Look, probably both, I think. So certainly, we anticipate to try and be at $250 million by 2028. We're obviously going to be very close to that this year. But I would say that we're seeing better branded growth than what we would have thought 3 or 4 years ago. But the protein and wellness piece is just playing out much more aggressively than what we thought. Why I get really confident in 2028 is that we'll be bringing on increased more than 25% yoghurt capacity at the start of 2028 to meet those needs. We're currently constraining the market, both here and overseas. We're bringing on more than 20% cream cheese capacity to meet real tailwinds in Southeast Asia at the beginning of 2028. And we're bringing on MBB capacity. That's what that $110 million is going towards effectively those 3 categories throughout this year to really set us up for expansion in 2028. So we're really excited about that. So that thematic is definitely stronger than what we thought. I mentioned the protein growth during my presentation. We've got gut health coming into that as well. We don't see that going anywhere based on what we're seeing overseas. So we think there's growth there. And of course, with that growth, your cost-out initiatives actually end up paying more than what you think because you're driving volume through a more optimized network. So in actual fact, every dollar of growth, and that's how we think about every dollar of growth in a more optimized network actually drops more to the bottom line. So it'd be fair to say we haven't made those optimization decisions a couple of years ago, we'd still be getting growth now, but we wouldn't be seeing the size of the benefit. So that's sort of how we think about it. But I think the 2031 strategy is very much underpinned around capacity and growth in these key areas.

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

I just wanted to maybe go through those building blocks that you went through, Gunther to sort of get the earnings growth. The bulk business, you're sort of saying down 10-ish, not down towards that sort of [ $30 million ] level or.

I would say [indiscernible] this year, we delivered $53 million in bulk, Phil. And so I would figure it's down $5 million to $10 million. And I think branded will be up about $25 million.

And just understanding the drivers of that, I mean, is that -- where the 30-odd -- is the $30 million an annualized number of cost savings? Or is that the total amount because I think the projects basically finished earlier than expected or completed earlier than expected in June '26. So is that $30 million, you get $30 million [indiscernible].

Yes, that's right, Phil. And that's what gives us so much confidence in next year. We do have cost inflation every year. So if you look at cost inflation, the $30-some-odd million of savings that Pete just talked about is a gross number. And that's going to underline a lot of our profit growth going into next year. So even if we have some Middle East headwinds and even if we have some FX headwinds, as it goes north of $0.70, that $37 million of cost savings is going to offset cost inflation. It's going to offset FX movements, and it's going to enable us to grow at least $25 million in branded EBITDA or more.

Yes. And that's a bit -- I guess I was trying to get to is that growth in branded that where all the cost savings are ending up? Or are they also partly ending up in the bulk business, and that's why it's only down $5 million to $10 million, whereas I think normally, you have said -- I know you're being conservative, but you were sort of saying a $30 million to $40 million range for bulk over the medium term for [indiscernible].

Yes, that's right. And I would say a couple of things. Most of the cost savings, when you think about it, the 2 big projects that will benefit branded next year is that cheese consolidation, which is almost entirely branded. And the PCA savings actually came early, which was great in F '26. We got some benefit this year. And then we're going to get some -- then we're going to get, of course, the Laverton automation and that's worth several million dollars of savings. That project just finished in Q4. And so that really underlines why we're so confident in that $25 million plus, Phil. And I hear your word conservative and I hope you're right there. But we've certainly got a lot of our bricks in place for next year, as you said in your question.

Phil, it's Barry here, probably just worth adding that if we look at the bulk performance last year, we did see a stronger alignment. As Pete said, there is still some exposure to those global commodity prices. And at the beginning of last year, we saw a strong alignment in farm gate milk price to those global commodity prices. It obviously fell away through the year, but that strong alignment at the beginning was obviously advantageous and probably largely describes the change to more within the range that we expected in the format. But having said that, I think we'll perhaps reinforce what Pete was saying that we're still getting good performance out of it, but there is some impact by that change.

Yes. And just last clarifying point. I wasn't sure if I was getting old and I can't hear as well. Did you say just slightly under $0.25 of EPS? I thought you said slightly...

I said, slightly over, over.

That's what I thought. I just wanted to clarify that.

Your next question comes from Ajay Maraswami with Macquarie.

First one for me is just around your supermarket customers, we're seeing a little bit of range rationalization happening. And given your brands are sort of sitting in that #1 and #2 in the category, actually, can you give us a bit of color around whether you're seeing any additional allocation on shelf as a rationalized range? Or how is that sort of playing out at the moment?

We work really closely with the majors around that. We continually have to work with them to make sure that we've got a really competitive offering, both from a functional point of view, new news point of view and pricing point of view. And so that's something that we're really aligned on with all the big players and we're really happy with our shelf space. So we think we've been able to solidify our key brands on the shelf with actually all of our large suppliers and we're really happy with our relationship with them at the moment and how we're working with them.

And then secondly, just on the international business, the growth there is pretty strong around 12% and just looking at your pack, it's about 9% of your branded revenue. Can you just give us a bit of color around the profit contribution and what it is relative to the rest of the branded business and how much operating leverage could be in there if you guys continue to deliver this type of growth into '27?

Yes. So it's -- I don't like to quite talk -- don't like -- we don't usually divulge our international margins, except to say that we're very happy with it and that we want to continue to grow that part of the business because it is delivering solid margins. We think that the branded business overseas will continue to do well, but we're really looking forward to unlocking capacity in 2028. So it would be fair to say that we could sell more yogurt, more cream cheese if we have the capacity and we're really excited about those extensions that are coming to our business because at the moment, we're probably constraining that growth. That growth will be more if we have more product to supply.

Your next question comes from Josh Kannourakis with Barrenjoey.

Can you guys hear me okay? Great. First one, just maybe for Barry or Pete, just in terms of from the milk supply environment and going outlets, like obviously, we've had quite a bit of consolidation domestically. And I think from the commodity perspective, it looks like some of your other big competitors are a little bit more exposed to maybe some of the cheese commodity elements, which obviously haven't been as strong as protein. I'm just wondering that backdrop, I guess, hasn't -- always hasn't been present for a while. Like does that create a more rational environment going forward? What are you sort of seeing in terms of the milk supply environment ecosystem and sort of competitive dynamics going forward?

So Josh, I think I'd say 2 things. We would still see competition for milk as being pretty willing as we came into this year. I mean I think for some of the bigger players, it's important for them to retain milk because if you lose it, even if your mix is working against you in a particular year, it's very hard to win it back. And I think we've seen that in prior years. So I think what probably is that makes us very positive is that in each of the regions we're operating in, we've seen sometimes the larger players and sometimes it is, in fact, a market disruptor that are active in supply and we find that our mix and the fact that we're a fully integrated right through brand see us able to compete against all comers, if you like, and compete well. And that's what's really been demonstrated in the last few years. So -- and to sort of refer to Pete's comment earlier, I've often talked about the fact that we've got somewhat to speed where you've got young people in the industry that are investing strongly and growing really quickly. And then you've got some people who don't have succession at their properties and they've been leaving and that's been part of the impact of why we've seen supply constrained. There's no question that as we move around our supply base, we've got a number of suppliers that are increasing their production significantly, which is what we want to see. And we've also been able to attract a number of large suppliers that see a great strategic alignment with us in terms of what they're trying to do. But I would say in terms of milk procurement this year and the previous year, it's been reasonably willing. It's been at the top end of the market, but it hasn't been irrational. It hasn't been that level of irrationality that we experienced a few years ago. And we do see and we saw again this year, some traders and some players removing themselves from the market because they've had experience and sort of demonstrated that they actually can't be rational. And so I think we're in a pretty good position in terms of procurement.

Great. And then just in terms of one for Pete and Gunther perhaps, obviously, a significant step-up that you absorbed in marketing investment this year. It sounds like you'll sort of continue that. Can we just talk a little bit about into the next 12 months in terms of some of the product development and maybe some of the innovation focus that's coming out as well and what we should be expecting to see?

I don't want to give too much away, Josh, but what I will say is that we're continuing to -- we've actually got some really good product offerings, as I said, very much focused around those 5 key themes that we talked about. Some of it has proven to be very successful overseas. Some of it's sort of pretty much cutting edge, but it will be addressing all the sorts of functional needs that consumers are after around better lifestyle outcomes, longevity, health outcomes, fitness outcomes. So we've got some really good product. And we've actually spent a fair bit of time and effort getting our factories ready to do that. So -- the Morwell plant was built back in the '90s. It's a fantastic facility, but it was built around fruit flavored yogurt. So we've done a huge amount of effort and work around getting that ready to dose protein, low sugar, low macro sort of products. And now we're really excited about running with that. It's the same in the milk-based beverage capability. So we've got a lot of capability around the core of those products that will bring those functional benefits to life. So really, really pleased with our suite of initiatives that we've got going forward. And you'll see some really good news on shelf in October, November around MBB and then some terrific stuff launching around yogurt and MBB again in March, April. It's all presold major customers and we're really excited with that.

Great. And maybe another way to ask that, if we look at sort of the product release, new product release cadence, I guess, versus '26 is sort of '27 similar, less, more based on where you're sort of sitting today?

Probably a bit more, Josh, probably, which we're pleased with, probably a little bit more -- we think we probably played a little bit of catch-up on protein. We're extremely happy with our results, particularly in the milk-based beverages where we've made significant ground very, very quickly. So probably far better than what we initially thought. And now I think that with some of our launches, we have the ability to probably step out in front of the market.

Yes. Great. And final one, just for Gunther. Obviously, a bit of -- in terms of investment, software investment that you've sort of talked about an AI-related investment in the period, Gunther. How should we sort of think about that in terms of, I guess, the line items going forward? Like I know you've got -- you obviously guided to broadly in terms of where we are in next year. But as we look over the next years, what are some of the opportunities for Bega as a group across implementing some of those new and next-gen sort of AI and automation products?

Yes, it's a great question, Josh. We've been very excited about that. Pete talked about the revenue management -- strategic revenue management software that we implemented last year. That was the fastest returning project that Bega has ever implemented. We had probably $2 million to $3 million of software implementation costs in our OpEx in the last year. And we think it will be a similar amount as we get into F '27 and we're very excited about the potential for that, not only for efficiency but also for capability, Josh. So really finding the workforce embracing that and that's accelerating for us. So very exciting and $2 million to $3 million is what I expect, but that's broadly similar year-over-year. And we're actually assuming that our unallocated overheads are probably fairly similar year-over-year, plus or minus a few million.