Clover Corporation Limited (CLV) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Rupert Harrington, I'm the Chairman of Clover Corporation. I welcome shareholders and visitors to the 2020 Annual General Meeting of the company. I acknowledge the traditional owners of the land on which we are meeting. I pay my respects to the elders, past and present, and the Aboriginal elders of other communities who're may be here today. The Company Secretary has informed me that a quorum is present, and therefore, I formally declare the meeting open. As this is the first virtual Annual General Meeting of the company, you would experience a few changes to the format of the meeting. By reason of travel restrictions in place, particularly in Victoria, your Board is not assembled in one place. Before we proceed, I would like to introduce you to the members of your Board: Mr. Peter Davey, Managing Director and CEO; Toni Brendish; Simon Green; Graeme Billings, who is also the Chair of the Audit and Risk Committee; and Ian Glasson, who is the Chair of the Audit of the Remuneration Committee. Also present is Mr. Paul Sherman, the company's Secretary and CFO, who will be acting as moderator for any questions; and Mr. Steven Bradby representing our auditor, PKF. I propose that the final notice of the meeting, date 22 October, 2020, which was emailed to shareholders to be treated as read unless there are any objections. This meeting has been facilitated in virtual format by Chorus Call conference call platform and Lumi voting platform. Lumi has facilitated over 2,500 virtual meetings in 35 countries this year. This platform allows shareholders, proxies and guests to attend the meeting virtually. To attend this meeting, you will have downloaded the Lumi app and inserted the credentials provided to you that will recognize you as a shareholder or a proxy. Alternatively, you may have entered as a visitor or a guest. All attendees can watch a live webcast of the meeting. Only shareholders and proxies have the ability to ask questions and submit votes. Questions can be submitted at any time. To ask a question in the Chorus Call homepage, there is a box, Ask a Question. You can type in your question and press submit question. Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting, even when the particular item of business is open for discussion, or after the close of business, before the close of -- voting polls closed, or after the conclusion of general business. I ask that in the interest of time and in order to allow as many questions as possible to be addressed, please try to keep your questions to a moderate length. Please also note that your questions may be moderated, or if we receive multiple questions on one topic, amalgamated together. Finally, due to time constraints, we may run out of time to answer all of your questions. If this happens, we will answer them in due course via email or by posting responses on our website. Before we move to the formal business of the meeting, I would like to present the Chairman's address. During 2020, Australia, the world and globe have faced incredible hardship with bushfires, COVID-19 and regulatory changes. I'm heartened by the resilience of the global community and the outstanding performance of the company. Clover focused on managing the health and safety of its staff as its priority during the COVID-19 pandemic, whilst continuing to ensure that its customers' requirements continue to be met. The company implemented a COVID-19 safety plan in March to reduce the possibility of staff infection and the impact on the business should an infection occur. The Managing Director, Peter Davey, and his management team are to be congratulated on their rapid establishment of plans for the business, their excellent communication of these to staff and the minimal disruption to the business activities of Clover through this difficult period. Clover did not seek nor did they receive any government support such as Jobkeeper. Over the 12 months ending the 31st of July 2020, the company achieved a statutory NPAT of $12.5 million, 23.8% higher than the prior year. Diluted earnings per share grew 22.7% to $0.0751 per share. We believe that the third and fourth quarter results have been boosted by our customers building their inventories, due to uncertainties in the -- of the potential impact of COVID-19 pandemic on areas such as sourcing of their raw material and the ability of their suppliers to manufacture and export ingredients essential to their finished products. At the same time, pantry stacking by some retail customers has increased sales of our customers' finished products. Our balance sheet remains strong with cash of $9.2 million and net debt of $5.4 million, that places the business well to support growth opportunities and to service existing debt. Debt is being used to fund the purchase of our factory and head office in Altona, Victoria, and our investment in the recently established new spray drying facility at Melody Dairies in New Zealand. A fully franked final dividend for financial year 2020 of $0.025 per share was paid to shareholders, which was a 5% increase on the prior year. The company has benefited from years of research and development work and business development activity with additional customers and new and improved products added during the financial year. The increasing scientific evidence and awareness of the health benefits of omega-3 fatty acids continue to open up a range of new product opportunities for the company outside of our traditional focus on the infant formula market. Whilst we believe that the underlying fundamentals for demand in the infant formula market remains strong, in our update announcement to the ASX on the 20th of October, we notified the market that we had experienced reduced orders to forecast for infant -- from infant formula manufacturers for the first quarter of 2021. The uncertainty around supply chain issues and COVID-19 continue, and we reiterate our previous advice that revenues for the first half of 2021 will be down 15% to 25% on the first half of financial year 2020. Clover maintains its strong market position and continues to pursue several growth opportunities. As shareholders would be aware, we have -- there have been changes to the Board. Merilyn Sleigh and Cheryl Hayman, who have been Non-Executive Directors for the past 12 years, have stood down from the Board. On behalf of the company, I would like to express our appreciation and thanks to them for their valuable contributions to the development of Clover as it grew through the expansion of its commercial base and its sales, particularly to international markets. I would like to acknowledge Peter, the senior management team, our employees and my fellow Directors for their continued commitment, diligence, and work ethic to progress the potential of this important company. Finally, thank you, our shareholders, for your continued support and interest in the company. I would now invite Peter Davey to give the Managing Director's presentation.

Thank you, Rupert. Good morning, shareholders. This is the Managing Director's report, 12 months to 31st July, 2020. The vision, value and purpose of our business. The vision of the company is to optimize the health and development of adults, infants and children. I've always said, what we do is good. The values of the business is respect, response and responsibility, 3 core values that we take throughout the entire company. And our purpose of the company is in collaboration with key market participants, Clover develop customized high-value nutritional ingredients that enhance the wellbeing and dietary needs of their customers. I'll now take you to the performance highlights for the financial year. Overall, very happy with the year. It was a record year for the company and a real improvement on the prior year. Revenue was $88.3 million, up 15% on the prior year. Net profit improved 23.6% to $12.5 million. Our operating expenses remained in line with our revenue at $11.4 million. A lot of the growth was driven by new customers and new products that we have delivered into the marketplace over the last 5 years. These allowed us to get into new territories as well. I'll take you through all the details around that in the future slides. Our inventory position was $31.9 million, up $4.2 million on the prior year, and we'll cover that more in the details around COVID. The balance sheet remains strong in the business with cash at $9.2 million, many of you may recall at the half year, it was basically 0, so the second half of the year was an excellent result for delivering cash to the business. And overall, very proudly the business -- the Board has delivered $0.025 per share, a 5% increase and a record dividend for the company as well. COVID has taken us all by surprise during the year, but the company has responded reasonably well to it and taken it in our stride. Overall, the company focus has been very much on health and safety of our people. And so in March, we put in place our COVID plans, and effectively, they remain in place today, which has allowed us to remain operational through the entire period. We've managed to meet all customer demand. From March, we put in place an additional buffer stock, which allowed us to meet some very high demand that came in the second half of the year. So we believe that in Q3 and Q4, the business was positively impacted by COVID with customers' demand increasing quite substantially and that was across the board globally. We have not sought or received any government assistance. One of our new program development has been curtailed. We haven't been able to travel, and that's been a traditional driver of our business. A lot of our customers need to come to our sites and do audits, and they haven't been able to do that. So there is business that we haven't been able to bring on. And traditionally, we've attended the major trade shows around the world. Obviously, travel has prevented us from going to those, but most of those have been stopped this year or in the FY '20 year, because of the inability of people to travel around the world. Demand in the US where we're expecting to see some really good growth has certainly been constrained, and many new product -- programs that we were starting on and have initiated have been put on hold, but they should return once COVID is under control. And what the company has done is, we've resourced our overseas businesses where we can't travel. We put more people into the marketplace overseas so we can at least talk to people within their own time zones and service them directly in the market. The profit and loss statement for the year. As I said, 15% growth year-on-year in revenue, very good year for the business, really highlighted growth we got out of Europe, whilst Australia and New Zealand remained very much key regions for the business. The EBITDA positioned, $18.9 million, up from $14 million in the prior year. Our fixed costs remained very much in line with our revenue position, and we have been resourcing for future growth. So we've added additional people into the business, and we've put more into our research and development programs for new product development. Overall, our net profit after tax result was $12.5 million, a record result for the business, an improvement on the $10.1 million in the prior year. The balance sheet sets a very good strong cash position, $9.2 million, generally maintain a strong cash position as a lot of the purchases that we make are quite lumpy and we buy in large amounts at point times in a year. The trade receivables and payables are very much at point in time and really reflective of what happened at the end of the year. And our inventory levels, as we've had increased demand, we've met. But also being under COVID, we put in additional inventory just in case we weren't able to produce, but also to meet potential spikes in demand. COVID was driving certainly uncertainty at the beginning of the year, and I'm sure everyone's well aware that it's driven much change in all marketplaces around the world, and we haven't been held outside of that. Sales by geography. Sales across all of our key regions grew during the year compared to FY '19 year. Asia and the EU received considerable growth driven by the infant formula market in China. And in the US market, we grew products outside of the infant formula market, so into the food sector, into different drinks and powders, shakes, gummies and health bars. In the EU, we were provided with a significant boost in sales as the EU changed legislation around the inclusion of their products similar to ours or our product into the EU-made infant formula product. I'll cover that more in the future slide. And then the growth in the US was impacted by COVID, a lot of the projects are on hold, but we still did see growth across the US marketplace as well, quite minor compared to the rest of the market. Melody Dairies in New Zealand. So Clover invested in a company called Melody Dairies back in 2019. That company was to build new nutritional spray dryer as a joint venture business in Hamilton, New Zealand, which has -- was conducted during the financial year 2020. The company owns 22 -- 42% of the equity, and we have 42% of the dryer capacity access as well to make our products. Effectively, it will give us the ability to double our capacity as the business grows into the future. The construction of the spray dryer went extremely well. It was completed on time, effectively on budget, and we are now going through qualification trials, which are progressing well. Customer audits like many things have been impacted by COVID, preventing travel, which has slowed the start-up in terms of volume. And -- so many of our customers need to travel out of Asia and out of Europe, and they haven't been able to travel into New Zealand where they would do an audit of the facility, and therefore, approve it for manufacturing products that would then go into this. And until that can occur, we will not get into full production on that facility. So the dryer was built to remove risk from the business and give us a supplementation to our existing manufacturing capabilities that we have in Australia. And it's been really welcomed by many of our customers. The facility has really come off very well for a project that started and finished a long time. So each time we talk, we talk about an update on the different growth platforms of the business, and we always discuss those in terms of the 3 key strategies around the new product development, our focus on infant formula and new market development. First of all, the new product development has been driving growth for the future. Research and development has a range of new products we've created in conjunction with customers that will fuel future growth. So what the business does as we work, specifically with customers that come to us or we go to with ideas or issues and we resolve those with product development, and then they will be incorporated into future products that the customers will release into the marketplace, so there are several programs there. And we always have a very strong pipeline of growth projects. Last year, I spoke to you about a new product that was relaunched, which was a very highly concentrated omega-3 or DHA powder and that's allowed us to win additional business into bread, into yogurts, into health bars and sports nutrition. So it's one of the drivers of growth of the business. We've also participated in a clinical trial with our products. So we've taken our powder, incorporated into infant formula products, and then there was a clinical trial with toddlers which has proven the bioavailability of that product, so it ensures that the baby is actually getting the benefit of the product in a powder form that we can show that it's been taken up into their bloodstream and getting the use out of it. So that's added significant credibility to our product and helps our customers justify the use and the sale of their product that they know that it's actually going to get the impact that -- which the product describes. The infant formula market has continued to grow. The EU legislation which we spoke about in prior years where a product -- an infant formula product that's made for the and sold in the EU has to have 20 milligrams per 100 kcalories of DHA. So effectively, it's around doubling the usage of DHA in the EU marketplace. Traditionally, we weren't strong in the EU marketplace because they were using direct injection of oils rather than powders. You can see in the results, we've had a significant pick up into the EU marketplace with expectation that we'll get future growth in that. The take-up of the 20 milligrams is very difficult to understand, given the COVID implications in the marketplace at the moment. But there's many countries that are still closed down, factories that are closed down, and they've gone back into lockdown due to the current COVID situation. The China business grew significantly especially into the second half, and we saw that improved the results of their sales. But all of our customers picked up a significant benefit and improved demand in the second half of the financial year. And China maintains a DRAFT legislation, which would require infant formula that is sold in China, made in China or made outside, but for sale in China that would require a minimum of 15 milligrams per 100 kcalories of DHA, which is an omega-3 and IRI, which is an omega-6. And so we have started discussing this with local manufacturers and overseas manufacturers where they can make the potential legislative change. It is still in DRAFT legislation, there are expectations that it will turn into real legislation, and we are working on product development with customers and that may take another year or 2 before the legislation comes to fruition. Other growth platform is new market development. So we're certainly focused on getting outside of our core business over the last 5 years into overseas markets and growing overseas. We're growing our sales across all markets, and we've increased our exposure into the food segments and other applications like nutraceuticals. Traditionally, we've been very strong in the infant formula marketplace, but in recent years, we focused on diversifying the base of the business. We are now selling into Asia, the EU and the U.S.A., a stick pack, which is a ready-to-drink formula that comes in a small pouch. It can be mixed into water or milk. And we also have DHA gummies which are being sold in the EU, Asia and U.S.A. as well with new customers coming on board. In response to the travel restrictions that have been put in place around COVID, we placed new staff into the U.S.A., into Europe, in China, and they are helping us service the marketplace in a very difficult situation. Many of our customers have closed their businesses down, working from home, which has made a lot of the projects that we're working on have been put on hold as well. So new product development certainly gone on to the back burn with most customers across the market, they're really focusing very much on COVID outcome products which are theirs and their traditional line of products. The company has also embarked on an online program where we have a series of training that we are taking to customers to help them in doing product development and selling our products and solutions for those customers, which has really proven very effective and allowed us to maintain communication on a virtual basis, keeping the connections and relationships going across the market. They are the 3 key growth programs. So it takes me to the first half of the financial year '21, the outlook and the priorities for the business. Again, our key focus will be on health and safety in our business as it always is. We've only recorded one lost-time injury for 2020 in our manufacturing operation. And we're pretty pleased with it, it was a minor lost-time injury. And we've had -- we will continue to manage COVID in the workplace as we have been all along. So the current business is being operated with minimal staff, with all of the COVID restrictions put in place across the business. We have most of the staff working from time, and we will continue that until we see the marketplace change and the COVID situation change. Following the release of the full year 2020 results, Clover Corporation has experienced reduced demand with lower than originally forecast orders coming in the first quarter from infant formula manufacturers. We released that to the marketplace some months ago, and as a consequence of this continuing uncertainty, Clover now expects revenue for the first half of the financial year 2021 to be down 15% to 25% on the first half of the financial year 2020. So that remains in place. We will continue to target customers in Europe who are working to meet the new infant formula standards and establish online or third-party audits. As I said, many customers can't travel. Therefore, they can't do the audits of their facilities across Australia and New Zealand. And so we are trying to establish other ways of achieving that by online or using third-party auditors to achieve them. We are looking to continue to increase the vertical integration into the supply chain. We are establishing partnerships with suppliers, raw materials and logistics suppliers to ensure that we have continuity and risk mitigation in our supply chain for our customers. And we will continue to develop new products and solutions that will give us access to other markets and other applications with products. It will remove the focus on the infant formula marketplace and give us much more diversity in our supply chain. And finally, we will add value through strategic acquisitions or partnerships, and the Melody Dairies is a perfect example of that sort of development of our business. It integrates our business, it gives us another string to our bow and gives us risk mitigation in the business as well. So overall, happy to report a very good year to shareholders, and thank you very much.

Thank you, Peter. We'll now move to the formal business as set out in the notice of meeting. In accordance with current practice, voting today will be conducted by way of a poll on all items of business. Voting on every resolution is held over until the end of the meeting. If you are eligible to vote at this meeting, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. You have the ability to change your vote up until the time I declare voting closed. In the unlikely event that we experience a loss of signal with the webcast, please do not log out of your Lumi app. We have a backup webcast stream running, which will automatically appear in your Lumi app within about 30 seconds of the initial loss of signal. I advise shareholders that the status of proxies on each item of business will be shown on the screen as we address each item in turn. To the extent that there are open proxies available to be voted by me on any item, I advise the meeting that we'll vote for each of those items on the agenda. Voting is now open for all resolutions. I'll now go to the first item on the agenda. As required by the Corporations Act, the financial report of the company for the year ending 31st of July 2020, comprising the company's financial statements, the Directors' declaration together with the Directors' report and the Auditors' report will be considered, and I presented a copy of them to the meeting, which is signed by me for the purpose of identification. I invite you to ask any questions about these reports. I remind you that there is no resolution required for this item, please limit your questions on this -- at this time to matters relating to the financial statements and other reports. There will be a time for general questions at the conclusion of the meeting. Questions may be addressed to me or to Mr. Steven Bradby of PKF of -- the company's auditors through me. Are there any questions regarding the reports? Paul?

Confirming there's no questions specifically regarding the reports at the moment, Rupert.

As there are no questions, I will now move to the next item of business. Item 2, Resolution 1 is set out in the notice of meeting, which relates to the adoption of the remuneration report for the year ending 31st of July 2020. The remuneration report is in the Directors' report section of the company's Annual Report. By way of summary, the remuneration report, a, explains the company's remuneration policy and the process of determining the remuneration of its directors and executive officers; and b, sets out the remuneration details for each director and each of the company's executives named in the remuneration report for the financial year ending 31st of July 2020. Section 252 of the Corporations Act requires companies to put a resolution to their members that the remuneration report be adopted. Please note that the resolution is advisory only and just not by the Board or the company. I move that the resolution for adoption of the remuneration report for the year ending 31st of July 2020 be put to the meeting in the form of Resolution 1 set out in the notice of meeting. Details of the proxy votes in respect of this proposed resolution are shown on the screen. Could I please have a seconder for the motion?

Mr. Chairman, this is Ian Glasson. I second the motion.

Thank you, Ian. Are there any questions regarding the remuneration report? Paul?

Paul Sherman here, Rupert. There's no -- I confirm there's no questions specifically about remuneration report.

Thank you, Paul. As there are no questions, I put -- I now put the motion that the remuneration report be adopted. Would all shareholders please vote on the Lumi link? The results of the poll will be available later this afternoon on the company's website and on the ASX website. The third item being the second resolution relates to the re-election of Mr. Ian Glasson. Mr. Glasson, retired by rotation pursuant to the constitution and being eligible, offers himself for re-election. Mr. Glasson has been a non-Executive Director of the company since the 1st of February 2017. Ian was the CEO of PGG Wrightson, prior to which he was CEO of Gold Coin Group/Zuellig Agriculture. He was also formerly the CEO of Sucrogen, formerly the sugar business of the listed entity CSR, now owned by Wilmar for 7 years which generated revenues of nearly $2 million (sic) [ $2 billion ] and had extensive contacts across the local and international food and beverage sector and retail markets. Mr. Glasson obtained extensive agribusiness experience with Goodman Fielder and Gresham Rabo, had spent the first 16 years of his career in the oil and gas sector with Esso. I invite Ian to address the meeting on his background and credentials he brings us to his role as a Director.

Thank you, Mr. Chairman. Clover has grown successfully under the leadership of the CEO, Peter Davey, and the guidance of the Board. I'd like to thank shareholders and my colleagues for their support during my time on the Board since -- being appointed in 2017. I look forward to the continuing growth to Clover and to bring in my skills and experience in international food and agricultural business to the full as we aim to deliver further Clover's success. We would like to thank our 2 departed long-serving directors, Merilyn Sleigh and Cheryl Hayman, and look forward with your support for serving with our 2 new directors-elect, Toni Brendish and Simon Green, who I know will both bring excellent skills and diversity to the Board. So thank you, Mr. Chairman, and back to you.

Thanks, Ian. I move that the resolution for the re-election of Mr. Glasson be put to the meeting in the form of Resolution 2 set out in the notice of meeting. Details of the proxy votes in respect of this proposed resolution are shown on the screen. Could I please have a seconder for the motion?

Mr. Chairman, this is Graeme Billings. I second the motion.

Thank you, Graeme. Are there any questions regarding the motion?

Rupert, this is Paul Sherman here, confirming there's no questions specifically about this resolution.

Thank you, Paul. I now put the motion. Would all shareholders please vote on the Lumi AGM link? The results of the poll will be available later this afternoon on the company's website and on the ASX website. The fourth item being the third resolution relates to the election of Simon Green. Dr. Green, who has been appointed by the Board to fill occasional vacancy subsequent to the previous AGM, retires pursuant to the constitution, and being eligible, offers himself for election. Dr. Green has 30 years of experience in biotechnology industry focusing on discovery, development and commercialization of life-saving medicines. He was actively involved in CSL's Global Expansion and held roles as a Senior Vice President of Research and Development and Manufacturing Operations. I invite Simon to address the meeting to discuss his background and credentials he brings to the role of Director.

Thank you very much, Mr. Chairman. I've got a Bachelor of Science degree with Honors and a PhD from Melbourne University. And I'm also a recent graduate of the Australian Institute of Company Directors. And as Rupert said, I have international experience working in the United States, Western San Francisco, in Europe, Switzerland and Germany, and also in Australia, and spent at least 17 years at CSL Limited, where I was closely involved in many aspects of the business through research and development and in global manufacturing operations for that company and was very closely involved in the work that we did around due diligence, mergers, acquisitions involved in CSL's global expansion plans from becoming an Australian organization to a global organization. I'm currently an investment adviser to a health care venture group called BioScience Managers, and I'm the CEO and Co-Founder of a start-up biotechnology company called Immunosis. I have previous Board experience on ASX-listed company and also involved in industry associations. And I'm very excited to be joining Clover and contributing to our success in the future. I'll now hand back to you, Rupert.

Thanks, Simon. I move the resolution for the election of Simon Green be put to the meeting in the form of Resolution 3 set out in the notice of meeting. Details of the proxy votes in respect of this proposed resolution are shown on the screen. Could I please have a seconder for the motion?

Rupert, it's Ian Glasson. I second the motion.

Thank you, Ian. Are there any questions regarding the motion?

Rupert, I confirm there's no questions regarding the resolution.

Thank you, Paul. I now put the motion. Would all shareholders please vote on the Lumi AGM link? The results of the poll will be available later this afternoon on the company's website and on the ASX website. The fifth item of business and the fourth resolution relates to the election of Toni Brendish. Ms. Brendish has been appointed to the Board to fill occasional vacancy subsequent to the previous Annual General Meeting, retires pursuant to the constitution, and being eligible, offers herself for election. Toni Brendish has more than 30 years' experience and -- including 20 years as CEO and Managing Director roles predominantly working for blue chip, fast-moving consumer goods, services and telecommunications companies. She has extensive experience in manufacturing, supply chain and regulatory management of infant formula markets across Asia, Australia, New Zealand, China and Europe. I invite Toni to address the meeting to discuss some background and credentials she brings to the Director role.

Thank you, Mr. Chairman. Good morning, everybody. I am recently retired Chief Executive with extensive operational experience including running businesses up to USD 2 billion in revenue. My experience also covers working across multiple geographies: China, Southeast Asia, North Asia, Europe and North America. I'm a fellow of the Australian Institute of Company Directors, and I'm excited to join the Clover Board and look forward to working with the rest of the Board to continue Clover's growth trajectory. Thank you, Mr. Chairman.

Thank you, Toni. I move that the resolution for the election of Toni Brendish be put to the meeting in the form of Resolution 4 set out in the notice of meeting. Details of the proxy votes in respect of this proposed resolution are shown on the screen. Could I please have a seconder for the motion?

Rupert, this is Graeme Billings. I second the motion.

Thank you, Graeme. Are there any questions regarding the motion?

Mr. Chairman, I confirm there's no questions specific to this motion.

Thank you, Paul. I put the motion. Would shareholders please vote on the Lumi AGM link? Again, the results of this poll will be available later this afternoon on the company's website and on the ASX website. The sixth item of business being Resolution 5 set out in the notice of meeting relates to the approval of the variation of the 103,965 performance rights for the year ending 31st of July 2020 granted to the Managing Director under the company's long-term incentives plan to commit the company issue, or otherwise, provide the underlying shares in satisfaction of the performance rights rather than buying shares on market. The Managing Director has 710,994 outstanding performance rights in total, which includes the 103,965 performance rights, the subject of Resolution 5. The terms of these performance rights are summarized in the notice of meeting. I move that the resolution for approval of the proposed variation of the Managing Director's performance rights and the issue or other provisions of shares in satisfaction of the performance rights be put to the meeting in the form of Resolution 5 set out in the notice of meeting. Details of the proxy votes in respect of this proposed resolution are shown on the screen. Could I please have a seconder for the motion?

It's Ian. Rupert, I second the motion.

Thank you, Ian. Are there any questions regarding the motion?

Mr. Chairman, I confirm there's no questions specific to this motion.

Thank you, Paul. I now put the motion. Would all shareholders please vote on the Lumi AGM link. Again, the results of the poll will be available later this afternoon on the company's website and on the ASX website. The seventh item relates to Resolution 6 set out in the notice of meeting relates to the approval of the variation of the 109,062 performance rights for the year ending 31st of July 2021 granted to the Managing Director under the company's long-term incentive plan to make the company issue, or otherwise, provide underlying shares in satisfaction of the performance rights rather than buying shares on market. And Managing Director has 820,056 outstanding performance rights in total, which includes the 109,062 performance rights, the subject of Resolution 6. The terms of the performance rights are summarized in the notice of meeting. I move that the resolution for approval of the proposed variation of the Managing Director's performance rights and the issue or other provision of shares in satisfaction of the performance rights be put to the meeting in the form of Resolution 6 set out in the notice of meeting. Details of the proxy votes in respect of this proposed resolution are shown on the screen. Could I please have a seconder for the motion?

Rupert, it's Graeme Billings. I second the motion.

Thank you, Graeme. Are there any questions regarding the motion?

Rupert, I confirm there's no questions specific to this motion.

Thank you, Paul. I now put the motion. Would all shareholders please vote on the Lumi AGM link? Again, the results of this call will be available later this afternoon on the company's website and on the ASX website. The eighth item being Resolution 7 set out in the notice of meeting relates to the approval of the leaving benefit that may be given to the Managing Director due to the early vesting of his performance rights. As summarized in the notice of meeting, some or all of the Managing Directors' performance rights may be able to be exercised early for him ceasing to be an employee of Clover Corporation in certain circumstances, potentially resulting in him receiving Clover shares for no cash consideration in connection with his retirement or the cessation from office. This sort of leaving benefit is restricted on the Section 200B of the Corporations Act without shareholder approval. I move that the resolution for the approval of the Managing Director's leaving benefit due to early vesting of his performance rights be put to the meeting in the form of Resolution 7 set out in the notice of meeting. Details of the proxy votes in respect of this proposed resolution are shown on the screen. Could I please have a seconder for the motion?

It's Ian Glasson. Rupert, I second the motion.

Thank you, Ian. Are there any questions regarding the motion?

Rupert, I confirm there's no questions specific to this motion.

Thank you, Paul. I now put the motion. Would all shareholders please vote on the Lumi AGM link? Again, results of the poll will be available later this afternoon on the company's website and on the ASX website. The formal business of the meeting having now been completed, I now open the floor for questions from shareholders to the Board.

Rupert, the first question is from [ Danny Goldberg ]. The November single sales period is a busy sales and clearance period that influences on your company. Slide 12 states that there has been no update to your previous outlook comment regarding demand for Clover ingredients. Has there been any recent changes to the forecast orders?

Thank you for the question. We gave an update in October as we saw reduction in orders. We see a lot of volatility around orders, but I still think the -- what we are seeing is consistent with what we saw a month ago when we gave the update to the outlook. And in some cases, there are increases. In some cases -- so there's volatility, and we're still seeing that volatility in the marketplace.

Thank you, Rupert. The next question is from [ Gary Ellis ]. Can Clover advise the major clients and products in the marketplace, which incorporate a major DHA ingredient. Is Clover supplying for the goat milk industry?

I think in many cases, there are confidentiality agreements with -- in relation to it, but I will -- I'll pass the question to Peter Davey, who is better positioned to give a comprehensive answer to this question.

Yes. Gary, thanks for the question. We aren't able to disclose the exact customers or the brands we supply to. It's probably -- the best way I can provide you an answer is that more than 50% of the infant formula in the world using -- incorporates our product into it. So it's quite a lot of the infant formula in the world. And yes, we do supply most of the goat infant formula manufacturers globally.

Thank you very much. The next question comes from [ Chris Lloyd ]. Has the current Chinese, Australian tensions had any impact on sales? Are you hearing any ominous noises in China?

It's -- I think the -- a lot of the products that we sell out of Australia and finished product goes through New Zealand rather than through -- directly from Australia. And again, the noise is broad, but we're not seeing anything specific in relation to our products.

Thank you, Rupert. The next question again comes from [ Chris Lloyd ]. In FY '20, inventory increased to $31.9 million from $27.7 million in FY '19. This appears to be a very high year in view of loss of $88 million in revenue and $12.5 million NPAT. It has been argued that the high inventory is due to the inventories requiring a 3-stage process in turning the fish oil into encapsulated DHA. The annual report makes mention of the fact, DHA can be sourced from fish or algae. What is the cost difference in producing capsular DHA from fish or from algae?

Peter, would you like to take this question?

I'm not sure which part of the question is, but I'll try and broadly answer the comment. The company took a decision to increase the inventory relative to COVID. And -- so in March, when we saw the impacts of COVID in the marketplace, there were a couple of implications we had thought of. One was that if COVID was actually found within our business, we would have to close the factory and that could have been a 2-month period. And two, we saw the potential for fluctuations in demand, and so we took a decision that could add a couple of months inventory into the business which is reflective of the increase in the inventory. Yes, product does go through a 3-stage process, so we take oil, we process that oil, and then we turn it into a powder. And varyingly at times, the work in progress and the inventory reflect the variance in those. It cannot be made from -- yes, it can be made from fish and algae. The cost of algae as a raw material is at least 100% more expensive than fish. But generally, we supply both into the marketplace and that's relative to customer demand. It's a customer preference, and we make either preference.

Thank you, Peter. So the next question is from [ Danny Goldberg ]. Please expand on new product pipeline. Pre-term emulsion clinical trials failed to provide -- prove efficacy in 2015. Is there any chance the product might be revived?

Again, from me to you, Peter.

Thank you. Thanks, Danny. The -- let's go back to the clinical trial product. We -- so for everybody else, we made an emulsion product, which went through a clinical trial with pre-term infants. The result of that clinical trial was to determine if we could improve the lung development of a pre-term infant. It didn't meet the outcome. So it needs to be greater than 10% improvement. It did not make that improvement. So under that clinical trial, it failed. There were secondary outcomes to that clinical trial, which required the proving of intellectual development, coordination development. Those trials or the tests to the babies are ongoing. And so there as the children grow to be 3 years old, 5 years old, 7 years old, they will go through trials about their intellectual development to see if there was any improvement, and those trials are still ongoing. So we don't know the outcomes of those. And we won't know until it's complete. And of course, COVID is making it very difficult to conduct a lot of those trials. May it be approached in the future? Yes, it may. We still have the product. We still hold the patent over the product. Second question about new products development. I cannot really disclose specifics around any individual product or marketplace that we're looking at other than to say that we are working on a series of new products with customers to provide them with solutions, to incorporate bioactive ingredients into finished products that would add to the health benefits of their product. Thanks, Danny.

Thanks, Peter. The next question is from [ Jayant Yadav ]. Who are Clover's main competitors? And what level of risk do they pose?

Over to you again, Peter.

Who are our main competitors? So the marketplace really has 4 key suppliers of a similar product to ours. So there is BASF, there is DSM, there is FrieslandCampina, and then there's ourselves. They are the 4 major players in the marketplace. As I think I said earlier, we probably have 50% or more of the infant formula market for our product. All competitors, we respect enormously, and all of them pose a threat. The Clover business is very focused around microencapsulation of ingredients, whereas for each of our competitors, it is one of a very, very large basket of goods. So it tends not to get the focus. And we've been able to be -- put ourselves into a very competitive position in growing the business consistently over the last 6 years. Each year, we've made quite incredible strides in terms of growth. So we are continuously putting our own development and our own product improvements in place to ensure that we continue to grow our business. And as I'm sure, our competitors will strive to do as well.

Thanks, Peter. The next question is from [ Anoop Talwar ]. Can you give an update on how the Melody Dairies plant has started up? Is it performing to manufacturing targets?

Keep going Peter, please.

Okay. Thank you, [ Anoop ]. Melody Dairies has started incredibly well for a brand new factory with a significant amount of stainless steel. It was working the first day that it was turned on. Obviously, it's gone through some minor tweaks and improvements. But we have been able to produce complete finished product and sell product out of that facility. We have to get interim approvals of it. We've had a couple of customers go through and do first phase audit of the facility. They have to go through second and third stages. But overall, you would think putting a new factory on the ground and getting it started and getting it going, it has hit every measure that we've put on it. So it's done very well. Thanks, [ Anoop ].

Thanks, Peter. Now, I've got 2 questions [indiscernible] from [ Danny Goldberg and Anoop Talwar ]. Has there been any update with the time line for the implementation of the DRAFT GB standard in China?

Peter, over to you again.

The short answer is no. There hasn't been. There have certainly been indications from Chinese infant formula manufacturers that they believe that the DRAFT will be turned into legislation in a 12-month period, with potentially a 2-year introduction period. So we would be looking at 3 years overall. But from an official announcement from the Chinese government, we haven't heard any further news.

Thank you, Peter.

Thanks very much. There are no further questions.

Thank you.

Thanks, Paul. I would like to -- the formal business of the meeting is now complete. I'd like to thank you all for your attendance today. I would now allow a brief period to finalize votes, after which the polling will be closed. And I will let you know when that finishes. Polling is now closed. The results of the poll will be announced via the ASX later today and on our website. As the business of the meeting has been concluded, I declare the meeting closed, and thank you again for your attendance.

Thank you.