Clover Corporation Limited (CLV) Earnings Call Transcript & Summary

[Audio Gap] Please go ahead.

Good morning, ladies and gentlemen. My name is Rupert Harrington, and I am the Chairman of Clover Corporation Limited. I welcome shareholders and visitors to 2023 Annual General Meeting of the company. The meeting is being webcast at the same time as we are holding our physical meeting from the office [indiscernible]. We are not recording using [indiscernible] today. The Company Secretary has informed me that a quorum is present and therefore, I formally declare the meeting open. 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 may be here today. Thank you for attending in-person and online. We are against using the Computershare platform to host the meeting. The platform allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. Only shareholders, proxies and corporate representatives have the ability to ask questions and to submit votes. Before we proceed, I would like to introduce to you other members of the Board. To my left is Peter Davey, Managing Director and CEO; Graeme Billings who is Chair of our Audit and Risk Committee; Toni Brendish who is up for reelection today and strongly supported by the Board; also, Ian Glasson who is Head of [indiscernible] and also up for reelection today with strong endorsement from the Board; and Dr. Simon Green. Also, present with me is Andrew Allibon, the Company's Secretary and CFO; and also present is Hazel Masters, representing our auditors, PKF. Hazel will be available to answer questions on the accounts at the appropriate time. To attend this meeting, you will have downloaded the link as supplied from the notice of meeting and enter the credentials provided to you that recognize you as a shareholder or proxy. Alternatively, you may have entered as a visitor or a guest. I propose that the notice of meeting dated 18th of October 2023, which was announced to shareholders were taken as read. I would also like to address general housekeeping with a lot of questions before we proceed further. Questions can be submitted at any time during the meeting. Online, to ask a question, press the Q&A button icon. Please note that while you can submit questions from that alone, 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 but before the close of the voting polls. I ask that in the interest of time and 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 where we receive multiple questions on one topic, which will be amalgamated. By phone, if you wish to ask a question, please note that the phone number on the Computershare platform and follow the directions to join the question queue. Please mute your webcast if you choose to use this method to avoid audio feedback. 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 e-mail or by posting responses on our website. In accordance with current practice, voting today will be conducted by way of poll on all items of business. I will shortly open the voting for all resolutions and if you are eligible to vote at this meeting, a vote 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 will have the ability to change your votes up until the time I declare voting closed. This is shown at the bottom of the vote page, as noted on the slide. In the unlikely event that we experience a loss of signal with the webcast, please do not log out of the application. We have a backup webcast running, which will automatically appear in Computershare application within about 30 seconds of the initial loss of signal. Finally, voting on any resolution is open until the end of the meeting. I will communicate when voting closes. This concludes the housekeeping on questions and voting. Before we move to the formal business of the meeting, I would like to present my Chairman's address. The transformation year has been a challenge but a positive one for Clover. We experienced [indiscernible] in the first half, reaching $44 million in revenue. This was positively driven by manufacturers building inventories in anticipation of the introduction of the GB licenses in China that enable them to continue sales while supplying for licenses. Many international and Chinese manufacturers have acquired GB licenses and have initiated the production and sale of new GB-licensed products. However, there is still an overhang of old stock that is slowing our sales. Peter will elaborate further on this shortly. Overall, we reported a 30% year-on-year revenue growth. Growth through product innovation continues to be a strong focus for Clover. The R&D team is making best use of the new laboratory [indiscernible] facilities completed during the prior financial year to accelerate new product developments. Our current focus is developing encapsulated products [indiscernible] and other bioactives that extend and identify market opportunities for our customers. We initiated the commercialization of Premneo. This product offers the potential to significantly improve the IQ of preterm babies [indiscernible] as reported in the New England Journal of Medicine. Distributors have been identified and regulatory challenges are being addressed and potential manufacturing partners are being assessed. Business development in this sector requires diligence and patience. However, we are encouraged by the positive response from the [indiscernible] we have progressed with the commercialization of [indiscernible] customers in the U.S.A. and Asia. Our new product development programs continue to provide growth opportunities outside of [indiscernible]. The commercial lead time for products developed by Clover remains lengthy due to accreditation processes and shelf-life testing. Our priority is to develop products to provide a solution to an existing customer problem and a substantial market opportunity. Our experience is that such products generally have a strong sustainable competitive market position [indiscernible]. We are confident that our strategic investment [indiscernible] following the recent shareholder and management changes. As a global niche business, we're exposed to geopolitical supply chain and other macro market issues. By times of uncertainty, this has a negative impact on our working capital. The current transition in the significant China infant formula market is positive for our products, and we believe that this will provide opportunities for Clover. Our encapsulated DHA Powder is approved for use [indiscernible] the top 5 performing manufacturers in China. Finally, on behalf of the Board of Directors, I extend my sincere thanks to you, our shareholders for your continued support. I also want to acknowledge the dedication of our employees and management in responding to the fluctuating demands of our customers [indiscernible]. I'll now pass to Peter to make his management presentation.

Thank you, Rupert. Thank you, shareholders. Starting with the Management Director's report just for the financial year FY '23 and additional to that, we've made some focus to marketplace, which I think everybody was quite interested in. So the financials and things will be very much about last year. We don't have numbers regarding the issue. So the first slide, as I turn to the vision and values and purpose of the same business. So our vision is to optimize the health and development of [indiscernible] symptoms in children. We do good things. Our business lives by 3 values, the core of which really all actions made by our company, and I'm pretty proud of: respect, response and responsibility, the 3 Rs, a really good guide for which our employees work with each other and with our customers and the community. The purpose statement of the business is in collaboration with key market participants and our customers [indiscernible] optimized high-value nutritional ingredients and the well-being [indiscernible]. We really help our customers solve problems so they can survive with products for the marketplace and does put Clover in a very unique position when most of our peers are supplying hundreds of products, we're providing solution products to our customers. Turning to the full year performance highlights, the next page. The total year revenue for FY '23 was virtually $79.9 million, which was a 13% increase from the prior year of $70.7 million. It was certainly driven by a high demand for increased production in the first half of the year where the customers are building inventory in response to the China [indiscernible] will provide you with a fairly lengthy update regarding that. Net profit after tax was $6.2 million, down 13% on the prior year, and that was really driven by an increase in our operating expenses. Coming out of the COVID period, we did a lot more in terms of operating expenses, which were up $32.3 million. We were impacted by general inflation as the rest of the world was, that continues in the market and we did extensive travel and marketing [indiscernible] overall. Really pleasingly on the end result, we've added new customers at some of the new products we've launched in the marketplace, which continues to diversify our market base. Now talking to the [indiscernible] market that we are continuing to supply our other segments [indiscernible] growing and continues to grow in the business. Our inventory position was $36.9 million at the end of the year. It was probably down a little bit of the half year, which was at $41.1 million at the first half. So we did eat through some inventory, but it still stands high. Our balance sheet is strong, $9.4 million. We usually needed the cash position because that our purchases are quite lumpy through the businesses and make some very large purchases at points in time. And the Board announced a final dividend for the year of $0.75, and our full year dividend to $1.5, which is a continuing tradition of the business. The new business is supporting our shareholders. I'll turn to the FY '23 update slide. Throughout the year, Clover was still a priority for us as it is right now. It's still with us. We've managed to get through the marketplace without having COVID impact in our workplace or any other health and safety issues. The first half of the year, as I said, was a record-breaking for us, $44.4 million. So last few, we're seeing in this run 12 months ago, we had a record first half. Not to take long to change that, but it just shows you really how quickly this marketplace can change. The conditions in which we operate will vary, and they generally vary. Someone said to me when I started in this business, you don't like what was happening now. Just wait 3 months because it's going to change. I've been [indiscernible] every 3 months of changes. So it will change again, we're in a short-term. The second half slowed to $35.5 million, and that's been a supply position going forward. Our inventory position really allows us to manage that to a fluctuating demand. We went from peak to low, and we need to be able to respond to market. Most of our customers don't know what the next 3 months looks like. And so we are in a unique position that when fluctuations occur, we can supply it, and that gives us an ability to be able to pick up orders when some of our competitors don't. We've had to really recover some very high inflation to some issues around COVID. Our raw material prices increased, energy prices have increased, our labor costs increased. We've done a lot to maintain our gross margin position, which was a reflection in our results. We had price rises across the marketplace. We have to put 2 price increases in the marketplace across last year. And we changed sourcing options with all of our products. And that was what driven by trying to get cost reductions; and two, the recovery out of COVID where we learned that we couldn't be reliant on one or 2 suppliers of [indiscernible]. Post-COVID, we needed to revisit a lot of the projects. So we increased our privileged marketplace. We effectively haven't gotten on the airplane for 2 years. So we spent a lot of money on travel. And in terms of getting out visiting customers face to face, we doubled the amount of trade shows do. We attended 8 international trade shows in one year. That is a significant cost burden to the business. This is a very extensive process as we're in other countries. But it's also a really good effort from all of the employees in our business. And we spent 8 months of the year away from home going out and doing these trade shows and [indiscernible] short-term, but very much long-term opportunities for the business, and that's really necessary in what we do. I'll turn to the sales by geography slide, with detail of a few different markets here. In Europe and the Middle East, and I'll work a little bit on this review. It was a really good outcome. We saw back in 2019 financial year, the new EU license that came through, which required some formula manufacturers to increase their level of DHA. In 2020, we saw a small spike. We picked up about $6 million of the business. We would have thought at that time, we would have got a much quicker, larger response. But it really took 4 years to 2023 for that response to really come through. And that's really the slowed option rate of new standards coming in through in the marketplace. So while there was a legislative change that occurred in our financial year 2019 and early 2020, we didn't really get the impact of it until 2023. So it takes time for manufacturers in the marketplace to get the [indiscernible]. So we've seen a good shift in our business in Europe, and we are still benefiting from that benefit today. We're still seeing customers coming to us for changes in their product. In Asia [indiscernible], we saw a really strong half in the market, but it's really slowed down in the second half as we go to the marketplace. A lot of our customers built inventory and they've been sitting on the inventory. Australia and New Zealand, quite specifically slowed down. They are heavily relied on exporting to the China marketplace. The Americas are really a story of one major customer. One significant customer [indiscernible] brand from the marketplace has dropped our revenue by about $1 million in the marketplace. And pleasingly, we've just picked up a new customer, which we'll talk about here that's starting to see some better results come out of there. But really Americas for us is a significant opportunity that we will see going forward. The next slide is the full year 2023 results. This is an overview of the P&L. I'll run through this fairly quickly. 13% year-on-year improvement, which was really quite good given the second half slowdown. The price increases and cost reductions that we put in place across the business supported our general margin and our gross margin position. We attended a lot of trade shows, which really increased our operating costs and our impact really was impacted by the market and development costs that we're investing in. So we reduced our [indiscernible] percentage. The next slide, the balance sheet. So a snapshot. We continue to manage our credit quite well. Even in a volatile market, we still ended up with a $9.4 million cash position, and it gives us a good business to operate from which we operate the business out of our cash flow, which is a comfortable position around the business. We used debt to invest further in the business. Our trade receivables were down relative to the second half slowdown. Our raw material position and inventory was impacted by that, but we still reduced that. So in the first half, our inventory was at $41.1 million. So we've got a reduction down to $36.9 million, and we're continuing to drive our inventory positions. And our payables reduced in line, but we weren't hoping to buy raw materials, just sort of logical outcome of a slower production in the second half. The next slide, which covers Melody Dairies, and so that really covers most of what happened in the last year. The rest is a bit more going forward. Melody Dairies, the New Zealand business that we invested in, Clover and one of the partners, [indiscernible] has purchased or bought out one of the other partners in the business [indiscernible] and so they have ceased to be a shareholder in the company. Clover increased its shareholding by 2%, whereas [indiscernible] 9%, so we've taken out one of the shareholders. And one, we need capacity for the future. It is a strategic investment where for us to get more growth, we need more capacity to be able to produce products. It also has an entree into the China marketplace. The trading relationship between New Zealand and China is fantastic. So [indiscernible] has the management rights to run. We haven't been getting the results that we wanted out of that. So we have effectively changed the management by buying out the management group that ran it. Given our stability, and we are in process right now. So there's very real time of we have changed the management. We've invited people to reapply for all their jobs. Over the next month, we expect to take over the management of that facility of Melody Dairies. We are a shareholder in the business but we have more, obviously, say in the way that business will be managed in the future. In that way, we should be able to recognize improvements that have been made there. We have made significant productivity improvements. So we can run the factory now at nameplate where we actually designed it to be built. That required equipment, which was held up a for very long period of time due to freight conditions and production of equipment in Europe. That's all in place and we're getting full productivity out of the site. Over the next 12 months, we expect to see the productivity improve and get the management right to be able to run that business as we see fit. In the second half of last year, Melody services a whole lot of customers and customers that are making infant formula market products. And where we saw the slowdown, so is that whole facility. So it's second half slowed down for our products, but also other infant formula products that are being produced in that facility, and we can recognize our component of the loss associated with that in terms of our final accounts. Next slide, just an overview. We're going to update on the growth platforms of the business. We generally talk about that in terms of new products, our focus on infant formula and new market development. And so these are a bit updated from what was previously presented to the marketplace with some additional commentary. So if I turn to the next slide, around Premneo. We informed the marketplace that we had the outcomes of a long-term clinical trial with preterm infants with a proprietary emulsion product. Those results were published in the New England Journal of Medicine and have proved that we can improve the IQ of preterm infants, which is a wonderful outcome. We're all very excited. Then we hit the regulatory side of it and to actually be able to sell this product, every marketplace requires individual registration of the product. It's not an easy process, but we are doing it. We have a third-party company that's actually conducting the process for us. It's going to take 12 to 24 months to get through that process. Some markets will get earlier, some markets later. It's a bit of a frustration for us, but it's also a frustration for the neonatologists in the marketplace because they keep ringing and saying, where's the product. We can't literally sell it until we have regulatory approval to do it. We have successfully made the product, and we have a partner in India that will be doing the packaging of the product. So it has to be packaged under pharmaceutical group, and we can do it in India at a very cost-effective base. That partner gives us 38 countries of distribution [indiscernible] pieces of the puzzle are in place, but we can't sell it to any of those countries until we get the regulatory approval [indiscernible]. So we are seeking partners and we are developing a marketing plan. We're actually in the marketplace right now doing the market research with neonatologists. I myself have been out visiting hospitals and talking to doctors. It's got good acceptance. It's just getting it over the line. It's a really exciting potential new growth market, new product and a completely different segment of the marketplace for Clover to operate in the future. So it's a great path for future growth and potential for the company. The next slide talks about other new products that we've got in the marketplace. During last year, the FY '23 year, we introduced 4 new products, so we have developments for specific customers. We recognized sales of all those products. One of those is called Gelphorm. So Gelphorm is a DHA emulsion product that can go into UHT or ESL or extended shelf-life products, and we have customers across the U.S.A. and Asia with product on trial, which is exciting. And we have already seen the launch of a nondairy UHT product in the U.S.A., which has been released through the Target stores in America. So it's currently being sold in them. I met with them 2 weeks ago in the U.S., very happy with the product and we are extending the pipeline for the product and it looks very good. We also have a whole other pipeline of products, so we're always looking at the future. And we're doing microencapsulation of choline, probiotics and other biotics. Some of these will be out in 12 months, some of them will be out in 4 years. So there is a good pipeline of new opportunities for the business, but we wil see a good future and continue to grow. Infant formula continues to provide opportunities. So the GB license change in China required infant formula manufacturers if they wanted to sell through the retail channel, that has to include 15 milligrams of DHA. I'm sorry, could you move to the next slide, please? Thank you. So GB license required customers to move. It opened a significant and does continue to open a significant opportunity portfolio. Many of the Chinese manufacturers is using 5 or 10 milligrams of DHA and they've had to increase to 15 milligrams at the minimum [indiscernible]. So our technology fits that. It can be used [indiscernible] any sensory issue, you can imagine putting double to triple the amount of fish oil or algal oil into a canned formula and can create some significant problems [indiscernible] encapsulated powders don't have smell and taste and they can get 30 or 40 milligrams content with infant formula. We've done quite well in incorporating the license applications of some of the top Chinese infant formula manufacturers, but also West had to apply for a license [indiscernible] so had to apply for a license to be able to sell through the retail channels within Mainland China. This requirement was not on back last year, and customers didn't know when they were going to get the lawsuits. What they had was an opportunity to build the inventory up until the end of February, and they could continue to sell that product in the retail market so they didn't lose their shelf-life position, and they didn't lose their brand position in China marketplace. So they produced a lot of product. This time last year, we had a record half year. It was wonderful. That product hasn't moved very fast off the market. So one, they overproduced. They fill the channel, warehouses and retail stores. And then China has had a significant reduction in birth rate on top of it. So you've got this oversupply of inventory that is sitting on the shelves and warehouses and a lower birth rate and a lot less demand in the marketplace. That's probably the current situation that we're seeing. It's a point in time. Like last year, we were the highest we've ever been. So it will alter. As I said, 3 months' time, you'll see another change in the marketplace. It's going to happen. We expect that we will see an improvement in our demand as that inventory changes, and I'll talk specifically about that in the further market update. One of the really pleasing things coming forward is 2024 is the Year of the Dragon in China. It goes every 12 years. Traditionally, Chinese people like to have babies in the Year of Dragon. So we are hoping, and I'm sure the Chinese Government is hoping that we see the current decline in birth rates, one being caused by that [indiscernible] the Year of the Dragon. Last time in 2012 when that occurred, there was about a 1.5 million baby increase year-on-year. It actually led to a further increase. So we'll just hope that occurs. The next slide is about the new market development. I talked earlier about the EU market change. And the EU changed back in 2019 or the financial year of 2019, we saw an instance of the improvement in our demand mainly from an average of 10 milligrams of DHA to 20 milligrams of DHA. We've qualified with many new customers. We picked up some initial business, but a lot of it was slower start. A lot of our potential customers chose to go with cheaper options than what they can buy from us, but many of them failed, and it took them 3 or 4 years to make the change. And now we are seeing them return to us, and we are seeing exactly the same thing in China. We have qualified with multiple manufacturers. They're going with cheaper options, but they'll go through this change and their product will fail, and we will win in the long run. So in Europe, currently, we have won a significant amount of new customers, and we still have other customers that we're currently testing with today, and we expect that business in the future. It drives opportunity for us. The China [indiscernible] and we are very small in the context of the entire China marketplace. There is a massive opportunity for us to be able to pick up further businesses within that marketplace, it will take some time. We have extended our distribution -- or sorry, I should talk about spray dryer. We put a spray dryer into -- so it's not insignificant, spray dryer into our R&D business within Brisbane. We have traditionally used third-party spray dryers to be able to accelerate our R&D development and control our intellectual property, we've invested in our own. So it's a simple production sprayer dryer that allows us to move from desktop production scale in our own facility to be able to accelerate production, which is wonderful. In the last financial year, we were able to bring 4 products to marketplace. That would have been a minimum of an additional 12 months previously. So it's been helping us already. Across the world, we continue to try and expand our presence. So in the last 12 months [indiscernible] in Turkey, Japan, Korea and India. Not insignificant marketplaces. We've already seen some business come out of Japan. The others haven't delivered it yet, but the expectation is that first distributors will start to represent us and get us further business in those markets as well. Quite impressive. And all of that came from additional trade shows. We did so as I said earlier, we did 8 trade shows last year. Not a little expense, but it was wonderful to sort of -- ability to be able to meet people in their own place and qualify customers [indiscernible] going to 200 places. And we launched a new website last year as well. So our new website under the brand name, Nu-Mega, so Clover is our corporate name. We trade under the new marketplace, Nu-Mega Ingredients, and that's what our customers know us as. And so now we have a website [indiscernible] using platforms like LinkedIn [indiscernible] so we're doing more marketing in the marketplace as well. Turning to the next slide. These were the first half priorities that we discussed in the market regarding the first half of this financial year, 2024. We are continuing to work with the formula manufacturers to achieve the new GB standard. And every day, we have new people applying for us. We've only spoken about some this morning. So there are more opportunities coming in the GB standard where people need to apply for a license, and we've become quite adept to help people achieve that. Commercializing Premneo and Gelphorm, not new products, which we have already discussed. A new point, which has only come out in the last 4 weeks, one of our competitors [indiscernible] have informed the marketplace that they will cease manufacturing of fish oil powdered products. They are our third largest competitor in the marketplace. It represents a significant opportunity for us to go and get market share. One of our competitors has decided it's too tough to operate in a segment of the marketplace. That's testament to how difficult this really is. We are by far the largest in our segment. They are a much smaller part, but it shows that we are competitive and difficult to compete with. And therefore, we will get some more market share from this opportunity. We will work on the Melody Dairies business. We've taken fairly significant steps, not at a great cost but significant steps to be able to get more control over that business and ensure that we are getting the outcomes that we plan to get out of that site, it is a very strategic investment for us that provides us with great opportunities for growth and market access. And we will continue to increase our vertical integration to the marketplace. COVID taught us very well that we need to make sure that we are an integral part and involved in our supply chain. We can't allow things to happen to us, so we are taking steps to make sure that our product supply is either firmly contracted or controlled, that we can control access, price and quality, which is very important [indiscernible] very high-quality food ingredients. We'll turn to the next slide. So the trading update for FY '24 is a bit of a better snapshot of what's happening right now, a lot of which is the outcome as much as what I have already described. So from a global demand perspective, our demand remains very robust. Our product works well and people tend to return to it once they have problems. The increased legislation that requires more DHA and ARA globally, provides a significant opportunity, so we are really well positioned to be able to take advantage of our superior product technology. The 2020 EU regulation, so calendar year 2020, to increase the level of DHA, at the time, we were doing $6 million worth of business. We are now seeing $25 million worth of business. It was a lot slower than what we thought it would become, but it came, and it's still coming today. So it shows that these changes in legislation are genuinely helping this business and they look to the future of the China regulation change. Clover's non-formula businesses continue to grow. As I described earlier, our other business segments are very healthy. It is small but it is healthy and growing, and it has quite good margins relative to the infant formula market. So it's a good diversification [indiscernible]. More specifically, what's happening in China. The birth rate reduced down 6.7 million babies in 2022. That's a 35% reduction from the 10.4 million births in 2019. They've got a problem. Unfortunately, their problem becomes our probable. Hopefully, next year, we'll adjust it, but I'm sure the Chinese Government will be doing things to adjust it as well as they cannot afford to continue. China represents 50% of the global infant formula manufacturing. Half of the world's infant formula in every part of the world ends up in China. So we have significant customers across Asia and in Europe. But half of what they produce ends up in the China marketplace. So it's affecting everybody, not just us. And that's really reflected in the next number, which is import of international infant formula into China are down 36% July and September year-on-year. That's a big shift. And their domestic sales, even in the China marketplace, through mom and baby stores, so they're quite specific stores that are built to sell baby products. And through the modern trade, which I saw to have computers in them, is down 17% year-on-year. So it's a bit of a hiatus, which we have to get through. Both Western and Chinese infant formula manufacturers built that inventory prior to GB license [indiscernible] and that's a problem. This happened previously. And they will have to write inventory off. That's what it's coming to. In November -- so a lot of those manufacturers are now starting to sell their GB-licensed product. So they withheld producing the GB-licensed products for quite a time, trying to get the inventory position down but now they've started to sell their GB-licensed products. You would have seen some recent announcements where that's been shown out in the marketplace. November is usually the most significant sales month for infant formula of our products in the China marketplace. They call it 11-11. Usually, it's one sales day. This year, it's seen an entire month sales days. Obviously, it's too early to give the numbers of what coming out of that. But infant formula. So the non-GB license brand is being sold up to 50% reduction of what they would normally sell the product. So we would expect that [indiscernible] inventory in the China marketplace. Product produced prior to the GB license is reduced. It's got -- it's now about -- by February next year, it will have about a shelf-life of 18 months [indiscernible] will have to be written off. Retailers would not accept any product that's more than 12 months old, so [indiscernible] sales will help move that inventory on. There is a shelf-life position. But basically, by February, it's going to have to be wiped off. People will have to start to write their inventory off and that will change the position of the manufacturers, we will see the demand come through after that. So that's the expectation. So we expect Clover's demand have been reduced on the current and prior position in China. That's the current situation around. I'll move to the final slide, which is the FY '24 outlook. At the end of our results for FY '23, the initial outlook statement [indiscernible] marketplace. As we look ahead into FY '24, 2 factors will lead to a normalized growth plan. A reduction of customers' infant formula inventory is crucial to boosting revenue in the segment. So we clearly outlined what was going to happen. And then market acceptance of our key projects and general [indiscernible] in the sector will also have incredible growth in this. The marketplace in China hasn't changed much. We are doing quite well with the other products. That other segment is going quite well. So our current outlook segment is as follows: Clover anticipates improvement in demand for its micro [indiscernible] the demand from the EU manufacturers meeting the higher DHA requirements for EU infant formula. New product sales across Asia, U.S.A. and Europe, [indiscernible] product, building the gap left by [indiscernible] marketplace, which is quite new. And then the decline of the non-GB inventory in the retail channel driven by the discounting that's occurring, product shelf-life position and product shipment with the new GB products. The new GB product is a better product than the non-GB products. The product requires customers to have a much better formulation that better reflects mothers' breast milk. So therefore, consumers will want to have the product with a higher DHA level. They know it's better for their baby. So the consumer will move this demand as well. Whilst there are positive signs ahead, in the short term due to uncertainty surrounding the normalization of demand in China, Clover anticipates full year revenues for FY '24 to be circa $70 million. It's important to indicate [indiscernible] from what we can tap in the marketplace now, but there's a good understanding that we expect it to improve. Thank you so much.

Thank you, Peter. We now move to the formal business as they have in the notice of the meeting. Each of the resolutions will be taken at turn. I will introduce each item and resolution. Shareholders will have the chance to ask questions on resolution [indiscernible] results you see from the Resolution 3 before we move to the next resolution. Voting is now open. I will now go to the first formal item of business. As required by the Corporations Act, the financial reports of the company for the year ending the 31st of July 2023, combined in the company's financial statements and the director's declaration together with the Directors' report and the auditor's report will be considered and I present a copy of that to the meeting, which is designed by me for the purpose of identification. I invite you to ask any questions about the report. I imagine there is no resolution required for this item. Please limit your questions at this time to matters related to the financial statements and reports. There will be also time for general questions at the conclusion of the meeting. Questions may be addressed to me or Hazel Masters, our PKF, the company auditors, through me. Are there any questions regarding the report?

There are no phone questions at this time.

Mr. Chairman, I have one question which could be addressed under general matters, but I'll bring it up under this business. Does the Clover Board have a target ROE for the business?

Historically, we have managed to be a double-digit ROE. And I think the target over time, we would expect if we achieve the things we set out to achieve with higher-margin business would be plus 15% ROE. We have had to do some things in the short term, which are really risk mitigation, which have retarded the ROE in relation to capital expenditure and clearly some development work. We -- our investment in Melody Dairies, for instance, is significant. But it is strategic in relation to ensuring that we continue it in relation to our capacity to be able to control our processing arrangements because we can't just rely on one odd third party that might have capacity today, but won't be able to provide it in the future. Similarly, in relation to our facility that we have in Altona where we've got a long-term arrangement. We took the opportunity when interest rates were low. And in relation to the ongoing rental cost, we wanted to be able to have certainty about our arrangements in there. There are also some other expenditures that we have incurred in relation to our supply chain, which in the short term will be a drag on ROE, but I think strategically are very important for the future. So -- but when you look at new products coming to market where we -- our expectations are improved margins from those products, similarly, in relation to Premneo, one of the significant improvement in margins coming from those, and those are the things that will drive the improved ROE. In 2022, I think our ROE was just over 11%. In the last year, it was 9%, but there are some issues that have dragged it down. But I think our expectation in the medium term is to get back to 15% plus. Any other questions on the report? So I'll move to Item 2, which our resolution is set out in the notice of meeting, which relates to the adoption of the remuneration report for the year ended the 31st of July 2023. The remuneration report is in the director's report section of the published company's annual report on Pages 15 to 22. By the way of summary, the remuneration report explains the company's remuneration policy and the process of determining the remuneration of its directors and executive officers and sets up the remuneration details for each director and each of the company's executives named in the remuneration report on the financial year ending the 31st of July 2023. Section 250R2 of the Corporations Act requires companies to put a resolution to their members that the remuneration report be adopted. Please note that the resolution advised is orderly and is up by the Board of the company. I know that the resolution for the adoption of the remuneration report for the year-ending the 31st of July 2023 [indiscernible] in the form of Resolution as set out in the notice of the meeting. Details of the proxy holders in respect of this proposed resolution are shown on the screen, hopefully. Yes. Are there any questions regarding the remuneration report?

There are no phone questions at this time.

No online questions, Mr. Chairman.

Are there any questions on the floor? If there are no questions, I now put the motion to the meeting that the remuneration report be adopted. And results will be the same, by way of poll at the end of the meeting. I'll now move to the next item. The third part of the second resolution relates to the reelection of Mr. Ian Glasson. Ian is required to retire by [indiscernible] pursuant to the constitution and is eligible and offers himself for reelection. Ian has been a non-Executive Director of the company since February 2017 and as the Chair of the Remuneration Committee. I would like to ask Ian to address the meeting to discuss his background and the credentials he brings to [indiscernible].

Thank you, Rupert. Since I joined the Board in 2017, Clover has achieved significant organic growth in both global revenue and in the bottom line, which created a more robust and integrated business whose momentum has only recently been slowed through the impact of COVID and the events that Peter has outlined in China. I believe Clover has really good prospects to grow both organically in its core business and through new innovations and potentially M&A. I offer myself for reelection for a further term where I have to bring my international business experience to assist in realizing Clover's growth strategy. I thank the Chairman, my fellow directors and the management team for their commitment, their energy, leadership and support during my time at Clover. And I look forward to your support, the shareholders to my reelection. Thank you.

Thanks, Ian. The Board, with Ian abstaining, unanimously recommends the reelection of Mr. Ian Glasson as a Director of the company and recommend that [indiscernible] resolution. Details of the proxy votes in respect of this proposed resolution are shown on the screen. Are there any questions regarding Resolution 2?

There are no phone questions at this time.

No questions online, Mr. Chairman.

Are there any questions from the floor? As there are no questions, I put the motion that Resolution 2 be adopted. The results will be decided by way of poll at the end of the meeting. This concludes Item 3, Resolution 2. The fourth item, being Resolution 3, set out in the notice of meeting relates to the reelection of Toni Brendish. Toni is required to retire by rotation due to constitution and is eligible of a successful reelection. Toni has been a Non-Executive Director of the company since October 2020. I'd like -- I've asked Toni to address the meeting with her background and credentials.

Thank you, Rupert. Prior to joining Clover's Board, I was the Chief Executive of dairy processor in New Zealand. And prior to that, I worked as a Managing Director for Danone over a period of about 11 years across a number of international markets in Australia and New Zealand. So in those businesses, I ran manufacturing sites and supply chain as well as development strategy for those areas. All those areas of experience has allowed me, I believe, to what I led to Clover over the past 3 years. And so it's supported by shareholders. I believe there are areas that I can continue to add value to the Board and work with my fellow directors. So I'm very pleased to offer myself for reelection.

Thank you, Toni. The Board, with Toni abstaining, unanimously recommends the reelection of Toni Brendish as Director of the company and [indiscernible] you vote in favor of the resolution. Details of the proxy votes in respect of this proposed resolution are shown on the screen. Are there any questions regarding the Resolution 3?

There are no phone questions at this time.

No questions, Mr. Chairman.

Any questions from the floor? As there are no further questions, I put the motion that Resolution 3 be adopted. The results will be decided by way of poll at the end of the meeting. This concludes Item 4, Resolution 3. Item 5, Resolution 4 as set out in the notice of the meeting, relates to the approval of the issue of financial year '24 performance rights granted to the Management Director of the companies [indiscernible]. Approval of this resolution the company to issue 249,712 performance rights to Mr. Peter Davey [indiscernible] 31st of July, 2026. The managing director has 395,744 outstanding performance rights a year and previously approved by shareholders at previous 8 years. Mr. Davey now holds 645,486 performance rights over the next 3 years if Resolution 4 is approved. In terms of these performance rights summarized in the notice of meeting on Page 9 of the explanatory statement. I move that resolution for approval of the acquisition of [indiscernible] performance rights are issued or on provisions of shares in satisfaction of performance rights [indiscernible] in the form of Resolution 4 [indiscernible] notice of meeting. Details of the proxy votes in respect of this proposal of resolution are on the screen. Are there any questions regarding Resolution 4?

There are no phone questions at this time.

No online questions.

Any questions from the floor? As there are no questions, I move that the approval be given for granting the performance rights to Mr. Peter Davey on the terms described in the explanatory memorandum accompanied in the notice of the meeting. The formal part of the 2023 AGM is closed. In accordance with the ASX rules, I now ask the floor to vote. [Voting]

We will now conduct a poll on the motions. If there are any persons who believe they are entitled to vote or have registered votes, would you please raise your hand for assistance. Persons entitled to vote in this poll are all shareholders, representatives and attorneys of shareholders and the proxy holders who hold permission cards. Blue cards and white for visitors. The rest of your admission cards is in your voting paper instructions. I will go through the procedure of filling out the voting pages. Proxy holders [indiscernible] on the proxy votes, which details the voting instructions for recent items on the appointment documents in your paper. By completing the voting, when instructed to vote in a particular manner, you are deemed to have [indiscernible] in accordance with voting instructions. In respect of any open developments or proxy holder may be able to cast, you need to ask [indiscernible] to indicate how you wish to cast your open votes. Proxy holders should refer to the summary and proxy votes attached to your voting paper for further information. Shareholders also need to mark a box besides the motion to indicate how they wish to cast their votes. Please ensure that [indiscernible] and sign the voting paper. When you finish filing your voting papers, put in the ballot box or pass it to a Computershare representative [indiscernible]. If you require any assistance, please raise your hand. I'll pause while voting papers are completed and collected, which have actually happened in the room. So I'll go through and proceed. Otherwise, [indiscernible]. Please ensure that you cast your vote on all resolutions. As Chair, [indiscernible] this meeting is my attention to vote on proxies in favor of the resolution. I will now pause for 30 seconds to allow you to complete your votes online and for those in attendance. And once voting is closed, we will open the floor for general questions. [Voting]

The voting is now closed. With the formal business of the meeting having been completed, I'll now open the floor for questions from shareholders to the Board. Are there any questions?

There are no phone questions at this time.

Rupert, I have a question from Mr. and Mrs. [indiscernible]. Apologies if I've got that pronounced wrong. We have a question for the directors. The increase in trade show attendances, additional marketing costs and sales costs does not seem to have had much of an increase in sales based on the update provided today. Can you please comment?

Peter, would you like to take that question?

Sure. So it's not a transactional business. So we do the trade shows to identify potential customers and opportunities. We've made -- we have a very formal process for doing that. We register every customer. We have a follow-up process. We then follow through with meetings with them. They can generally be a 3- to 4-year process to develop those options you're talking about, a brand-new product that has to go through research and development, market testing, production development and always shelf-life testing because they are [indiscernible] products. So it's not to do and receive a sale immediately. It is a much longer process, which is really important to maintain a constant pipeline and flow of business into the business, which was certainly reduced by the 2-year COVID period where we weren't able to go out and visit customers. There were no trade shows and so our pipeline was significantly reduced during that period. Hopefully, that answers the question.

Further follow-up question, Rupert, comes from Mr. Gary Ellis, and it's both elements to the question are working capital-related. The first part is around trade receivables. Have all the remaining over term debt from trade receivables shown on the 2023 annual report now being collected? And I'll continue on. Has there been any bad debt incurred the results? And is there likely to be an increase in the bad debt provision for doubtful debts in this financial year, I assume being FY '24, especially given the recent public outcomes of a couple of Clover's customers.

I think as CFO, you can take that question, Andrew?

Thanks, Rupert. So Gary, good question. And I'll answer each of those points specifically, and then I'll come back to the final working capital question. Have all remaining over-term trade debts being collected? In the majority, yes, but we certainly have one significant customer that we are working with in terms of settlement. We expect that position to be addressed certainly before the half year financial accounts. Has there been any bad debt incurred as a result in the course of the year? This is a business that traditionally hasn't had issues of that nature, but we have seen some customers slower in settlement and management of their own working capital challenges. So specifically to your question, yes, we have had one account that has gone into voluntary administration for which we have provided for -- through the course of FY '23, so that position has been addressed. Is there likely to be an increase in bad debts or doubtful debt provisions in this fiscal year? In terms of our future state, Gary, we'll adopt all the prudent accounting principles and practices, as I look at our audit representative today, where we consider it appropriate. Certainly, in terms of management, we're managing that situation very tightly. So the final question in terms of working capital, has Clover been able to implement any safeguards to monitor your customer behavior in relation to overstocking and unsold stocks, particularly in relation to China?

Unfortunately, no. Our customers are probably learning about their own positions in real time rather than having a great forecast consistent. As I said earlier, last year, we were talking about being in a record first half. They didn't see this coming, and they built inventories relative to that. So there have been significant shifts and ups and downs from our customers. We do receive forecasts from customers. Often forecasts are quite rosy, but delayed. So there's not a great system out there that actually supports this, especially coming on the China market.

So Peter, if I can answer further that we do hold regular monthly by monthly sales and operational planning meetings with our sales teams. So we've got best practices in terms of addressing what we can with their future forecasts. And certainly, our customer service team, our schedule and planning teams have direct contact with other parts of our customers' business to question and challenge as what is in place. So we do see that. We challenge it. And if they say no, we want it, then we make it and ship it.

Any other questions?

No further online questions.

Are there any questions on the floor?

[indiscernible] shareholder. Just firstly, just comment on the companies that received GB approval, obviously, there's been a consolidation or rationalization in those. Can you talk to the penetration of that customer base at this stage and some of the recent [indiscernible] but can you mention, and you alluded to it in terms of some Chinese customers paying a cheaper option, but now see that reversal of customers [indiscernible].

I can't talk specifically revenue with you but virtually every large customer that we deal with now has at least 1 or 3 GB licenses. The Chinese posts have up to 10 GB licenses, so there is GB license by brand in that context. A lot of them have delayed the introduction of that. We're qualified and have their licenses [indiscernible]. We are one of generally 2 to 3 ingredients that they will list as a DHA ingredient, so they can use ours for alternatives. The Western brands tend to use our products as they always have, or some of our western competitors, one is [indiscernible]. The Chinese manufacturers are certainly trying to use cheaper alternatives at this stage, but we have received business from 2 of the largest manufacturers, and we're in the process of dealing with a third manufacturer on one of their brands. And over time, we would expect to win more and more business. It seems to be that once a customer, a manufacturer starts to use our product, they realize how operationally efficient means to use, and we'll learn more and more of it over time. Does that answer your question?

Yes. Great. And secondly, I know you talked about the diversification of the business but this period highlights that maybe we need further diversification in [indiscernible] or whatever that category might be in terms of being able to build a little position?

So our R&D is really focused on diversification of markets via product development. We've identified like the choline product, like probiotics and some other biotics that marketplaces would have a slight issue that needs solutions and our capability and technology and micro-encapsulation to address those, so we have a differentiated product offering in a crowded marketplace. And so we -- our intention is to develop solutions for those markets. Choline, for example, is a product that's freely available in the marketplace. There is no microencapsulated choline that has a problem associated but we can fix. And so it gives us a superior position through technology rather than being a commodity to be able to compete. It's just -- it's going through that product development stage. So some of them are closer to commercialization, whilst others are farther away, but the plan is to certainly diversify the marketplace we service by doing new products. And if you look at Premneo, it's been in a 10-year process. It's probably 2 years ago, but it will be a significant part of our future, a huge part of our future. It's unique. It's the only product in the world that can do it. We've learned very good margins out of it and it will serve in the global marketplace. We have got some great opportunities.

[indiscernible] share price and, I suppose, shareholders might be concerned that the big interest is the comp right now that the company might be in a vulnerable position in terms of the chart valuation. I don't know if you can answer the question in terms of scenario, but how do you think about maybe [indiscernible].

Yes. If something happens in the marketplace, we can try and do as best as we can [indiscernible] and so a part of that would be we would take advice and also try to as part of the valuation, doing valuation of what the proportion might be would be to say, well, what is the independent view of all the deals we are working on, which are actually in trade and so forth. So we are dealing with that on a defensive basis to evaluate what the offer might be. And so we have discussed variously given what we see where the share price gets to. Is that something we should do in preparation of. The problem is it becomes quite a big static exercise for management. And once you've done it, to keep it up today, go back and refresh significantly. I think our sort of -- our 3- to 4-year plan that we produce and which are refreshed every year become a base. And so anything that we will do is providing data in relation to it. But ultimately, open in relation to what's currently happening in this business, the market is keeping the market full, it's -- we don't try to evaluate what might happen in one or 2 years' time, depending on our success, who we are in relation to the developments of trade. Now sort of definitive answer, but I think we would certainly engage with shareholders and help them understand what independent view is, what value is and ultimately, the shareholders will decide probably the outcome anyway.

So no [indiscernible]?

I think the -- we're seeing our balance sheet and I don't think we've got capacity to put in place a share buyback scheme in today in relation to the finances that we have. I don't think you want to do a capital raise to do share buybacks. Does it make sense? And certainly, the capacity we have for growth of the company around the desire to put in place some couple of -- on share buyback, putting in place a share buyback scheme is quite a formal process and requires a formality around it. So it's not about the Board saying, let's buy back a few shares, we might have put it in place and process and then go to market from time to time. I don't see that's a priority in relation to the use of the capital of the business today.

Okay. Thanks for the question.

Any other questions? Well, if there are no other questions, I would like to thank you for your attendance today. The results of the poll will be announced in the market via the ASX platform later today. Since the business of meeting is now concluded, I declare the meeting closed. Thank you all for your attendance, and we look forward to updating you on our half year results.