Noumi Limited (NOU) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us to walk through the 2020 half year financial results for Freedom Foods Group. First point I'd note, in any mention of financials today, we are excluding the impact of the lease accounting standard. So we're talking to a comparable number basis to the prior periods. And for any questions on the lease accounting standard, we'll refer that back to the company, given its unusual complexity and changes to people's earnings and balance sheet. So moving forward, a couple of key highlights. Net sales increased 43% to a bit under $300 million, a fairly substantial increase from the prior year period. Operating EBITDA, which is a key measure for us, increased 55% to $32.7 million, an increase of $11.7 million. Importantly, a key focus area, gross margins increased to 27.1% from 24.7% in the prior period. Our operating net profit after tax increased 42% to $9.1 million. And our statutory net profit rose 45% to $5.4 million after abnormals and noncash expenses, and we'll talk through that a bit later. We maintain the interim dividend at $0.0225 unfranked. A couple of key highlights, and then we'll walk through some of the detail of the key business areas. The company continued to achieve strong growth through key brands: Australia's Own, Freedom Foods in both retail and also in key export markets but also particularly our MilkLab brand in out-of-home channels. And each of our key market areas, Australia, Southeast Asia and China, had good growth. Net sales from group brands represented 49% of our sales or approximately $135 million. Obviously, a key focus of our business is to have been -- to increase sales from our group brands as we transition away from contract manufacturer. Growth achieved in key brands, branded categories and channels, particularly in the Australian retail grocery segment, was 23% as compared to Australian retail grocery growth of a bit over 1.3%. We had strong sales growth in the MilkLab range across both plant-based products and dairy of 152% compared to the previous period and actually 39% growth on the second 6 months in 30 June 2019, reflecting very strong growth in both out-of-home channel in Australia and into Southeast Asia. Strong growth of Messy Monkeys in the health snack and retail channel. Our Vital Strength and Crankt nutrition brands continued to build penetration into pharmacy and convenience. And importantly, we launched a number of key nutritional ingredients during the period, importantly, lactoferrin as well as the launch of our native whey protein isolate. In export markets outside of Australia, we have very strong growth in Southeast Asia. Sales revenue is up 58%, actually ahead of the growth in the second 6 months. This market, in particular, has strong growth potential as does China. In relation to our capital expenditure program, a couple of key highlights were that we are now coming to the end -- close to the end of our significant upgrade to our Shepparton facility, bringing our capacity up to 500 million liters. And during the period, we largely completed that, including the addition of additional filling and services upgrades. We brought forward some capacity increase at Ingleburn, and I'll talk through that shortly. And we fast tracked stage 2 of a transformational Nutritionals capability with planned capacity upgrade for lactoferrin underway to be close to 40 tonne of capacity from July 2020. Talking through each of the businesses and the business operational and financial performance. In this financial year, we will be talking to our Dairy and Nutritionals business as one operation, given the vertical integration that is now occurring, particularly from the site at Shepparton. That business delivered increased sales, reflecting increasing demand in Australia, China and Southeast Asia for UHT dairy as well as for key dairy components, particularly cream. We had improved factory utilization, notwithstanding that we still are through a phase this year of some additional commissioning. The integrated Dairy-Nutritionals capability contributed to sales and earnings growth in the segment. However, we only started to manufacture lactoferrin and WPI in the second quarter of this half. Consumer Nutritionals contributed strong growth in sale and earnings from particularly our bulk powders business and our packaged consumer powders business. We had some sales growth as the comparable basis was down, reflecting the discontinuance of certain bars and drinks from the prior year. In the Dairy and Nutritionals business, we did have $22 million from bulk milk sales. This relates to Spring peak milk that we were not able to process at Shepparton due to the commissioning of new plant and equipment. Those bulk milk sales contributed a negative contribution of $2.5 million in the result, which was not excluded as any abnormal. This is not expected to reoccur in the future. Plant-based operations delivered increased sales, reflecting strong growth in both retail and out-of-home brands with operating earnings contribution materially ahead of the prior year period, reflecting both sales, obviously, the increasing sales mix to higher-margin channels in both out-of-home and Southeast Asia and improved factory utilization at Ingleburn during the period. On Cereals & Snacks, in FY '19, we exited a number of major contract manufacturing arrangements with the impact of reduced sales and contribution from that decision. Our strategy has been to rebuild the business through developing sales for our own brands, and we are certainly on a journey with some strong success with the launch of both Heritage Mill a year ago, the further extension of the Arnold's Farm brand and development of Messy Monkeys. During the period, however, we continued to invest in building those brands with higher trade spend and marketing expense over the prior period, impacting operating earnings. Some reduced factory utilization because of the changes around contract manufacturer also impacted our business. Whilst we would have expected to be higher -- have a higher contribution when we made the decision to exit contract packing for this period, we are still confident that the strategies in place around the development of our brands and the increased factory utilization over the medium term will see an improving earnings contribution from this business going forward. In Specialty Seafood, which is a small business, earnings were down on previous corresponding period, reflecting the changeover with the impact of price increases to offset some of the significant cost and exchange rate impacts. Pleasingly, though, that business is starting to move in some increased profitability as we see consumers adjusting to the price changes. The group continued to invest in strong brand building and marketing in both retail and other channel trade activities. Our group services costs increased over the period, reflecting our investment in sales capability, particularly in Southeast Asia and China, but also around quality, finance and other operational needs as the business scales across a range of manufacturing capabilities. And during the period, we established a Chinese Wholly Foreign Owned Enterprise, WOFE, to improve service and efficiency with our China operations. There was a timing difference impact on sales but not considered material. In relation to our underlying operating EBITDA of $32.7 million. The difference between our $32.7 million and statutory EBITDA of $28.5 million was other costs representing -- not representing underlying performance, namely, total amount of $3.4 million with the bulk of that being $1.4 million relating to write-off of costs associated with the discontinuance and change to our business activities in North America as we move to a distribution model, not an operating model. We also had some additional preacquisition costs relating to the prior year review of the Lion Dairy operation. Moving to our Dairy and Nutritionals business to give a slight overview of some aspects of the performance during the half. In relation to the Dairy side, there's been a strong focus on our branded business in Australia and into Asia and China. In Australia, the brand Australia's Own has built a 20.1% share of branded UHT white milk in a little over 12 months since launch. The Australia's Own dairy products are also being expanded into key sales channels in Southeast Asia with increasing market penetration in Singapore, Vietnam and the Philippines. We see a great opportunity to build that brand across Asian markets. In China, Australia's Own Kid's Milk continued to grow sales and distribution. Investment continued in the brand. Additional products were launched, and we now have a further product innovation platform to build on this strong consumer brand and the extensive distribution built by this business over the period. It's actually been 5 years since we launched this business, and we look forward to the next extension of growth over the next 5 years. In relation to contract manufactured dairy across -- for brands in Australia, China and Southeast Asia, we continue to supply a number of our long-term retail customers. We see opportunity for more growth with other dairy manufacturers and brand owners, particularly in Southeast Asia, and we will see further business from our China-based customers developing later in the financial year period, aligned to increases in our new filling capacities coming on line at Shepparton. At Shepparton during the period, we actually processed 150 million liters compared to 107 million liters in the previous corresponding period. We estimate that dairy milk volume processed in FY '20 to be upwards of 350 million liters, a significant increase on the prior period. Sales of dairy-based components, including cream, an important component and mix in our business, will also increase. As I've noted, we've increased capacity at Shepparton, and we are largely through the bulk of the installation of that new capacity. The doubling of the capacity will allow us to support the growth that I've indicated both in Australia but in particular, into export markets. And we expect the -- in all material sense that expansion to be completed by June this year. In relation to dairy supply, dairy supply particularly out of our investment in equity associate Australian Fresh Milk Holdings. We are pleased to be able to see further growth in that supply over the next -- over the medium to long term, particularly off the back of significant expansion by Australian Fresh Milk Holdings. The acquisition of Coomboona Farms in the Goulburn Valley has performed very well, and we continue to see strong growth in milk supply out of that operation over the next few years. An acquisition of what we call the Torrumbarry Aggregation will allow us to actually scale up both the Moxey Farm and Coomboona Farm operation to substantially increase the supply of milk over the medium term. We're actually forecasting that AFMH will produce over 190 million liters by the end of FY '21. Freedom Foods is utilizing a growing proportion of that dairy milk output, particularly from Coomboona Farms. And we see that as being an important, strategic hedge and key part of our growth plans for supply of milk in the future. Our investment in AFMH was $22.9 million at 31 December, and the business is seeing some good increases in profitability. In relation to direct dairy milk supply, we continue to build off our direct suppliers, 60 direct suppliers at the end of December '19. Including our partnership with Australian Consolidated Milk, we have total supply of 400 million liters for this financial year. We expect with the increase through AFMH and through initiatives with what we see as our growth, direct farm supply, we expect to be between 430 million to 440 million liters of supply into FY '21. None of our direct milk supply source was impacted by the recent bushfires in Victoria and New South Wales. A pleasing aspect that we've noted is retailers are implementing higher retail pricing for all dairy products, which will assist in Australia in building a more sustainable dairy supply future. In relation to our Nutritionals business related to obviously our UHT operations and our broad milk capability at Shepparton. During the period, we commenced manufacture of lactoferrin from September and started to build the awareness of the unique capabilities of that product, particularly the features around its spray-dried nature. We also continued to build on sales of MCC, micellar casein, and also WPI. We are well progressed on commercializing a number of these key ingredients into applications under our own brands, including in sports performance, diet and adult nutrition. The vertical integration of these products into our own brands is a key part of our long-term strategy. In relation to existing brands, Vital Strength continues to perform well, particularly in key pharmacy channels, and you will see an expanded range of more high value-added products in that range over the next few months. Crankt, which is our on-the-go protein brand, continued to see more distribution and expansion of its range in both retail grocery and petrol and convenience. And we will certainly soon launch a new range of protein-based snack bars manufactured from our Leeton capability. Our new brand that we are launching, Vital Life Health, that will be launched in March, will actually incorporate the first stage of commercializing our lactoferrin into our own consumer brand. The launch of the VITAL LIFE Immune Shot is a really innovative way to access an ingredient that helps to fight bacteria and viruses, providing comprehensive immune support. In relation to our plant-based business, as I noted, strong volume growth of a bit under 30% and sales revenue growth of 42% compared to the previous corresponding period. This reflected good growth in Australia's Own range, the MilkLab range, our licensed Blue Diamond Almond Breeze range and growth across both retail and out-of-home channels. We particularly continue to see very strong growth and penetration of plant-based beverages in the out-of-home channel with both MilkLab and Almond Breeze Barista. The importance of having a broad range of plant-based beverage products under the MilkLab brand, including lactose-free dairy and standard dairy milk, is an important factor to the continued growth of the MilkLab brand. The group has also secured distribution with a number of major specialty food chains and quick-service restaurants, reflecting the capability to provide a range of options for plant beverages but also importantly, the ability to continue to build supply, reflecting our significant manufacturing capability in this area. We invested in sales and distribution to develop new channels in Asia and the Middle East for both Australia's Own and MilkLab plant-based products. And the MilkLab brand in particular is seeing strong growth and opportunity across the range, including dairy, across Southeast Asia and the Middle East. We see the potential of that brand to be a significant global plant-based beverage brand in the future. At Ingleburn, we continued to see increased efficiency. The business -- the plant is operating well off the back of its only being established largely now for about 2 years. We increased capacity around filling during the period, which will bring our total filling capability up to 210 million liters per annum with further scope for growth within the infrastructure of that facility over the longer term. A significant advantage in working with major customers, including specialty food chains, is the ability for us to provide that scaled manufacturing capacity over the longer term. In relation to Cereals & Snacks, as I mentioned, we saw strong growth in our Freedom Foods core range. It continues to be a core must-have brand in the health food section and a leading brand for a number of things that we're trying to achieve in the Cereals & Snacks range. Messy Monkeys continued to grow in the health food section as well as penetration in the mainstream section with the launch of cereals and bars. Our Arnold's Farm brand, which is exclusive to Woolworths in Australia but nonexclusive for distribution into Asia and China, continued to see good growth through the expansion of different products in domestic retail and including snack bars. The Heritage Mill brand has continued to perform well and has achieved a 30.1% share of the breakfast cluster and muesli category in Coles, of which it is an exclusive brand. We remain confident of the growth opportunities through this focused brand strategy. And whilst, as I noted, we've had a period where we've had to recover from the loss of the contract manufacturing volume, the importance of building our own brands and building a more sustainable business based on our own brands is the key focus for this business over the medium term. In China, we continue to be successful with sales in Tmall International. We did have some impact as we started to change our distribution structure to act for reducing our off-line presence as we transitioned to our partnership with Theland for sales of cereal, particularly Arnold's Farm. Sales are expected to increase into 2020 as our new off-line distribution structure commences. And as I noted, in North America, we are moving to a distribution arrangement rather than an operating arrangement. In North America, we continue to see sales of our Allergen Free Cereal, Messy Monkeys Snacks, and we continue to be a supplier of private label cereals to groups like Trader Joe's. Innovation has been a strong part of the group's focus. Our passion for changing what we eat and aligned to our core focus of making food better has seen significant investment in new product development. Outside of that, significant product development that has also delivered very strong growth in sales from these new product development initiatives. We reduced our product development expenditure during the period but, against that, started to see increased sales with $93 million of our total sales period, 31% of total sales, coming from those new product initiatives put in place over the last 3 years. In relation to capital expenditure, we -- as I noted, last financial year, the FY '19 year reflected a peak in the 5-year investment cycle. We do expect a large proportion of our remaining investment program to be completed this year, bringing forward some aspects of timed FY '21 expenditure, including bringing forward the filling capabilities at Ingleburn, some additional filling capabilities to round out 10 fillers at Shepparton and bringing forward our lactoferrin capacity to 40 tonne by June this year. We anticipate FY 2021 capital expenditure to be less than the depreciation expense for the period. The capital expenditure program provides a very strong operational platform to significantly increase the group's scale and operating financial returns. In relation to capital management, liquidity and finance facilities. Cash generated from operations represented a material improvement from the prior corresponding period. As we wind down from a significant capital expenditure period, the group is working to improve the management of inventory holdings, including packaging and raw materials, whilst maintaining capability to manage velocity in a number of key areas of the business. While we have made progress, we do see further opportunity to improve working capital, and we expect a further material improvement in operating cash flow in the second half of this year. Our net borrowings were $188.5 million, representing a debt-to-equity ratio of 28%. In December '19, the group entered into a new syndicated and bilateral banking facility with our long-term partners that provides a total facility of $407 million, which provides adequate working capital and growth for the business over the next 3 years. It's important to note that the group does not utilize any form of reverse factoring, being supply-side financing. During the period, we invested $66 million in capital expenditure in relation to the balance of construction and equipment payments; commissioning and costs on the expansion of Shepparton, Ingleburn and Leeton; technology platform development; and deposits for capital expenditure as we move forward into the balance of expenditure in the second half. In relation to our outlook, the group continues to be well positioned to build into a major global food and beverage business with scale in key food and beverage platforms, providing strong diversification in sales, together with earnings growth, from key markets and channels in Australia, China and Asia. Our key brands Australia's Own and Freedom Foods will be at the forefront of driving our returns. New brands that are recently launched over the last few years have the potential to be global success stories. MilkLab and Messy Monkeys, as an example, have been extremely well received and are expanding at a strong rate. The growth in sales and financial returns on our plant beverage business pleasingly reflects the investment in our brands and those new capabilities, whilst significant, at the Ingleburn site in Sydney. The business is expected to materially contribute to profitability over the medium term as we focus on driving our plant-based brands in retail and higher-margin out-of-home channels and, in particular, into Asia and China. With a large and significantly increasing base of dairy volume within the group, the focus is on driving the dairy business towards specialty and high value-added products. New product streams from the Nutritionals capability, as I've noted, and some of those new product formats that we're launching are expected to materially positively impact our sales and earnings into FY '20 and beyond. In Cereals & Snacks, we are strategically well positioned to continue to grow across all the channels that we're in. The decision to exit that manufacturing arrangement has released capacity and capability for our own brand strategy and for providing increased returns in the medium to longer term. We expect to continue to experience strong demand across all our business activities in key markets and channels. The growing demand in dairy, Plant-Based Beverage and Cereals & Snacks reflects the positive impacts on our expanded operational footprint, our increasing brand penetration and the investment to drive market growth in key channels and categories across Australia, Asia and China. In relation to China, whilst we expect some short-term disruption over the next month or 2 as internal supply chains in China return to normal operation, the underlying medium-term demand from key customers remains unchanged, and a number of new customers are still moving forward to start supply with us from the end of this financial year. Sales to China in the period represented 15% of our net sales value in the current half year period. Importantly, I would note, the increasing scale and diversification of our activities provides an important hedge to assist in mitigating potential impacts from short-term disruption to markets. We expect the group to deliver higher sales and earnings growth in the second half of FY '20, reflecting a seasonal trend as well as further growth across key business activities. Thank you, and I'll leave it open to questions.

[Operator Instructions] Your first question comes from James Tracey, Veritas Securities.

Four questions from me. The first one is on the plant-based division. It seems to be the area where there was the biggest peak versus my numbers and consensus. Can you explain the drivers of that? The second one is MilkLab. It seems to be one of the fastest-growing brands in the portfolio. How big do you think it can be in sort of 3 to 5 years' time? And then going to Asia, it seems like Southeast Asia is accelerating in growth. China has slowed down a bit. To what extent can you flex excess demand in Southeast Asia to offset any potential coronavirus impacts? And then the final one is on CapEx. You've indicated FY '21 CapEx should be below depreciation. Could you just give a bit more clarity on the sort of level of sustaining CapEx going forward?

Yes. Thanks, James. Well, certainly, plant and the performance there, I mean obviously, we've made a very substantial investment in Ingleburn a couple of years ago, and that was with a view that we saw the plant beverage category, longer term, had significant growth potential. It's probably fair to say that the growth of it has probably exceeded and the opportunities in it has exceeded our expectations from probably where we would have seen it a couple of years ago. But importantly, we've been able to react well with the capability at Ingleburn. Look, the key drivers are, obviously, consumers are continuing to move to more plant-based diets. There's no doubt that diversity across retail channels, having different types of formats, the recent launch of a number of barista formats in retail grocery is seeing good growth across Australia's Own and Blue Diamond. Having also clear exposure to the out-of-home channel where, in the milk for coffee and those sort of areas, it is, obviously, a very significant driver and really a reflection of increasing consumption of food and beverage in -- outside of retail -- traditional retail channels. This out-of-home channel, we see has, longer term, got significant growth opportunity for not just plant-based but dairy and a variety of other products. So that's been the key drivers. Obviously, margins in those channels in out-of-home are stronger than retail. But then again, we've seen some barista formats perform very well in retail, which are higher margin. In fact, we're seeing consumers trade up out of a product that might cost them $2.80 to $3 into a product that costs them $4 or $4.50 a liter. So that's a very positive signal for the category. In relation to MilkLab, MilkLab, it's really been -- is a range of products for plant-based but also includes lactose-free and full-cream dairy. It's interesting, if we look at Asia, we're seeing very strong growth for MilkLab in coffee channels in dairy, full-cream dairy and lactose-free as well as plant-based is starting to see some further penetration into parts of Asia as well as Middle East, South Africa. So lots of scope we see for further growth there and really complementary around the fact that we have the Ingleburn plant-based facility and the Shepparton dairy facility. And then domestically in Australia, the key is to build out that broad range, continue to penetrate out-of-home channels. And that's just, I think, lots of scope for further growth. And it's important to have diversity in the range. We also have a number of different products that meet different people's needs across the channel. In relation to Asia, we went into -- really, only 2 or 3 years ago, we've invested in putting people on the ground. Asia is a very different market compared to China. Each market requires different regulatory compliance, approvals for products to go into market. So it takes a bit of time to get momentum. But we're now starting to see the fruits of investment in really registering product, putting people on the ground, seeing very strong growth in dairy, particularly in our own brands. We're seeing growth in contract manufactured dairy and also as I mentioned, some growth in plant as well as a little bit of growth in the cereal side. So we continue to invest across those markets. They're high growth. They value Australia on the quality of our food. They're young populations, rising GDP. I think we just see that a very exciting opportunity to keep investing and supplying that market. And that market also tends to creep out a bit. There's a little bit of growth, as I've mentioned, in the markets like the Middle East and also South Africa. So the real -- is it an offset to China? It's complementary to China. It's in some ways a hedge to China, but we're still confident that China is still a very important growth market for us, particularly around dairy and then into the future into plant. In relation to CapEx, in essence, we're getting to a period where, outside of maybe in the future being able to add more capacity at Ingleburn, the reality is Shepparton is full. There's no ability to add any incremental capacity across UHT. We're really bringing up our Nutritionals capability to the levels that we've indicated, particularly around lactoferrin, to match contracted requirements into the next few years. So I think ongoing, we expect CapEx to -- obviously, our depreciation expense will continue to rise, reflecting the CapEx over the last couple of years. But we will start to see that CapEx will be -- probably FY '22, beyond, we're probably in that sort of 70% to 80% of depreciation, and that may sort of trend down a bit. But again, it just depends on how markets develop. But I don't expect us to be in a period where in the amounts that we're spending in the last couple of years, we're not going to be in that space largely because we've completed the big infrastructure investments.

Your next question comes from Michael Peet from Goldman Sachs.

Just a clarification, if I may. Just I think I heard you comment that the normal sort of milk trading loss of $2.5 million was not excluded, but I'm looking at footnote 2 saying it has been taken out. I just wondered, out of that $23.9 million trading EBITDA in dairy and nutritional, is it including or excluding that $2.5 million?

$23.9 million was after fully expensing the $2.5 million in the result.

Got it. Okay. But it's out of that $162 million revenue is excluding the $22 million bulk milk sales.

Yes. What we tried to indicate is that the real, what we call, comparable revenue for the business, obviously, the $299 million less the $22 million.

Understood. Just on unallocated corporate costs there of $15.2 million, is that -- I'm just trying to get a sense of, obviously, as you scale up, how much more that's going to grow, maybe what the second half will be and into '21.

Yes. Well, it's -- yes, Michael, it's -- look, it's an area -- we're obviously very cost-focused. But what we find is, particularly, we probably forward-invest a bit more into sales, obviously, given the opportunities we see. And so that I don't expect large ramp-ups in that in the next few years, but there's always a bit of incremental. Really, we've had to continue to put more investment in IT and quality and to some extent around just the increasing scale and the needs of being a public company require more investment in some areas. So look, I think we would see it -- we're trying to manage it as best we can without seeing a significant growth in it. So I think going forward or probably next year, we're probably more 7% to 10% in that. But I don't expect it to -- and that's relative to still growing sales at a fairly strong rate. So largely, a lot of our fixed costs are well established, but we've just got to continue to keep an eye on that area.

And just on D&A. I mean as, obviously, the plants are coming up, the D&A is going to increase from that $17.3 million in the first half. Just wondering what we should look for, with the context that in '21, you're saying CapEx below depreciation, what will depreciation be in '21 is, I guess, my question.

Yes. I think it depends on when the timing of all the capital work in progress comes through. But I would probably expect -- if I looked out to FY '22, I'd expect that all this -- the capital work in progress you see now, in talking to our team about it, I think, largely, that will then be into depreciation mode. So we're probably up around that 40 of D by FY '22.

Okay. Good. And then just on lactoferrin. I mean you said it started in the second quarter production. Was that a little bit -- was it in line with what you were forecasting? What I'm trying to get at is what did you achieve this result with? Any issues with startup there, despite start-up?

Look, it's -- I think I indicated in the full year last year, there was a few technical challenges and the nature of some of our customers who have very extraordinarily high standards for quality and specification. We work with them on a couple of process improvements and changes to our business to make sure that we deliver to that. And pleasingly, we've finished that. But it delayed a little bit where we wanted to start, but not, I think, in any material sense. But pleasingly, we're operating well. And yes, importantly, that increase in capacity, we really need to ramp up because we have contractual commitments that really start to increase into FY '21. So I think we're well on track for that.

Your next question comes from Josh Kannourakis from UBS.

Rory, can you hear me okay?

All good. Thanks, Josh.

Great. Great. Just following on from that question around -- on the dairy business. Can you just maybe talk to if there was any cream and if there's any possibility to talk a little bit about the magnitude of the tonnage you have in lactoferrin in the first half?

Yes. Well, I haven't got the exact data on cream. But cream is obviously an increasing by-product as we increase processing milk through the business. But the first half, obviously, you go through spring, and cream or fat component is relatively low compared to where we are. We see it as a bit better in autumn and winter. So cream increased. But obviously now as we've got a lot more scale in the business, the ability to process components into the second half and an increasing component in the milk, cream will be a much more significant contributor to the second half results. But yes, we didn't -- and we just don't want to go into too much detail on tonnage of that, obviously, for commercial reasons. Lactoferrin -- sorry, Josh?

Yes. Got it. And -- no. You go ahead, please. Yes.

Yes. Look, lactoferrin, I think we indicated this year, we're in that sort of vicinity of 14 to 16 tonne of output. I think we're still largely on track for that. The first half was obviously a smaller part of that, probably less than sort of 20%. And we really start to pick that up in the second half and then into FY '21. I would note there's been a lot of -- probably to get ahead of any questions, there's been a lot of commentary about this black box ingredient in terms of what the market pricing is and that sort of thing. In essence, in a general sense, if you really want small quantities, it's still paying fairly high prices. If you're after more larger quantities, the reality is our prices are still above AUD 1,000 a kilo. The market price range is quite wide. It depends on the type of customer and the arrangements that people have, and there's degrees of market seasonality. So the reality is we still see that demand is strong. It tends to, as I say, move around a bit depending on seasonality. We have seen the volatility come out, and that's probably good that you don't have these wide ups and downs in price. But going forward, for our business, we have a large proportion that is contracted. So that takes a lot of velocity out. And then we have flexibility to deal with a number of more additional customers who want to build into the pharmaceutical area as well as retaining volume for ourselves. And my view is that the more lactoferrin that's available for suppliers, this is an extraordinary protein capable of many things in human health. So it's a real opportunity to start building some new consumer applications that can take more demand.

Got it. And so a quick question just around dairy supply, so positive outlook for '21, which is good. Can we maybe just talk through in terms of from a cost of goods, in terms of expected pricing, how you see that step-up coming into '21? And also maybe just some context around how much is locked in on long-term contracts, et cetera.

Yes. Well, we're always trying to establish sort of 2- or 3-year forward contracts. And obviously, we are focused on more significant proportion of our growth in the future to come out of our partnership and our strategic equity interest in Australian Fresh Milk Holdings. The ability of that business to scale dairy supply is significant. And so that's really where a large part of our growth is going to come from. A number of our growth -- a number of our direct farmers, though, there's a number in there that do want to grow, and they're quite positive about the opportunity in the industry. And they've changed their farming methods over the years that they're much more efficient, and water is not necessarily the only key driver in their business anymore. So we have a number of those farms that are working with us to scale up from, if they're a 5 million-liter farm, they might go to 10 million or 13 million, they might go to 20 million liters. So that's very positive. We want to keep our growth strategies within the framework of our direct supply network as it exists today. In relation to pricing, pricing, yes, there's still a bit of -- I probably would comment that we -- if we take out the issue of seasonality because pricing, to some extent, tightens a little bit as we move into autumn and winter, I think if we look at more medium term, the reality is the pricing, we think, will sort of moderate a little bit. We don't see it going back to where it used to be a couple of years in the general sort of sense of pricing. The reality is we think pricing is now creating a more sustainable base, including pricing at retail. For dairy products, we see a more sustainable pricing structure for the dairy industry. And hopefully, some other changes proposed will start to see a lot more support to the industry. For ourselves, we -- I mean during the period, we increased price a bit to really motivate our farmer base to drive more of those important components for us that drive the value chain. So I'm not expecting any significant sort of big upward movements in our milk pricing going forward. And I think, hopefully, we'll see a bit of moderation and not sort of any more peaks, particularly as we've seen a little bit of seasonal change. I'm not saying we're over the water crisis or anything like that. But there's indications already of the water pricing in all of Victoria, and that has sort of -- it's come off its high, and we're just hopeful that we'll see a little bit more positivity come back into the industry.

Got it. And very final one, just on the plant-based. When do you see based on the current trajectory and some of those additional contracts that you're entering into the period reaching that capacity, getting closer to the 210 million of filling capacity?

I think we've got a 3-year framework within that based on growth, but I would say probably some of the growth in the last 12 months has exceeded our expectations. So it gives us that 3-year horizon, and that's what we're planning to. Obviously, anything above 210 million, you've sort of -- you've got another stage of investment, and we don't want to be -- don't want or need to see that any earlier than the next 3 years.

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