Noumi Limited (NOU) Earnings Call Transcript & Summary

Good morning, and welcome to the presentation of the results for Noumi for the first half of financial year 2026. I'm Michael Perich, Group CEO, and today, I'm joined by Group CFO, Peter Myers. It's a pleasure to be with you today, and thank you all for joining the call. We've uploaded the relevant information to material to the ASX, and you can navigate to the slides as you choose or follow on screen. Questions can be submitted at any time. [Operator Instructions]. I'll focus on the overview of the results and discuss the key elements of the progress of the company during the year. This will be followed by our strategy for the upcoming period. Pete will follow with the financial performance for the half. After Pete, I will make some closing remarks with time for Q&A at the end. Today I will share with some clear consistent messages and our strategy is clear. We are focused on consistent execution of our strategy and our execution is reflected in our results. I am proud of the progress we are making as we execute our plans, but there is more to do. Strategy turns to growth. Strong EBITDA growth as well as investing for the future. The plant-based milk segments, led by MILKLAB delivered another record sales result, reflecting the success of our key initiatives and the strength of the diversified channel mix. At the same time, our Dairy Nutritional segment has continued to consolidate its 4-year turnaround and is now delivering more consistent operating results. Plant-based milks delivered record sales growth in all strategic channels, including MILKLAB and HORECA, HORECA and EXPORT. Our flagship MILKLAB brand grew both in plant-based milks and dairy milks. Our MILKLAB Almond is clear #1 in the grocery Brewster channel. Dairy, the attritional improvement continues more consistent performance, and we are investing for our future. extensive strategic investments in sales and marketing, including brand, activation, global cable and new product development. As you will see in the results, the first half of FY '26 represented another period of solid progress against our strategy. Our business portfolio has a nice balance Dairy and plant-based milks lead delay with sports nutrition on-trade. Nutritional ingredients with bulk cream and lactoferrin critical products in our portfolio. Nutritional ingredients showcases our specialty dairy products and maximizes the value of all components. Our contract manufacturing, especially in Dairy and Nutritionals allows us to rebuild our dairy portfolio. We have our largest long-life milk processor in Australia currently supplying the major retailers in Australia across dairy and plant-based milks. Our contract manufacturing, especially in dairy gives us scale and connects us with key retailers and means we offer products across the value chain. We are pleased with the balance in our portfolio. Today, 80% of our contribution margin comes from our brands. Milk Club remains our #1 brand with growth continuing. We are positioned at the intersection of consumer megatrends with health and wellness focus, fleet-based adoption and a coffee culture premiumization. We have high-growth branded plant-based milk export business in the Asia Pacific region opportunities exist in branded specialty dairy. We have great assets in sports nutrition, which are poised to grow with some investment to represent a great opportunity in the fast-growing segment. There are clear value creation opportunities close to the core to drive the next phase of growth and an exciting pipeline of adjacent opportunities. The improved revenue and earnings are underpinned by our strategy. The delivery of another period of improved adjusted operating EBITDA performance provides the foundation for NIM to pursue the significant opportunities before us to drive growth. This with a great pleasure to announce an EBITDA of $33.9 million, up 23% from the first half of FY '25. Revenue in our plant-based milk segment is up 1.1% with $94.3 million. The plant-based EBITDA of $22.9 million reflects the previously 4 shuted investments we are making in marketing sales and new product initiatives to capture growth opportunities in Australia and overseas. We are confident in these initiatives will be rewarded in future periods. This result was driven with milk lab sales up 11.1% across both plant-based and dairy milks. HORECA sales returned to growth up 2.5%. For the fourth period [indiscernible] has shown improvement with EBITDA up of $12.4 million, up over 16%. Planning is underway for solutions for the maturity of the convertible notes in May 2027, and we are working with our financial advisers with the intent of maximizing value for all stakeholders. Slide 8 has the financial highlights that further call out the financial operational metrics. The statutory net loss after tax of $24.2 million includes $42.2 million for the convertible night fair value adjustment. We have seen revenue growth across the business with brands, channels and geographies showing growth. consistently executing the key initiatives that support our strategy. MILKLAB has grown over 51% in retail with 2.5% growth in our largest channel, HORECA. MILKLAB lactose free has grown 16.9%. We've also seen growth in exports in both leased and dairy. MILKLAB has also grown 22.5%. We are investing into the future, spending over $19 million in sales and marketing activities, the majority of which is spent in plant and with more to come in the second half. We've established our global brand guidelines supporting our ambition to become a true international brand with consistent execution across markets. New product innovation is key with the investment in team and capability. This will be part of our future pipeline. We're investing in our sales team with additional resources and tools to make our geographic performance more consistent. We've seen a number of marketing activities during the first half of FY '26 and activities are ongoing. Our increased investment in marketing has been both strategic and targeted. They're in market and support our products and our teams domestically and internationally. They include a mix of brand and activation initiatives. We are leveraging Milk labs premium position to drive sales, portfolio expansion and distribution. The activities have ranged from V-on-demand billboards to events at our premium outlets to showcase our products both in hot and iced beverages. The team at Noumi are critical to our success. We're investing in additional HORECA team members to support the marketing activities we are launching. In recent years, the share performance has been inconsistent between states. The key is to visit cafes more often. We have now launched a new safety program called Safe Together. And I'm proud to say that with a focus on keeping everyone safe, we have seen our safety metrics improve. We continue to embed safety across all aspects of the business. Frontline leadership development programs are underway. We are focused on driving reliability, efficiency and innovation, all aligning to our strategy. As we mentioned in our full year announcement, our new CRM was in the pipeline. I'm pleased to say that this was launched in January, enabling productivity to support our initiatives. Our growth is supported with modern, well-invested sites, our dairy nutritional site in Shepparton, Victoria, with our plant-based site in Ingleburn, Southwest Sydney, which incorporates our Consumer Nutritionals operation. We have our group services and our support team co-located in our operating sites, a decision we took 3 years ago. We think this has contributed to our improved execution with greater collaboration across all disciplines and are well positioned for our product innovation pipeline. Our ESG strategy is integrated across our AHA from delivering with our supply partners to manufacturing to delivery of our products to our customers. We are continuously improving processes to meet or exceed our ESG targets. Our team is committed to working together to build the health, wellness happiness of our communities. We will continue to look for opportunities. We refined our strategy last year, and it remains focused on growth. As already mentioned, the consistent execution of our strategy is delivering in our improved results. We want to be the Barista's choice and own the HORECA channel. We want to increase our penetration in retail and drive MILKLAB and Australia on further into the segments where we compete. Growing MILKLAB internationally, led by our strategic markets and our consistent approach. Develop our specialty dairy portfolio and be a world-class contract manufacturer, preposition around future growth opportunities, innovation and trends. With each pillar, we have a clear set of priorities to drive growth. As I delve into the plant-based milk segment, we are investing with confidence post legacy issues. With the successful launch of [indiscernible], we are investing in other initiatives, such as new formats, flavors and cold applications to leverage the strength of MILKLAB. We are launching an improved soy formulation, which will enable us to provide the complete range to our customers and consumers. We are investing in a better and more consistent execution in HORECA. As we build our opportunities, we'll accelerate MILKLAB internationally in our strategic markets, supported by our global brand guidelines. Our strategy for Dairy Nutritionals has been refined but fundamentally remains the same. The continued evolution of our operational excellence program is ensuring that we maximize the components of milk we buy off [indiscernible]. As we continue to look for opportunities, innovation is key to our future growth, and this includes products such as like dose free. Small format opportunities insist with ready-to-drink flavors and specialty milk. An important focus to deliver higher margins. Bulk cream has been a great turnaround for the period. Pricing pressure on farm gate milk price in global commodity markets may impact the ongoing benefit more so in FY '27. Burning off the market tailwinds for protein consuming nutritionist is well positioned in the health and wellness space, although competition for space puts margins under pressure. Pete will now take you through this year's financial performance

Thank you, Michael, and good morning. Like Michael, I'm delighted we're able to report more significant progress since we executed on our strategy. Our messages are similar to recent announcements. Our strategy is clear and we're looking to grow and invest in our business after a period where for a range of reasons, we needed to be more cautious. And as a result, we've been able to grow our earnings and make significant investments in our future at the same time. Record revenues in plant, another strong improvement in dairy more than double the first half of last year. Our strategy remains focused on growth, but we are accelerating. Our initiatives that support the execution of the strategy has not changed, but we are investing harder behind them. These initiatives are clear: grow MILKLAB in retail following the successful launch late in FY '24, make MILKLAB a true international brand. Adding to our flagship MILKLAB almond offering, rounding out the portfolio in HORECA without a new soy formulation, expanding our portfolio of specialty dairy products and more consistent operations for both our own portfolio and for our contract manufacturing partners. Michael has called out key actions and investments we're making to support our ambition and accelerate progress. We're investing in our brands, our people and our tools, in revenue-generating areas, and we are investing in product and our NPD team and capability. The benefits of these investments are yet to contribute to our financial results, but we are confident that in future reports that will contribute to the achievement of our strategy. There has been a clear pathway to this point. We've been able to grow our earnings. We've been able to make dairy more consistent, and we've closed out the legacy legal matters. And because of this progress, we're now in a position to accelerate our investments and drive our strategy. The progress that we've made also means that we're stronger in a stronger position to plan for the maturity of the convertible notes in May of 2027, which I'll talk to a little later. So there's a lot to talk about, but to reflect for a moment on our achievements in the last 6 months, our results continue to improve. We have a clear strategy we're implementing exciting initiatives to support it, and we're encouraged by our progress. Now as I turn to some of the specifics of the results, just a word on terminology, which we've consistently adopted in the last few years. We consider adjusted operating EBITDA numbers as being our most important measure of operating performance. This excludes all one-off restructuring and things like legacy litigation expenses and recapitalization costs. It excludes fair value accounting adjustment on the convertible notes. So adjusted operating EBITDA is the measure we use and we consider it the most useful for investors. So if Michael or I just say EBITDA this morning, that's what we mean. Moving to Slide 20. I'm pleased to report record group revenue up $33 million or 11.2% compared to the prior period. MILKLAB sales up 11.1% across Plant and Dairy. Key plant-based milks channels all growing revenues. Increased revenues in Dairy and Nutritionals including an improved contribution from bulk commodities and a strong 6 months for export dairy revenues with some specific factors contributing to a turnaround of more recent trends. Adjusted operating EBITDA for the group, $33.9 million is up 23% on the same period last year, and this comes on top of the 13% increase we announced for the full FY '25 year. Before I take you the highlights of the operating performance, there are a couple of callouts in relation to nonoperating matters. First, the statutory loss of $24.2 million includes a fair value adjustment on the convertible notes of $42.2 million. The earnings table on this Slide 20 highlights the fact that before we count the fair value adjustment for the convertible notes, we made money, $18.1 million. And all of the components are moving in the right direction. EBITDA is up. Nonoperating costs are down. Depreciation is down, net finance costs are down. The second call out would be to say that as far as the fair value charges on the convertible notes is concerned, these are higher than last year since we are getting closer to maturity. But as we have previously advised, these adjustments will continue until the notes mature in 2027. More about the notes in a moment. Now let's move to the details of the segment earnings. We're pleased with the plant-based milks result with record revenue up 1.1% and EBITDA of $22.9 million. The reduction in EBITDA of $2.4 million is entirely attributable to our decision to increase our sales and marketing investment by $4.3 million compared to the same period last year. There are many highlights. Total revenue up 1.1%. Growth in our key brands, MILKLAB plant sales up 8%. Growth in our range MILKLAB at formulation launched a couple of years ago, up 22.5%. Overall growth in plant revenues in the HORECA channel, up 2.5% and sales up 18.4% in export markets from the targeted initiatives underway to extend MILKLAB's geographic reach. In terms of market conditions, plant-based milks in the grocery channel are growing with the most recent data suggesting mid-single digits for the last 12 months, with branded revenues performing strongly, which has, in turn, meant some contraction in our contract manufacturing volumes. Data is not as readily available for the HORECA channel which is more likely to be impacted by macroeconomic factors and cost of living pressures. So whilst we can't speak to the hurricane market performance, we are pleased that our revenues have returned to growth in this highly competitive channel for the most recent period. Michael has outlined the nature of the targeted investments we're making and in particular, the opportunity that is unique to Noumi, namely that with a strong MILKLAB portfolio of almond, oat, soy and lactose-free, we have a real point of difference to offer our customers. We are confident that the combination of these investments, our brand strength and Australians love a beer with coffee is a very strong recipe for the future of our business. In short, another good result, a clear strategy and a great future. Slide 22 outlines the progress we've made in Dairy and Nutritionals Positive EBITDA of $12.4 million, more than double last year's $4.6 million and continuing the turnaround in earnings that began in FY '23. The result reflects a careful return to increase long-life milk export volumes, a very strong performance in MILKLAB lactose free, solid lactoferrin production and some improvement in contribution from commodities, most notably [indiscernible]. More specifically, MILKLAB lactose free grew 16.9%. Australia's own lowest cholesterol grew 28.7%. In long-life domestic milk contract manufacturing sales were down slightly with margins very competitive after a number of tenders during the last 12 to 18 months. In export long-life milk, sales returned to growth after many periods of contraction. Two factors were at play here including an increasing trend to small formats in our export markets and some volumes, which were the result of assisting Southeast Asian customers who face supply chain disruptions in their own markets due to border conflict. Lactoferrin volumes were up 6.9%, but prices were down as we previously advised following the expiry of a multiyear premium price contract. Commodity prices for products such as bulk cream have generally weakened in the second half, but we have been more active than targeted in our selling approach this year and have enjoyed higher realized prices and volumes. Overall, [indiscernible] cream revenue is up $8.3 million through a combination of price and volume, and this has contributed to the improved dairy results. And as Michael said, whilst it's likely that the relation between farm gate milk prices and bulk commodity pricing, will put some pressure on this element of our result in FY '27 for the rest of FY '26, it should remain favorable. Consumer Nutritionals revenues up 2% for the period, Vital strength up almost 8% and new protein up 11%. Overall, the Dairy and Nutritionals result demonstrates a reward for years of hard work in the transformation phase of the previous strategy and is now becoming a meaningful contributor to earnings. Moving to Slide 23. In terms of cash and capital, net senior debt hasn't changed much since June '25. The convertible notes are now carried at $475 million. And as with other years, is an independent fair value of the note. It is different to the redemption amount. In terms of the convertible notes, I want to pause on two important call-outs. First, fair value adjustment on the convertible notes have been included in all of our results since the notes were issued in 2021, although the adjustments get bigger as we approach maturity. These adjustments are scheduled to continue until the value of the notes on the balance sheet currently $475 million, reaches the redemption value of a minimum of $610 million in May. In short, the fair value on the balance sheet is a proxy for the net present value of the redemption amount. Second call out is to point out the classification of the notes as a current liability in the balance sheet. This is consistent with the treatment back in June, and has nothing to do with the planning for the May '27 maturity date. Last year, the accounting rules changed regarding circumstances where liabilities, in our case, the notes can be converted into shares at any time. The likelihood of that conversion on its existing terms does not matter. The mere fact that they can means we have to show them as a current liability, but that classification has no impact on our liquidity position. And then finally, in terms of our balance sheet. As we have said before, we don't carry any value in our books for our flagship asset, the MILKLAB brand. MILKLAB has been built from scratch and is now just over 10 years old and we consider it to be worth hundreds of millions of dollars, and that value continues to grow. With the approaching maturity of the convertible notes in May '27, we thought it would be helpful to summarize the capital structure. Importantly, there have been no changes to the notes since they were issued in 2 tranches in FY '21 and FY '22. There's been no change to the terms, and there's been no change to the makeup of the investor group. The notes have been instrumental in supporting the company through its former reset transform and grow phase. And whilst we've made significant improvements to our earnings and our financial position since issuance. The company remains highly geared. Total debt based on the December 31, 2025, redemption value of the convertible note. And when you include $68 million of net senior debt, the total debt is $662 million, and this represents approximately 10.5x last 12 months EBITDA on a post-AASB 16 basis. The maturity of the notes represents an important opportunity to establish the right capital structures to board the company through its next phase. And at the same time, create liquidity for the note holders that provided critical capital for the rebuilding of our earnings base. Given the scale of the refinancing, the company and its advisers are looking at all options, but it is too soon to be certain as to which of the options available to the company will deliver the best outcome for the various stakeholders or how equity values might be impacted. What we can say is that we are confident the remaining focused on continuing to execute on our plans and driving operating and financial performance will contribute to a successful outcome. And we'll keep shareholders informed as appropriate. Turning to Slide 25. Our cash flow performance was not as strong as last year, but all of the underlying discipline regarding working capital management remain in place. Net cash from trading was $23 million, down $17 million compared to H1 last year. But in the first half of last year, we generated more cash from trading than we reported in EBITDA by $13 million. And as we called out the time, that rather extraordinary result included some timing differences. In the current period, we have done two things. As noted in our recently released Appendix 4C for the December '25 quarter. First, we've increased our inventories approximately $6 million and are now more in line with target levels that will ensure we service our growth and our customers. Second, we have seen an increase in receivables, which reflects the strong export sales that we enjoyed in the second quarter of the year, which will be reflected in collections in Q3. We are pleased with our working capital management across the board and a part in working capital, our approach to capital expenditure remains disciplined with $2.5 million spent during the period. Finance costs mostly interest were down $1 million, not including the cash payments on the convertible notes. So to recap the financials group EBITDA up 23.3% to $33.9 million, a sizable investment in sales and marketing to support key initiatives. Dairy and Nutritionals doubling its earnings from last year, commodity prices and a strong focus on value-added opportunities making a difference. And another record sales result for our plant-based milk segment highlighted by effective execution of recent initiatives. And as we look forward, the focus on getting returns on the targeted investments we have made which we believe will make our company even stronger. And our planning for the 2027 maturity of the convertible notes is well underway. All in all, another period of progress executing against the strategy. And with that, I'll hand back to Michael for some closing remarks.

Thanks, Pete, for the summary of the financial results for the half. It's pleasing to see the continued performance of the business. The Board has agreed to the position and outlook and we'll continue to pursue our growth agenda. We expected our investment in sales and marketing initiatives will be rewarded, particularly for the MILKLAB brand. While we have delivered significant and sustainable improvements in Dairy and Nutritional segment, we operate in a highly competitive domestic market and is exposed to global impacts on export markets and commodity prices. We are positive about the progress, and we remain confident about the investments we are making. That concludes the formal part of our presentation. We're now available for any questions from shareholders. [Operator Instructions].

Michael, you have some questions from Garth Francis.

Good morning, Michael and Peter, thank you very much and congratulations on the results. Could you just chat some of those export channels, just a bit more clarity. They were up significantly in both -- and just the opportunity for international, you see new markets? If you could just elaborate on those, that would be great.

Yes. Thanks, Garth. There's a few key markets that we're focused on. And we've got the strategic markets that we've called out earlier, which is focused around South Korea, Indonesia and Thailand and other key markets. We do currently export to approximately 24 different countries. There's a range of investments that we're doing with key distributors in each of those markets there for growth, especially around Milk lab. But we are also seeing growth in some of our dairy channels especially as Pete called out some of the border conflict that is happening between certain markets.

So anything I'd add, Michael, is the dairy volume, I think you'd sort of roughly split half-half between some of those supply chain issues where the border conflicts that you were just describing and the trend in favor of small format, which does feel like it's trend that we're going to see more of.

Right. So the broader conflict is more of a one-off uplift?

Yes. I think that's right to think of it that way.

Terrific. Cool. And then just in terms of the marketing spend uplift, you called out sort of $4 million for plant-based division. And with some of that cost, also the CRM and is that nonrepeating? And then also, should we expect the second half to see a similar uplift in absolute terms?

So the CRM costs will fall more in the second half. And we'll continue to see an elevated level but it won't kind of continue to lap it kind of 50% increases. So it will start to moderate a little bit after that. I think as I said in my remarks, this is kind of relatively part of an orderly process where we had to get the dairy earnings to a situation where they went -- where they were not being supported by the plant business. we've achieved that. We had to get rid of the legacy issues. We've achieved that. Then we have the opportunity now to invest in particular, whilst our bulk commodity conditions are good and then will start to moderate and mature that level of investment.

And I think on top of that, Garth some of the new product innovation as well, that's supporting some of that opportunity around that market growth and being able to provide the suite of products there around -- especially under MILKLAB, which covers Almonds, oats, soy, coconuts also extends into lactose-free, especially in the domestic HORECA market.

Could you just maybe then elaborate on those reformulation of soy and the additional product launches, do you think that, that will give you a better penetration in the HORECA channel as you're able to offer another soy product that's -- from a bundling perspective?

The different markets within the race channel and it's more of the larger we call multi-store outlets that would predominantly want to arrange a single product format. So that's where being able to bring a market a productive we believe is market leading in terms of its taste and performance means that we can turn up with Australia's #1 MILKLAB Almond partnered with our open soy and also bringing the lactose-free. So gives that opportunity to grow into more of those multi-store outlets.

All right. And if I could squeeze in one more before rejoining the queue. Just in terms of farm gate milk pricing, one of your peers had highlighted that the farm grade mill pricing had fallen somewhat, but you're calling out some headwinds for FY '27. Could you maybe just elaborate on that outcome?

Yes. So we've seen some global demands coming off regarding the global dairy trade, it has bounced back a little bit in the last -- in the early part of this year, but there is still a slight discrepancy that you have seen across in New Zealand, some of the prices have come off their earlier indications. So when we see demand shifting around and what's happening with supply, especially out of Europe and the U.S., their production is increasing, which means especially around fat. There is a surplus effect. There is a shortage of protein. But overall, we've got a surplus milk. And because we are really playing in the global market overall, irrespective of where Australia is predominantly focused on domestic for fresh milk. There is a lot of impact around butter whole milk powder and even long-life milk being exported into the other regions. So it's a little bit earlier around what we see around what's going to happen with the milk price because as we called out around the cream price, the benefit we saw this year, we expect to see a bit of a moderation in FY '27 there where milk price potentially comes down, so were some of those other bot commodities.

There are no other questions at the time. Michael?

We'll just give it another 30 seconds there's any other questions?

Jonathan Snape would like to ask some questions. And then Garth will ask some after that.

Look, I'll ask two questions, and maybe just one continues on from the marketing question first. I mean, if I looked at it last year, in the second half, there was an uplift in the marketing spend of a little over $3 million. There was kind of a similar kind of step up, I guess, second half to first half this year, is it reasonable to kind of assume that, that step-up is now kind of done, i.e., this $19, $20 million type level is the right number going forward? Or is there a there a moderate continuance in that movement?

So I think I wouldn't consider it done. But I think your instinct or 100% right, Jonathan, that it will moderate the level of growth will moderate. Depending to some extent on the kind of activity levels that we've got around new product development and channel opportunities and so forth, but perhaps be a little bit more specific. But we're a little low in FY '25 for a range of reasons. We did do a bit more, I think, as you called out in the second half of last year. So a little bit more growth but not at the same rate and starting to moderate.

And in terms of how you reckon that flows through to the top line, I mean, obviously, you ramped up the spending in the second half last year, and it looks like you've got a benefit in the first half this year in terms of the uplift relative to the second half run rate anyway. Do you expect that, that should start to transition going forward? At a similar kind of pace? Or how do you think about the benefit of that $4 million investment in flowing through to the top line in the next, I don't know, 18 months or something like that?

I think as we called out there, we do see those investments in sales and marketing being rewarded in future, especially around the MILKLAB brand. And when we look across at our investment that we're doing domestically and driving that brand awareness to the opportunity to grow here and also in the international market. So the marketing is about creating that awareness and continuing to drive sales there and the increase in team members around our HORECA channel as well to get more cafes visited or rental is also important to facilitate to drive our branded portfolio.

I think, Jonathan, I guess my add to that would be, you've got a mix of investments. Michael, has been clear that they're strategic. So we've got some brand investment that's going to take a bit longer. You've got activation investments that you would expect to be rewarded more quickly. You've got the sales team investments that Michael was just describing there that kind of probably somewhere in between. And then you've got international global brand playbook that we're building that is really supporting the growth authority coming through. So I think it's a bit of a mixed bag from that perspective.

Okay. And look, can I ask around the dairy business because that's a really strong result. And I think you saw [indiscernible] had a pretty strong result themselves. Just recently, although they're flagged they're going to be really first half centric in terms of their earnings. Now I realize you're kind of different businesses, you have a far bigger, I guess, branded portfolio exposure than maybe they do. But how would you think around the first half, second half phasing in dairy because that was like a really strong step up? And I'm guessing part of this is well, [indiscernible] bulk cream where obviously, you're lagging the indicators by about 6 months on pricing. But another part of it was the big step-up in UHT as well, which it sounds like maybe $10 million of that in terms of sales is probably not going to repeat. But how would you think around the phasing in that dairy Nutritionals business? I know you don't give guidance, but...

I think you're right to call it out. I think the message we're trying to give around bulk commodities is that the way in which we have activated our sales and locking in some arrangements, looking for more specialty customers rather than just kind of clearing it on a bulk basis has been successful for us, and that will see reasonable outcomes in the second half of this year, but they will be lapping comps that were stronger in the second half of last year. So we expect good performance, but it won't. I don't think on that score represent a strong growth. I think you're right to be cautious around the -- the long-life milk in terms of those sort of one-off factors in the first month. But I do think at the same time, we would I think we celebrate the fact that we are becoming more consistent with our with our performance in dairy Nutritionals. You do have a wee bit of seasonality with things like Chinese New Year as well that do impact that export market. So you're right, we don't give guidance, but I think I'm trying to give you a few clues there as to what you might expect in the second half.

And I think Jonathan to layer on top of that, some of the production work that we've been doing around our operational excellence program means that when managing the yield at Shepparton and more consistently, which ensures that we've got the ability to sell more of that bot cream commodity from the milk that we bring in. So it sort of becomes in 2 parts, but definitely, the locking in of some of those offtake agreements have been beneficial for this first half and will flow into the second half.

Yes. Great. Thanks. Yes, I was more looking at the gross margin. It was a big jump year-on-year. There's a big mix shift towards dairy and nutritional to, you would expect to be up a lower kind of business, especially when the farm gate is stepping up, just how we think about banking those gains because it's been a couple of years now pretty impressive GM expansion. That's all. But thank you.

Michael, we have a written question from David Zammit. With media reports of a free trade agreement between Australia and Europe being imminent, which is expected to assist Australian farmers and agricultural businesses specifically, has there been any early planning and preparing Noumi to commence exporting into European markets?

Thanks, David, for that question. It's quite an interesting discussion has been going on. Unfortunately, it does seem like agriculture and especially dairy, there's been a lot of lobbying from the likes of Australian Dairy Products Federation and Australian dairy farmers to get dairy on the table. It has generally not been part of the discussion around getting extra support and at this stage, there has been a lot of work going on to try to get more impact around how do we get dairy to be part of that or ensure that managing the import of products such as cheeses and other powders from Europe. So our focus is still very much into the Southeast Asian market. There's a shortage of dairy and a shortage of dairy protein up through that market. So when we're seeing a European general commodity increase of production, we want to make sure we maintain focus around the market. So we're in that we do compete with some of that European product that's coming across. So for us, really maintaining focus around how Australian market really become ensuring that we are a good co-manufacturer of our dairy long life products and supporting the customers and the consumers that we face in into that Southeast Asian market.

Garth Francis would like to ask some more questions.

Just following on from the focus on Dairy and Nutritionals. Obviously, a step-up in margins as a result of some of those items highlighted. So just thinking about the business longer term, is a margin closer to FY '25, more sustainable on a forward basis? Or do you believe that there are still some yield benefits to be had in this business?

So I think there's a cocktail of factors at play. You do get some volatility in your margins out of those well commodity outcomes for sure. And we've tried to kind of give you a bit of a steer as to what we see the future looking like there. I think we see that the rest of the -- and we also have been very clear that our unit pricing around lactoferrin has retreated a little bit in the current period because we came to the end of a premium price contract that we enjoyed for a number of years. So production is good. Volumes are good. Demand is good, pricing off a little bit there. That feels like it's relatively indicative going forward. I think to some extent, it depends on the assumptions that you want to make around the role of UHT and export in particular, because that is relatively low-margin part of our business, although it does give us scale and provide us some scale economic benefits. But I think we've shown over the last 3 years that we have been relatively careful and cautious in the way in which we've pared back that business when the margins weren't there, and we've reentered that business for specific reasons in just more recent period. It's pretty hard at to kind of generalize about the dairy margins. I think you've got to pick it apart into components.

Right. And then just for the CapEx, you mentioned the run rates for the half. Is it fair to annualize this? And what do you suspect is your CapEx spend on a look-forward basis is $5 million to $6 million, where you'd like to be? Or do you foresee that ticking up over time?

I think it depends on what opportunities we see. I think in terms of maintenance level of CapEx, that would be about the ZIP code that we have worked on now for a few years. But obviously, if there are opportunities, we don't see any kind of giant refer cost in our future. We are happy with the state of our plants and the maintenance and so forth of the plants. So I think it's that maintenance level of CapEx is around the number that you're talking about. And I think opportunities might take it above that if they pay off in the business case since.

And then just one more on lease liabilities. Those stepped up. Was there a renewal of leases or something that was -- that caused that? Or was that an option that was included in the lease.

No. I think it was just some improvements that were financed by the landlord, and that caused a remeasurement of the lease as those improvements get recognized in the balance of the lease.

There are no more questions at this time.

All right. I'd just like to reiterate a few points to summarize. And we are focused on the delivery of service, quality and innovation. The execution of our strategy is delivering, and we're proud to provide a strong set of results. I'd like to thank everyone for listening today and reiterate the execution of the strategy of your company. The results we're delivering today is a testament to that. Right across the business, including the Board, we remain committed to the pathway forward. I want to thank all of our stakeholders within the business. Our team is instrumental in our success. We would not be here today without that. I want to thank everyone for their effort. On a final note, as announced on January 13, Pete is retiring as CFO of Noumi with [indiscernible] commencing on the first of April. It has been a pleasure to have Pete next to me to rebuild Noumi to the business that it is today. I'd like to personally thank Pete for his mentorship and leadership and wish him all the best for the future. Thank you all again for your time today and hope you all stay safe.