Noumi Limited (NOU) Earnings Call Transcript & Summary

Good morning, and welcome to the presentation for the full year results for Noumi Limited for the financial year of 2026. I'm Michael Perich, Group CEO. And today, I'm joined by Noumi Chair, Genevieve Gregor, and I'd like to welcome our Group CFO, Iain Short, for his first call for Noumi. It's a pleasure to be with you today, and thank you for joining the call. We've uploaded the relevant materials to the ASX. You can navigate to the slides as you choose or follow on the screen. [Operator Instructions] I will 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. Iain will follow with the financial performance for the period, followed by closing remarks. Genevieve will take you through the Scheme Implementation Deed. We'll then move to Q&A at the completion of the formal presentation. The key messages for today's call is, consistent execution of our strategy is delivering results. I'm proud of the progress we are making as we execute our plans, but there is more to do. As you will see in the results, FY '26 is another year of consistent progress for Noumi with modest growth in revenue and underlying earnings, delivered alongside deliberate investment in brands, people and capabilities. These results were delivered in a challenging period with a number of external factors impacting the results. Investments into our brands delivered revenue growth. Solid adjusted operating EBITDA growth in FY '26 with revenue growth supported by dairy commodity pricing and a broader mix of brands, channels and markets. Total Milklab brand revenue grew 5.5%. HORECA was flat as economic conditions tightened, although export was up 11.2%. And with the continued growth in Milklab in retail, we have seen 44% revenue growth in retail with Milklab. Our Plant-based Milks segment, led by Milklab, delivered 2.4% sales growth with focused investment to strengthen the Milklab brand further. Dairy & Nutritionals segment achieved the fourth consecutive year of earnings improvement, driven by favorable commodity pricing for bulk cream. Higher-value dairy, including lactose-free and protein fortification, continues our confidence in the Dairy & Nutritionals segment. Safety, quality and capability improved through the operational investment, leadership development and digital systems. Our business portfolio has a nice balance. Dairy and Plant-based Milks lead the way with sports nutrition on trend. Nutritional Ingredients with bulk cream and lactoferrin remain critical products in our portfolio. Nutritional Ingredients showcases our specialty dairy products and maximizes the value of all milk components. Our contract manufacturing, especially in Dairy & Nutritionals, allows us to rebuild our dairy portfolio. Our contract manufacturing, especially in Dairy & Nutritionals, gives us scale and enables us to connect with key customers domestically and internationally. We are pleased with the balance of our portfolio. Our brands deliver over 70% of our contribution margin. We are in a position to invest in our brands. And this year was a year of investing back to grow awareness and consideration, especially for Milklab. We have streamlined our sports nutrition category with Vital Strength and Uprotein, now the core brands. The delivery of another year of improved EBITDA performance has enabled us to invest into the future. I am pleased to announce that an EBITDA of $61.8 million, up 7.6% from last year. Revenue rose 8.8% to $648 million. Record sales for Plant-based Milks of $186.3 million, up 2.4%. EBITDA of $43.1 million was down 14.2% on FY '25 after a step-up in marketing and capability. Dairy & Nutritionals EBITDA of $21.6 million is up 94.1%, supported by commodity price tailwinds. Strong branded revenue growth with Milklab up 5.5% and Australia's Own up 12.3%. Uprotein, our dedicated e-commerce brand for sports nutrition, was up 18%. And Vital Strength was up 11.6%. Cash generated from trading of $69.1 million is up 3.2% on FY '25. The investment into our brand, together with challenging conditions in the second half with consumer spending and the global conflict, has slowed our earnings in the Plant-based segment. Slide 8 has the financial highlights that further call out the operational metrics. The statutory net loss after tax of $67.2 million includes $91.8 million for the convertible note fair value adjustment. This is an improvement from FY '25 of $82.8 million. Without these items, net earnings would have been positive. I've already called out a number of highlights in revenue, but there are a few others to mention. Australia's Own has grown 37% as we look to value-added opportunities, especially in flavors and kids milk. Exports of Plant-based Milks was up 9.8%. Milklab Oat has continued to grow with 20.3% over the last 12 months. Bulk cream has increased 33.5% in FY -- compared to FY '25 with strong demand, and we are seeing this slow into FY '27 as demand has softened and global commodity pricing has reduced, especially for Milklab. Demand for protein, on the other hand, remains firm. Targeted investment growth in defending our position. We are proud of the visibility that we have achieved. No other barista competitor in the market has a portfolio diversity across plant-based and dairy milks that Milklab does. We launched our new campaign, Made for Baristas, Made for You. We also invested more heavily in trade shows, both locally and internationally, showcasing Milklab as a premium global brand to the trade. Innovation is key, and our retail performance was further bolstered in Q4 with the launch of Milklab's new best-tasting soy and lactose-free products. The team is focused on embedding our new CRM tool. For our international team, FY '26 has been a standout year with market activations, training programs and collaboration with key international distributors and retail partners. The team at Noumi are critical to our success. We have grown the team further this year as we increased our touch points, especially for sales and innovation. Safety has been a big focus again during the year. We launched our Safer Together program, and it is a commitment to protect, support and uplift each other. Ingleburn has surpassed 500 days without a lost time injury. This year, we have also seen our total recordable injury frequency rate reduced by over 30% to 5.2. There is still more work to do, but the trend continues to be positive. The engagement survey saw an increase in participation, which is the third year running. It is a great result with over 90% of our staff participating. During FY '26, we had over 100 leaders at the Noumi complete the leadership training program to build the skills of our leaders. We continue to operate 2 manufacturing sites in Australia, Shepparton, close to dairy heartland, producing long-life dairy milk and nutritional ingredients, with Ingleburn producing our Plant-based Milks and liquid stocks range and our Consumer Nutritionals portfolio. Ingleburn also hosts our group services, which assists in better collaboration within the overall business. On Slide 13, I'll talk to our Healthier Tomorrow plan. Our ESG strategy is integrated across our value chain. From dealing with our supply partners to manufacturing, to delivery of our products to our customers, we are continuously improving processes to meet our ESG targets. In FY '25, we developed new sustainability targets, longer-term goals and reporting methodologies to ensure environmental stewardship will stand the test of time and also being financially sustainable. In the annual report that we released today, we detailed our progress, and I'd like to update you on a couple of our achievements. During FY '26, we donated over 130,000 liters of milk to the Shepparton Foodshare and also the Shepparton community during the Victorian bushfires during the summer. We have replaced all plastic straws with paper-based straws for products sold in Australia. Where feasible and commercially viable, plastic-based packaging will contain 50% recycled content by 2030. As called out earlier, our people are key and our values drive our team. We continue to invest to build the capability. During the year, we also introduced the CEO Excellence Award with 7 individuals and the team being recognized for their contribution. This was a great new initiative, and the recipients were grateful for the recognition. Being able to recognize individuals that go above and beyond is uplifting for the whole team. As you can see, we are embedding ESG practices across all parts of the business. This year, we've also completed our first climate report aligned to AASB S2, and you can find that in the annual report that we released today. Our strategy was refined in FY '25 and is delivering results. Our focus is clear, and I'll talk to key focus areas in each of the segments. On Slide 16, I'd like to discuss the strategy for Plant-based Milks segment. The focus areas are very clear. We have refreshed the milk brand identity, celebrating the roasters, baristas and cafes behind its 10-year journey. The team have worked on developing an improved Milklab formulation with leading roasters and baristas to improve flavor, stretch and texture; continuing to focus on Milklab growth in the Asian markets through stronger brand execution and distributor partnerships; targeted investment to expand Milklab brand beyond traditional hot coffee into iced drinks, matcha, chai other cafe-led occasions, attracting new consumers; continued retail focus to leverage channel momentum, supported by NPD and innovation. Our focus is to continue to grow Milklab beyond our shores and build it to be a globally recognized brand. In Dairy & Nutritionals, we are building on the improvements we have achieved. Investment continues across the segment, including new ultrafiltration capability commissioned at Shepparton; continued expansion of dairy product lines to support sustained growth; improving production performance, product mix and value extraction from each component of milk processed; prioritizing areas of the segment with the strongest potential to build sustainable long-term value; Consumer Nutritionals centered on value-added dairy, specialist nutrition and branded products, supported by innovation and operational discipline. We are seeing the rewards of the investment in capability with Dairy & Nutritionals contributing meaningfully to the overall business on a consistent basis. I'll now hand over to Iain to take you through this year's financial performance.

Thanks, Michael, and good morning, everyone. Moving to Slide 19 and starting with the headline numbers. Net revenue for the year was $648.4 million, up $52.5 million or 8.8% on FY '25. Within this, total Milklab brand sales across both plant and dairy segments were up 5.5%. In contrast to prior years, export long-life dairy sales saw strong growth, up 49.4%, and bulk cream saw sales up 33.5%. Adjusted operating EBITDA came in at $61.8 million, up 7.6% on the $57.4 million we reported last year. It's worth noting that the result was achieved despite an estimated $2 million impact from unrecovered costs and lost sales due to the Middle East volatility in the second half. Also worth noting that when Michael and I refer to EBITDA in this presentation, we are referring to adjusted operating EBITDA, which excludes abnormal items, restructuring costs and nontrading expenses. And this is the measure we use and the Directors use as the primary measure for assessing the underlying financial performance of the group and its operating segments. Looking at the segment mix, the improvement in Dairy & Nutritionals was supported by favorable commodity prices on cream, and while the Plant-based Milks result reflects increased brand and marketing investment we made, and Michael touched on that a moment ago. Below the line, nonoperating items reduced to $8 million from $14.8 million last year. And net finance costs, excluding the convertible notes, improved slightly to $19.5 million. That gets us to a pretax earnings before the fair value adjustment on the convertible notes and impairment charge of positive $26.3 million, up from $12.4 million in FY '25. As you'll be aware, there are noncash accounting adjustments in relation to the fair value of the convertible notes with $91.8 million impact this year and cash payments in relation to the notes of $15.2 million for the year. In addition, in FY '26, there was a small impairment charge as a result of the decision to wind down the Crankt brand over time, and as compared to a significant $50 million impairment in the Dairy & Nutritionals segment last year. Taking all of that together, the statutory net loss after tax was $67.2 million, an improvement of $82.8 million on last year's $150 million loss. Turning to Slide 20 and the segment detail and starting with Plant-based Milks. Net revenue grew 2.4% to $186.3 million, a record for the segment, while adjusted operating EBITDA was $43.1 million, down 14.2% for the year. The EBITDA decline was largely driven by the step-up in brand and marketing investment behind Milklab that Michael described into key channels and markets. Milklab plant-based revenue grew 4.1% to $126 million. As Michael touched on, we did see some softness in HORECA in the second half, which was down 5.5% in the half and down 1.6% for the full year, but that was more than offset by gains in retail and export. Milklab's domestic retail performance continues to build momentum, up 44.6% on last year and now represents 17% of Milklab's Australian sales. On the private label side, plant revenues were up 1.9% overall, although Australia's Own plant was down 14.8%, following some ranging changes in retail. And total export -- Plant-based export sales grew 9.8%, including growth across our strategic markets. Moving to Slide 21 and Dairy & Nutritionals. This is now the fourth consecutive year of earnings growth for the segment. Net revenue was up 11.6% to $462 million, or 14.8% excluding traded milk. And adjusted operating EBITDA nearly doubled, up 94.1% to $21.6 million. The standout driver within this was bulk cream with revenue up $14.3 million or 33.5% on favorable commodity pricing and a 9.1% volume growth. As most on the call will be aware, commodity pricing is cyclical, and I'd flag that we do expect returns on cream to moderate in FY '27 from the levels we achieved in FY '26, based on commodity price movements. As I mentioned, export long-life milk revenue was up 49.4%, and in FY '26, represented 40.4% of total long-life dairy revenue, up from 30.2% last year. Milklab Lactose Free also grew, up 11.1%. Nutritional Ingredients revenue rose 22.5% on strong protein pricing, ingredient demand and favorable pricing outcomes. And Consumer Nutritionals revenue was up 6.1% with good brand growth in Uprotein at 18% and Vital Strength up 11.6%, although higher protein input costs did weigh on margins in that part of the business. Turning to the balance sheet on Slide 22. We closed the year with cash at bank of $15.3 million and undrawn facility of $10 million. It should be noted that the financial statements are prepared on a going concern basis with a material uncertainty identified. And that's due to the convertible note maturity in May 2027, as well as the revolver facility maturity in March 2027. Financial debt, excluding the convertible notes, was $63.7 million, which includes the revolver, debtor financing and equipment leases. Our AASB 16 lease liabilities principally relate to our Shepparton and Ingleburn sites. The convertible notes are carried on the balance sheet at fair value of $517 million. And important to call out that the fair value of the convertible notes as a financial instrument for financial reporting purposes differs from the redemption amount, which I'll cover on the next slide. Taking all of this together, total assets were $238.8 million against total liabilities of $761.7 million, leaving net liabilities of $522.9 million. One final point, as is standard, the Milklab brand value isn't recognized in our balance sheet, given it is an internally developed brand. Slide 23 sets out our capital structure in a bit more detail. The revolver finance facility was drawn to $36 million against a $46 million limit, maturing in March 2027. The full recourse debtor finance facility was drawn to $13.9 million, and equipment finance leases were $14 million. That gives net debt before convertible notes of $48.7 million. The convertible notes themselves issued in 2 tranches in FY '21 and FY '22. They've got a common maturity in May 2027, and the terms of those notes remain unchanged. Our redemption value of the notes stood at $622 million as at 30 June, which brings total net debt on a redemption value basis of $670.7 million. And on that basis, gearing is currently around 10.9x EBITDA post AASB 16. As has been outlined in previous releases from Noumi, the maturity of the convertible notes remains a key issue for the company to address with the revolver also maturing in March. I'll leave it to Gen to cover the Scheme Implementation shortly. Turning to cash flows. Cash generated from trading was $69.1 million, [ up ] $67 million from last year, reflecting the improved trading results. Net finance costs were $18.3 million, and we spent $8.5 million on property, plant and equipment with CapEx spending remaining carefully managed. On legacy items, we had U.S. litigation settlement and other litigation costs of $9.8 million, partially offset by a $6.7 million security deposit release for a net legacy litigation outflow of $3.1 million. We also incurred $3.5 million on transaction costs relating to finance activities during the year. Taken together, that's a cash-based movement in net debt of $35.7 million, comparable to $34.6 million last year. So to outlook. Noumi enters FY '27 with a stronger operating platform and deeper capability. That said, the external environment remains unsettled. Commodity price movements, input cost volatility, currency shifts and changing consumer demand will continue to influence our markets, and we expect competition to remain intense. Some of the benefits from our FY '26 investments will also take time to emerge. We are confident about the investments in the business and the progress being made. However, given the regards to the ongoing volatility and the nature of its markets, Noumi will continue its practice of not providing financial guidance. I'll now hand over to Genevieve, who will touch on the Scheme Implementation Deed.

Thank you, Michael and Iain. Today, I'm speaking to you about the transaction we announced on the 21st of July earlier this year. As has been flagged, Noumi is required to pay approximately $610 million of convertible notes in May 2027 as per the existing terms. Also, the senior bank facilities will be expiring or maturing in March 2027 as well. As flagged previously, a thorough 12-month strategic review was -- that assessed sale, recapitalization, refinancing and note extension or amendment options was undertaken. The Board found no committed alternative able to address the maturity or deliver comparable value to securityholders other than the Arrovest offer. On the 21st of July, Noumi signed a binding Scheme Implementation Deed with Arrovest, its major shareholder and largest convertible note holder, to acquire the shares and listed options that Arrovest does not already own. Arrovest purchased certain convertible notes in July 2026 after the 21st July market announcement by the secondary market and now holds approximately 83.4% of the convertible notes on issue. Most of the remaining convertible notes continue to be held by an Australian institutional investor. These notes were acquired at a discount to the redemption value and were private secondary transactions with no consideration payable to or by Noumi. If the schemes become effective and are implemented, shareholders will -- would receive, I apologize, cash consideration of $0.1234 per share, which is a 30% premium to the 30-day volume-weighted average price at announcement and option holders would receive $0.002 per option. This provides cash certainty ahead of $610 million of note redemption, which ranks before equity in the capital structure. Also as announced, Noumi's current debt obligations, including the notes redemption amount, are approximately $703 million. The transaction value, including the equity amount on a 100% basis and the full note redemption amount, is approximately $737 million. The independent expert report, which will accompany the scheme booklet, will provide an independent assessment of whether the schemes are in the best interest of the relevant securityholders. Securityholders should read the report in full before voting. The Independent Board Committee, or IBC, unanimously recommends voting in favor of the schemes, subject to there being no superior proposal emerging and the independent expert concluding and continuing to conclude that the schemes are in the securityholders' best interest. The IBC comprises Directors independent of Arrovest, who have been supported by legal and financial advisers in assessing the proposed schemes. The IBC recognizes the proposed schemes may crystallize a significant loss on their investment for some shareholders. The IBC judges that the Arrovest offer has the best available outcome for securityholders in the circumstances Noumi faces. Just to reiterate, there is no action that is required at this point. The scheme booklet and the independent expert's report are expected to be sent to shareholders and optionholders in early October, as detailed in the indicative timetable on the 21st July ASX announcement. Thank you for attending today, and I'll now hand it back to Michael.

Thanks, Iain, for the summary of the financial results for the year and providing the outlook. Also, thank you to Genevieve for the summary of the Scheme Implementation Deed. That concludes the formal presentation, and we are available for any questions from shareholders. [Operator Instructions] I'd like to reiterate a few points to summarize. We are focused on service, quality and innovation. In plant, we continue to grow in range, channel and internationally. Dairy & Nutritionals delivered a substantial improvement in FY '26, more reliable production, disciplined product mix and a focus on getting more value from each component of milk producing more consistent results. We enter FY '27 with a stronger operating base and a broader set of opportunities. Our focus remains on building Milklab, growing higher-value Dairy & Nutritionals and maintaining discipline on a competitive environment. Wondering if there's any questions.

We have a verbal question from Garth Francis.

I just wanted to ask a couple of questions just centered around the individual divisions. You mentioned the bulk cream pricing struggling and the strong volume growth, but then just we're cautious on the outlook. Are you implying there that the sales will slow or that the sales will go backwards? If you could just sort of give a little bit more clarity on what your expectations around bulk cream are?

Yes, I can cover that one, Garth. So, as we outlined, commodity price is generally quite cyclical, as you'd be aware, Garth. We benefited in FY '26. We had increased volumes about 9%, and our revenues from bulk cream were quite a bit higher than that 33.5%. So what you can work out from there, we obviously sold some more bulk cream, but also we benefited from commodity pricing. What we're calling out is, we're anticipating through that cyclical cycle that some of that pricing benefit that we realized in FY '26 will moderate. And a lot of activity has gone on during FY '26 to maximize the value of all of our components, so in terms of seeking higher-value contracts, contracting volumes rather than simply being at the mercy of spot. So we do have some mitigations but anticipate that, that cyclical nature of the cream pricing will come off from the levels that we've seen in FY '26.

And then, just maybe staying in that division, in farmgate milk pricing, the surcharges were put in when the Middle East conflict kicked off. Some of that's rolling off. It looks like supermarkets are now walking back some of their price increases. Can you just maybe walk through what that means for UHT retail sales?

Garth, when we look at the contracting period, the milk price from previous year was fairly flat, consistent year-on-year. And those prices, those support packages are starting to roll back. I can't specifically comment, but we haven't seen any changes to date on shelf price regarding any movement there. We still have increased fuel costs on shelf as well. So not seeing any changes on shelf at this point in time for our milk-based beverages.