Skellerup Holdings Limited (SKL) Earnings Call Transcript & Summary

Good day, everyone, and welcome to the Skellerup Holdings Limited FY '20 Results Call. At this time, I'd like to turn the call over to David Mair, CEO; and Graham Leaming, CFO. Please go ahead.

Thank you. Obviously, at this [ meeting ] is Graham Leaming and myself. I'll refer to the slide page numbers. So I'll begin on Slide 1, Page 1. So first of all, the Skellerup key points for FY '20. Obviously, you've all seen the results, an NPAT of $29.1 million. I think that's a fantastic result really due to the efforts of our team around the world. I'm really impressed with how well they've done to sustain our business through some pretty tough times. So I think it shows not only the resilience and the talent of some of our leaders, but also the people working there, but also, we'll come back to it later, our business model and our strategy. So I think it's been a very, very good result, and I'm pleased for the teams. Of course, the Agri Division has had a very good result, and I'll go through that in more detail later on as I usually do, but a very good result of $25.4 million EBIT, up $3.8 million. The growth has mainly been in sales of dairy rubberware to international customers. We have had some gain in footwear as well. So we -- remember, we include footwear in the Agri result. We also had some good operational gains at Wigram and of course, our other facilities. And we've had the contribution from the Silclear acquisition from the 1st of November 2019, and we'll come back to the acquisitions, but that's been ahead of our expectation. So actually a very good result. The Industrial Division EBIT of $20.9 million has been growth in the sales of our roofing products and construction products and particularly, sport and leisure applications, interestingly enough, in the U.S. But we've had -- we've suffered a bit from lower sales in automotive. It's not an area of management focus, of course. But -- and again, I'll go through the detail more later, but also exacerbated a bit with some lower revenue from oil and gas applications. And of course, really a direct result of the COVID impacts on our businesses. Pleasing to see a very strong cash flow result of $48 million. So that's up $19.2 million or 66% on prior corresponding period. Part of that is due to lower receivables and the nonrecurrence of prior year reduction in payables. We'll talk about IFRS later. Maybe I'll ask Grant to talk about the IFRS impact. But the key thing is how was that cash used. It funded the acquisition of Silclear, a small amount in CapEx, obviously the dividends and we've reduced debt, so giving us a very robust balance sheet. The final dividend payout is 7.5% (sic) [ $0.075 ]. That's imputed 50% paid on the 16th of October 2020. We're very pleased -- the directors are very pleased to be able to maintain dividends in these tough times. And of course, our balance sheet is very strong, providing flexibility for any actions we might have going forward. If we turn to Page 2, that's just the financial highlights. The numbers are clear. Revenue is up $5.6 million in total, 2% on the prior corresponding period. EBIT is up $0.7 million and 2% on the prior corresponding period. NPAT is in line with the record result achieved last year. I'll just pause. Really, it's a little bit disappointing from my point of view that at the end of March, we were well on track for setting a new record. The disruptions have caused quite a bit of issue through particularly April, May and June. But despite that, achieving the same as last year. It's been a very good result, as I said earlier. The full year dividend is $0.13 per share, which is in line with last year and very strong cash flow. You can see the cash flow split out there. So moving on to Slide 3. For the first time, we've provided a bridge of net profit after tax between FY '19 and FY '20 just to help you understand better what's actually happening in the businesses. So you can see, if we take the Agri result, and we can go through this in more detail later, if you look at the Silclear acquisition, you can see that's positive. If you go to the third or fourth item, dairy and footwear -- sorry, dairy consumables, you can see that's been positive, and you can see a small contribution from footwear. So that's at the NPAT level, of course, but you can see the impact quite clearly and that showed through in the full Agri result. And then it highlights the interesting position for the Industrial business. So you can see the oil and gas, and the U.S. tariffs impacted the oil and gas sector. The tariffs, although they've had a big impact, we did make some changes in the business. We saw cost reductions, obviously. And the tariff impact is actually lower because of the lower revenue. So again, not as bad as we might have expected, but still tough times. In the automotive business, the shutdown of the Australian manufacturing of, basically, cars in the Australian market and moving to, basically, China and other places has meant we've lost that business. We were making money there, so that's had a negative impact both on revenue and earnings. Other than that, the infrastructure spend, as you know, has been lower than we've been expecting. We thought -- we would have thought given these times, tough times, that governments would have increased fiscal expenditure. We still think that's going to happen. It's just a timing issue. So there's no serious issue there, and there's a few other minor items making up the complete change. So moving on to Slide 4. This is the breakdown of the Agri Division. So as I said earlier, it really comes down into 3 main parts. I think the first key thing is that the growth in the sales has mainly been on the U.S. market side. A part of that is -- our strategy, as you know, is to focus on our key OEMs. One of the key OEMs there is GEA. So we've had good growth with them. We've had good growth on the -- our own part through Conewango. So of the total $4.8 million increase in revenue, that flowed through to a $2.6 million increase in EBIT. So about half of that is due to the increase in sales of the dairy consumables. You can see in the notes, you'll work out that Silclear contributed about $900,000 EBIT, and you can work out the rest there is the operational process and efficiency gains at Wigram, in particular. What I'm pleased about is despite the disruption we faced in April and May and the additional costs of changing the layout and changing the shifts and a number of other things, despite all that, we've actually had a gain. And going forward, we see further gains. So that's really pleasing and attribute to the efforts of the team in Christchurch. Footwear sales are solid. So they're up slightly. You can see that in the bridge. Despite the impact of COVID, it's been helped -- we focused a lot on what's called the dielectric boot applications, really electrical applications but that's a specialist boot. So we're still following our strategy of trying to stay away from commodity-type products. We do specialist boots like forestry, fire and as I said, dielectric. The European sales have reduced really due to lower firefighting boot sales particularly into the U.K. market. Again, no big concerns there. Obviously, these things are used. I guess it's good. In some ways, there's been no great demand or need. Anyway, the operational performance continues to be good. And so I can come back later if there's interest in terms of what's happening in China, but it's -- I gave an update at the half year and immediately after that about our facility in China. I think our manager, Martin Li, has done a very good job there. Fundamentally, we make 2 product ranges. We make the footwear. We've had operational gains there despite increasing environmental concerns. And we make the main part of our rotary vane pumps there, and we've had some gains there as well. So overall -- sorry, remember that there are some Agri pumps [ made there at this ] point. Anyway, so on to Slide 5. Basically, this is just a reminder of what we do in Agri. And of course, the standout part there, of course, there's a black rubber milking liner. In particular, there's a new picture of silicone tubing, which is, of course, related to Silclear. And again, I'm happy to come back to this later. I did check this morning with Ian Bradbury, who's the manager of our Silclear business. Not only have we seen no impact of the acquisition of milkrite, we've been assured that actually, we will continue to supply -- that's about 18% of our revenue at Silclear will continue to supply silicone tubing [ badged ] as milkrite silicone tubing, milk tubing. But also, we will pick up other DeLaval business in Europe, so that's quite interesting in its own way. The Red Band gumboot, when it rains, we sell lots of Red Band gumboots, but the focus is also very much on things like the Fire Fighter Extreme gumboot. This is the best gumboot for protecting firemen. It has been used in Australia and places like that, but it's still a very specialist boot. Ambic, their largest customer is DeLaval. We've been reassured that, at this stage anyway, that this is an essential part of the DeLaval offering, so sales will be strong there. And of course, we have some other accessories that are used, for example, the Master Blaster Nozzle. Even in a small way there, we've started to bring some of those products that weren't necessarily made at Skellerup facilities. We're bringing them inside. So just a reminder of the variety of products that we do in Agri, but also a reminder that footwear is a part of Agri. It's around 20% of revenue. So moving on to the Industrial Division, so slide -- Page 6. So first of all, the revenue was near enough flat and a slight increase. And if we go through it, the vacuum sales and margin were down, as I explained. In a funny way, in some ways, they've helped us with the tariffs. But obviously, it would help if we were going the other way. Automotive applications is down. As I said earlier, this is not really a focus of ours. I've said I would like not to be in the business, and it would be interesting to see how to exit the business in that sense. But we welcome -- we need suggestions on how we might do that. Having said that, we still -- it's still an important part of, certainly, one of our suppliers at Vietnam, and it's not an easy thing to sort of get in and get out of. But at the same time, the only focus I have is how not to invest any more time and effort on that part of the business. Our real focus is on potable water and wastewater, and sales were impacted by COVID-19 particularly as infrastructure work has been suspended and delayed. At the same time, we've made very good progress in a couple of areas. So our manager in Australia is starting to develop good relationships with the infrastructure pipe people. So [ Pat Grady ] is doing a very good job there, all the way through to in the U.S. I might come back to some more detail later. Even though we have -- a good example of a potable water OEM customer is Moen. Our original target -- some of you will remember that our original target was to get to USD 3 million of revenue. In FY '21, we expect to be over $5 million revenue, and that can increase even faster given some of the recent discussions. It's just interesting to see that one of the growth areas for Moen is actually the Chinese market, and I can provide some insight into how -- it's not all about manufacturing end market in the U.S. For many large U.S. makers of things, the opportunity for growth is actually in Asia, and they want access to that and Skellerup is one of those companies that can provide that. And so finally, where the growth has happened, we've had good growth in the Ultralon U-Dek sales, particularly in the U.S., which kind of impressed me. Again, I spoke to Patrick Barberet that's driving the business in the U.S. And he's optimistic that even now that there is a lot of growth in the U-Dek product -- and this is a product where it's relatively low risk for us because we supply the sheets, but the individual people cut sheets to shape. And we've got a very good product here that continues to grow, and it's good money. At the same time, we've had a very good performance of DEKS roof and sealing products, particularly in the Australian market, and we distribute through Melbourne through DEKS in Melbourne. And I've been very impressed with Kristian Speers, the Business Unit Manager there. He's done a fantastic job. And even now despite very difficult conditions, we continue to supply our key customers, like one example is Bunnings. And I just think they've done a fantastic job. So anyway, moving on. So just a reminder of what we do in Industrial. This is just -- you'll notice there's a lot of water in the pictures and things like that, but hopefully not too much water in the boat. But the U-Dek foam is becoming a very, very good product, and we are selling that internationally as well as in New Zealand. The pipe sealing gaskets, it's not a given. There's been quite a bit of development in pipe ring and also the materials used, and we do still see opportunities to grow market share. So for example, in Australia, the focus on Australia has very much been around the PVC, PE pipe market structure. But recently, [ Pat ] has identified -- [ Pat Grady ], our Business Unit Manager, has identified and we're reviewing the opportunity to do ductile iron pipe rings in Australia. Of course, we have a lot of expertise about ductile iron pipe rings because that's the predominant product used in the U.S. market. And just a reminder, we supply U.S. pipe McWane and Charlotte Pipe with a lot of their sealing gaskets. So the shower valve seal, just a reminder, I was asked by the ANZ reporter, he didn't know what potable water was. I was explaining that some people like drinking from the shower. But a reminder, the shower is a place where you need to have potable water products. They must meet standards, and those standards are getting more and more stringent. And that's something that I think Skellerup does incredibly well. The orthotic ski-boot liner, that's part of our foam business. That business has been going very well. Not so much skiing, I guess, around the world now. But sort of moving on, the icemaker seat, that's part of refrigerators and appliances. The [ tap ], the base seal, that's a part of the Moen range. And so it's just an interesting variety of pieces, of critical components that really enable these appliances and things to deliver to consumers. So moving on to Slide 8. So this is just a reminder that our business is global. So we have been impacted a lot more on the Industrial side partly because we're more globally spread out. We had more control over a lot -- a large part of our Agri business simply because a lot of it is focused at Wigram. Of course, there are other places. There's Stevens Filterite near Wellington. But we produce, of course, in -- for example, Ian Bradbury's Silclear business produces the silicone tubing in the U.K., and we have some other places. But the key thing -- and obviously, I mentioned the footwear in China. But I think the important thing is to remember that in these uncertain times, being a global business has actually been useful. I've talked about the learnings we've had from the impact of COVID on our Chinese site, the impact on our supply chains, which I'm not belittling it. But to me, disruption in supply chain has been happening anyway. We're still very interested in seeing how the end user -- the ultimate end-user demand plays out. We don't necessarily get a lot of insight from our OEM customers because they don't know. And we're, obviously, one step or more further back in the chain. But at the end of the day, the essential nature of our products means that we get to play in the game, if that makes sense. Okay. So again, coming back to our business model has been tested. So one thing, we had strong and deep customer relationships. This means that they pay -- at the end of the day, they pay their bills. So just from a simple credit risk point of view, it's great to have a large number of customers who understand that their business heavily depends on us and vice versa. But the reality is, back to end-user demand, they're going to milk cows tomorrow. And if they build houses in the U.S., they're going to use Moen products. If they buy appliances, they're going to buy some of the parts that we use. And progressively, over the last 5 years, in particular, Graham and I have worked hard with the teams to help them understand that the essential nature of consumable products and essential products is really the future of Skellerup, and I think we've made a lot of progress there. So the key thing is, and I've mentioned this recently to a few people about the business has also transformed in another way. We've sped up our product development. Our product development is customer-focused, and we apply our intellectual know-how to new applications. So I'll talk a bit more about that in the future. But just to remind you, this year in our annual report -- normally, we try to get some input from our business unit managers to help give flavor to what we do. This time, it was a bit more challenging given it's a lot harder to have Teams calls or Zoom calls or whatever. So we put in 2 sort of feature articles. One is just about our acquisitions, and I'll come -- I'll do it in the wrong order, but we'll talk about acquisitions and what we'd like to do there. But I think the other one is a clearer explanation of our customer-driven product development, really focusing in on the value that Skellerup creates is very much at the first stage of development, rapid prototyping, taking into account manufacturability at that time. And I can dwell on this further, but the cost structure for whatever volume you're going to manufacture is very much decided -- 80% of it is decided usually upfront at the design stage. And one of the advantages we have in our development team is that we have people that are experienced in manufacturing who are part of that design process. So given relative volumes, they're very good at deciding early on what that structure would be. And we're not cost plus, but we're also very good at getting that first price right. And you can always get it right there, and I agree with that. But at the same time, I think we've done a very good job of getting that first price. And there's an old saying in OEM business, the first price you get is the best price. So it's important to focus on that area. I believe a large part of the value going forward in Skellerup will be driven from net proceeds. So inevitably, people will ask, "Well, what's happening with new product opportunities?" Because some companies, let's face it, are shutting down development just given the situation they're in. I think it's fair to say that we see more opportunity now than I've ever seen in the business. And as a maybe a way of thinking about that, we're trying to beef up the team that we have in New Zealand. So both in Christchurch, which is the Agri team, and the Agri team is focused on development not only for the traditional areas of milking cows, but also we're starting to do more and more development in terms of goat milking, so nonbovine milking. It's a small start at this stage because the reality is there's not a lot of expertise at this stage in milking goats, for example, both -- even in the U.K. We have an opportunity to make silicone liners for goat milking for a key customer in the U.K. through Silclear. And at the same time, our original goat silicone liner development in New Zealand for the U.S. market is also starting to grow quite quickly. So of course, there's opportunities in the local market as well. But just to give you an idea there, the increase in focus on development is not only on the Industrial side. I talk about that a lot, but it's also on the Agri side. So the good news is that it's not about how many jobs are we going to keep. I don't see virtually any jobs in the whole Skellerup group at risk. If anything, we're going to be hiring people. So it's a very good position to be in. Probably not as strong as Fisher & Paykel Healthcare, but at the same time, it's a great position to be in as a CEO where we're thinking about how do we grow the business and bring in talented people, not about how do we make big cuts. At the same time, on the Industrial side, we're starting to grow more and more of the critical componentry. So a lot of the overmolded products in Vietnam, the essential plastic component, and these are highly engineered, precise plastic parts made at our facility in Mt Wellington. And we've recently increased the staff there in terms of their plastics expertise. But also, we're looking at the development engineers because, as I said, I've never seen as many good opportunities. Just to dwell on those opportunities a little bit. One of the things that is always important to realize is although we can execute faster, at the end of the day, the launch of these products comes down to the customer. We've been in a fortunate position where some of our customers are demanding change faster. And when that hasn't happened, they're actually coming to us because we are delivering very fast, and they're asking us to take on more responsibility. Having said that, the actual timing and launch of products heavily depends on the customer. So that's that. I'll go on to acquisitions. So although the acquisitions we've done are relatively small [ landed ] space, that we'd all like us to do -- I'm sure you would and Graham and I would like to do bigger acquisitions, I think it's just important that both the recent acquisitions, so we have Nexus Performance Foams and that has performed at least to our expectations with good opportunity to grow. We have taken the chance to restructure the Nexus Performance Foams business a little bit. We bought it because we saw an OEM opportunity, and the key OEM there was actually Fish & Paykel Healthcare. And so it's obvious how that's played out. At the same time, we've taken the construction part of the business and we've moved that under Ultralon. It just makes more sense to get some focus in that area. And under Paul Goddard, I'm confident that we'll grow that side of the business as well. Although that's relatively small, it's performed very well. And the Silclear acquisition, of course, has performed very well, so ahead of expectations. But also, we haven't yet nailed the key -- one of the key reasons we bought it, which was to become the key supplier to GEA USA of silicone tubing. We are on trial on farm, and we know that some of the other competing suppliers have failed. But we're in a good position. The actual on-farm checking in Wisconsin has been slowed down because of COVID, but we're still reasonably confident we'll win that business. That will be a step change in the business. So I think overall, I guess what I'm emphasizing, our key focus of key customer and then key products for those key customers, very much an OEM model, not entirely an OEM model. We do have branded products. Remember, our Red Band gumboot is going very well. Our branded line of products are going very well in the market. So overall, we have, in many cases, both first fit and aftermarket applications. The essence of it, though, still comes back to being critical or essential componentry in a larger system. And because of that essential nature, it means that it's very hard for us to be displaced. Certainly, at times like this, unless we really cause an issue, and I can assure you we haven't, we're unlikely to lose the business we have. And we will naturally grow if our customers are positioned well in the market. But on top of that, we're starting to see some new opportunities come through. So it's a great position to be in. So finally, moving on to Slide 9. Sorry, I've been a bit -- a lot longer winded. We had 2 extra slides this year. COVID-19 response, I've talked about this. But look, I am really proud of our committed team. And our leaders have gone through a pretty serious review in terms of their performance and everything, and I'm delighted to say they've done very well. So I'm just really delighted at the performance that they've done. We are committed to a healthy -- a health and safety workplace. And I can say that we are constantly reviewing how we can do things better, learning from early interventions, for example, I explained about we learned from China, which rolled into Italy, in particular, and then it rolled into the U.K. and Australia. Of course, New Zealand, we were lucky enough to capture those learnings. That was the first round. We continue to learn. So one of the good things about having a wide disparate group and different cultures is people approach these issues in different ways, and we're able to take the best and feed that around the teams. To give you an idea, when there's a change, like when we went to Alert Level 3 in Auckland, Alert Level 2 in Christchurch, for example, Wigram, it took 2 hours to actually work through and get every employee to sign off their understanding of the rules and to implement change. So just on that, I don't see on our manufacturing sites any need to make further changes to lay out that would cause a large cost increase in what we do. Anyway, so coming back to the slide itself. So we do have deep industry and technical knowledge. We're always looking for people who have -- either have it or we're looking for young people to join us that we can train up. OEM sales experience is tricky, and it's difficult to find good salespeople that have the necessary skills and commercial experience. The most successful salespeople we have in OEM have actually run their own businesses or run a large chunk of business. So there's an element of commerciality that's required when you do an OEM deal. And we are very focused on some of the new leaders. So of course, we have a new leader in Silclear, Ian Bradbury. But we have a number of other leaders. In the Agri Division, as you know, we have Hayley Gourley that came in -- interestingly enough, she's only just coming up for her first year, so it's been a tumultuous year for her. But I have to say, the performance of Wigram, in particular, but also the Agri Division shows that I think the refresh of some of the areas of the businesses is looking good for the future. We are also very focused on continuing education. So this time last year -- no, earlier than this time last year, Graham went to Stanford for the Senior Executive MBA training. And we had a number of people doing papers and actually starting to see that there's a good opportunity within Skellerup, not necessarily in New Zealand but within the Skellerup group, to step out and take up roles that are far more challenging, and that's good for everyone. On the environmental side, we're always looking at ways to reduce waste. We do think hard about that in terms of there are some obvious areas where we can save money and also at the same time, help the environment. So we love those opportunities. And we moved previously into areas where we -- ahead of time, we changed the coal boiler in China to a gas. It was inevitable. There was going to be a change to natural gas. So I think in some cases, we've moved ahead of times. But at each stage, there's been a good business reason for doing it as well. So packaging improvements to reduce single-use plastic materials; very focused on energy use, particularly in New Zealand. The largest external cost, I guess, at Wigram is electricity. And everything that we do to reduce the use of electricity helps us, but also helps New Zealand. So overall, there's a good summary in the annual report, but we're establishing the GHG baseline, and we'll be reporting again to that going forward. So I think we've made some good progress there despite the obvious challenges of running an international business. So I'll finish up with Slide 10. There is a reconciliation of segment EBIT to group NPAT. There's a lot in that. But I think this is a good time for me to pause, 30 minutes exactly, and welcome questions. Thank you.

[Operator Instructions] And we'll take our first caller.

Guy Hooper, Forsyth Barr. On the Agri growth into the U.S., can you just give us some idea of how much of that is OEM versus your own brand mix?

It's -- the larger piece of it is OEM rather than our own branded product. It's probably the simplest way to put it.

Graham's looking up the number to give flavor, but our target, remember -- our target is GEA USA. There are some others, but the target is GEA USA. We're always careful. Conewango, in some ways, competes with GEA and DeLaval and the others. So remember, Conewango is an aftermarket kind of a rural distributor approach as opposed to first fit. So that's probably the way to think about it. So for me, the first fit is far more important to keep winning. And -- I mean, the more interesting thing, I think, is simply, I think that will continue to grow because after the acquisition of Avon milkrite by DeLaval, there are now 2 facilities in the U.S. making product. GEA has none, and we are the key supplier to the U.S. market. So that will play out -- we believe that will play out positively for us in the U.S. market.

Yes. So it's about a 70-30 split, Guy. About 70% OEMs, 30% own branded products over the past 12 months.

Yes. I guess part of the reason I asked is what kind of margin has the U.S. growth been there? Because historically, if I understand right, OEM is typically lower margin. So is that margin expansion that you achieved, is that just operational gains at Wigram? Or you're getting reasonable margin from your GEA growth?

There's 2 things to think about. We have achieved revenue growth with a relatively constrained cost base. So we've added costs at a lower rate than we've grown revenue. And you're right to highlight, we have made gains in Wigram despite the fact we did incur some additional costs for a period of time in relation to COVID. So -- and your comment there about margin on our own branded products being higher than OEM products is also correct.

Sorry, the emphasis on the operational gains, to me, I'm pleased we have any given the disruption that we went through, particularly in April and May. So we had 2 weeks of full lockdown. We had to work through whether we were essential or not and then make decisions. And then we had to win the moral argument with some of our people who would rightly concerned. It was pleasing to have feedback that ultimately, after the changes in layout and things like that, we saw further opportunities to improve. So in a relatively short period of time, we've come out with positive gains year-on-year, but a lot of those gains were really in the last 6 months. And particularly, to overcome the additional costs in the last 3 months, I think that's a very, very good result of the operational team. Having said that, we'd all like more top line growth.

Yes. Great. Just one last one from me, the comment in the release around solid trading at the beginning of FY '21. Is that across the business generally or still led by Agri?

No, it's across the business, which is pleasing. Sorry, one thing I should have emphasized at the end of the presentation, I'm delighted to have Paul Shearer join us as a Director. And so as you all know, he's the Vice President of Sales and Marketing at FPH. They're going great guns. He's been a large part of the front end, particularly the focus on the U.S. market. So one -- just a comment I made about growing revenue, I'm sure Paul will have views about how we could do that better. And so I'm delighted to see him join the Board and look forward -- Graham and I look forward to working more closely with him in understanding his approach to market development in the U.S. Sorry, coming back to it. Yes, we started very strongly, and I think it's fair to say it's on both sides, so not only Agri. Just on the Agri side, Guy, to give you a bit of flavor. I think it would have been obvious, I was really concerned about the New Zealand market. We are a large part of the New Zealand market. And when we had to lock down, I was afraid of being unable to supply the New Zealand market. So one reason we've been strong on the Agri side in July is we deferred sales into the export markets to focus on the New Zealand market because New Zealand comes first. Sounds like a comment someone else might make. But anyway, the point is we had a catch-up of some of that in July, and it will carry on into August. But at the same time, there was a rebound. So in some areas like Italy, where there was another shutdown, we had a pull forward into March; a slowdown in April, May, June; and then a stronger July. So the nature of OEM customers is because of the essential nature of these [ bits. They can't ] run out. So it has got -- it has become more choppy. So I think I said earlier, it was a little disappointing in some ways to come in exactly the same as last year. It might sound churlish, but at the same time, I think that the teams, for the effort they put on, it would have been great if we'd had a new record, and we were well on track for that at the end of March. Anyway, sticking with it, we've had a very strong start to July, and it's continuing through August, both sides of the business.

[Operator Instructions] We'll take our next caller.

David, it's Adrian speaking from Jarden. Are you able just to give us a sense of -- you've spoken a couple of times about on track for record result. Are you able -- is that sort of code for what -- were you hoping sort of still another sort of $1 million to $2 million for the year, just saying if we had not had the COVID impact? Is that the right sort of magnitude?

Well, the reality is COVID was impacting us in January. But at the end of March, we were ahead of last year. I don't necessarily want to get into what we would -- I mean it's irrelevant from March on. The bottom line is we have -- we're measured on the numbers that we deliver. But I just know the effort that people have put on, and I just -- I want to see the team see that we're doing well. Having said that, let me be clear, this is about jobs. And so people's focus has become very much about jobs. But I guess there has been an element of what we didn't achieve in April, May, June that will hopefully come in this year. It's really early days now. We've had a good start to the year, but one month doesn't make 12 months or 1 year. But we have had a very good start. I think the other thing to think about is that, as I've said previously, the nature of our product development means that we can execute faster and faster. So we have more projects available now and capability than we've ever had. But at the end of the day, it has to be tempered by the speed that customers will actually sign off and launch products in the market. And we're not always the sole supplier. We are the supplier of the key element. But having said that, I'm sure you've heard that we have had a good start to the year. And on the Agri side, we are really starting to beef up the development team and the same on the Industrial side. So we're not doing -- I mean, obviously, there's a cost increase potentially for that. We expect that to pay for itself and deliver more revenue.

Okay. Just you've spoken a lot about, I guess, the product development side that you've been developing, I guess, over the last couple of years. Is there any -- can you give us a sense of, and maybe division-by-division, what proportion of revenue refresh has sort of come from that skill set you've been building out?

Yes. It's hard to give it right now. Look, we'll do some work on that. The focus has very much been on winning OEM business. So as I said earlier, one example on the industrial side is Moen. Our target revenue at a margin was $3 million. We're going to exceed $5 million -- this is U.S. dollars, sorry -- this year. So that's revenue. But one of the interesting things there is once you've won business, the ability to gain further business on those components or whatever is relatively easy. We know that -- so obviously, you can execute that a lot faster. So I know it doesn't quite answer the question, but one of the measures that we will be doing is the 2-year, 5-year. So in the last 2 years, what is the revenue from new products versus much older and things like that. It is hard to break that out right now. It's just been a bit choppy, but that is something we're focusing on because we do see that, that is the largest part of the gain of value within Skellerup. In Agri, for a long period of time, with the disruption of earthquakes and things like that, you can understand why -- and potentially, we're past peak cow in New Zealand or whatever. There hasn't been so much focus on, what I call, true development for the New Zealand market. I mean our focus has very much been on GEA. And as I said earlier about Silclear with the milk tubing, we think we can become the major supplier of silicone tubing to GEA USA. That's worth chasing, and that's several million dollars of revenue. But at the end of the day, that's their decision, not ours. We're in with a good chance. We believe our silicone tubing is the best. In fact, as I've referred to previously, we acquired Silclear because we tested about 13 different suppliers. We cut it down to 3, and then we were lucky enough to acquire Silclear at a very good time. And I think the proof of the quality is that Avon milkrite, even after it's been acquired by DeLaval, have been very careful to make sure that we will continue supply to them. So I think that's -- so look, I don't have the numbers. You asked for the hard numbers. I don't -- I can't give you the percentages yet. We'll do some work on that.

Okay. That's good. And just also coming back to your product development side of things, and you've obviously emphasized that you're seeing a lot of opportunities now with the process of speed up and resource in the area. Do those opportunities, do you think, on a 12-month setting require you to kind of buy more technical manufacturing input? Or is it that you effectively got the manufacturing input either by contract or own and it's more aligning with customers and getting it through their process?

Yes, look, it's -- first of all, we don't need a lot more manufacturing facility or anything like that. So remember, the model for a large chunk of our Industrial business is very much through design and some manufacturing in New Zealand, but a lot of it is done through a contract manufacturer in Vietnam. So that's that. In terms of -- we have reinvested, as I've said many times, in Wigram. So from an Agri point of view -- and I'm predominantly talking about Wigram, but there are other things to think about. So we could easily fit in an increase in sales of 30%, 40% by volume into Wigram without any more capital expenditure there, if that makes sense. The company we bought, Silclear, makes silicone tubing. We could double production by volume without -- by adding a shift, not adding. So from a capital point of view, there's very little to do in that sense. We already have the facilities. In fact, that's why very much our focus has to be on revenue growth because we have a cost structure that can deliver more. So...

And just finally for me, obviously, the business has a wide array of products. Do you see -- like, do you see the step change in opportunity mainly coming from Silclear? I know you've kind of emphasized that a little bit as well. But is that the kind of key one [indiscernible] we were looking for an application that could vertically scale?

No, no, no. So look, the reason I've emphasized Silclear is -- and maybe I'll talk more about Nexus at the right time. But we -- I guess the point I'm making is we've made good acquisitions, not so much to overemphasize Silclear as the growth for Agri. I don't see it that way at all. We have really good opportunities to grow with GEA on silicone liners as much as we do with silicone tubing and things like that. So I don't want to overemphasize Silclear. I'm just delighted that it's gone so well for us in that sense. And one of our reasons -- strategic reasons for buying Silclear was access to the GEA USA tubing business. So -- but I don't want to emphasize that too much. I think it's wrong. So we have a lot of opportunities on both sides. But look, the big opportunities, in a number of ways, are the U.S. markets. So you've seen a lot of the growth in Agri has been in the U.S. market. It's not the New Zealand market isn't important. But near enough, revenue has been flat in the New Zealand market. But what we want to focus on is where those bigger opportunities come through. Some of those opportunities, even with Moen, and I come back to Moen a lot, but it's just interesting. Given things going really well, we might even achieve $6 million of revenue. That's twice as good as we thought we would be a couple of years ago. And -- but just the other thing about Moen is their big growth is into China. So I could spend a lot of time talking about the growth in China and things like that. But just sticking with your question about where the growth will come from, I think on both sides of the 2 divisions, Agri and Industrial. The area we're focused on is the U.S., and I've made that very clear in the past. And it's equal opportunity in that sense. I see just as much opportunity to grow in nonbovine stuff in the U.S. and Canada as I do on the other side. We just -- we're starting from a wee bit further back. And the nature of milking goats is a little trickier than milking cows, and that's just the years of focused on genetics for cows. The genetics for goats, I'm not sure where we are with it, to be honest. We're doing a lot of work on that now because we do see a good opportunity.

[Operator Instructions] We'll take our next caller.

It's [ David Oxlade, ACP ]. I just have one quick question, if I may. Looking at the other income line, [ that's not quite healthy ] relative to pcp. Some of it's down to, presumably, random FX movements. There's just under $1 million of government grants, which are sort of explained as wage subsidy, and a similar amount, I think, from something described as sundry income. Could you just kind of explain a little bit where that benefit has come through from a divisional perspective, please?

Yes, sure. It's Graham here, David. So on the other income line, I'll touch on the last bit first, the sundry income, which is up on the prior period. So that really comes from 2 primary sources. It's tooling income that we generate from contributions from customers for tooling. And secondly, with the Nexus acquisition, we have a stream of agency income for a service we provide in terms of cutting some open cell foam for, what we call, the comfort industry, so used in bedding and furniture and what have you. So there's an agency income stream there, which obviously we have a full year of this year versus just 2 months from the preceding year. So the -- that sundry income line predominantly relates to the Industrial business. Then the government grants was generated in the Industrial business. And if you have a look at the commentary there, we talk about that really came from 2 sources: New Zealand and Australia. So that related to the Industrial business. The FX change wasn't significant. I think we had an FX gain in that other income category of about $600,000 versus a small loss last year. As I do every year, it's important not to look at that at isolation. We need to consider what the average spot rates were, comparing current period to prior period as well. So net-net, FX generated an overall small benefit for us in FY '20 compared to FY '19, and that primarily came from the U.S. dollar over the course of the year being weaker. But the Australian dollar, which is our biggest net exposure, was relatively even or flat when you compare the 2 periods FY '20 and FY '19.

Okay. And just to clarify, I think in the trading update back in June, you mentioned that you've repaid $1.5 billion worth of wage subsidy. Was that in the Agri business, where you didn't repay in the Industrial? Is that the way to think about it?

Correct. Yes. So we repaid in the Agri business.

[Operator Instructions] And we did get another caller.

This is Christian Bell calling in from Jarden. Just looking at the NPAT bridge from FY '19 to '20 and then sort of there's like roughly a 3.5 negative impact across oil and gas, automotive and infrastructure and sort of highlighted that there's been lower sales in auto and oil and gas and potable water partly due to COVID. Are you able to like sort of just give a little bit of context around the disaggregation of the COVID impact on those fronts?

I think, look, it's very hard. The car -- let's stick on the car thing. We saw the traditional Chinese sales, of course, didn't happen. So I guess it's hard to break that out. It's really -- what you're really asking is sort of end-user demand stuff in that sense. One area that we know we've done well is in oil and gas where even though there's been a decline in oil and gas, what's not shown there is that we've worked hard on the other areas of liquid waste, for example, and things like that. And I didn't dwell on it, but we are about to launch some new products in the vacuum systems group that will, we think, give us some revenue growth and margin growth in the U.S. It's just an interesting thing to think about the impact of COVID on each of the businesses and each of the -- it's very hard to split that out and say that's due to COVID. Graham, do you...

Maybe just to add to that, Christian. What I'd say is on the automotive side, the COVID impact was probably lesser than it was on the other 2 categories because a reasonable chunk of that was business that we no longer have in Australia because that industry [ us understock ]. And also we exited a program in Europe. So on the automotive side, I would say the larger share of that is not COVID-related. On the infrastructure side, I'd say it's probably almost entirely COVID-related. And on the oil and gas and U.S. tariffs, I'd say -- my comment would be it would at least be half COVID-related because as you saw, when COVID broke in the U.S., the oil and gas price plunged and with that, so did exploration and production activities. So that's how I'd characterize it.

Yes. And just on the infrastructure in the U.S., last year -- just to finish that. Last year, our key competitor, Holtec, had had an issue. So we have -- they had a broken tool. So we ended up having extra sales to U.S. pipe that this year we don't have. So they tend to keep -- it's a 2-supplier game, if that makes sense. So part of the negative drop in infrastructure is directly related to that business. Now we haven't lost market share. We simply halted gaining the market share. But again, that was probably a relatively small part.

Okay. That's helpful. So I mean that's obviously at an NPAT level. If we sort of try and hazard a guess at an EBIT level, I'm sort of thinking at least $1.5 million to $2 million just based on the fact that infrastructure is mostly COVID. And then if you're going to take a rough ballpark of oil and gas and U.S. tariffs [ of about ] 50% and then [indiscernible] seems that...

Yes, that sounds -- sorry, that sounds reasonable.

Probably a reasonable [ thing to ask or even say ] . You've asked the question another way. [indiscernible]

[ I know. I'm really, really sleepy ]. But...

Look, I think the important thing is, I think, in many ways, so one of the things for sure even with some of our larger OEMs in the U.S., we're kind of -- we're not through COVID yet, obviously. But at the same time, we're through the shock period, if that makes sense. So businesses -- I'm not saying it's returning to normal, but I guess what's happening is people are making plans now. And one thing for sure, they require suppliers that are reliable, and that's where I think our future lies is that we have proven ourselves to be a reliable supplier. Remember, I keep coming back to Moen, but we twice won supplier of the year. And so Moen are looking to us now, where they have more rapid growth. They're looking to us and not their other suppliers. So this is the strength of our model. So we are in a very good space. So I wouldn't want necessarily to take that COVID impact and roll it forward for another year thinking that we're not -- we're not sitting here just waiting for that impact. We're working hard in the areas we know we can add value. We're trying to focus on the product development that, as I said, we have 1 product with 6 tools. They've asked for 2 more tools. We are conscious of the time. Graham is reminding me. We're very conscious that if we can do those other 2 tools, that's an increase in revenue and EBIT straight away, and it's guaranteed. So this is -- the swipe, spread stuff we're trying to do even faster. Okay. Look, thanks for the questions. I hope that answers it. Obviously, if you have follow-up questions, then Graham and I would welcome questions by e-mail or reach out to us. We're a bit busy today, as you can imagine. But other than that, that's great. I'd like to thank everyone for attending. I can't see you, so that's sad. But at the same time, I really appreciate the interest in our company. Thank you.

And that does conclude our call for today. Thank you for your participation. You may now disconnect.