Skellerup Holdings Limited (SKL) Earnings Call Transcript & Summary

Good morning. Looking forward to presenting the half year '22 results to everyone today. So just before we get started, we'll have -- we'll give an explanation of how you can ask questions. So we'd prefer a few questions at the end. I'll just hand over to Graham. So Graham Leaming, CFO, obviously, is here helping me present today. Graham, how are we going to deal with questions?

Yes. I think what we'll do, I've got everyone muted at the moment. If you can just put a note in the chat that you'd like to ask a question. You don't need to detail your question on the chat, and then we'll just unmute you in sequence and you can ask your question, and hopefully, we'll give you a good response.

So I'll wait. It's 9:59, I'll give another 30 seconds and then we'll get started. So first of all, I appreciate your interest in the company as always. And it's always -- I was saying to Graham, it's always easy when the numbers are good to give a presentation. So that's great. But overall, I think Skellerup has done a really, really good job. The team has done a fantastic job over the last, not this year but over the last 5 years, and we'll, obviously, refer to that in the presentation. Okay. I assume that you can all see the screen and I'll refer to the PowerPoint. So let me keep going. So first of all, it's really pleasing to announce another record earnings result for the first half of '22. This consistent earnings growth is a result of a long period of time focusing on our key strategy, our key reason for being. And I've explained it a number of times in both the annual reports and things. So just as a reminder, the change in the business has been moving much more towards an OEM model where we rely heavily on our deep material knowledge, and we combine that with our tooling and manufacturing scalability to essentially create a component that is a critical part of a larger system. So for example, we could argue that a milking liner is actually our product, but of course, it fits into a milking system, but it's a critical part because it must meet food safety standards and things like that in the same way that an infrastructure pipe brand is a critical part of the infrastructure providing potable water ultimately to consumers. So it's just a much better business model, I believe, especially in tough times. And so one of the things that's come through, the strength of our customers, they pay on time. They actually understand supply chain issues because they're quite large and things like that. So we've seen that the strength of our customers has helped us to be strong. So anyway, let's go through the PowerPoint as it is. So what I'm pleased about this time is the revenue growth is broad-based. We've managed to achieve revenue growth while maintaining margins controlling indirect costs. And of course, we've had the issues for more than 2 years now, really dealing with COVID-19, and I'm so proud of the way our team have dealt with that. I'm not saying everything is going our way, but we've dealt with a lot of supply chain issues and disruption and things like that. And overall, I think the team has delivered a fantastic job, which ultimately ends up being a fantastic result in the numbers. So I'm very proud of what they've achieved, and I'm -- we're relying on them to continue doing that. So I'm really pleased. Right into the numbers. So it's a record net profit after tax of $23.2 million. It's up 19% on the prior corresponding period. We've had the strongest growth in the key markets, particularly in the U.S. We've got a focus on the U.S., as I've said, over the last couple of years, but we've had very good growth in Asia and New Zealand. And then in the 2 divisions, we have the Industrial division, obviously, and the Agri division. So we start with the Industrial division. We have a record EBIT of $18.7 million, as I said earlier, broad-based sales growth across and we'll get into some more detail as usual later potable and wastewater applications and marine has been particularly strong. We acquired Talbot Advanced Technologies and the results are in line with plan. It's been difficult because obviously, that's in Christchurch and travel has been limited in that sense, but it's a great acquisition that aligns with what we're trying to do, and we believe it's strengthening our capability. And then the record Agri division result of $16.7 million. So Dairy rubberware sales, we've had good growth to international customers. We've had very good footwear sales growth, particularly in the New Zealand hardware channel. In fact, I was on Radio New Zealand earlier today, and I was asked specifically have we run out of Red Band, but we've worked hard to get inventory in place and things like that. So the footwear sales growth has been very, very good. And as it says, particularly in the New Zealand hardware channel, which is a relatively new channel for us. And of course, we've been benefiting from operational gains at Wigram and some of our other facilities. So overall, very pleased with the result in both divisions and, as I said, a record result for both. The operating cash flow is $19.7 million, and it's down for a couple of reasons. One is we have planned an investment in inventory. Obviously, there is the addition of the working capital for Talbot, but the majority of it is really investing in inventory and the inventory is in 2 parts. It's raw material coming into the business and making sure that we don't run out of raw material. And at the same time, we have more containers on the water, and I'll come back to that in terms of our guidance later. But just -- that's the main reason. So it's not a concern. In fact, we've taken some technical decisions, in some cases, to buy inventory that gives us a competitive advantage. We can dwell on that later if interested. But overall, that's the reason why the operating cash flow is down. Pleasing that the directors have recommended a dividend -- approved a dividend of an increase of $0.01 per share, which reflects the strong earnings and the low levels of net debt and also our confidence in the future of the business. We have a very strong balance sheet, as you know, net debt very low at $25.6 million. There was a slight mistake in the release slide, sorry, that's my fault. But Graham figures out, so the total assets despite the Talbot acquisition and the planned investment in the inventory. And so the directors agreed yesterday at our Board meeting guidance, NPAT guidance of $44 million to $47 million for the full year 2022. Okay. So next slide. Thanks, Graham. I often get asked what changed in the last year or what changed in the last 18 months. And I think if you look at the 5-year figures, of course, there's one minor blip that makes sense. But at the same time, I think it shows strong growth over 5 years. And as I said at the start of the presentation, I believe this is a consistency about how we're applying our business strategy and very good execution among the team. And I think we're getting better at what we do. I think our customers are recognizing that. So one of the good things is when we look forward, so this is the 5 year's history, of course. But when we look forward, we see very strong growth opportunities, and it just simply comes down to our team delivering those opportunities. Just to go through a few highlights. So revenue is up $13.9 million and 10% on the prior comparative period. EBIT's up $4.8 million and 18%. So really, really good numbers. NPAT up $3.7 million and 19%, as I said earlier. The dividends up, it's now $0.075 per share. And operating cash flow, I've explained in a little bit more detail. One pleasing thing from my point of view, we're starting to invest in some really interesting opportunities in terms of equipment and things like that. So I can deal with that in the questions, if you want, but it's to increase capacity. It's to provide for new products but not just CapEx, we've been investing in new people in the company. So we are strengthening the sales force, particularly in the U.S., for example, and other areas. So this is a great time to invest in the business. The acquisition of Talbot, as I said, the results are in line. The nominal amount was $10.2 million. Of course, there's working capital and things to think about that. We see that as improving over time, so that's great. And the net debt increase to fund the investment in Talbot and the planned working capital. So I guess I'd just dwell on, this is not a 1-year or 2-year kind of result now. We're showing in my view, we are growing, and we will continue to grow strongly. So we had the waterfall, we call it the waterfall between the bridge, between half year '21 and our result. And I won't really dwell on this too much. I mean, obviously, this, the Talbot thing. There's an offset for the government grants that we received in the U.S. and -- U.S. and Australia. So that's explained clearly that, as you would know, we keep a strong control of corporate costs. And if we have any questions about foreign exchange, I'll clear them later on. But we've managed the foreign exchange well. I think we have -- obviously, where possible, we deal with a natural hedge and things like that. But at the same time, Graham, in particular, is in charge of recommending hedging programs. And so we don't expect to do anything other than to protect our position with that. So if you have any questions on that, we can come back to that later. Thanks, Graham. Just getting into the Industrial division in a bit more detail. So again, if you look at the 5-year numbers, I think they're strong, disappointing in my mind because I have said previously, I think the initial target for EBIT is 20% as a percentage of sales. But the numbers -- given the situation we've been in, I think the numbers are good and there's good growth here. And certainly, a strong pipeline of new opportunities, some of which have slipped because of delays in finding enough computer chips and a few other things in the ultimate product, but still very good opportunities to grow the Industrial division. So we're starting to see good signs of revenue growth, particularly from infrastructure work, and we've had some market share gains, particularly in the U.S. and Australia with some new products, so that's really good. Paul Goddard and his team have done a fantastic job with this U-Dek marine foam sales. Our sales would be higher if we could just get the product. We are investing in capacity -- and -- but we're short in every market. We are short in the U.S., we're short in Australia, we're short in New Zealand, and we could sell additional foam into Europe. So we're picking and choosing who gets it. And that's a good position to be in, in some ways. But at the same time, we don't want it to last too long. Otherwise, someone will fill the gap and that seems. But our foam is recognized, particularly the U-Dek marine foam is the best in the world. Vacuum systems sales, I've mentioned in the past, we had 2 key products. They've been launched and -- there's a big show next week. Once a year, there's a big show in the U.S. that's related to mainly oil and gas, but also wastewater products, and it's called the WWETT Show, W-W-E-T-T. Please don't ask me what it stands for. They keep changing it. So you can look at that, but it's a really important show for our products that go through the Masport business. So it's interesting, of course, with the Permian Basin. So I don't think it's soothing that the oil price is likely to hit $100. I don't think it's an issue that, for example, so our new applications are targeted, particularly at the Permian Basin. And we believe -- so the launch of the new blower system, we're having very, very good feedback. But the official sort of hands-on launch is actually next week, but we already have good sales. And the really, really pleasing thing from a low base, we actually have enough inventory on hand now at the time when our competitors are struggling. So without dwelling on that too much. But just in the same way, it's great to have some back wins where the oil and gas prices will stay high and that doesn't hurt us, particularly in the U.S. market. It helps us. We've also had good growth in other applications, so roofing in Asia, health in New Zealand and Australia. And of course, Talbot's part of that and contributes, as I said, in line with our expectations. So a very good result from the Industrial division and more to come. And then moving on to the Agri division. And again, I was asked about the milk price and what impact that will have in New Zealand. And of course, our Agri division is not only about New Zealand, and it is related to milk volumes, but it doesn't hit that we've got a very [indiscernible] price in New Zealand. So dairy rubberware sales growth is -- we've had good growth in both New Zealand and particularly in the U.S. Margins are down slightly. We do face increasing raw materials, and it's not always possible to either reformulate or deal with that and pass cost on, particularly in New Zealand. Freight costs, that's been tricky. We've done a very good job, I think, in managing that. But in reality, in some cases, we've had to create a freight surcharge for a period of time. In other cases, we've simply moved on price. In some cases, we've had to absorb some part of those freight cost increases. But in general, we've done a very good job of managing that I think. Timing is getting more difficult because we have more inventory on the water. And that means that depending on our terms, where we have terms that mean that we can recognize the revenue when it's received or delivered on a delivered basis. They can make it tricky in terms of predicting how things are going. But the good news is we're not leaving our customers down. In fact, our key customer on the Agri side, back in August, they had serious stock-outs, a bit like our Red Band in Christchurch. And we have actually achieved a position for 95% of their products. They're not in stock out now. So that didn't happen by luck. There was a lot of hard work by the team in Christchurch. So really pleased with how we've managed to maintain and improve our supply chain to our key customers. We are in this -- I mentioned earlier about investment -- we're investing in both production volume increase, and there are ways of reducing lead time through that. So we've been working hard on that. We're also investing, of course, in people, as I said, so in the Agri division, we have invested in both technical resource and also in manufacturing resource, and so I expect to see good results from that. Of course, Agri includes footwear, and we've had good growth in all markets and, particularly, in the New Zealand rural and hardware markets. So there's been some range standardization and rationalization. It's always difficult because people love not only the Red Bands, but the 4x4 or all these other variants of rubber gumboots, that we make, high-quality boots. But in reality, the supply issues have partially been sold by very good work in China from Martin and his team, very good work in Christchurch from our team and really good communication with the customers. So I'm not saying we don't cause issues at times. I'm saying that we communicate well and we're overcoming that. So the next slide is really copied from the annual report, and it just really reminds us that when we look out the window, we see a lot of our products used even here in New Zealand that it gives a good overview of what we do. And a reminder of some of those areas that you might not think about. So we see good growth right across the board. It is really pleasing if you think about over the next 2 or 3 years. Governments will inevitably spend more on infrastructure. So below the road, you can see the infrastructure pipes and wastewater things that we are involved in. But then above the road and even on the road and that seems there are a lot of -- so we are dependent on the housing market in Australia and the U.S. and things like that, of course, New Zealand as well. But we've refined our products, and we have far more certainty about the kind of products that our customers want. In fact, during this period of time, I believe we've got closer to our customers, and we're starting to understand the true underlying needs. So overall, it's been going very well. And then we have, as always, the reconciliation of EBIT to group NPAT, seeing that EBIT to Group NPAT. And so the numbers of the year, I don't think this there's much other than I just again emphasize that this is not a 1-year story or 2-year story, it's now a 5-year story, and I hope it's a 10-year story. So there's the usual disclaimer at the end. So a couple of thoughts I wrote down. So first of all, the price from -- the milk price is driven really by demand for protein ultimately, and the outlook is strong. So a couple of thoughts for you. We do tend to focus on New Zealand because we're based in New Zealand, but in reality, a lot of what we do is overseas. So just a reminder that overseas, the cost of milk effectively or the cost of protein depends a lot on food, the food source for cows. And so the feed, I guess, is a better way of saying it. So a lot of it's grain feed and the cost of grain has gone up like most other things. So New Zealand had some advantages being grass feed, I mean, there are other countries that are grass feed as well, but not in the same way. But the demand for protein is -- if you take a 5-year view, it looks like it's strong even if you add in nonbovine or nonanimal milk products, if you're taking soybeans and all those kind of things, the demand is strong. Then on the Industrial side, for the first time, we're starting to see that spend in infrastructure that I've talked about for 5 years, but we haven't seen, it's starting to get stronger, and there's a lot more interest in doing that. And some of that's been caused by supply chain issues out of China, to be honest. And also inevitably, the breaking down of the infrastructure in a number of cities. So really -- so when we look at the outlook, I'll preempt another question. It's obvious that if you look at $23.2 million and double it, most people can get to $46.4 million. And if you look at our guidance of $44 million to $47 million, so what does the guidance mean? As you know, our full year is 30th of June. And I guess there's more uncertainty around what will be delivered at that time, at a time when, particularly in New Zealand, who knows what's going to happen, we're assuming we will lose maybe 2 weeks' production at Wigram. So we've sort of put that in our forecast and things like that. So we've been maybe more conservative than we might otherwise have been. But if you take a longer view, the outlook is very strong. So on those other larger projects I've mentioned in the past, there has been some slippage, but we still expect to be in production, round about the 30th of June to some of the health products that we talked about in the past. So there's no issue with it. They still want it. They pay for everything. So we're not -- it's just, we need a purchase order. And once we do that, it may be of a size that is material that we would need to update the market. So -- but if you take a 12-month view, we're working on the right things. Our team are executing well, and I'm just very proud of the effort that the team -- the broader team has made. So that's it from me. I welcome the questions. So we have some questions. I'll let Graham...

I'll just stop sharing the screen for a minute. And hopefully, I can manage us through this. The first question we had was from Christian. So Christian Bell from Jarden. So I'm just going to unmute you, Christian. I hope.

I think you can ask him if he can unmute?

Christian, are you able to check now? I can see you're unmuted. Please go head.

You guys can hear me?

Yes, we can.

Firstly, filed on the good result. Just to kick things off. Dave, I mean you only kind of just addressed that, but obviously, the strong outlook [indiscernible] up to the guidance that you've said and you have given a couple of reasons, but I'm just trying to tease that out a little bit more. Is the reasoning there more of a [indiscernible] or so far, January numbers, has there been a slight slowdown in the second half so far?

No. So January has been strong. February looks strong. It's just a concern about what might happen in terms of deliveries. That's the main thing. So it's not that things are deteriorating from our point of view. And I think you can understand the directors, of course, New Zealand, as -- you tend to get effected very much by the New Zealand view, whereas actually in the rest of the world, it's opening up faster and, in some ways, we may see a better result than we are indicating here. I mean the reality is there's quite a big swing. It all comes down to timing on the 30th of June. But there's no indications that the business is any worse and that we wouldn't follow a normal path if that makes sense. I think just for a number of reasons, that's why we had a very good discussion about that yesterday, as you would expect. But people are naturally, I don't know, maybe it's just living in New Zealand at the moment. But from a business point of view, it really comes down to we have a lot more inventory on the water that may or may not be recognized. So that's not the raw material it's deliveries to our customers in many cases directly. And so we don't see any signs of things slowing down, but who knows. So I think it's just natural to be a bit more cautious at that time -- at this time.

I think maybe there's maybe 1 or 2 other things to add as well. For example, in Australia, where we had some pretty significant business in the roofing and construction area. Our ability to sell our product is impacted by the availability of other associated materials. And again, in the U.S., our vacuum systems business, the ability for customers to deploy our product depends on when we're able to get truck chassis and what have you. And they've -- that's a bit of a constraint at the moment, too. So just be mindful that there's things outside of our control that could impact so hence into where we are.

No, that's cool. The second thing, there was no sort of mention of the scaling of the major health care customer. Just wondering is that not included in the current guidance or it's just taking a bit longer to have an impact?

So we were expecting to start production in the last quarter of this financial year. That slipped out a quarter effectively. So we may actually be manufacturing in May, June but ultimately to sell, we have to sell it to the customer, of course. We haven't -- it's really hard to predict exactly when that will happen, but we've already shipped the first round of assembly equipment to Vietnam, and that's being set up now. So it's not back to what Graham was saying, it's not us being held up in any -- well, it is us being held up, but we're being held up by the customer ultimately who -- they're short of several things for their product, for example, they're actually short of chips...

Computer chips.

In Singapore. So -- but it's not like a 1-year delay or something like that. It's very, very close. So I was hoping -- so just to answer your question specifically, there is no allowance for that in the forecast right now.

The investment in inventory in the first half, I suspect that, that kind of remains elevated across the second half. There's no unwind there?

We see some noise. So in some cases, like with raw materials, I think we'll maintain that at a higher level and like there's known shortages in things like silicone, which is used by a number of our businesses. So I think that will stay high. When it comes to customers and things like that, that actually depends on how the supply chain unwinds. So we see, for example, it's really hard to predict. We actually see in the U.S., the containers that were taking 90 days and now taking 60 days. So that could go back to 90 days, I don't know. But the reality is we have sort of 90 days' worth of inventory on the water at the moment. If it stayed at 60 days, that 1 month's inventory would wash through, and that would be great from a results point of view. But we just -- we can't get an insight into that. And then, of course, Mainfreight comes out today and says, you can expect 20 to 30 days delay for anything arriving in Auckland. But I tried to focus internationally. Remember, 80% of our revenue is outside New Zealand effectively, and a large chunk of that is manufactured outside New Zealand. So I was just trying to remind people that it's not that New Zealand isn't important, of course, it us, but the point I'm making is our exposure, this is the beauty of a holding company in a variety of markets with a variety of products made in many different locations. And one of the exciting things from my point of view is we are starting to see how we can derisk that by manufacturing in market. Now we're not going to have that by the 30th of June, but we're actually practically doing things now that will have an effect in the next financial year. So the hard thing right now is, of course, can we rely on that reduction of inventory between now and June. Normally, that would wash through for the vacuum systems as an example. So what about dairy into Europe, I mean, we'd be silly not to take a conservative dairy. Just -- That's just -- so -- I'm sorry, I can't be any more specific than that because basically, I don't know.

It depends.

Yes, it depends. Should have said that, it depends.

No, that's helpful. And then just last one for me. Obviously, you're looking to expand in the U.S. Are you able to give an update there? Obviously, you haven't been able to travel. So I mean what conditions need to be present to you to travel to the U.S...

The ability to come back quickly, that's probably the easy answer. But look, the reality is, even without the ability to go -- I mean, that's at our balance sheet acquisition stuff. And so we're not -- we're still scanning and looking at opportunities in that sense. But the reality is we have a lot of organic growth. And everyone knows that organic growth is safer and faster than -- well, maybe not faster, but acquisitional growth. But if we could find a good aligned business of, I don't know, $50 million, $100 million or something like that, that would be great. So please bring any opportunities to us that you see that fit. But seriously, I do need to get into market. I'm getting nervous that we've been away from markets for a long period of time, particularly me, but Graham and others as well. So it's really important that there's a tenancy in a crisis to narrow -- that view narrows down. You sort of go into the cave, but it's really important to get out and communicate. But I am pleased that in general, we're communicating well with our customers. And I think through the crisis, where we've done very well, the customers have recognized that, and if anything it strengthened the relationship. Specifically acquisitions, the U.S. is still a target market. But of course, you don't want to acquire an old manufacturing business in the States. The liability side is hard. So maybe there's a way of doing it with a bit of capital ourselves on our existing sites. So that's the kind of thing we're working through now. And hopefully, we'll have an update at the full year.

So just under the current role, is it sort of like a July, I think when you eventually get to get over there yourself.

I think practically, that's right. But look, my concern is if I jump on a plane and leave, I'd love to go to Australia as well because our colleagues in Melbourne, in particular, but also in Sydney. It's time to look at some opportunities even in the Australian market, but also visit some of the customers there. I mean it's been 2 years since I've been to Australia. It sounds silly. But in reality, I'm quite happy to go there. I am concerned about coming back. I don't want to spend even in self-isolation over there because of the rule. I mean the rules are changing so quickly. I'm nervous they might change again. But look, I know that obviously, we have Mr. Strowger on our Board. So there's a lot of deals happening that are happening virtually, if that makes sense. I think for Skellerup, we would want to sort of touch and feel the business and get to know the people. So I still believe that good business is done through relationships. And so it's not so much that I want to get on a plane and do a deal, be great if there's a deal, but I want to make sure that we are strengthening the relationships with key customers. Short answer, I intend to be on a plane internationally before June.

Okay. Thanks. Josh Dale, I will come to you. I'll just unmute you, and you should be good to ask your question here.

Great. Can you hear me okay?

Yes, we can.

Excellent. Well done on a very solid half. I've just got 3 questions actually. First one, you mentioned in the last result that Agri performance was constrained on the footwear side. Has that benefit all being recognized in this half? I noticed performance here was quite strong or is there still a bit to come in the second half as farmers gear up for the season?

Certainly, on the footwear side, I think we've solved our supply chain issue for now. But of course, if it rains for the next month, we might have an issue again.

And that is an element of the increase in inventory, too, because we were basically running at net inventory [indiscernible], at year-end, whereas now we do hear some stock in the warehouses.

Yes. There were constraints on the production side, but we have invested in that, as I said earlier. So I don't see any constraints that will hold us up delivering a good Agri result by 30th of June, domestically, that is, and internationally, it comes back to the delivery of those containers, as I mentioned, in terms of revenue recognition. But of course, we're heading into the New Zealand season, so we don't see any constraints there.

Right. And just follow on, on the topic of Agri, you mentioned last result, there might be opportunities for the division created by DeLaval buying milkrite. Is there any update there?

Yes, there's several things. So we know that DeLaval have not only acquired milkrite, they've also acquired the very assets of Trelleborg, which is another thing. And we know they're setting up a super factory or whatever in Poland. So there are a number of steps that they're taking. And we have planned -- I mean, DeLaval is arguably the largest company doing first feed dairy shifts in the world. They have a large presence in the U.S. and of course, Conewango and our other key customer, GEA compete with them. So I expect the competition level to increase. So we've been expecting this for -- well, since the acquisition. So I don't necessarily see that as a bad thing. We see GEA as a very important customer for us, but also we do have our own products. As I mentioned, through Conewango, we sell aftermarket into the U.S. market, and we're seeing good opportunities there. So it's an interesting time they've chosen, probably they didn't understand what was happening, but they've chosen an interesting time to do what they're trying to do and opportunities will open up. But I don't have any more specifics than that.

That's fine. That's helpful. And perhaps one for Graham. Can you give us a sense of how aligned your revenue and costs are from an FX perspective? Just how naturally hedged are you?

Yes. I think we've talked about this a little bit before and happy to give you some specifics following the call if you'd like. But on the euro and the pound, we're near enough to being perfectly naturally hedged, we have a small residual exposure that we hedge. So our 2 largest exposures are the Australian dollar, which we're long on and the U.S. dollar. So we hedge both of those net positions. But [ these are ] not significant position. So as of now, we have about 80% of our U.S.-Kiwi exposure hedged for the next 12 months, slightly above current spot rates, which probably wouldn't surprise you, given the recent reduction. And we do have cover in place beyond that 12-month period as well. we typically will go out as far as 24 months. And then for the Australian dollar, we're roughly 50% hedged for the next 12 months at rates about where we are trading today, so just below sort of $0.93. So those are our 2 biggest exposures, the Aussie dollar and the U.S. dollar. Next question is from David Oxley. So David, I'll just find you on the list here and unmute you. Here we go. Sorry, you lead with the Oxley. So here we go. David, far away, you should be able to speak.

Unmute.

Great. Thank you, Graham. Can you hear me, okay?

We can.

Perfect. I just had a couple of questions, if I may. Firstly, just on the Agri division and the dairy or the milking liner business, could you give an update on how the shift from rubber to silicone is progressing? Is it progressing? Or is that still something into the future?

It's still into the future. We understood that it was a strategy of GEA. But in reality, the sales of black rubber liners to GEA have increased quite dramatically. In fact, it's growing at about the same rate. So the ratio is staying about the same. But I think the natural growth in the market, the organic growth in the market means they've lost sort of interest in trying to drive that. Of course, silicone liners are more expensive than black rubber liners, but they last longer. So there's a trade-off in terms of the labor cost and everything like that. But without worrying about that too much, I can tell you that the proportions over the last 12 months have stayed the same and looking forward in terms of our investment in capacity, we're investing in capacity on both sides, but the ratio is about the same. So interestingly enough, and I think that's a good thing. And maybe it's affected by the shortage and the much significantly higher price of silicone and also the ability to obtain silicone. So that's been an issue. So as I mentioned earlier, I think our team has done a particularly good job of obtaining silicone, particularly for Silclear that makes silicone tubing and our dairy team in Christchurch. There are other places we use it, but they are the predominantly larger users of silicone. It's actually been quite hard to get. So maybe that's having an impact as well. But the other thing we have learned is that black rubber liners milk more softly, whatever that means, the cows seem to like it better. And -- so I mean, ultimately, they would have to turn into a yield gain or something like that, but that's the anecdotal evidence. The other interesting thing is the area we're focused on nonbovine which is sheep and goat milking, they predominantly use silicone. So back to the earlier question, where DeLaval acquired Avon milkrite, and as part of that, they acquired InterPuls. It's a company in Italy. InterPuls specializes in nonbovine silicone liners. So that's a real problem for GEA. So we've been investing time and effort and silicone liners for goat milking initially, and we're considering sheep milking. We've been doing on-time trials. It's been difficult, but we've been doing that in the U.K. because that's a market that has relatively large farms, but it's applicable to Australia and New Zealand as well. So I guess I still see a growth in silicone, but as much from the adjunct to our existing bovine milking if that makes sense. So if we were to grow the total agri business with non-bovine milking, then the proportion of silicone will go up, by definition.

Right. Okay. That's helpful. So there's effectively been no sort of pump in this period as a result of higher value replacement silicone product relative to rubber?

No. And I -- we don't foresee that in the next 12 months either with our customers the strong growth. So they're just trying to keep up, to be honest.

Right. Okay. The final question I had was, is there any update on the class action, the legal issue you've got ongoing?

No, there isn't, really, David. It's a very, very slow process. The nature of the claim and the nature of the first [ defendant ] is the products manufactured in Germany. So there's a fair bit of ranging going over jurisdiction issues and things like that at the moment. So there's very little progress. We've had our fire engineers submit mixed bit opinions and what have you. So we're doing all the right things. But I don't expect there'll be any material progress before the end of this financial year.

Okay. And any incremental addition to the provision that you put through last time in this period?

No. We're not spending a great deal of money at the moment. Obviously, there's some legal fees being incurred in relation to us filing various documents in relation to it. But so there's no change in the provision. So you will remember or recall, at the half year period last year, we took a $1 million provision and we added $0.5 million to that at the end of the year. We've spent less than $200,000 of that provision. So there's been no further changes to that number. There's no other questions at the moment. If anyone else would like to ask a question, can you just send me a message on the chat. I'll give it a couple of minutes, and then we'll deal with that if you have any other questions. Otherwise, we'll wrap up.

So I guess the other interesting question people ask me is, are our customers stocking up. And then if there's a slowdown in the market, does that mean we'll hit the wall or something like that. Well, in most cases, we've worked hard to start to see this sell-through, particularly some of the larger customers. So for example, some of our customers in the U.S. And even though they've stated they would like to stock up, in reality, we can't make for the increased volume and allow them to stock up. So we are keeping up with their growth. And in some cases, that is double-digit growth. So I think we've done a fantastic job to do that. So we know they're not building inventory because we can see their inventory, we get the inventory numbers weekly. And we're doing more and more of that. So this is a specific example of how we're getting closer to customers because the sell-through is really important. And I think through doing that, we become a better partner to these large customers. So it's just an example. But for me, right now, I can't think of anywhere where we've stocked up other than specifically the business, I explained about the Blower and the Cobras, the other product for Masport, where we have deliberately put in more inventory because those products could take off. As Graham said, it's constrained at the moment by the availability of chassis -- truck chassis, and that's been the case for a long time. But I'm a big believer in markets. Markets will solve that. So anyway -- so look, I just thought I'd fill in some time. We don't seem to have any other questions. So look, welcome -- as always, we welcome feedback directly. So if you have any other questions and your shy or whatever, please reach out to Graham and me. I am on a plane at 2:00 today. So if you keep that in mind, other than that, really appreciate your interest in the company. I'm very proud to lead a strong team, and I think they've done a fantastic job. Thanks.

Okay. Thanks, everyone.