The a2 Milk Company Limited (ATM) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to The a2 Milk Company Half Year 2020 Results Conference Call. [Operator Instructions] Please be advised that this conference is being recorded. I would now like to hand the conference over to your first speaker, David Akers, Head of Investor Relations. Thank you. Please go ahead.

Good morning, everyone. Thank you for joining the call today. On the call today, we have our Chairman, David Hearn; our Chief Executive Officer, Geoffrey Babidge; our Chief Financial Officer, Race Strauss; Peter Nathan, Chief Executive of Asia Pacific; and Craig Loutitt, our Deputy CFO. Geoff and Race will present our interim results as well as updating you on our strategic priorities, business objectives and a number of group strategic updates. As always, there'll be time for questions at the end. And with that, let me hand over to Geoff.

Well, look, thanks, David, and hello to everyone on the line. Many of you I probably know and some I don't, and I look forward to meeting you at some stage. Look, let me say, obviously, I am pleased to be back at the company and I will go -- given the opportunity to make a contribution. But look, in the 2.5 months since I've been back in the business, it is fair to say that I'm very pleased to say that much of what was started when I was in the business, in fact, has continued. And importantly, a great deal has also been improved and progressed over the recent period. The excellent result we're reporting today is a reflection of the healthy underlying fundamentals of our business, the strong performance across our key products and regions and the excellent performance from all our teams in executing against our business objectives. So if I could firstly move to the highlights of the first half '20, which is shown on Slide 5. Clearly, as indicated, we've delivered a very strong operational performance, very strong performances in key product segments and across our core markets, revenue, about 800 -- approximately $807 million, and that's an increase of 31.6%; EBITDA, $263.2 million, an increase of 20.5%; NPAT, $184.9 million, again, 21.1%; whilst our earnings per share increased to $0.2515 per share. Gross margin was very healthy at 57.2%, and that was as a result of the continued mix shift to infant formula as well as improved price yield achieved during the period. And this translated into an EBITDA margin of 32.6%, which was better than expected. We'll talk about the full year expectation on EBITDA shortly; very strong net cash flow from operating activities, $160-odd million dollars; closing cash, very healthy at just under $620 million. We continue to increase levels of investment in marketing and capability that was primarily in both China and the U.S. with marketing investment for the period of $84.1 million. The result was driven by another stellar performance in infant nutrition with sales -- revenue of $659.2 million, up 33%. Our multi-channel approach for our infant formula business gives us the flexibility to meet consumer demand across multiple distribution pathways. This was clearly highlighted in the result as we built on the China business, and it was very pleasing, the growth in China label infant nutrition and in Australia with China label revenue doubling to $146.7 million and distribution expanding to 18,300 stores. The U.S. continues to grow. Revenue more than doubled compared to the prior corresponding period, and distribution increased to 17,500 stores. So I'd just like to welcome Race, our new CFO, to -- a, we're delighted that Race is onboard. He's brought a very helpful, new set of skills to our business. He's highly competent. He only joined in mid-January, but he certainly hit the deck running. And we're delighted to have him on board, and he will take us through the financials in more detail. Thanks. Race?

Thank you, Geoff, and hello to everyone. I'm delighted to have joined the company here at a2 Milk. I must say it is a remarkable business with significant opportunities and growth potential. So taking you through the financials in some more detail. At the top of the table on Slide 7, we presented our headline results for the half, including discontinued operations. Including discontinued operations, our 32% increase in revenue to $806.7 million reflected strong growth across core markets and product categories and was slightly higher than the guidance provided in November. This was due to distributors requesting additional product in advance of Chinese New Year, which effectively brought forward approximately $8 million of sales from January into December. Our EBITDA margin of 32.6% was slightly better than expected due to our stronger underlying gross margin. On this slide, we've also shown a summarized P&L from continuing operations so you can reconcile our commentary to the income statement in the accounts. On a continuing-operations basis, gross margin of 57.2% is up 1.6 percentage points from the prior corresponding period. Key factors for this are the continued shift to infant formula and the improved price yield. We maintained a similar level of marketing investment to the prior 6-month period with $84.1 million invested in the first half of this fiscal year, targeting opportunities to drive brand awareness in China and the U.S., and that was supported by greater in-store execution. Our employee costs were also up, reflecting the continued capability build especially in market in China and the U.S.A. The increase in admin and other costs reflects our investment to deepen our consumer insights and cost to support business expansion. As we improve our internal capability, the composition and level of external resourcing should moderate over time. Slide 8 shows our performance on a geographic and segment basis for revenue and EBITDA. We're pleased to report revenue growth in all geographies and all product segments. Our cash position has continued to strengthen. We again increased our level of inventory to improve our flexibility in being able to adjust more quickly to changes in demand. Consequently, our working capital was $32.9 million higher. We had $618.4 million of cash on hand at the end of December, and later in the presentation, we'll cover our ongoing review of capital allocation. Slide 10 summarizes our key financial metrics for the group revenue, EBITDA and EPS, including discontinued operations. Much of this has already been covered, but suffice to say, we are pleased with the performance. It's worth noting that our basic earnings per share of $0.2515 represents an increase of 20.6%. With that, I'll hand back to you, Geoff.

Thanks, Race. And so look, we're now on Slide 12, which simply summarizes the 3 strategic growth priorities that the business has been following in recent times: growth from existing products in core markets to maximize that; secondly, to broaden our product portfolio in core markets; and thirdly to expand in other targeted markets. And our strategic priorities translate into the 4 business objectives which are shown on the following slide, so no change. We are very focused. This company has consistently been focused on a limited number of things trying to do them well. On Slide 14, Asia Pacific revenue was up 30% on the prior corresponding period, and EBITDA was up 30% as well. Across Asia Pacific, we grew sales in infant nutrition by 30%, driven by 77% growth in China off-line channels and cross-border e-commerce. I do wish to note that revenue growth benefited from favorable pricing and product mix. On Slide 15, we obviously provide some further highlights in respect of our performance in infant nutrition in China off-line channels. Sales more than doubled. We expanded our footprint to 18,300 stores and pleasingly achieved our highest market value share in the channel during the period. On Slide 16, in respect of cross-border e-commerce, we're also pleased very much with our performance there with sales up nearly 58%. And we continue to be the market brand leader in grocery and pharmacy channels and continue to invest behind the brand. Slide 18 also obviously talks to our Australian retailer and reseller segment of the business. And as indicated -- that indicates on the left-hand chart our infant formula sales by channel from FY '16 to obviously FY '19 and first half '20. And the chart on the right highlights how the mix between channels is evolving. And we would wish to highlight that clearly, we are on track in respect of how the shape of the business and, if you like, the allocation of our revenue across the important channels is evolving consistent with the plan. Slide 19 goes to the Kantar consumption share information and shows the uplift in our consumption value share to 6.6% from 5.4% in the prior corresponding period. As previously advised, while Kantar does represent the best single metric for consumption, it does not fully capture full consumption. And we've explained the reasons for that within a commentary, and that's been referred to previously. So it's a very good indicator but we would say that it is not fully indicative of our position particularly pertaining to the growth of our business in Stages 3 and 4. Slide 20 makes reference to our liquid milk and other nutritional products within Asia Pac. That business continues to perform extremely strongly. We've achieved a record market share of 11.3%, and our other nutritional products also grew revenue strongly, as indicated in that chart. Slide 21 just gives some flavor in respect of what we're doing, pertaining to the important work in building our brand, building awareness and driving conversion. And clearly, the team, which involves particularly Peter, Li Xiao and Susan Massasso both previously and now in her new role, are very focused on how we can take these initiatives forward and be effective. We are increasing our marketing spend continually. We're very focused on wanting to do that, but we also need to continually test ourselves that the efficiency of spend is delivering the outcomes that we're very keen obviously to achieve. So Slide 22 -- Slide 21 and 22 give some flavor in respect of that. Slide 23 touches on the U.S. business. The business -- we are very focused on growing our revenue, growing the brand awareness in the U.S. market. The company continues to invest significantly in this initiative. We are very focused on achieving our internal objectives in respect of the U.S. business. And we have called out in the release today an initial milestone, but we're not saying that that's where we're going to get to, but an initial milestone that we, as management and the Board, is focused on for the U.S. of $100 million annualized sales in U.S. dollars and it's what we are working towards as our next objective. So that's important. We've got an excellent team in the U.S. I'm sure Blake is on the line listening in that I say all the right things, but that's all very justified because he's got a very strong team very committed to the growth of our business. And we're also very aware that shareholders and analysts are focused on the level of investment we're putting into the U.S. market, and I can assure you that this is something that the Board and management continue to review and assess and work with the U.S. team to ensure that we are moving towards achieving our objective in respect of scale within that business. Moving on Slide 24, which just gives you some more flavor in respect of our growth of distribution and footprint. Some examples of what's been happening in respect of branding on the next slide. I've got to say that the new standout packaging that's been done by the team is an evolution that is, in my view, outstanding to really take, in my view, the brand forward. The standout on shelf is excellent. And that's all part of a new initiative in respect of how to enhance the marketing activity of the business in the U.S. We then move on to the next slide, 26, which talks about continuing to build the capability of the organization. That's very important. Key activities in the half have included introducing new roles to complement existing capabilities particularly in market in China, the U.S. and with certain group functions; launching a revised remuneration framework to align with our strategic direction; and updating and introducing a number of policies and procedures relating to our people. And I've got to say that these have been very important initiatives that have been taken forward since I was previously in the business and have my absolute support. We've got some excellent people assisting within the group, Lisa and others who are really helping to improve our competence in managing our people, providing support to our people as we move forward, and that's important. We have used external resources during the period. As we improve our internal capability, the composition and level of external resources, in my view, should moderate over time. Moving on to the next slide in respect of sustainability and community, Slide 28. That's a very important area of the -- of business activities that, quite frankly, Board and management have increased the priority on, correctly so since I was in the business. And we remain committed to the sustainability goals that were communicated in August and reiterated at the Annual Meeting, as indicated on the slide. Importantly, this company does support the global ambition of the Paris Agreement and a 2050 net zero emissions target. And that's something that the company would like to -- we are very clear on. And what we can do to support the move of countries and economies in that direction, we will attempt to do. We're also working towards implementing the Task Force on Climate-related Financial Disclosures recommendations within 3 years. And I was told by David Akers that was very important to call out, and it is. And we take our responsibility to the communities in which we operate very seriously. Hopefully, you have all seen that recently, we made a contribution in Australia to support families affected by bushfires, and we also recently developed an assistance and support package valued at $3 million in response to the recent coronavirus disease. On Slide 29, we simply highlight again the importance in our business model of the strong partner relationships that we have now and that we continue to support into the future. China State Farm, Synlait and Fonterra are all very important business partners for us. We've been delighted with the association we've had with all of them, and we're working with all of them to continue to build on the relationship we have and the business that we do with them. As Race indicated, on Slide 30, we make reference to capital allocation. We've obviously had strong operating performance over a number of periods. We now have a cash balance -- or we had a cash balance at 31 December of around $620 million. And maybe, Race, it's a little bit higher now at the end of February. As part of the Board's ongoing review of the most appropriate use of capital for the business, our intention has been to prioritize investment in growth initiatives ahead of returning capital to shareholders. That remains the case. But due to the increasing scale of our infant nutrition business, the Board considers it now appropriate to assess participation in manufacturing capacity and capability to complement our existing supply chain strong relationships. And accordingly, we're doing some work in that area and evaluating opportunities to assess this issue. We then go to the outlook slide, which, no doubt, you're all particularly interested in, as we are, and that's contained on Slide 32. We are expecting continued, strong revenue growth. As we indicated in our release today, demand in the first 2 months of the year, that is January and February of this calendar year, have been strong. However, there are clearly uncertainties around how the coronavirus matter will continue to play out during obviously the following 4 months to the end of the financial year. So it is fair to say that our business, our brand have responded positively to consumer demand in the first 2 months of January and February, the first 2 months of the second half. But we are unable to quantify the impact, be it negative or positive, on the full year result. Notwithstanding that, we do expect the EBITDA margin for the full year, as we speak today, to be between 29% and 30%. We, of course, will need to consider our levels of discretionary marketing spend given the uncertainties that are playing out in China. Our objective is to continue to spend what we can -- what we have budgeted to spend on the assumption that we can achieve cut-through, and that activity is something that Peter, Li Xiao and Susan believe is warranted. But if we clearly are of the view that that's not possible, we will need to consider what that means to the level of spend in the second half. But be clear: our current strategy is to continue to plan. And then there's a comment about medium-term target, which simply is restating what was updated in a release in December that the Board considers it appropriate that the company target an EBITDA margin in the order of 30% in the medium term, importantly keeping the balance between growth and investment under constant review. So look, hopefully, that's been a useful summary of the release that we provided. And myself, Race, Peter and Chairman David are available here to answer questions. So back to the operator.

[Operator Instructions] Your first question comes from the line of Ben Gilbert from UBS.

Just first question. Just interested in the comment you've provided just around the stronger start to the second half. Just -- I'm just interested in how you're thinking about that and if you think there's been a lot of pull-forward purchases given concerns around the coronavirus in market or if it's just sort of stronger sell-in, sell-through, et cetera, in market. Just wondering if you could expand on that a little bit.

Look, I will ask Peter just to expand on a couple of points there. But clearly, we are seeing, at this stage, some positive impact of the virus across each of the channels that we have. Our China label is up. And one might say, well, that's a little surprising because there has been some dislocation of supply chain in certain areas. Well, clearly, where there has been lockdown, it is fair to say English label is responding positively both through CBEC and through daigou channels. So look, the reality is that, that is clearly a function of concerns resulting from the virus. Clearly, it's very difficult for us to determine the extent to which that is pulled forward. This is something that reflects a maintainable further uplift in market share. And that's why we call out and say, look, we're clearly pleased financially. As to where we are after the end of the first 2 months -- in February. Very difficult. We can't call out what the impact will be over the next 4 months at this point of time. Peter, is there something you want to add to that?

No. I don't think so, Geoff. I mean you'd covered all the points.

Great. And the second one from me is just into more of a longer-term market pace. Just interested in your comments, Geoff, around Stage 4 and sort of do you think Kantar might be understating it. There's always a lot of debate around the market size in the industry. Is it sort CNY 180-odd billion. Is it up over CNY 250 billion? Just interested in your thoughts around what you think the size of the Stage 4 market is today in the context of sort of the market sizing and maybe the growth that you see at that Stage 4 market as well.

Peter?

Yes. Look, I think it's accurate to say that Kantar doesn't fully reflect consumption based on the construction of the panel and as I think you called out the fact that many users in Stage 3 and 4 are not captured within that panel. So that point is accurate. With respect to Stage 4, we can't give you precise details on segment size. Having said that, we believe it's a great area of opportunity for us in both China label and English label.

Great. And just final one quickly from me. Just -- again just around the professional services -- service fees, they're up from around $10 million to $19.1 million for the half. Should we be thinking about annualizing that rate into the second half? Or to your point, Geoff, do they start going back because it's quite a material step-up in this half year-on-year?

Look, Race will make a comment. Look, I have been quite -- the spend has been high. But I've got to say I've been very impressed with the quality of the work that's been done that I've seen in the business, and it certainly has been adding substantial value. But there's been a lot that's been done over the last 18 months. And the view that we as management have is that we probably need to pause and properly make use of the work that's been done. And so that in itself should bring about some reduction, but there are other projects that are being taken forward, which Race will talk to, that will have some impact on the level of spend. And I've sort of said in the medium term, you would expect it should be coming off from the historical levels. But you may not necessarily expect very much of a tick-down in the second half. But Race, do you want to add to that?

Yes. Thanks, Geoff. And Ben, just to elaborate on that, the -- what we're seeing is we have -- now going through in quite some detail the costs that are in the business. We are making sure that all the costs are, in fact, what the business needs. There are a number of costs such as developing the infrastructure that we've talked about. We've done a lot of work in detailed understanding of the consumer. So as we continue to build our infrastructure, we will see that these costs will come off, but we're also being very, very disciplined -- or continually disciplined in ensuring that all costs are very tightly reviewed and ensure that is there anything that we can do to reduce them. We will be seeing a reduction over time as these costs roll off and we get more capability in-house.

Your next question comes from the line of Sam Teeger from Citibank.

What's your Chinese intelligence telling you at the moment about how the coronavirus may impact consumer perception surrounding the safety of domestic Chinese brands compared to international brands such as a2?

Yes. Thanks, Sam. Look, clearly, we have a positive view about the movement towards foreign brands, particularly ANZ brands, on the basis of the virus. And we're assuming some reduction in credibility, trust issues on the basis of local brands.

Great. And second one, maybe one for Race. Firstly, welcome to a2. And secondly, it looks like the -- in the EBITDA, there's a $4 million FX loss, there's a $3 million U.K. loss and there's $5 million of carbon credit spend. So is it fair to say the underlying EBITDA is really $263 million plus those 3 items?

Well, thanks, Sam, and thanks for the welcome, so kind. Yes, we've been very clear on what those costs are. So it is important to note, which we did touch on, that as our business gets bigger and the volatility linked from the virus due to the FX, there was quite a bit of FX movement coming through the business and we will expect that to continue. So your points are accurate, but be very conscious that as our business does get bigger and the volatility in FX continues, we will have continual FX exposure going forward.

Got it. And then maybe if you guys can please expand on the comments around manufacturing. I guess to what extent are you hamstrung in terms of what you can actually buy given the China license is owned by one company. And then following on from that, is a 30% medium-term margin target relevant anymore if you go into manufacturing?

Well, Sam, I think it is important to hone in and focus on the terminology that we have used very carefully here. Firstly, I'd like to emphasize that we've got very strong partner relationships with Synlait and Fonterra. We've got long-term supply contract in place with Synlait. And we're talking there about assessing opportunities to participate in manufacturing capacity and capability. And we also acknowledge that this is an area of competence that we don't yet have. So I think it's fair to say that the Board is simply wanting to assess opportunities in a very measured way, something that would be complementary to our existing relationships, which are very strong, being mindful that these are areas that we are not expert in. We'd like to understand more as we move forward and build our understanding more of the key drivers within that, and that's part of the strategy. So look, be clear that this is early days but we thought it important to call out. It isn't something necessarily new. The Board has been chewing on these things for some period of time, but it is more active today than what it was previously and we thought it appropriate so to call out. It is also relevant clearly because people would be asking will we have a reasonable level of cash on the balance sheet, and at some point in time, some element of that may be useful to be used in an initiative such as that -- such as this. But I wouldn't read into that, that we're going out to ourselves buy or build a factory. We would like to see opportunities where we can work with others to achieve an outcome that is about achieving the objectives that I just mentioned and acknowledging that we believe we have a responsibility to manage risk as we move forward. And the Board is conscious of that -- has been conscious of that for some time in respect of diversification of sites, diversification of supply base, and that's part of the equation. So we'd like people to think that it's a step in a particular direction. It's not a substantial change in our strategy and it's meant to be very much complementary to the relationships that we have in place.

Your next question comes from the line of Shaun Cousins from JPMorgan.

Just a question regarding the EBITDA margin guidance and what it implies for the second half given the strong start to the first half. It looks like it means you'll get a step-down to some sort of 25.5% to 27.5% EBITDA margin. I recognize you've outlined some sort of increased spend in the outlook statement there, but given the strong start that you've highlighted as well for the second half '20, should we just see that as a guide and it remains conservative just as your first half guidance was conservative?

Race?

Thanks, Shaun. So look, our numbers, our full year forecast, our EBITDA guidance is not changing. If you look at what's happening in the second half, if I help you to break it down a little bit, we aren't going to see, as we previously communicated, some increased costs. We know we've got our lactoferrin price which is locked in. We have put in the tamper-evident infant nutrition packing lid. We are also -- as we've mentioned before, we'll be spending more in our marketing. We've been very clear about our marketing and our trade marketing activation in the second half. And in addition to that, as I touched before on a previous question, is we will be seeing some adverse impact from foreign exchange based on the weakness of the Aussie dollar to the New Zealand dollar. So therefore, our margin, as communicated, 29% to 30%, is still the right guidance.

Okay. And maybe just in terms of the growth in outlets that you're sold in, in the United States and then mother and baby stores, maybe just to clarify, in September, it was suggested that you're focusing in China on maybe getting the optimum number of mother and baby stores and possibly churning it. There seems to be more growth now. And then also, in the United States, there seemed to be a greater focus again in September on growing the rate that you've got there, but again, you did quite a good job of expanding the number of outlets that you sell in, in the United States. Can you just sort of maybe clarify where the priority is, I guess, across balancing that, optimizing rate versus expanding the number of outlets in those 2 key markets, please?

Look, I'll ask Peter just firstly to talk to the China MBS point of the question. I'll come back on the U.S. Thank you. Go ahead.

Look, with MBS, we don't see the 2 objectives as being mutually exclusive. So therefore, we believe that our objective is to both increase the number of distribution points and also the rate of sale, an objective which we believe we're achieving. So having said that, we are very careful about store selection with MBS, but clearly, there's some room to move distribution forward and we'll do so in a very careful and considered way while also, as I indicated, maintaining priority on increasing rate of sale.

And did you churn any in the half?

Churn on the -- look, we churned a few out. We'll always review the stores where we've got distribution in. But generally speaking, it's fair to say we believe we can improve rate of sale within most of the existing stores given the percentage of stores we're in is still relatively low compared to the total channel.

And moving into the U.S., I mean a number of the points Peter raised on -- in China, it is similar. But can I say a couple of things in the U.S.? I mean I think the reality is that the store build numbers will start to plateau out as we move forward. So hence, of course, increasing velocity per store will increasingly become more of a focus. And so we're working with the U.S. team on how to continue to, in fact, achieve that, potentially looking at more people on the ground in support of what we're doing at store level. It's an interesting point you raised about churn. Our experience in liquid milk is that -- look, you've got to get the right critical mass of number of stores, but sometimes, in fact, there are some stores that for geographic or socioeconomic reasons are just not the best stores for our product and shouldn't be the high focus of where you put resource to build volume. That's certainly been our experience in Australia. We see the same in the U.S. So yes, we go and build stores but they -- it may be something that we voluntarily say, look, we don't need to support that as much because the one next door is so much better for us to put resource in. So I think you can just remember that. And the extent to which there might be some, if you like, store churn in the U.S. that probably is more likely voluntary by us as opposed to being driven by customers. So yes -- so that's where we're at on those 2 markets.

Great. And just finally from me, just in regards to -- maybe to both yourself, Geoff and David. Maybe on management, it's uncommon for an executive to leave, like Susan, and then come back into a different role. Are you happy with where the management team is at now? And I understand an interim -- sorry, pardon me, the search is ongoing for a CEO. Geoff, are you a candidate for the CEO role? And maybe, David, if you could provide some update on timing of where that -- when you believe you'll get some resolution of that, please.

So look, if I can firstly comment on the management team. Look, the management team has been strengthened in my absence. There's no question about that. And quite frankly, the number of roles and the people have come in has been extremely positive for the business and is fully supported by me. And that was the case when I came in, in December. It just so happened that a change in circumstances for Susan enabled us to have further discussions. And this new role, which is an expanded role, both the company and Susan believe, was ideal to take forward her skill set. And she was therefore keen and so was the company for her to come back in that new role, and that's great moving forward. Secondly, to answer your question then I'll hand over to David, it's not my intention. Well, certainly, it's not my present intention. It's not my intention at this stage to be a candidate for the permanent role, but I'm quite relaxed how long it takes for them to find my replacement. And I'll hand over to David.

Yes. Well, thank you. And look, just very briefly to reaffirm, from the Board's point of view, we do have a very strong management team, a strengthening one. And I would say that the good results of the business partly reflect the maturing of the company such that it is a team business with a good momentum that continues through as a result of that team, and it's not dependent on any individual activity or any individual person, which is clearly a strengthening and a risk mitigation for the future. Second point I would say is that we have embarked on the search. We are fully engaged in that process. These are processes you don't want to set time lines on because you'd simply bound yourselves to getting the best that happens to be available at that moment, whereas we need to get the very best that will work for the business. So we do not have a time line by which we are saying we must act. That said, it clearly is appropriate that we move with all due haste. And I have said in the past and I would still be optimistic that we would be announcing a person this side of the half year results, so somewhere around the middle of the year. And I don't know at all, of course, who that might be yet, but assuming that they are currently employed, they're not going to come the next day. And so I'm assuming that we might not get somebody till near the end of the year. So in your mind, that's what I would be thinking about. And Geoff's arrival and what he's just said is a blessing for us as a business and you as investors because it means we have no time pressure, and we can do what it takes to get the right person. So I would assume we'll be somewhere along those lines, but they're not deadlines because it's more important to get the right person at the right time.

Your next question comes from the line of Chelsea Leadbetter from Forsyth Barr.

I guess picking up on a couple of comments in your prepared remarks with respect to inventory levels and working capital, can you give us a bit of context on how you're thinking about, I guess, where you're at today with respect to the inventory investment and working capital? Should we expect this to continue to go up as we look to, I guess, second half but more medium term as well? And then also an update on how you're seeing inventory levels within the channel and with your partners at the moment.

Yes. Chelsea, let me take that one. In terms of our inventory, what we're really seeing is a couple of things. Our general inventory position has been fairly constant. What we are, of course, seeing is ensuring our days cover is adequate, and as our growth increases, that means we're going to have more inventory mathematically. In addition to that, we do have additional SKUs, such as the Hong Kong label, which is requiring us to hold more inventory. And it is very important and what we're making sure is that we do have enough inventory to ensure we can meet all the demand. So I would say that it is a growth in inventory based more on revenue growth rather than any change in our inventory policies and standards.