Earnings Transcript for ACOPY - Q4 Fiscal Year 2024

David Akers: Good morning, everyone. Thanks for joining. Starting on Slide 3. On the call today, we have David Bortolussi, our Managing Director and CEO; and Dave Muscat, our CFO. We also have the leaders from our regions, Li Xiao, Yohan Senaratne, Eleanor Khor and Kevin Bush. The team will present our results and outlook and there will be time for questions at the end. I'll hand over now to David Bortolussi.

David Bortolussi: Thanks, David. Good morning, everyone, and thank you for joining the call. We're pleased to present our FY '24 results, which delivered strong growth in revenue, EBITDA, and EPS. We grew total IMF sales despite a double-digit decline in the China IMF market, becoming a top five brand. We also achieved another record high in China label market share in a year of market-wide transition to new GB product. Encouragingly, after several periods of decline, we stabilized our English label sales and achieved growth in the second half. And pleasingly, we announced on Friday that we have resolved our Synlait arbitration disputes, subject to Synlait completing its equity raise and refinancing. Moving to Slide 5, which summarizes our financial results. Revenue for the period was $1.68 billion, up 5.2%. EBITDA was $234 million, up 6.9% with an EBITDA margin of 14%. Our net profit after tax was $168 million, up 7.7% and EPS was up 9.2% to $0.232. Net cash at the end of the period was $969 million, up $212 million compared to June '23, and our operational cash conversion improved to 126%. Revenue growth for the year was again driven by our China segment, which was up 14% while our ANZ segment was down 15% reflecting the change in our English label distribution strategy. U.S. sales were up 8% while MVM sales were down 11%. From a category perspective, we grew total IMF sales by 4.6%, with China label sales up 9.5% and English label sales flat. Sales in our liquid milk businesses both grew up 3% in ANZ and 7% in the U.S. And lastly, sales in our other nutritionals category also grew more substantially by 37%. Moving to Slide 6, beyond our financial results, I'm very pleased with what our team has achieved this year from an operational perspective, and I've called out some of those over the next couple of pages, including

Dave Muscat: Thanks, David, and good morning, everyone. Moving to Slide 22 and a summary of our Group P&L. We delivered net sales revenue of $1.67 billion, up 5.2% on prior year. This reflected strong growth in the China & Other Asia and U.S.A. segments, partially offset by a decrease in the ANZ segment and MVM. Moving down through the P&L, gross margin of 45.8% was down 0.6 percentage points on last year, mainly due to a $10 million accelerated depreciation related to MVM's coal-fired boiler and was otherwise flat to last year. Our distribution expenses were slightly lower, thanks to improved U.S.A. distribution costs due to lower freight rates and an increased focus on optimizing customer cost to serve. Investment in marketing was higher in dollar terms to $280 million, with a focus on China and the support for the launch and transition of our upgraded China label IMF products. Our administrative and other expenses were 3% higher due to capability and other investments, partially offset by lower LTI expenses and reduced hedge losses. And interest income increased, reflecting our higher cash balances and increased market interest rates. Overall, our net profit after tax increased 7.7% to $168 million with basic EPS up 9.2% to $0.232 per share. Slide 23 shows our segment performance. You can see on this slide the significant growth in our China & Other Asia segments of 14% for both revenue and EBITDA. It also shows the impact of the deliberate shift of English label IMF distribution from the Daigou channel in our ANZ segment to more direct channels in the China segment such as CBEC and O2O. This explains most of the ANZ segment being down 14.6% in revenue and 32.6% in EBITDA. The U.S.A. segment grew 8%, and importantly, we improved EBITDA by 33.7% to a full year loss of $15.5 million that included some costs related to pursuing long-term FDA approval. MVM's external sales decreased 11% reflecting lower GDT auction prices and a higher level of in-sourced a2 Milk Company sales. And finally, the lower EBITDA in the Corporate segment was mainly driven by capability investment in our central supply chain function and further investment into sustainability and science. Moving to Slide 24, which summarizes our performance from a category perspective, our total IMF sales were up 4.6% despite a very challenging IMF -- China IMF market. Over 90% of our IMF sales are now through the China & Other Asia segment, achieving $1 billion of sales in that segment in FY '24 and representing an increase in sales since FY '21 of 90%. This slide also shows the accelerating growth of the other nutritionals category with a 36.7% increase in sales for the year. This category includes plain and fortified milk powders and liquid milk exported into the China & Other Asia markets, which Yohan will discuss further. Turning to Slide 25, here you can see gross margin percentage of 45.8% for the year, down 0.6 percentage points. Following the successful commissioning of MVM's high pressure electrode boiler, we accelerated the depreciation of its coal-fired boiler. This represented a $10 million impact to gross margin. Excluding this non-cash impact, gross margin percentage was otherwise flat. Improvements in MVM and U.S. gross margins were offset by a slight decrease in IMF margins due to higher input costs for China label, offset in dollar but not percentage terms by price rises and a lower mix of English label Daigou sales relative to CBEC sales. Moving to Slide 26, consistent with our growth strategy, our marketing investment has increased significantly in absolute terms and as a percentage of sales. This reflected the continued step up in China investment and support for the transition to our upgraded China label product. Xiao will provide more color in his section. SG&A in absolute terms -- SG&A increased in absolute terms due to the continued investment in China and supply chain and was partly mitigated by a reduction in LTI expenses. As a percentage of sales, SG&A decreased versus FY '23. Moving to Slide 27, which shows our cash flow, we achieved net operating cash flow of $255.7 million and cash conversion of 126%, both significantly higher than prior year. The higher cash conversion was due to lower payments in FY '24 made for China label stock, as all opening China label stock was manufactured before the end of February '23 and was paid for in FY '23. It also reflected amounts withheld from Synlait payments subject to dispute resolution to be paid in FY '25 and it reflected large catch-up payments in China in FY '23 due to COVID-19 related delays that impacted FY '22 payments, which were outside the Company's control. Our total net cash at the end of the period was $969 million, 28% higher than FY '23. On Slide 28, our balance sheet remained strong and was further strengthened in FY '24 via significant operating cash flows and lower working capital. Inventories were 7.1% or $13.8 million lower resulting from reduced IMF stock with lower English label stock that was high at the end of last year and lower early-stage IMF stock due to sales performance. Other current assets were higher due to the timing of IMF purchase deposits impacted by the FY '23 China label stock build, whilst other non-current assets reduced by $31.6 million mainly due to the devaluation of the Company's investment in Synlait. Trade and other payables were higher mainly due to higher payments made in FY '23 for the China label stock build. That completes the financial overview. And so, I'll hand over to Li Xiao to take you through the strong performance of our China label business.

Li Xiao: Thank you, Dave. Starting on Slide 30, it has been a milestone year for the China team. The China IMF market under the broader environment have been very challenging, but we have performed strongly again. Most importantly, we successfully launched and transitioned our new GB registered China label IMF product ahead of plan. The launch and the transition was supported by a large scale integrated marketing campaign. Another highlight was further extending joint business plan into more regional key accounts and increase our offline distribution in lower-tier cities with BCD cities, which was the biggest driver of offline growth in FY '24. We also improved new user recruitment in online channels, achieving sales growth and historical high share in domestic online. We also continue to grow our other nutritionals, delivering strong growth across fresh milk, UHT and adult milk powder. Turning to Slide 31, and looking at the results for China label, we grew revenue 9.5% to $612.3 million for FY '24. We achieved this growth despite the China label market declining 12.5% and in a period of heightened volatility with the IMF market transitioning to new GB-registered products and the wider channel and economic pressures. We are pleased that our new product continued to resonate with consumer and has been well received by the trade. Our successful GB transition was underpinned by diligent planning and execution with a minimum product write-off incurred. Our strong performance and momentum resulted in record market share and being a leading share gainer, in MBS, our share is up to 3.5%, and in DOL, our share is up to 3.9%. Moving to Slide 32, this slide describes the upgraded formula and the packaging with our new GB product. We invested in a significant campaign launch during the second half to support the transition. This includes integrated marketing across high traffic and high impact out-of-home advertising, new point of sales material, in-store tasting, and the training of promotional people as brand ambassadors. Slide 33 highlights how we integrated the campaign execution, including collaboration with the key account customers, a significant contribution from the in-store promotional team under the Octonauts collaboration leveraged through in-store activation. Slide 34 shows the opportunity we developed through our Octonauts collaboration to maximize online and offline exposure. This was integrated across traditional and digital channels and in high impact sales channel to drive awareness. Turning to Slide 35, we were pleased with our performance in DOL in FY '24. We focused on early-stage products and the new users, collaborated with key DOL accounts and utilized live streaming events and online store management. Moving to Slide 36, our hard work has again translated into new highs in our brand metrics. Total brand awareness is up to 66% and unprompted and the top-of-mind awareness increased. Ever trialled and the loyalty metrics also increased. These results give us confidence in our marketing investment, the power of our brand and our positioning in the market. Slide 37 shows our performance in MBS for the period on a national basis and also split by Key&A and BCD cities. Our record market share in MBS was driven by our growth in BCD cities. Our overall market share grew to 3.5% with slight decline in Key&A, more than offset by our share increase in BCD, which is the largest portion of the market. Moving to Slide 38, we grew in new stores as well as achieving some modest like-for-like growth in mature stores. You can see in this slide the impact from deactivated stores. Our distribution was broadly stable with the numerical and weighted distribution constant at 28% and 48%, respectively, based on Nielsen data. With our push into BCD, our numerical distribution increased to 26% and our weighted distribution grew 44%. Turning to Slide 39, online growth outpaced offline sales growth in FY '24. We achieved record market share in DOL of 3.9% and our market share is now higher than -- in DOL than in MBS. We achieved strong growth with Tmall and JD and are continuing to pursue growth in emerging online content-based channels such as Douyin/TikTok and Red, which generated significant growth in the period. Slide 40 shows market share movements by IMF brand in the MBS and the DOL channels. We are leading share gainer in both the MBS and the DOL channels. Slide 41 highlights that we have gained share in virtually all stages across MBS and the DOL. In MBS, we have our share growth in early-stages. In DOL, we delivered share growth across all stages with continued strong share gains in early-stages, a healthy indicator that the channel is growing rather than the consumer switching from offline. Now, I will hand over to Yohan to take you through English label IMF.

Yohan Senaratne: Thank you, Xiao, and good morning, everyone. Moving to Slide 42. In English label IMF, we are pleased with our performance for FY '24 with a number of key points to highlight. During FY '24, in CBEC, we focused on direct account management and emerging social e-commerce platforms. Combined with investment in a significant brand campaign in the first half, this contributed towards a steady overall English label market share and awareness in China. We continued to optimize our route-to-market model through drop-shipping, which has shortened lead times from manufacturer to consumer and lower trade inventory requirements. Our relationship with Yuou in O2O has resulted in greater distribution and increased share. We were also excited to launch new products with a2 Gentle Gold in IMF and a2 Immune and a2 Move in fortified milk powders for adults and commencing shipments of IMF to Vietnam. Moving to the results itself on Slide 43. The overall English label IMF market grew in value by 3.8%. CBEC grew 11% and O2O by 5.5%. This was largely offset by continued weakness in the Daigou channel, which was down 14.3%. Our FY '24 revenue was $546.4 million, broadly in line with FY '23. Our second half revenue was $17.4 million higher than the first half. Looking at the English label channels more closely, our CBEC revenue, including O2O, increased 16% and now represents 82% of all English label sales. This performance reflects our strategic decision to focus more on controlled channels. Our ANZ IMF revenue decreased 39.4% versus FY '23, also reflecting in part our strategic focus more on controlled channels. We are starting to see signs of stabilization in the English label market. The charts on Slide 44 show channel growth rates in Key&A cities on the left versus BCD cities on the right. In both charts you can see that the rates of market decline have reduced in FY '24 versus FY '23. In Key&A cities, total English label CBEC and O2O grew whilst the decline in Daigou channels slowed. In BCD cities, the total English label and CBEC grew whilst Daigou and O2O decline slowed. Slide 45 shows the composition of English label market sales by channel and major platform. This highlights that CBEC is now over half of English label. It also highlights the growth in Douyin/TikTok which is a key emerging platform. Slide 46 shows a stabilization in our overall English label market share. Kantar data shows our total English label share across all channels at 20.2%. Our CBEC channel share is 20.5% and our O2O and Daigou share is 19.7%. Both have declined slightly since FY '23 but are above FY '22 levels. It's important to note differences in movements between total English label market share and channel market shares may be due to scope and sample size limitations at a channel level. Slide 47 highlights our integrated brand and e-commerce campaign approach aiming to drive awareness and trial. In April, we held a Super Brand Day with JD, which included activation on major digital platforms through paid and owned channels combined with store livestreaming, driving to in-store sales conversion. The result was a 35% growth in offtake and a 55% increase in new users with the majority of offtake in early-stage products. On Slide 48, we highlight some of the opportunities we are pursuing in emerging markets. Our focus is on expanding our reach and product portfolio. In Korea, we're expanding retail distribution with UHT and IMF. In Singapore, we are arranging fresh milk with major retailers. And in Vietnam, we are launching our IMF and macro milk portfolio. Finally, Slide 49 highlights the new products launched in FY '24. We expanded our IMF portfolio with a2 Gentle Gold as well as launched our new fortified milk powder range targeting adults and seniors. With that, I'll now hand over to our Managing Director for ANZ and Strategy, Eleanor Khor.

Eleanor Khor: Thanks, Yohan, and hello, everyone. A key highlight for us in FY '24 was the relaunch of the a2 Milk brand in Australia, supported by new packaging and a new advertising campaign. In addition, we continued to focus on growing a2 Milk Lactose Free investing in price and marketing activities to drive awareness, trial and brand penetration. We also expanded our liquid milk portfolio into new sizes and formats. Within our supply chain, we completed our first methane inhibitor feasibility study on-farm, completed a site upgrade at Smeaton Grange, and continued to progress the Kyabram upgrade. From a business impact perspective, these activities contributed to achieving new highs in top-of-mind and spontaneous awareness and in trial conversion, a2 Milk being ranked as the number one dairy brand in FY '24, achieving 11.5% overall dairy milk share and 13.7% share of the Lactose Free segment, maintaining strong household penetration rates of 15.1% and a2 Milk having the highest consumer loyalty of branded milk players. Turning to Slide 51, in terms of net sales revenue, we delivered growth of 3.3% to $190.2 million. In a challenging macroeconomic environment which saw consumers shift to private label products, our growth in Australia was pleasing with Lactose Free continuing to perform well and core volumes stabilizing in the second half following our brand relaunch. Slide 52 highlights our marketing investment in FY '24. Our refreshed packaging delivered stronger on-shelf impact. Our new TVC reinforces our key A1 protein free difference and we invested in driving awareness and trial of Lactose Free supporting our significant market share gains. And with that, I'll now hand over to Kevin to take you through our U.S. business.

Kevin Bush: Thank you, Eleanor. A quick update on the U.S. business today. It's been a significant year and I am pleased with the progress we have made on a number of key initiatives. In particular, we launched a2 Platinum IMF in the U.S., trialing a mix of different sales and marketing approaches. We made meaningful progress on our goal to obtain long-term FDA IMF approval. We continue to grow our liquid milk business supported by innovations such as our Grassfed product. We further optimized our supply chain including new agreements with our co-manufacturers. And importantly, we significantly improved our landed margins, reducing reported losses. Turning to Slide 54, we grew revenue during the year by 8.2% to $113.7 million. This was mainly driven by innovation supported by lower trade spend on our core liquid milk range. Our EBITDA loss of $15.5 million was down from a loss of $23.3 million in FY '23. This was a significant focus for us during the year and will be going forward, and was achieved through reduced promotional activity, improved input costs and distribution rates, reduced SG&A costs, partly offset by higher costs incurred with respect to pursuing long-term FDA approval. Our market share in the premium milk category was slightly down to 2.2%. We commenced distribution of IMF and we remain on track to submit our New Infant Formula Notification. With this investment in IMF, it is now more likely the U.S.A. business will achieve profitability by FY '27, with the U.S.A. liquid milk business achieving breakeven contribution margin in FY '26. Turning to Slide 55, which essentially covers the progress to date with regards to long-term IMF approval. We have ticked off a number of key milestones over the past 12 months, in particular, the completion of our growth monitoring study and we remain on track to submit NIFN during the first quarter of '25 with long-term approval targeted during FY '26. And with that, I'll hand back to David Bortolussi.

David Bortolussi: Thanks, Kevin. A few quick points on MVM before we move to Q&A. MVM reported net sales revenue of $101 million down versus FY '23 due to lower GDT pricing and higher in-sourced a2 sales, which were eliminated on consolidation. EBITDA losses were reduced from $26.5 million in FY '23 to $20.5 million, reflecting an improvement in nutritional sales mix plus continued cost and productivity focus across the site. Importantly, we commenced production of a2 Platinum Stage 4 base powder in FY '24, as well as supplying A1 protein free powder for a2 Gentle Gold and other products in the portfolio. Whilst our team continues to work on a range of initiatives to improve -- to achieve breakeven, including at this stage we're more likely actually -- sorry, the profitability to be achieved by FY '27 mainly due to the time required to build capability and to develop trial and scale new products. I'll pause there, and with that, pass back to David Akers for Q&A.

David Akers: Thanks, David. I'll ask that when we take questions, they are limited to two questions and then please rejoin the queue. Darcy, can you please open for questions?

Operator: [Operator Instructions] Your first question comes from Tom Kierath from Barrenjoey.

Tom Kierath: Can I just check whether the MVM and U.S. losses are expected to reduce in '25, and if that's kind of included in your outlook statement there?

David Bortolussi: Yes, yes. Yes, Tom, yes, they are expected to reduce and that is included in our outlook statement.

Tom Kierath: Okay. Great. And secondly, can you just elaborate on what the supply constraints are in the first half '25? Note that you are kind of flagging, I suppose, a bit weaker performance in the first half. Just when is that going to be resolved and what are the moving parts there in that issue, please?

David Bortolussi: Sure. Tom, I'll answer that. So, a combination of a couple of factors. Firstly, we finished FY '24 with slightly lower stock than we had planned for. And that was really because of fourth quarter sales and DT shipments -- distributor shipments in China were pretty strong in the fourth quarter. So that mainly in relation to early-stage product, particularly our trial packs in 400-gram tins. And then secondly, after year-end, we've experienced supply constraints in infant. These are being addressed at the moment but we -- and we expect these to be resolved in the first half, but they are likely to constrain our sales in the first half and we're also likely to incur significant air freight in the first half to catch up ahead of sea freight shipments. And I guess, lastly, the harder impact for us to quantify would be in relation to new acquisition. It's always difficult to assess what that impact would be in the rolling impact of that going forward. So that sort of -- I hope that gives you sort of some color on the challenge we're facing at the moment. It's not unusual in our industry. We've experienced this before. Last year, it was more in relation to English label, this year it's more in relation to China label.

Operator: Your next question comes from Matt Montgomerie from Forsyth Barr.

Matt Montgomerie: David, just following up on Tom's second question there. I was just wondering if you could please, I guess, attempt to quantify the net drag of the supply constraints and also what gross margins may have or may well net out ex the air freight headwinds. I'm just trying to get a sense of, I guess, the materiality of what you're calling out.

David Bortolussi: Hi, Matt. We're not providing specific guidance on the sales drag. It's hard to be too detailed on that. And maybe we can -- I mean, it will have a significant impact on gross margin. What I could help you with though is the air freight is likely to be quite significant. So it could be $10 million or more over what we'd ordinarily experience. We do have air freight from time to time, but nothing of this magnitude.

Matt Montgomerie: Okay. Maybe we'll take it more offline. Then just on your supply chain, I guess, post Friday, my view at least was that investors probably had more foresight on the CapEx profile of the business over the next few years, i.e., you're putting or -- sort of putting your eggs in the MVM and Synlait basket, but you're sort of implying that you're still looking for potentially other site acquisitions. Firstly, apart from speed to market for new products, is there any other compelling reason as to why you wouldn't look to gain brand slots at Mataura Valley? And I guess, secondly, is it opportunistic exploration of a new site or would you say it's more likely than not you would look to partner with someone else or acquire a site yourself? Sorry, that's quite a long-winded question, but...

David Bortolussi: Yes, let me know if I missed anything. So in terms of MVM and our ability to utilize that for China label slots, MVM is capable of achieving China label registration in time. The issue is that we would need to invest in blending and canning, which we have plans to do, but that would take some time to install that, to develop new product, submit dossiers, achieve Synlait registration. That's a multi-year journey, like, it's more likely to take five years or so. So that's why we are looking at other opportunities. I mean, Synlait will continue to be part of our supply base and we probably noted that we've potentially got access to another China label registration there. And we're also partnering with Synlait and our U.S. opportunity subject to FDA approval as well. There's an opportunity over time to innovate and in-source English label product to MVM in partnership with the other supply partners in New Zealand, which we're currently partnered with New Zealand New Milk, which is a subsidiary of Lactalis and also Yashili which is a subsidiary of Mengniu. In terms of new investment opportunities, we are still actively looking at M&A and JV opportunities to expand our footprint. And there's two reasons for that. One is to really build and accelerate our nutritional manufacturing capability build, and then most importantly, in the near term is speed of access to additional China label registrations. And in terms of focus area, that's both New Zealand and China, we have looked at other markets but it's likely to be in those. And it's -- I would characterize it to your question, I won't be too specific on it, but it's not a high level exploratory. It's very deliberate, the work that we're doing in that area, which we hope will lead to tangible action in the future. I can't give you any guidance on what the shape of that may be all the time, but it's very deliberate.

Operator: Your next question comes from David Errington from Bank of America.

David Errington: David, look, I've had a couple of emails, incoming emails, people are confused at the moment with regard to this supply chain. So I don't have to burn up a question on this, but anyway, I think we need to clear it up. The consensus forecast, and I know you don't want to comment on consensus, I accept that. But consensus forecasts for '25 was the market was expecting you to grow sales probably by about 9% next year. And basically, the margin, EBITDA margin was expected to grow to 14.5% to 15%. So there's been a bit of a miss in terms of what the expectations were in '25 compared to what you are guiding. And as you said to Tom, that is even we're factoring in reduced losses at the U.S. and Mataura Valley. So this supply chain constraint is an issue that we need to clear up. I don't know if I fully understand yet what it is, why is it, and is it basically the key reason? So to get back to the previous question, the order of magnitude, can you clear this up, please? Because this is what's causing a fair bit of angst at the moment in the market, because -- and I still -- to your answer to Tom's question, I still don't fully understand what the supply chain constraint is. And if you could clean that up, I think it would be great for all investors and people on the call.

David Bortolussi: David, look, it's hard to be very specific about this. So in terms of growth regarding to mid-single digits, perhaps in the absence of this, we may have been mid- to higher single digits. It's difficult to be very precise about it. And in terms of margin improvement, yes, we would have liked to have delivered more substantive EBITDA margin improvement. We're still focused on that at the moment, and we hope to improve EBITDA margins. But this is like, in terms of potential loss sales plus the air freight cost is likely to temper any growth in EBITDA margins. And at the moment, our best estimates are that we'll have EBITDA margins broadly flat. Now, they could be up or down, but that's where we are at the moment. So it's quite a significant impact.

David Errington: What's the cause? I still don't understand what's causing this? I mean, you gave a bit of an answer. But is it one-off? Is it sustained? And what is it? Because at the moment, I'm in a loss to what it is.

David Bortolussi: Look, David, it's difficult for me to -- it's not appropriate for me to comment specifically on our supplier, Synlait, it's obvious. It's more operational and it's temporary. So it will be corrected. And we've had these problems in the past. And again, it's not unusual for the industry. So I'm not sort of blaming Synlait for this directly, but it does happen from time to time and it's more probably for Synlait to explain. I don't want to speak on their behalf.

David Errington: Okay. I think enough said on that. David, look the second question...

David Bortolussi: Well, just look, we have a continuous supply chain, so if there is any form of disruption to the supply plus, as I mentioned, we finished the year slightly lower at the end of FY '24, which doesn't help, but if there is an interruption to it, it does impact us. And so then we have to air freight, get ahead of the sea freight shipments and production is being ramped up at the moment. But it just takes some time to catch up. So it's unfortunate -- it's unfortunate, it's temporary. I mean the only -- I mean, really the more -- the longer term impacts, as I mentioned, could be on new user acquisition. That's difficult to quantify at the moment. But in terms of getting back into supply, we should be there by the end of the half and I hope earlier.

David Errington: Okay. I understand the sensitivity of the issue and I fully appreciate the answer. David, look, I won't get -- there's plenty of questions that's going to go into the nuts and bolts. But look, you're sitting on $1 billion of cash and you're really doing -- the Company, your operating execution is going great, et cetera. To meet your $2 billion of sales and your mid-teens margin, how much CapEx do you need to get that? I mean, because you're sitting on $1 billion, so how much excess cash do you -- to get to that $2 billion of sales, to get there and mid-teen margin, how much CapEx do you need to get there? I don't think that question has been asked before because then there's a lot of speculation like you got to have to build the canning facility and you have to do this, you have to do that. But to give us an idea as to how much excess cash is really sitting on that balance sheet right now, how much capital do you think you need to achieve your medium-term target of $2 billion of sales and 15%, 16% EBITDA margin?

David Bortolussi: Just firstly, can I clarify that our target is not 16%, it's not mid-teens, it's in mid-teens…

David Errington: I was fishing, I threw that out there for you, David. But you said $2 billion of sales and I think mid-teens margins.

David Bortolussi: I'll correct that firstly, David. In terms of CapEx, if you refer to CapEx, then the CapEx is a lesser amount. So if we were to fully develop MVM and in-store blending and canning, I mean, rough numbers, you're talking about $100 million to $200 million of CapEx to deliver on that. What we are -- and potentially some China market investment in time. But that's likely to be a bit further down the track. In terms of the M&A and JV opportunities that we're looking at for blending and canning or integrated facilities in New Zealand and potentially China, they could -- depending on the nature of the opportunity and whether it is an outright acquisition versus the joint venture, that could be hundreds of millions of dollars. And the other thing that we're mindful of, and it's certainly not our intent, because we are supporting Synlait's recapitalization plan, and the details of that become apparent to the market shortly. But Synlait is also in a difficult position at the moment, and there's a possibility that there's risk associated with that. And Synlait is an incredibly important supplier for us and we managed to support them more. So we're preserving our balance sheet to, I guess, a combination of de-risking our supply chain at the moment and also investing in developing our own capability and market access for the future. We're not sitting on close to $1 billion for any other reason. It's in relation to that. And when we have more clarity over that, we'll be in a position to make an assessment of how to return share -- to how to return capital to shareholders in the most effective way. So it's for only those reasons, and I hope it's not too much longer, David.

David Errington: How long do you need for clarity, David? A year or 2? Because what you are talking is fairly longer duration. How long do you need?

David Bortolussi: No, it's more like a year or two, David, and I hope it's less than that. But I guess, the key determinant in relation to this, I mean, we hope that all this Synlait recapitalization process proceeds. So that will hopefully be clarified shortly. And then in relation to our own M&A JV opportunities, that's -- when you're always looking and dealing with counterparties, you can't be certain about that, but I hope that is within that timeframe that you mentioned. It's not -- we're not sitting on $1 billion for the next five years, if that's what you're thinking.

Operator: Your next question comes from Adrian Allbon from Jarden.

Adrian Allbon: Can you hear me okay?

David Bortolussi: Yes, we can, Adrian.

Adrian Allbon: Just staying on the supply chain, and you said you may give some more clarity to stuff with Synlait that you received on Friday. I think the term that you used was moderately higher manufacturing and flexibility costs. Can you sort of give us a bit more depth on what that means? Obviously -- it's obviously probably all contained within your teens target, but can you just sort of give us an indication of the changes there?

David Bortolussi: I think, just to clarify, I think Synlait has had moderately higher manufacturing costs than we said that our costs -- our conversion costs would increase incrementally. So there's potentially a difference between those two statements. From our point of view, I'll let Synlait comment in time from their point of view. But from our point of view, we have an incremental increase in the conversion costs of certain of our products, and that's both China label and English label. It's not all products, and it's relatively incremental in terms of conversion costs. That's nothing to do with ingredients costs because essentially it's the tolling relationship we have with Synlait. So when I refer to conversion costs, that's that part of it. And the ingredients cost we work together on to achieve the optimum mix of quality and turn and service and costs related to those. So that's different. So it's relatively -- just [indiscernible] it's a relatively immaterial impact on our product costs and margins associated with the settlement agreement, like very small.

Adrian Allbon: Okay. Understood. Maybe the second question, either for yourself or Yohan, but just in terms of the English label category, like in terms of value share, I think you've noted it sort of, it's gone to sort of 17% versus sort of 15%. Like, where do you kind of see that settling in the next couple of years? Do you think that the trend is towards 20%? Or like can you just give us a little more depth, obviously, being yourself, an optimal kind of 65% of that?

Yohan Senaratne: Yes. Adrian, just in terms of that split you're referring to the English label share of the total market, China IMF market, which has improved. I think that if you look back in time, back to pre-pandemic, that rate was a lot higher, obviously. And English label has been impacted by COVID, and hence that ratio has come down. I think the improvement in the ratio is driven by a couple of things. So the first is, of course, no longer having the pandemic and that being a headwind to consumer choice. Second thing is, of course, in the current environment, English label products are considered to be more value for money. And that's influencing consumer choice. And then lastly, if we look particularly at CBEC and O2O and look at the competitor set, it's not only Fezzan's label products, it's also products from Hong Kong and also from Europe. And some of the new products from Hong Kong and Europe have ingredients that are particularly attractive. An example of that would be HMO. And so those new products that contain some of those new ingredients are having particularly strong growth. So it's a factor of all of those that's driving the English label share. It's hard for me to say exactly where that would end up, but it's good to see that the momentum is back towards English label.

David Bortolussi: What was it, 23% pre-pandemic or something...

Yohan Senaratne: 23%, yes.

David Bortolussi: Yes, [indiscernible] who knows, I mean it may increase a couple of points towards 20%, but I'm not sure at this stage we'd be expecting it to be under the funnel.

Adrian Allbon: Okay. No, that's good. Can I just sneak in one last one. Just when you like say, if you take Immune and Move, when you launch those products, like, how long does it sort of take for you to be sort of net positive at the contribution margin? Like how much marketing support is required upfront for those kind of products?

Yohan Senaratne: Yes. So there is a little bit of marketing support. I think what helps first is that Immune and Move build upon an existing portfolio. So we had the tub, the plain label -- plain milk tub launched first, and then you have Immune and Move building on top. So it leverages a little bit of the marketing support already put towards the plain milk tub. But it -- we invest in a little bit ahead. So probably about say six months ahead of overall payback. But ultimately once it hits a steady state, we try to make sure that all the marketing investment is in line with the revenue generated for the faster growing and higher margin product.

Adrian Allbon: Okay. So in the second half, there would be a little bit of a drag from those new products and the actual margin contribution or marketing costs, I suppose.

Yohan Senaratne: Yes. So some of that marketing cost happened in FY '24 and a little bit will continue into FY '25 and then we'll continue to expand the portfolio as well.

David Bortolussi: They should -- they have positive contribution in FY '25.

Operator: Your next question comes from Richard Barwick from CLSA.

Richard Barwick: I just got a question about the $2 billion revenue target and where Mataura Valley Milk fits into that. So am I right in saying you assuming that MVM would be, by the time we get to an FY '27, that MVM would be close to zero revenue contribution? And as, I guess, part of that, how should we be thinking about that transit or the progress at Mataura Valley Milk in the context of the dispute resolution with Synlait and the potential shifting of English label into Mataura Valley Milk?

David Bortolussi: Richard, it's David. So I mean, MVM will help enable and develop our nutritional manufacturing supply capability in time. It will help us with innovation in English label, but it won't help us in that timeframe through to '27 from a China label market access and growth point of view, which I noticed before. So whilst it might help us incrementally with growth, the bigger opportunity is to build capabilities for the future and also to work on reducing those losses over time, which we've said that we'll do that by FY '27. So it's more of a -- financially, it's more of a loss mitigation earnings contribution in a way going forward. And when you think about, it won't be -- whilst the internalization of those sales for a2 will reduce the external reported sales revenue over time from MVM, it's unlikely to be zero at that point. And the reason why I say that like say for example even -- and this is not -- I'm not saying these are our plans, but if you took even our total English label portfolio and if we were to fully insource that over time, I mean, you're talking about half the capacity of MVM. It's not all of the capacity. So, we might be producing some other powdered and fortified products but we're still likely to still be producing some ingredients, products on the commodity market, particularly at the peak of the milk curve when we can't produce everything -- the nutritional products. So -- yes, so it's likely the in-sourcing or innovation or reduced external sales that it's unlikely to eliminate it.

Richard Barwick: Okay. Well, I just think that's important for us to understand because in the context of the group targets, the $2 billion revenue at your teens and rising margin, then I imagine Mataura Valley Milk can actually have quite an impact because you'll end up with lower revenue. So I take it, it's not going to be zero but presumably a positive EBITDA by then. So it would have quite a material impact on margin.

David Bortolussi: Agree. It's a strain on the top line and hopefully an opportunity on the bottom line.

Richard Barwick: Yes. Okay. And the second question is just on birth rate. I know you mentioned that you're still expecting positive this calendar year. I think your wording is sort of back into decline after that or words to that effect. Is there anything you can add in terms of what you're seeing or hearing in market as to how positive the birth rate is looking for coming through calendar '24?

David Bortolussi: Well, it's difficult to be specific. We look at lots of different data points and they still all suggest that -- or mostly suggest that FY -- sorry, the calendar year '24 number will be higher than what was reported in the prior year, which was the $9 million. So somewhere -- hopefully somewhere between say $9 million and $10 million and hopefully sort of towards the higher end of that. Who knows? So we'll wait and see how that develops. Our statement about the longer term is that just when you think about the socio-demographic trends in the market, there's probably -- I think, we'd all agree that there's downward pressure on the birth rate over time. That doesn't necessarily mean that calendar year '25 will be down. We're not saying that that's uncertain at the moment, but when you look into calendar '26, '27 beyond, like, it's likely to have that pressure and absent sort of changes in that or more substantive policy intervention or other factors, that's likely to occur. But having said that, it's still a massive market for us and we're still relatively small share and got a big opportunity ahead of us. And also we're looking at growth opportunities outside of infant as well. And other nutritionals is a great example of that, up 37% now, $110 million business.

Operator: Your next question comes from Phil Kimber from E&P Capital.

Phil Kimber: First question was just around early-stage infant milk formula. I was looking one of your slides, I think it's Slide 41, your market share improvements in that early-stage product is significantly better than the other stages. And I think you're alluding to effectively that you had too lower early-stage inventory because of sales in the fourth quarter were so strong. Is that correct? And I guess, what's driving such particularly strong numbers in the early-stage product, which if you're going to have one of your stages strong, that's the best one to be strong because you got another two or three years of strong sales in theory, as a result. But if you can give a bit more color around, that'd be great.

David Bortolussi: Yes. So Phil, your summary of that is correct. So in terms of inventory, I'll let Xiao talk to the drivers of early-stage growth. But yes, we did, as I said at the outset, we did have lower -- we finished the year with lower early-stage inventory, both in English label and China label, particularly China label. And I mentioned the sort of the starter pack, the trial pack that we used, the 400-gram tins we're assured on as well, not as though we didn't have any inventory, it's just lower. And then when you couple that together with supply constraints, it creates a problem for us that we're managing at the moment. But Xiao, do you want to comment on the drivers of early-stage growth in China label?

Li Xiao: Yes. Hi, this is Li Xiao. So, I mean, early-stage is always, I mean, the focus of the China business because we know it decides your future growth. So it's always about your discipline and balance allocation of your budget, where you are spending on driving your -- I mean, this year growth versus the future growth. Saying that, I mean, coming to this fiscal year is what we call the dragon baby boom year, and then there's even more focus, deliberate effort from the team, like, I mean, there's both, I mean, new user -- early-stage new user recruitment across online, offline and also the medical channel plus, I mean, it's across EL and the CL. So you can see there are a lot of good initiatives, like we shared in the half year review about what we call the baby swimming center, which is for the early-stage. There's increased Mama Class on the maternity center, and also we kind of, I mean, mobilized our resources on the medical, I mean, platform, I mean, recruit more user with endorsement and support of the doctor. And also you can see on the online, I mean, the focus is also to get more user -- new user order. I mean, we launched what we call the maternity pack, which basically is a package for the pregnant woman. I mean, when they have a baby, I mean they have the whole package solution plus, I mean, some smaller trial pack for the baby trial usage. So there was quite a lot of initiative and effort as well as budget allocated to this new user recruitment leverage the dragon baby year so that we have, I mean, more new user in the pipeline for the future growth.

Phil Kimber: And then a question, just corporate costs, and I think I've got this right, were up quite significantly. They were down in the first half and then up about $10 million at the EBITDA level in the second half. I couldn't see any commentary on that. I might have missed it. But what was specifically driving that? Is it just sort of switching between halves or was there something unusual in the second half that isn't going to carry on next year?

Dave Muscat: Hey, Phil, it's Dave. So I think we may have said this at the half that our corporate costs would be weighted towards the second half. So it's mainly timing of certain, I'll call them, project costs or more related to science, so research, sustainability, et cetera. They're not necessarily one-off. So they are likely to recur from an annual perspective. But they were more phased to the second half. And I think our FX losses, which sits in -- a lot of it sits in corporate was skewed to the second half as well. So it's a combination of FX and just the timing of certain corporate costs.

Phil Kimber: Great. So that full year number in growth rate is sort of sensible, but don't fixate on the half year timing. Is that fair?

Dave Muscat: Yes. Yes, thinking about the full year, I mean, we're increasing capability during the year, so there sort of might be some of that sort of run rate to come through next year. And then you probably just need to pull out the FX and take a view of what the FX will do next year or take it out completely. Yes. Hope that helps.

Phil Kimber: Yes, perfect.

Operator: Your next question comes from Lisa Deng from Goldman Sachs.

Lisa Deng: I've got two questions. The first is around the starter packs that were quite strong in the fourth quarter. So if I look on also that Page 41, we were up 26% for DOL and then 14% for MBS. I'm surprised that doesn't translate or is that -- that doesn't translate into higher potential sales into FY '25. So are we saying that 5% revenue growth is mainly due to a supply gap as opposed to conversion issues? And then I think also on 400-gram tins, I saw a lot of like gifts with purchase, especially if we sign up with like new member. Is that part of the reason for that margin drag in the second half as well? That's the first question.

David Bortolussi: Lisa, it's David. I'll let Dave comment on margin in the moment. With the starter packs, just bear in mind that those numbers on Page 41 are shared numbers. So you've got the total China market going backwards by over 10% during the year. But yes, generally, obviously, if we acquire new users in Stage 1 and 2, that we have good loyalty with our brand, that it follows through into Stage 3. So it is -- you know, it is impacted in part by that in the near term. We'll hopefully get another opportunity to acquire some of those users. But it does have an impact on sales. And our growth is not solely driven by that, but it does temper the opportunity we have in FY 2025. And to David's question earlier, we would have hoped to be guiding potentially to a higher sales result. But at the moment, I think mid-single digits is a fair assumption at the moment. But that's also, again, bearing in mind we do expect the FY '25, the total market to decline in China as well. But that's still representing pretty significant share gains.

Lisa Deng: And was the 400 starter packs like a margin, a lower margin?

David Bortolussi: Yes, they're lower margin.

Lisa Deng: Yes. Okay. The second question...

Dave Muscat: Sorry, Lisa. So you referred to the margin drag in the second half, just to be clear, and we pointed it out in the presentation that we depreciated an additional $10 million -- that's gone through cost of sales, so that's impacting our margin in the second half.

Lisa Deng: Yes. So then like if I actually reverse back that $10 million in the second half, the margin -- the GP margin for the group is actually up year-on-year. So that's why I'm confused, right, like, we've actually spent more on starter packs, which are lower margin, but the margin ex $10 million is up. And then also it's a great move if we can convert it to demand into '25, but then we've spent so much on this 400 grams starter pack, we've actually then stocked out in the first half and we can't catch it. So, it's a -- like, I'm just -- is that kind of what happened?

David Bortolussi: Sorry, Lisa. We're probably -- we're trying to give a little bit of color on what's happening with our inventory and the constraints we're facing at the moment. So we don't spend an enormous amount of money on the starter packs, on the 400-gram tin, They're lower margin, they uses -- and they're sold online and in store, but also used as part of a starter pack and gift with purchase, [indiscernible]. So don't think that, that is the kind of key driver of that. I was just trying to give a little bit of color around how our inventory levels have been impacted by this. And I just said, look, it's more in -- I guess, it's more in China label, it's more in early-stage and I just gave an example, particularly in the 400-gram tin. So -- but the gross margin movements, that's not driving a big impact on that.

Lisa Deng: I see. I see. Okay, cool. The second question, if I may, is then why do we want extra three sets of China label registration? Because I see that there's a big overlap in terms of price points and then also with the English label doing Super Premium soon as well. Like there's a very large overlap in price point. So capability or formula wise, what would be the differentiation?

David Bortolussi: Yes. So that chart that we shared was conceptual. We're just indicating that we'd like to expand our China label range over time and they'll be at similar or different price terms to our current Zhichu range and they have different benefit propositions and formulations for our consumers going forward. But we're not going to talk about that explicitly because that's obviously commercially sensitive. But when we look at the China label market overall, and if you look at the top 10 players that we've listed, the top 10 brands, their China label portfolio ranges from three to, I think, 27 brands that they have registered slots. And so that enables them to -- those competitors to appeal to more consumer needs as you segment the market and also to manage the trade more effectively over time. And we're not saying that we need anywhere near 20 registrations, but a handful of registrations would be very helpful for us to manage the trade more effectively. English label, we are free to innovate and bring new product to market. Our range is expanding from one to three and it may do so more in the future. We're just providing an indication to the market of what to expect in the coming years. We talked about this originally back in 2021 when we outlined our strategy refresh. But we just thought because of us bringing new English label products to market last year and this year currently, and also having the opportunity to gain an extra slot with Synlait over time, we just want to provide a little bit of context around that.

Lisa Deng: And then in terms of the $1 billion potentially looking for M&A, would we consider a sizable outside of IMF acquisition, such as in, call it, whatever, nutritionals, vitamins, that type?

David Bortolussi: That's not currently part of our priority. Our main focus is on investing in and building nutritional manufacturing capability and market access to China in infant. And we're open to acquisitions in adjacent -- near and adjacent pieces of us to develop our business. It's not obvious at the moment what that would be and we'll look at that over time. But we've got a great opportunity with the wonderful brand that's been developed over many years and invested in to expand our product portfolio around that, a penetration in our existing markets and also to take that new markets over time. And Vietnam is a great example of that. And hopefully we'll get the opportunity in the U.S. with infants in the future as well. So we think we've got terrific organic growth opportunities. We're not going to take $1 dollars and invest that in acquisitions for other brands and categories to expand our business significantly because it's got so much of an organic growth opportunity. It's mainly focused on supply chain.

Operator: Your next question comes from Stephen Ridgewell from Craigs IP.

Stephen Ridgewell: First one for Li Xiao on competition. a2 has continued to gain share of the overall market in FY '24, but it also looks like it's lost a bit of share of the a2 only categories we've seen for a number of years now. Just interested in which other brands gained share of the a2 only category over the year. And does the guidance assume these market share trends within the a2 only category continue into FY '25, please?

Li Xiao: Yes, so we see that in the new China label registration, I mean, almost all the major, all the top 10 competition launched their A2 product. I mean, from -- I mean, basic A2 to A2 Organic or A2 Plus. And you probably notice that EV is probably the most ambitious and determined player. I mean, that almost upgrades most of their SKU to A2/A2 Organic and trying to have a bigger presence in the A2 segment. So based on our Kantar tracking, I think because of everybody -- I mean, a lot of players are launching their new A2 product or upgrade their existing product with A2 base powder, so we see this segment is growing more than 50% in volume, and 40% in value. Yes. So I think that's both good news and bad news. Bad news is there's much more competition, especially when you have an ambitious player like EV. The good news is, I mean, with this collective market effort, I mean, there are some much more education penetration in the A2 segment. And also you see that in our brand health tracking, our A2 pioneer and the leadership brand equity is still ranking at 62 to 63, which is a very high level and with the obvious gap with our competition. So it means that probably we are going to have a less share but we are going to keep on, I mean, growing, riding on the a2 good momentum. While we are also strengthened -- I mean, while the category grow fast, so now our focus shift more on the -- our a2 brand superiority as a pioneer and a leader. I mean, partially the efforts go to the how to grow the pie bigger, educate the consumer. Does that answer the question?

Stephen Ridgewell: Yes, that's great. And great execution over a number of years in China label. Maybe just switching to the U.S., just interested, David, in your view of the early consumer reception to the launch of U.S. label infant formula this year. And yes, is it sufficiently encouraging to warrant a broader market launch over time and the costs obviously being incurred to secure long-term FDA approval? And then second part is what revenue does U.S. label infant formula need to achieve for the U.S. business to break even in line with the revised target, David, for FY '27, please?

David Bortolussi: I'll start, and Kevin may chime in as well. So on the market reception, look, it's been modest to date because we haven't really -- probably because we haven't really pushed it that hard during this period of having Enforcement Discretion approval, but not longer term FDA market access. So we've actually invested more and focused more on getting long-term access. And we shared in the presentation that we've completed our growth study and it's hard to tell, but I think we're one of the first to complete the growth study and we hope to be submitting our long-term application shortly. So hopefully during the course of next year, we'll get that long-term application. And then from a retail partner point of view, that will open up, I guess, on the back of more confidence and certainty in our presence in the market, that should open up more opportunities for us. In the meantime, we've been just experimenting with different propositions and trialing in Amazon. And to a lesser extent, we're also online with Walmart and they're very small businesses at the moment in terms of their distribution and sales. But the reviews have been -- reviews have been okay. I don't know, Kevin, do you want to comment?

Kevin Bush: Yes, I think what is encouraging for U.S. is the success of international brands have come into the marketplace in the last 1.5 years, 2 years. That's given us great encouragement. We have -- as David said, we've been particularly focused on ensuring we get long-term approval. So that's been where we have, most of our efforts have been. And as we said, we do submit our NIFN submission in the next quarter. And we have been trialing various methods and the Premium segment specifically and imported brands are performing quite well. So we've been very encouraged with the early signs. There's a long way to go, but there's some international brands that have got good sizable portfolios in the last two years. So we certainly have ambitions in those sort of numbers.

David Bortolussi: In terms of the sales required to breakeven, the profitability of our liquid milk business has improved a lot in recent times. And as Kevin said in his presentation, we expect to get to breakeven in '26 on that. The real question for us is in relation to infant, we've got great supply out of Synlait in cost structures associated with that. It's a question of how much in marketing do we need to invest to, to realize that opportunity going forward. So that's why I said we just -- we need to sort of get a better understanding of the opportunity and investment levels required to deliver that. So liquid milk breakeven in the not too distant future. Infant, I hope that we can manage that and without investing a lot in the P&L, but it will depend on our conviction at the time. If we think there's a significant opportunity for us, we're not afraid of leaning into that and investing behind that. But at the moment, we don't have that conviction at the moment, particularly while we're waiting for ED approval, and that may change over time. But otherwise, at the moment, our intention is hopefully to just invest the margin that we'll derive from the product into marketing investment, maybe a bit more than that, to see how we can gain traction over time and hopefully get some support from some of the major retailers. So it's a bit early to tell Stephen, in relation to that.

Operator: We do only have five minutes remaining on this call. Your next question comes from Sam Teeger from Citi.

Sam Teeger: Just for the mid-single-digit revenue guidance for FY '25, can you talk us through what's assumed in there, if anything, are the two new infant formula products and new markets such as Vietnam, just thinking about potential upside scenarios? And also on the downside risk, what's the level of confidence that this supply chain disruption is going to be resolved and won't get any worse?

David Bortolussi: Sam, hi. We're not really in a position to provide specific guidance on those new products being introduced. But perhaps to give you some shape around the business and where we're thinking the growth will come from. So overall, in terms of mid-single-digit revenue guidance, we're thinking that at the moment our total IMF sales would be broadly consistent with that. And probably English label ahead of China label this year, which is different with China label more constrained by supply than English label, but we'll see how that develops. And for our milk businesses, U.S. and Australia, probably low single-digit on average across those, maybe different by region. Other nutritionals should grow -- should grow well, probably not at the same rates that we did this year because some of that was innovation coming to market plus some supply issues in the previous year, but that should grow, yes, maybe certainly double-digits, but not perhaps at 37%. And then MVM is a bit difficult to tell, and that could go either way, but you might want to assume that's flat or maybe more -- we're bringing in more milk supplies that might be up a little bit, but it's a bit hard to tell in relation to MVM at the moment. So hopefully that gives you some shape around that. And the supply constraint, we do expect -- so just on the supply constraints, we -- I mean, we do expect those to be resolved during this half. Synlait is ramping up production, so we don't expect those to get worse at this point. And if it did, we'd certainly let the market know if it was mature.

Sam Teeger: Okay. But just -- that's really helpful, David. Just trying to understand, for the new innovation, have you assumed anything in the revenue guidance or if that's successful, is there further upside?

David Bortolussi: No, it's in the revenue guidance. Sorry, I thought you were asking me to quantify. But we do have, for example, Gentle Gold starting to ramp up, plus a new product that we're going to bring in the English label portfolio in the second half, that's in there as well. So they're all part of that including the stuff that we already have in market and the other nutritionals products as well.

Sam Teeger: Perfect. And then great to see all this new development coming out of the Company and hopefully it does help you accelerate revenue growth over the medium to longer term. But is there any way you can help us understand the magnitude of any margin drag in the short-term in FY '25 as you launch these new products given you won't be doing large-size commercial batches until you get comfort that the demand is there for them?

David Bortolussi: Yes. It's a great point. Like the -- particularly on infant, so the -- I mean, it sounds like you understand the manufacturing process well. The cost of producing smaller base powder runs and blending and canning is quite significantly more at smaller volume. So at an individual product level, for Gentle Gold and the next product that we bring to market, yes, they will be significantly lower margins until they get to scale. And those, when the product starts to get in the order of 1 million to 2 million tins, that's when you get back to closer to normal manufacturing economics. But certainly less than 1 million tins, it's a drain. But in terms of overall impact, it's not likely to be that material just simply because of the relative size of those products relative to the total size of that portfolio.

Operator: Your final question comes from Marcus Curley from UBS.

Marcus Curley: David, I just wonder if you could quantify the market headwinds you're expecting to face in '25. Specifically, I suppose how it relates to China label and maybe your aspirations to grow store count?

David Bortolussi: Store count. So I mean, overall in the market, I think Marcus, the total market probably like it's hard to be specific, it's probably still likely to decline mid-single digits in value. In terms of China label, China label has been underperforming as a category versus English label, so down 12.5%. And in a way we -- and particularly in the MBS channel in Key&A cities as well, where we obviously over-index too, so that is a headwind to us. Against that, we have a great opportunity in BCD cities to expand our distribution, which we have been doing. And actually didn't include it in the chart here, but we've grown. I think it's in our results commentary and outlook, you'll see that we grew our store count to 29,000. So that's up about 3,000 from the half, which is primarily related to expansion and distribution in BCD cities. So we have a great opportunity to increase our distribution in BCD cities going forward and we have much lower share there at 3%. That's a big opportunity for us. But there's definitely market headwinds in terms of total growth and China label and we over-index towards where that is impacting. But we have a great opportunity in BCD cities and also in online where we under-index as well. And the online channel, like many categories, is growing ahead of offline at the moment.

Marcus Curley: And then just quickly within English label, are you anticipating any share losses in that guidance number of 5%? Because it feels like English label already in growth, potentially market goes a little stronger for English label next year, yet you have 5% or slightly above 5% guidance. I did note that in your pack you're sort of alluding to or pointing to lower CBEC share. I just wondered if there's something happening in your share position in English label that's worth calling out.

David Bortolussi: No, we'd -- I mean, we'd hope to maintain our share in English label and I think over time we've got opportunity to increase our share. So, hopefully, the market for English label will continue to grow and we will maintain -- or hopefully, I mean, you would expect us to plan to improve that over time as well. So we are -- I mean, we're growing. So in CBEC, whilst when you look at Smart Path data, it's up a little bit, but that's Smart Path data that we report, which is basically the four major platforms, plus flagship stores. But we're progressively working on our more direct engagement with C2C and POP stores, which is improving. Douyin, which is a great opportunity for us, which is outside our reported numbers there. Our O2O partnership with Yuou is being really positive as well. So, there's lots of opportunities for us to continue to grow in English label and a measured view on that is included within our guidance.

Operator: Thank you. There are no further questions at this time. I'll now hand back to Mr. Bortolussi for closing remarks.

David Bortolussi: That's it for us. Thank you very much for joining the call today. I look forward to continuing our discussions with our analysts and investors over the next couple of weeks. Thank you very much.