A2 Milk Company Aktie

Good morning, everyone, and thank you for joining us today. My name is David Bortolussi. I'm the Managing Director and CEO of The a2 Milk Company. Today I'm joined on the call by our CFO, Dave Muscat; and our business unit leaders, Li Xiao, Yohan Senaratne, Jaron McVicar, and Kevin Bush. The team and I will present the results and outlook, and there'll be time at the end for questions.

During the presentation, we'll focus on continuing operations, excluding MVM, which we divested in the first half and occasionally refer to underlying results, which excludes both MVM and a2 Pokeno. We've excluded a2 Pokeno from the underlying results given that the site is currently underutilized and incurring manufacturing losses and transformation costs, which are short term in nature.

Starting on Slide 4, we delivered FY '26 results in line with or slightly ahead of our updated April guidance with double-digit revenue growth. Infant Milk formula, or IMF grew 5% in a flat China market, supported by strong English label growth with China label sales significantly impacted by temporary supply chain disruption in the fourth quarter. Supply chain disruption had a material impact on China IMF product availability, performance and supply chain costs, which impacted our second half group sales and earnings. As you would expect, we have a comprehensive recovery plan in place and we commenced execution, which I'll come back to later in the presentation.

Other nutritionals grew significantly by 42% through innovation in kids, seniors, UHT and supplements. In liquid milk, growth was well above market at 22% in Australia and the U.S. Our commitment to innovation has resulted in the launch of a series of new products over recent years, which are making meaningful contributions to our growth. These new products accounted for more than 50% of our sales growth in FY '26 with further launches planned in the first half of '27. We also advanced our supply chain transformation through the divestment of MVM and the acquisition of a2 Pokeno with the transformation program on track or ahead of plan.

Finally, from a regulatory -- following regulatory approval of our 2 new China label registrations, we declared a $300 million special dividend and today announced an increase in our full year ordinary dividends with an improved payout ratio. In combination, we have declared a total of $453 million of ordinary and special dividends in FY '26.

Turning to our financial summary on Slide 5. Revenue was up 12.4% to $1.95 billion. Reported EBITDA was down 2.5% to $284 million, which was impacted by supply chain disruption and a2 Pokeno losses. On an underlying basis, excluding a2 Pokeno, EBITDA was up 5.4% and underlying EBITDA margin was 15.6%. From earnings perspective, underlying net profit after tax and underlying EPS were up approximately 7%.

Slide 6 shows that our growth was broad-based across all of our geographic markets and product categories. China and other Asia grew 11%, ANZ 10% and the U.S. over 28%. By product category, IMF was up around 5%, liquid milk up 22% and other nutritionals up 42%, excluding a2 Pokeno sales.

Moving to Slide 7. The China IMF market was relatively flat with premiumization offsetting a low single-digit volume decline. The China label IMF market stabilized and English label growth slowed significantly in the second half due to the impacts of industry recalls. Pleasingly, the a2 type protein and ultra-premium segments continue to grow ahead of the category, which plays to our strength.

Slide 8 addresses the supply chain disruption experienced in the fourth quarter. As outlined in our market announcements in April and July, product availability was materially impacted by a number of factors, including strong demand in the preceding quarter, freight challenges, a production backlog at Synlait, extended product release time frames and additional customs and testing requirements. These factors have been resolved and availability has significantly improved. However, the in-market product availability issues necessitated a large proportion of our existing users to switch to alternative brands, which, as you can see, significantly impacted our China label market share during the fourth quarter. The rate of recovery will depend on our ability to regain past users, new user recruitment momentum and the performance of our new China label IMF products.

Slide 9 sets out our recovery plan built around rebuilding trust, driving past and new user recruitment, supporting our distributor and retailer ecosystem and launching new products. There's been positive early progress against our plan. Our new traceability tool has been very well received by consumers. Brand sentiment is recovering and new user recruitment conversion rates are back to or above historical levels.

Moving to Slide 10. The first wave of marketing behind our China IMF recovery is focused on reassuring consumers that a2 products are of the highest quality. This includes a market-leading traceability tool with batch by batch testing, an endorsement campaign from China State Media, Xinhua News with a leading food safety expert and independent validation by a leading quality assurance influencer, DaddyLab. Together, these initiatives are rebuilding confidence in quality and supply and driving positive sentiment.

Next slide measures how our social media and PR activity is helping rebuild confidence in the a2 brand. Brand sentiment has recovered quickly towards prior levels with the ratio of positive to negative sentiment improving significantly in July. Search interest in the a2 brand, a2 Zhi Chu and a2 Platinum on the major e-commerce platforms has been recovering each week, reaching around 80% of December to January peak levels by the end of July. From mid-August, our new user education and recruitment programs will ramp up, followed by a broader a2 brand superiority campaign in October.

Turning to our outlook statement on Slide 12. We expect revenue and EBITDA to grow in FY '27, supported by innovation in new markets, continued momentum in other nutritionals and liquid milk and improved profitability at a2 Pokeno. IMF sales are expected to be impacted by the flow-on effects of supply chain disruption in the fourth quarter with a gradual recovery over the course of the year, supported by an increase in marketing investment, particularly in the first half. As a result, group revenue and EBITDA are expected to be materially weighted to the second half. Overall, we currently expect mid-single-digit revenue growth in FY '27 with first half revenue broadly in line with last year. EBITDA margin is expected to be approximately 15% with the first half materially down on PCP before improving in the second half. Our full outlook statement, including key risks is set out in our results commentary released today.

Slide 13 outlines our strategy, which is unchanged and enduring. We remain focused on capturing the full potential in China IMF, ramping up product innovation, entering new markets and transforming our supply chain, all underpinned by our brand strength and science and innovation capability. As Slide 14 shows, we continue to track well against our medium-term financial and nonfinancial goals and remain on track to deliver the majority of our targets despite the temporary supply chain disruption during the fourth quarter.

Turning to the next slide. We just fell short of achieving our medium-term revenue ambition of $2 billion this year, but we will do so in FY '27. Our market and category growth drivers remain on track, except for China label IMF, which has been impacted by supply chain disruption and is a key focus and work in progress currently.

Moving to the next page and beyond our FY '27 goals, we have significant growth opportunities to capture in our core business, adjacent categories and new markets over the years ahead. We've been addressing these opportunities over time and thought it would be helpful to lay out the markets and categories we are focused on, the estimated size of these markets of retail, the addressable component, our current share and how our portfolio through innovation in new markets has evolved from FY '21 to where we expect to be by the end of FY '27. Interestingly, our portfolio of products and markets has expanded from 8 in FY '21 to a planned 36 by the end of this year, which is an indication of the focus on innovation and market expansion.

In summary, we have a low share of a large TAM and with plenty of growth opportunities to pursue over the long term. Over recent years, we have focused on expanding our product portfolio supported by investment in innovation and product development capability, a2 Pokeno and building a network of strategic manufacturing partners.

Slide 17 highlights the many new innovations coming to market in FY '27 and beyond. In the first half of '27, we'll launch 2 new China label products that will expand our China label portfolio from 1 to 3, significant updates to a2 Platinum and a2 Genesis alongside continued expansion in other nutritionals, which Xiao and Yohan will cover later.

Moving to Slide 18, which speaks to the science that underpins our a2 brand proposition and innovation. We have continued to invest in research for more than 25 years building scientific evidence around milk that is A1 protein free. A highlight this year was our U.S. growth monitoring study, a key clinical requirement for the FDA in formal approval process. The study showed that infants consuming formula made with a2 Milk demonstrated appropriate growth and had a comparable safety profile to infants consuming conventional formula, which is the primary purpose of the study. However, secondary analysis of the data showed a 6% greater length and weight gain versus conventional infant formula. These findings were presented at the American Society for Nutrition Annual Meeting in July and attracted significant interest.

Slides 19 and 20 cover our supply chain transformation. During the year, we completed the acquisition of a2 Pokeno, a world-class nutritional facility and the divestment of MVM. Since acquisition, we've more than doubled our Pokeno team, delivered the first phase of our multiyear capital investment program on time and on budget and secured registration amendments for the 2 new China label products. The site is on track for an EBITDA breakeven result in FY '27 as we in-source a2 Platinum and capture vertical margin benefits. As Slide 20, all of our key milestones with respect to English label transition, China label registrations and facility upgrades for FY '26 are all complete with our FY '27 metrics on track with production financials in line with plan.

Finally, on Slide 21, we continue to make good progress on sustainability, including commencing work to convert the a2 Pokeno gas-fired boiler to an electrode boiler to progress towards our Scope 1 and 2 net zero target by 2030. We also established real on-time data collection approaches to increase the accuracy of our Scope 3 emissions reporting and awarded 27 new projects through our Farm Sustainability Fund.

I'll now hand over to Dave to take you through the financials in more detail.

Thanks, David, and good morning, everyone. Starting on Slide 23 with our group P&L. Net sales revenue was up 12.4% to $1.972 billion, with growth across all product categories and segments. Gross margin was 47.7%, down 3.4 percentage points, reflecting a2 Pokeno losses, which were in line with expectations, a lower share of China label sales, onetime costs related to the previously mentioned supply chain disruption and higher COGS due to higher milk and other ingredients prices, particularly in the second half.

Distribution costs were marginally higher as a percentage of net sales revenue at 3.5% due to higher freight rates, primarily related to the liquid milk businesses. Marketing investment of $325 million was higher in support of the China growth strategy, innovation and new user recruitment. SG&A was also higher this year, mainly reflecting investment in capability to support China growth and supply chain transformation, including planned a2 Pokeno operating and transformation costs. However, if you exclude FX losses caused by the New Zealand dollar devaluation, SG&A as a percentage of sales was lower than last year.

Reported EBITDA was $284.4 million, with margin in line with our previous guidance. On an underlying basis, excluding a2 Pokeno losses and transformation costs, EBITDA increased to $307.6 million, reflecting growth in the underlying business. Our effective tax rate improved to 30%, supported by improved profitability in New Zealand and partial utilization of our group tax losses. NPAT from continuing operations was $208 million or $235.8 million on an underlying basis. We also declared a final dividend of $0.095 per share, representing a payout ratio of around 74%. The dividend will be fully franked and unimputed and will be paid on the 2nd of October.

Slides 24 and 25 set out our segment and product performance. On Slide 24, China and other Asia revenue grew by 11.2%, with segment revenue and EBITDA impacted by a2 Pokeno losses and the fourth quarter supply chain disruption. ANZ and USA both achieved double-digit revenue growth with USA EBITDA improving materially. Slide 25 shows revenue growth across all product categories at a group level with liquid milk and other nutritionals growth partially offsetting China label IMF decline.

Moving on to Slide 26. Operating cash flow was $133.1 million with cash conversion of 68%, in line with our updated guidance. This reflects the planned inventory build associated with the a2 Pokeno ramp-up and normalization of China label IMF inventory, plus some timing impacts related to the fourth quarter supply chain disruption. Investing cash flows included net cash -- net supply chain transaction outflows of around $165 million associated with the a2 Pokeno acquisition and MVM divestment with other investing activities, including a reduction in our term deposits and CapEx additions relating to our a2 Pokeno capital upgrades. Our closing cash balance at the end of the period was $784.5 million, down $276.7 million, reflecting the previously mentioned supply chain transactions, a2 Pokeno capital investment program and dividends paid throughout the period.

Turning to Slide 27. Our balance sheet remains strong with cash and term deposits of $784.5 million and no external debt. Inventory, as previously mentioned, increased and intangibles rose with the goodwill from the a2 Pokeno acquisition. Balance sheet gives us capacity to support our growth strategy while balancing risk and maintaining flexibility for future investment. That concludes the financial overview.

I'll now hand over to Xiao to take you through the performance of our China label business.

Thank you, Dave. Starting on Slide 29. China label IMF revenue declined 14% to $544 million for the year. This was very much a story of 2 halves, with revenue up 6.5% in the first half and down 33% in the second half as a result of the fourth quarter supply chain disruption. As previously mentioned, the contributing factors are now resolved and availability has improved significantly. While it is too early to be conclusive, we are encouraged by some of the early data reads with brand sentiment significantly improved since June and the conversion rate of new user recruitment activities is back to historical level. However, to be clear, the recovery is expected to be gradual in FY '27.

Turning to the next slide and looking at market share. On an MAT basis, China label share increased to March before declining to 5.2% by year-end. However, on a quarterly basis, MBS and DOL both declined significantly impacted by the fourth quarter supply chain disruption. As stock levels has now significantly improved. We are focusing on our China IMF recovery and regaining past users and accelerating new user recruitment.

Moving to Slide 31, which produced our 2 new China label products that are due to launch in the first half of FY '27, both of which will be manufactured at a2 Pokeno. The first a2 Zhi Chu Qi Run targets the ultra-premium segment and the share gains in low-tier cities. The second a2 Zhi Chu Zhi Chun is a certificate organic product that is expected to build our brand in higher-tier cities. Both products has innovative packaging, including scoop in lid and they provide consumers with confidence in the safety and the quality of their purchase via our recently launched traceability APP. Together, these new IMF products expand our China label range and support our growth strategy in the China IMF market. Sun Li, our brand ambassador, I excited to welcome our new a2 IMF babies to the market very soon.

I will now hand over to Yohan to take you through the English label and other nutritionals.

Thanks, Xiao, and good morning, everyone. Starting on Slide 32. Our English label IMF revenue grew 23% to $788 million, driven by our strong growth in our CBEC

and O2O channels with a growing contribution from a2 Genesis, which now represents 6% of the total English label sales and rapid expansion in new markets, particularly Vietnam. Third quarter a2 Platinum sales were strong following industry recalls. However, offtake momentum slowed in the fourth quarter, indirectly impacted by the U.S.A. label IMF recall announced in May 2026, net of some modest switching benefits from China label. In ANZ, our English label IMF sales declined due to lower daigou channel sales, while a2 Gentle Gold continues to drive growth in Australian retail channels.

Moving to Slide 33 and looking at market share. From a market perspective, English label now represents 20% of the total China IMF market. However, market growth slowed significantly in the second half following industry recalls. A2MC was the leading share gainer on CBEC, driven by a2 Platinum and a2 Genesis performance. A2 Genesis has now achieved a 1.8% share on CBEC with over 60% of offtake coming from early-stage products. More recently, following the U.S.A. label IMF recall, offtake momentum has been indirectly impacted. However, we are focused on rebuilding momentum in the first half.

Slide 34 previews updates to our a2 Platinum and a2 Genesis formulations. A2 Platinum will receive its first major update since 2022 with an enhanced advanced nutrition formulation, premium packaging and traceability. A2 Genesis will be upgraded with additional HMOs and a change to the probiotics to strengthen its super premium positioning. Both of these products will be manufactured at our a2 Pokeno facility with the in-sourcing of a2 Platinum significantly increasing production volumes and bringing vertical margin capture benefits to the group.

Continuing to the next slide. Our new market strategy continues to advance with Vietnam starting to scale. Distribution has expanded to more than 3,500 stores and English label sales grew strongly during the year. We are also continuing to assess and progress further opportunities across Southeast Asia and the Middle East.

Turning now to other nutritionals on Slide 36. Sales grew nearly 60% to $216 million, led by our kids and seniors fortified milk powders. Our kids range continues to grow strongly with the product also responding as a substitute for Stage 3 and Stage 4 China label IMF users during the fourth quarter supply chain disruption. Our seniors and adult ranges hold leading category positions and our new height support kids UHT has resonated well with consumers since launch, and we saw strong growth in emerging markets for our macro milk products.

Turning to Slide 37 and taking a look at some of our individual products more closely. As previously mentioned, our China label kids milk powder is growing rapidly with half-on-half sales up around 80% and retaining the #1 ranking amongst international brands in MBS POS. We continue to build brand awareness and user recruitment for our broader kids portfolio through our Octonauts 2.0 campaign, including a customized episode featuring the a2 brand, character integration on pack and a full suite of co-branded gift boxes across the a2 Kids portfolio. Looking ahead, we will continue to innovate our kids milk powder range with new functional formulations to address areas of strong consumer interest.

Continuing on to the next slide, we entered a new category through the launch of our China label pediatric supplements range during the second half. The range is focused on immunity, gut health, brain and eye health and anti-allergy. Early consumer response has been encouraging, supported by professional endorsement, and we see significant potential to expand the platform over time, including expanding into English label.

Turn now to Slide 39, which previews our English label pediatric supplements range due to launch in the first half of FY '27. Our English label supplements range is manufactured in Australia to TGA standards and will be available for sale in Australia, New Zealand and China CBEC. We'll be first to market with Australian-made liquid calcium sachets, one of the largest and fastest-growing categories, and we intend to launch the range into Vietnam, subject to achieving registration.

And with that, I'll now hand over to Jaron to take you through ANZ.

Thank you, Yohan, and good morning, everyone. For those I haven't met, I'm Jaron McVicar. I've been with a2 for some time. This is my first results presentation since stepping into the ANZ leadership role in April, and it is my pleasure to take you through the ANZ results today.

Turning to Slide 40. Our Australian liquid milk business delivered another strong year with net sales revenue up 17% to $245 million, driven by growth in both our a2 Milk core and a2 Milk lactose-free ranges. We outperformed the category, growing overall share to 11.7% and lactose-free reached a record share of 22.6%. We were also proud to be the first national lactose-free brand with the launch of a2 Milk Lactose Free in Coles, WA. We delivered premium brand exposure across our priority markets through our exclusive Australian open partnership as the first dairy milk partner of the Australian Open in its 120-year history with our bespoke co-branded props becoming viral sensations on social media, driving exceptional visibility and brand engagement, including through mass sampling.

Moving to Slide 41. Slide 41 highlights the lactose-free opportunity, which has been a major driver of category growth. A2 Milk Lactose Free is the only product in the Australian market that is both A1 protein-free and lactose-free. Lactose-free retail sales value has grown over 6% in the last year and is approaching 10% of the total dairy milk category. The a2 Milk Company continues to gain share in this fast-growing category and is the #2 brand in the segment. This gives us confidence in the broader opportunity for A1 protein-free and lactose-free milk, including in markets such as the U.S.A.

On that note, I'll hand over to Kevin to take you through the U.S.A. results.

Thanks, Jaron. Turning now to Slide 42. The U.S.A. had an excellent year with net sales revenue up 29% to $179 million and importantly, achieved EBITDA breakeven in the second half for the first time. Growth was underpinned by double-digit gains across our core and Grassfed ranges, increased household penetration and distribution and a2 Milk is now a top 10 U.S. liquid milk brand and is the fastest growing. From an IMF perspective, we managed a small voluntary recall of discontinued U.S.A. label IMF batches as announced in May this year. This recall was isolated to the U.S.A. market and is completed and closed with immaterial impacts on U.S.A. financials. Our long-term FDA approval for IMF continues to progress with a final factory inspection completed recently.

Moving to Slide 43. We continue to strengthen the brand in the U.S.A. with awareness and Net Promoter Score, both improving and a new foodservice partnership with Steak 'n Shake. Looking ahead and building on the strong momentum we have seen in lactose-free in Australia, we see an opportunity to bring the same differentiated proposition to the U.S.A. In the first half of FY '27, we will launch a 2% lactose-free product with selected retail partners. In addition, we are also considering opportunities to enter the high-growth protein segments of the market with products currently under development.

I will now hand back to David.

Thanks, Kevin. That concludes today's presentation. I'll now hand back to the operator for the Q&A.

[Operator Instructions] Your first question comes from Peter Marks from Goldman Sachs.

I was just wondering if we can break down the EBITDA margin guidance a bit further. Is there anything in there that we should be thinking about gross margins? And what are you thinking in terms of marketing and then the other cost line as well, that would be really helpful.

Yes. I'll ask Dave to give you some color on that.

Yes, sure. Hi, Peter. Yes, there's a lot of noise in the FY '26 results. So probably the best way to think about it is to start with the FY '25 EBITDA margin of 16.6%, which has -- which doesn't have any, which is, I suppose, in line with the breakeven result we're expecting in FY '27. So it's probably the best cleaner starting point. So if you think about at 16.6%, we're guiding in FY '27 to approximately 15%. So you're talking 1.6 percentage points. One thing that's very important to factor in is that most of -- the vast majority of that decline will actually be gross margin.

I'll come back to marketing in a second. It will mostly be gross margin and driven by probably 2 factors mainly. So one is mix. So if you think about the fact that we've called IMF to be broadly flat for next year and strong growth in the other nutritionals and liquid milk, there's quite a reasonable amount of mix dilution coming through. It will improve through the year. But on average through the year, there'll be mix dilution. And also, there are some COGS pressures coming through milk, through lactose and a little bit through we as well. So that will be the 2 sort of headwinds.

Against that, we'll have some probably some FX tailwinds and recycling a little bit of air freight, but most of that 1.6, call it, gross margin. Marketing will be up in terms of reinvestment rate, but it's more of a -- probably more of a phasing story in terms of the first half being up by quite a lot. And it's probably from a full year perspective, it probably normalized, but it will be up probably more slightly than gross margin -- sorry, or COGS, sorry. And then we'll get a little bit of leverage on SG&A. So that's probably the way to think about the shape of the EBITDA for next year.

And then probably I may well cut it off now because I'm sure we'll get the question later is around the phasing for next year, and we've talked about -- obviously mentioned before the 15% approximate EBITDA percentage for next year with second half weighting, probably the 2 callouts, if I'm thinking about the average where you get to from an average for the full year, our marketing will probably be -- around probably 2 percentage points reinvestment rate higher than you get for the average for the full year. And our gross margin is probably going to be 1% worse than where we get to from a full year perspective. So hopefully, those building blocks give you enough to be able to sort of build out your numbers for next year.

That's very helpful. Can I just follow up with the COGS pressures and everything that's going on with the business at the moment. How are you thinking about pricing? Like do you think you can offset some of those with price increases? Or is there just too much going on? Or the new products and formulation refreshes and the packaging refreshes actually allow you to take a bit of price? Interesting how you think about that.

It's David. We are taking price effectively in some of the categories in markets but overall, it's not necessarily mitigating margin. So for example, in our China label product, we've increased price a little bit, but a lot of that's going back to the trade support margins and activation in our platinum product as we transition in effect, pricing will be similar, but there will be slightly smaller pack size. So price per kilogram, if you like, will go up a little bit. And then in milk, we've taken a bit of price as well, but reflecting the increases in farm gate milk prices as well. So we are taking price, but it's not necessarily being accretive to margin overall.

Your next question comes from Sam Teeger from Citi.

What would your China label market share in July for the month across all stages? And when do you think you'll get it all -- sorry, by the time of the AGM, do you think you'll get back to where you were pre the supply shortages?

Sam, we're not guiding the China label share data for July. We necessarily have that all at the moment. Suffice to say it's down quite a bit. We would probably estimate that our offtake at the moment sort of in the order of probably about 40% of what it might have been at the -- if we take the last reported results through to December. So it's come off quite a lot, but it's rebuilding back now. We're not providing guidance specifically again for the AGM. We expect a gradual recovery over the course of the year, probably get back to roughly the same run rate by the end of the year that it was sort of pre the supply chain disruption, if that helps you. So progressively from where we are now back to sort of 100% of that run rate. And then from a reported sales point of view, that would then mean that it wouldn't be until the first half of FY '28 that we'd be at the same level of total sales that we were pre-crisis.

Makes sense. That's helpful. And then which of the...

It could be better and worse than that, but that's just sort of our expectation of what we're planning for at the moment.

Okay. No, that's great. And which of the user reacquisition initiatives that you have in place now in China, have you found to be most impactful? And are you planning any tweaks to them going forward?

Xiao, do you want to talk about past years reactivation recruitment initiatives we have...

So we have, I mean, a pretty good track record, I mean, to recruit new users like what happened in the past year, first quarter and then we quickly turn around the new user recruitment, I mean, in the second quarter. So I mean, the most effective activation mix for new user recruitment start with what we call the Mama class targeting pregnant women, which we are executing in like thousands of activation per year, I mean, as the #1 priority. And the second one, I mean, if you look at we have several thousands of promotion growth from ambassador in the store, they are also the key driver to get new user in the MBS store.

And thirdly, we also have other activation like, Zhi Chu, I mean also partially contribute to the new user recruitment, I mean, across all the early stage and late stage. Plus I mean last but not the least, we have a medical marketing team who are targeting at a special channel, I mean, like maternity center or the hospital, I mean for the early-stage new user recruitment.

Right. I think you and other the market picked up that also sort of like with benefits of returning to the brand and also enhanced loyalty program. So overall, at the moment, our user recruitment conversion rates and activities we placed at above historic levels in terms of the conversion of the activity, not necessarily in aggregate, but the conversion rates are really encouraging at the moment.

Excellent. And last question, what are the biggest learnings from the supply chain challenges? And appreciate that quite a number of the factors were outside your control, but what tweaks might we make to the operating model going forward to avoid this happening again?

Sam, you're right. I mean a lot of this was outside our control in terms of the industry factors that led to recalls, new standards, testing methodologies and all that, both in the New Zealand side as well as the China side. But the underlying thing that we need to address is having more consistent levels of stock inventory throughout the supply chain at the right stages of the supply chain. And we've struggled with that mainly due to some challenges we've had with Synlait supply over time.

However, having said that, Synlait has recovered well in recent months, and we have no real concerns about supply going forward, but we must work together with Synlait to ensure that we have more consistent supply going forward. And indeed, from our Pokeno facility going forward as our English label product and our new China label products hopefully become more material over time, we need to do the same ourselves. So we're not saying we're perfect, but we've got to ensure that we have more consistency in our production and inventory management throughout the system.

Your next question comes from Tom Kierath from Barrenjoey.

Just a follow-on from Pete's question then just on marketing. So you're saying it will be a lot higher in the first half at 2 percentage points. Can you maybe just give us some color on how much of that relates to the Pokeno products? And just how should we think about, I guess, the marketing spend in relation to those -- that launch that you're doing this half?

Tom, the support for new products coming to market, not only the China label products is appropriate, but relatively modest compared to the total investment that we have in brand and new user acquisition overall for both the a2 China label product and a2 Platinum. I mean, obviously, a2 Platinum is a combination of both. We're phasing out a2 Platinum and bringing in a new upgrade. But don't -- I mean, we have a baseline level of investment in always on digital and everything else. We've got significant investment in early-stage new user recruitment and then we cycle in and out of new innovation coming to market, of which we have a fair amount coming to market in the next quarter, which we wanted to highlight to our investors. So there's an appropriate amount, but don't think that it is by any means the sort of majority of that investment on the new products and ignoring the base business.

And it is -- can you maybe just talk through the incrementality of the Pokeno products and how we should think about maybe market share when we're talking about share in 12 months' time, like where should we be in share then maybe versus now if the plans kind of play out?

So back a year ago, we sort of mapped out in connection with the acquisition, what we expected the new China label products to contribute in sales and also gave some earnings sort of margin perspective as well. But it was over $100 million of incremental sales over the next few years close to our average China segment EBITDA margins. Where we are at the moment is our thinking is that with the launch, which is slightly ahead of plan, like being able to launch these products in October, having just commenced the manufacturing of that, which is great to be in market earlier.

We're hoping that they might contribute -- if you look at the phasing, I think there's a phasing chart in the earlier presentation 12 months ago. I think hopefully, they'll make a stronger contribution earlier. I won't be specific about it. And one of the reasons I say that, Tom, is that through the supply chain disruption that we've experienced in our recovery program, we have deliberately constrained the distribution or the way to distribution of our Zhi Chu product.

So we're at about 2/3 of what we were pre-supply chain disruption, which actually opens up a bit more sort of available distribution for one of those products, which will play a more discrete or incremental role. So if you put that all together, I think earlier launch, perhaps a little bit more wide space in distribution. I think we are hopeful that we'll get a greater contribution earlier, but we won't provide any specific guidance on that at the moment.

Your next question comes from Craig Woolford from MST Marquee.

JJust firstly, just want to clarify what your guidance infers about the second half and if that's an indication of more normal margins. If I've interpreted your commentary right, it's more like a 12% EBITDA margin in the first half and I guess, by inference closer to 18% in the second half of '27. Is that second half relatively clean? Is that a guide of how margins look once all the supply chain noise settles down?

Craig, yes, I won't comment on the percentages you called out. But what I will say is just be wary of the marketing because of the -- because we're basically saying that the first half will be reasonably up from -- in terms of percentage points, sort of implies second half will be probably down relative to the normal run rate. So there's probably a little bit to come back on that margin from a marketing perspective. But I think the second half should be a better indication of what we're seeing in the future.

Directionally.

Okay. with the English label performance in FY '26, is there any way to tease out -- it must be very difficult any way to tease out underlying performance versus some of the customers that might have shifted to that channel, the CBEC channel because of the shortages?

From China label, Craig going across to English label that you're saying?

Like you've gone from -- I think it was 19.1% -- is that organic or switched?

But just in terms -- Yohan might want to add to this. But just in terms of the switching, we did mention in our update to the market, there was some switching from Zhi Chu to Platinum. And there was some, but I think perhaps that's been amplified by the market. So I think there's been probably expectation that's greater than what it was. So in essence, it was relatively small switching from China label to Platinum. Most of the users, unfortunately, have gone to other brands, which some have retained with us and our job is to get them back. I hope that helps.

I guess the natural follow-on is it's quite a good result on English label it was fairly static over the last 18 months at 19.1% up to 19.5%. So what would you attribute that to?

Yes. So I think -- yes, so market share growth is, I guess, 2 factors. One is, of course, continued investment in a2 Platinum and in particularly new user recruitment. So we've seen particularly over the last 12 months, the improvement in our Stage 1, Stage 2 share. And the second thing is the introduction of Genesis as well. So that adds a greater addressable market for us because it gives us exposure to the faster-growing HMO segment within English label. And we've been able to capture on an MAT basis in CBEC now a 1.8% share -- so those 2 together, then if you look at it over an 18-month period have contributed to the EL share gains.

Your next question comes from Richard Barwick from CLSA.

David, you want to talk specifically about winning back some of the lost China label share. How -- like how much can you target or can you identify those a2 customers that have switched away? And I was also curious to sort of think through, is there a point when it's too late to get them to switch back? And then the other sort of dimension to that question is, does the transition from stage 1 to 2 and 2 to 3, does that present opportunities to win those customers back? I just like to sort of talk through those points, if you could, please.

Yes, sure, Richard. So in terms of targeting those users that may have lapsed, so we can do that in certain areas, but it's not -- by no means do we have a comprehensive CRM tool that tracks everything across all channels. And it's just because of the nature of the China market as consumers buy offline and online through different platforms and things it's hard to keep that -- hard to capture a lot of that information.

So we say, for example, in offline in the key -- in the sort of national key accounts and some of the regional key accounts, we have our promotional ambassadors in store who keep quite close contact with the consumers in that regularly purchase from those stores and through WeChat channels and everything else. So we have good line of sight over that through our loyalty program overall, there's a proportion of consumers that do subscribe to our total loyalty program. And within the e-commerce platforms, there are loyalty programs there as well. So we have some line of sight over our users that we can target and retarget. Your second part of that was, is it too late? For some of the...

Is it too late?

Yes. So just in terms of the timing, so for early-stage users, if they have switched to another brand, most mothers with a young infant would be not inclined to -- generally not inclined to switch back unless they've had problems with those -- with the new product that they are using. Some will. Some may wait to the next stage of transition, which is the second part of your question, which is when you transition from 1 to 2 to 2 to 3, that provides another opportunity to regain those consumers.

And of course, as those consumers did change to other brands, the competition couldn't help offer them attractive deals on full case or 1 or 2 cases, which means that they've got significant -- some of them have significant pantry inventory to consume as well before they would contemplate switching back to us. So that's why there are several of the reasons why it's going to take some time for those consumers to come back to us, and we're also refocused on ramping up the momentum of our new user recruitment.

And then for later-stage users, I'd just highlight that Stage 3 users, the infant or toddler is obviously more robust than consumers that have greater flexibility in modifying feeding patterns or potentially using alternative nutrition or other products and then switching back is much more convenient for the consumer. And on Stage 4, in particular, whilst we're out of stock in Stage 4 for a long period of time due to Synlait supply, we did have our kids nutrition kids Advanced product that we referred to, which has been incredibly successful and also supported some of those consumers that were using or users that were using Stage 3 and 4 product as a substitute product.

So it's complicated. We don't have full line of sight of everything at the moment. The plan that Xiao and the team have put in place is being executed well, and there's some encouraging signs, but it's too early to be quite definitive. We'll give updates to the market as we go next at the AGM and again, at the half year or in between if we need to.

And just timing-wise, David, if -- is it sort of -- to win these back, will you -- like presumably the sooner the better. And so therefore, the AGM update, that will give you the best insight. I mean it's -- that seems like it's unlikely to be a second half weighted winning Chinese label customers back. That's going to be a first half story.

Yes, there'll be some -- well, we're hoping that there'll be a significant proportion that will come back and some have already come back, because we're largely out of largely out of stock, Richard, and so a great proportion had left. And so to even be at 40% offtake at the moment or thereabouts, that's already a significant return in the brand, and that's improving every week. So we'll see where we're at the AGM. We'll certainly provide an update then. If it's materially different up or down, we'll obviously let the market know if that's critical.

But overall, at the moment, we're expecting, as I said earlier, like if we're around 40% now to be back to 100% or thereabouts run rate by the end of the financial year, so progressive recovery throughout the year. So we're going to be very -- we're very careful about how we're going about this. So the #1 priority for us is to ensure that we maintain our really strong brand health that we have for the a2 brand.

And the last thing we want to do is to rush into this and not reserve that the distribution and the great sort of trade support that we have in the market as well as looking after our consumers. And that's why we have constrained our distribution at the moment, and we're progressively going to expand that over time. And we're not discounting product and pushing it into consumers or expanding our distribution rapidly, which could run the risk of ending up in a lot of slow-moving inventory in the trade and create freshness issues and pricing and impact the whole ecosystem, which is really important to the a2 business model. So in essence, we're going about this in a really measured careful way, mindful of what our consumers need and what the -- and the health of the a2 brand for the interest of the long term.

Your next question comes from Adrian Albon from Jarden.

David just keen to understand like when you talk about constraining, if you like, the distribution for Zhi Chu particular, is that -- like when you provided your sort of July update and you're sort of there or thereabouts at target inventory, is that against the constrained construct? I'm just trying to sort of reconcile where we might have been forecasting to where you're sort of at now with a new view on the distribution in terms of releasing it slowly as you got confidence?

Yes. Yes, that's correct, Adrian. So it's against a constrained distribution that we're at target. And obviously, we factor in a certain number of weeks cover. And obviously, the -- and that's a forward-looking month cover or weeks cover measure that we have. And obviously, the offtake was uncertain at that point. But generally, you're correct that we were referring to us being at roughly a target inventory on a constrained basis for the offline channels. Obviously, that's not relevant for online.

Okay. And then as you sort of -- I think you talked about sort of 40% offtake to 100%, would you expect that, that distribution would go back to where it is? Like I know you talked about possibly seeing some of the constrained people with the new products initially, but is that a reasonable assumption as well?

Yes. I think that we'll head back towards in the order of sort of 25,000 to 30,000 deals that we had previously. I can't be specific on exactly when that's going to happen, but I think we'll hit towards that by the end of the year. So if you sort of factor in that, there will be a little bit of trade inventory level expansion as we move from weighted distribution of around 2/3 now to closer to 100% over time, if that's where you're coming from.

Yes. Okay. That's fine. Just in terms of like the English label seem to slow quite a bit in the second half as you sort of talked about the market commentary. And I guess your market share dipped a little bit in that fourth quarter relative to the Kantar stuff if you sort of indicate we look at the Smartpath. Can you sort of talk a little bit more about what's happening right now relative to that exit rate?

Yes, I might hand over to Yohan, but we did definitely see a decline in offtake following the U.S. recall announcement. So I mean, again, that product is a different product. There's no physical issue with the product. We just see obviously unfortunate the similar name, et cetera, and then picked up in China. So anyway, I'll hand over to you.

Yes. So as David said, so if you look at the second half, the third quarter was growing strongly. It was a continuation of the trend in the first half. Where I guess it was the biggest challenge was in May and June when the U.S. label recall came out, there was an indirect impact. And yes, you can see in the fourth quarter, probably Smartpath is the best indicator of the impact where you can see it effectively 10% down for May and June. What we expect is, of course, that to rebuild in the first half. But you can see on the data on Slide 33, fourth quarter '26 is 17.9% versus the MAC of 19.6%.

Okay. And so the expectation is that, that would be sorted over the first half. what you're sort of saying you're already seeing progress, so that's coming.

Correct.

Just's a final question for me. Just in terms of like the whole -- obviously, the whole side and testing was a big priority for the company over the period since you reported the February result. Can you just sort of update us on where you're at with that? Is it sort of -- is it back to normal now against the new testing regimes that are required? Or is there any outstandings required on that work program?

Adrian, we've -- so I think the testing methodologies and levels have been reasonably well established internationally. However, I do note that New Zealand is really the only country that has introduced very definitive standards and requirements at some of the tightest levels, which is great. We have no problem with that at all. It's just that it did evolve a lot quickly over time for both regulators and company participants. So we have gone through testing of all of our product. We've made adjustments to our supply chain. There is no concern around the safety of our product in relation to -- so they're right.

I can't -- as an infant company, you can't promise there's never going to be any quality or safety issues, but we have really solid certificates of analysis from suppliers. We do testing on site ride throughout the supply chain as part of our release processes. We make those test results available to our consumers. I mentioned earlier in the call about the batch-by-batch testing results. You can see nil detect on all of our products every batch. So it's a very thorough process that we have in place now. So no concerns whatsoever. And most of the industry has adapted rapidly as well, but we've been very transparent about that.

Your next question comes from Marcus Curley from UBS.

I just wondered if we could revert back to the high level of the guidance. Is it right in assuming that in terms of the infant formula guide that you're talking about growth in English label and a decline in China label at a high level?

We haven't been explicit about that, Marcus. But I mean, certainly, in the first half, that would be the case. Over the full year, it's probably -- it remains to be seen. It's probably closer than you may expect. We'll just have to wait and see how that plays out. We haven't provided specific guidance for that. But yes, certainly, in the first half, English label outperformed China label on a reported sales basis.

Okay. Like I suppose -- and then just on English label. So are you anticipating growth in English label for the year?

Yes. I mean at this stage, we would expect that -- if anything, English label is likely to be ahead of China label. But it depends, it depends on how the new products perform and everything I mean it's early in the year. But yes, that would be our sort of expectation at the moment. But the difference between the 2, like you're expecting English label to way outperform China label given what's happened with China label, that's not necessarily going to be the case. It's probably a bit more to answer that.

Yes. I just -- I suppose when you think about English label, I appreciate the comments around your market share in the fourth quarter. You don't necessarily see that in the second half revenue performance. And so you obviously got Vietnam going well. You've got new products coming -- well, you're getting back in the stock on new products. So just sort of trying to gauge what I'm missing in terms of the English label performance potentially in the next 12 months.

Well, in the second -- maybe not in the next 12 months. But when you're looking at -- there's a little bit of movement in trade inventory as well that you might want to factor in as well in the second half because we finished the year -- we finished the December half slightly low in English label trade inventory and then at the end of the year, slightly higher because of the late fourth quarter drop-off in offtake. So that explains a little bit of the higher -- if you're trying to sort of understand the high -- the relativity of the reported sales growth versus the market share numbers, that explains a little bit of that.

Right. Okay. So that...

Underlying growth in emerging markets and then you got a little bit of trade inventory level movement as well.

Okay. And then it looks like the 2 new China label products are both in the ultra-premium category. Is that different to what you were initially thinking? And maybe you can just give us a little bit more color in terms of maybe the price points of those 2 products and how you plan to roll them out from a store perspective?

So both of the product is positioned as ultra-premium product because I mean, I mean the heritage is like both perceived by the consumer and the retailer as the ultra-premium product, and we also represent ultra-premium segment. So for the digestion, it's going to be the -- I mean, like a lower-tier city expansion because I mean this patent MLCT plus OPO plus full nutrition benefit really appeal to the lower-tier mom who want basically everything. And also, I mean, you can see from the market, even in the lower-tier cities, they are still like 40% above ultra premium contribution in the lower-tier city with moms to buy the best product for their baby.

So I mean, this product going to the lower-tier city with ultra-premium positioning, digestion, nutrition benefit and plus a higher margin, which is also very effective in the lower-tier cities because typically in the lower-tier city, we rely more on the retailers' recommendation. Then the Zhi Chu Zhi Chun, which is a2 organic are serving as, I mean, ultra-premium product. Typically, organic is a very unique segment in China market, only appealing to certain consumer in the higher-tier city. So this product has to be a higher price and also represent the best source of milk a2 New Zealand probably that's the best most valuable precious source of milk to make this product. So it's going to dispute [indiscernible] a in the higher tier city, top key account, hopefully generate incremental volume appealing to this segment.

You're right, Marcus, a year ago, as we were developing our plans, we thought this would rather play in the super premium to ultra-premium space and we have towards the ultra-premium as we've done more work on our go-to-market strategy, taking into account our distributor and trade feedback on it as well. So we think this is the right positioning and the full nutrition formulation that Zhi Chu Qi Run product has, we think supports that as well. If it doesn't hold that price point, we can always find that back a little bit, but it's very difficult to take a product out after you've launched at a certain price point.

And so both products priced at a premium to the existing product?

The organic product will be at a premium to Zhi Chu Zhi Chun, but we won't -- we're not being specific about the Zhi Chu Qi Run product pricing relative to Zhi Chu Zhi Chun at this stage. It will be close. I'm not saying it's going to be above or below, but it will be close in the ultra-premium segment.

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

I just had a question on the market growth you expect. I think you've given the total China infant formula market grew at 0.7%, but that was over the whole year. And at the half, it grew 3.6% for just the first 25 or 26 weeks. So it looks like it's gone backwards about 3% now and China label and English label looks like maybe flat and China label down. What's your expectation for the market to grow or decline in FY '27? And when you look at the various stages, I mean, should we anticipate that, that momentum increases as it declines faster? Or am I sort of missing something in that?

It's always hard to about the Chinese market. But we think at the moment, our thinking is that the number of newborns will probably be up this -- supported by the marriage rate, which increased last year. So you've got the impact of the dragon still working its way through the system in the later stages. And then you've got a birth rate obviously declined a lot last year, but will probably be up marginally this year. So overall, we would expect -- we expect the market to be down low single digits, only down slightly next year, low single digits, probably early stage reasonably robust sort of flat to marginally up. and later stage should be down because of the tail end of the Dragon year working its way through the system, if that makes sense.

Yes. And when you say -- are you talking fiscal '27 there or calendar '26?

Yes, FY '27. The newborn numbers, I'm referring to calendar year because that's the basis which they reported.

Yes. And then my second question, just around Synlait and you mentioned having to work with them to improve supply. In terms of are there any -- I mean there's been rumors on the wires around ownership changes there. I don't know if there's anything you can talk to on that or where you think that might end up in that business?

Every 6 months, there seems to be rumors about us something in relation to Synlait. But look, I won't comment on speculation. All I'd say is that we've had a long and strong relationship with Bright and Synlait despite some of the supply challenges that we've had. We worked day-to-day really closely with Synlait. The Zhi Chu timely distraction is very strategically important to us. We intend to partner with them in the long term. And the only other thing I'd say is that the acquisition of Pokeno and the hundreds of millions of dollars that we've invested in that and the upgrade is probably indicative of our supply chain strategy. So nothing more to say on that, Phillip.

Your next question comes from Stephen Ridgewell from Craigs Investment Partners.

David, first question for me is just on the new China label products. Just wondering if you could please give us a broad indication as to the revenue contribution that's baked into the guidance of flat overall formula sales from those new products? And then just related to that, would you be expecting these new products to have a positive contribution at the EBITDA level in FY '27? Or given launch cost, is that perhaps more of an expectation for FY '28, please?

I'll come back to the comments I made earlier in the call, Stephen, in the Q&A session, I forget it was. But last year, if you have a look, we -- when we announced the acquisition, we said that the 2 labels will contribute incremental over $100 million of sales. And there's a chart in there which shows the sort of expected ramp-up of that. For the reasons I said before, I'd expect that to be great like earlier than what that chart would indicate. We definitely -- I mean the chart would indicate we probably expect $10 million or less this year, which is not quite right. So it will be more than that, but it's certainly not going to be the majority. So it will be a reasonable number, but we're not providing specific guidance on that. In terms of the contribution, probably dilutive in the second quarter when they launched, but accretive in the second half.

And then just going back to the broad brush sort of recovery plan for China label sales. I guess at a high level, just given we're seeing social media sentiment improve the data you provided, search rates are improving and stock is broadly available for China label. I guess at high level, why are we not seeing a stronger pickup in sales already? I mean I think the down 60% does seem pretty steep. There's quite a big mountain decline to get back to 100% of precrisis levels.

I mean when you look at the recovery plan in the detail you'll be looking at it, do you sort of assume a large number of those customers have gone for good and that you're really relying on over-indexing market share gains for new mothers to get back to that pre-crisis level of sales. And if that's the case, I'm just wondering if you're able to share more data points with us to perhaps provide comfort on that recovery plan.

Being out of stock for most of the fourth quarter, as I said, has had a pretty significant impact on our user base, particularly early stage. So now at about 40% offtake run rate, we've lost the majority of our early-stage customers through forced product switching to other brands. And we've probably maintained the majority of our later-stage users. It's -- as I said before, like it's challenging to get those early-stage users back quickly, but there will be opportunities as they consume the pantry stock that they have and as they change stage going forward into Stage 2 and Stage 3, there'll be other opportunities to acquire them.

Overall, I guess, by definition, given what we're saying, we are assuming that we will over-index in terms of our new user acquisition going forward. And in terms of data point, the best thing I can offer you is that the conversion rates on the activity we have in place at the moment by the different channels and mechanisms that we go about are either at or above where we were pre-supply chain disruption. And we're investing more in marketing this year. In absolute terms, if you run the math on it, like it's a significant increase in marketing weighted to the first half as well. And we have the full support of our retailers as well and distributors.

So for example, some of -- these types of things, it's one of the most critical things in the trade is to hang on to the shelf space that you have. And overall, we've got the same, if not greater shelf space despite being with our product for a considerable period of time. Some of our retailers have actually given us an extra day as well, which is incredible support. So anyway and the team are doing a terrific job in China to want to manage the fourth quarter, but now in executing our recovery program and so far, so good. But it's early days.

Your next question comes from Julia de Sterke from Morgan Stanley.

Just wanted to come back to your comments around the outlook for the English label category into FY '27, given you noted in the release around kind of competitor recall impacts in the second half. Given they seem to be normalizing now, could you just speak to maybe in more detail your outlook for the next kind of 12 months on both the competition side and therefore, prospects for customer acquisition as well?

Yes. So I think obviously, if we look at the English label market overall and you look at the first half, it was growing strongly. Obviously, the second half was impacted by the competitor recalls around. So although English label now makes up 20% of the total China IMF market. Obviously, the second half has been impacted by all of that. So of course, the major brands within the EL segment have had challenges in this space. For ourselves, of course, May, June, we had our own challenges. What we observed from competitors is that it does take a few months for that to rebuild.

And so we would expect the same from ourselves. So I guess if you look at the English label market, the underlying demand for the product coming from overseas is still there, notwithstanding the challenges that the sector has had with those recalls. And we would expect that Horizon and Genesis -- Platinum and Genesis will support our growth and rebuild into FY '27.

Got it. And then just on the reformulation of the Genesis product, I think you mentioned earlier that it was to kind of reinforce the premium positioning of the product, maybe not in those specific words. But could you just speak to kind of why the upgrade of that product now and what you're seeing in the market that might potentially be a catalyst for improving that kind of premium positioning?

Yes. So if we look at Platinum, the product has been in market for a number of years, but we haven't really upgraded the formulation meaningfully since 2022. And of course, consumer expectations along ingredient profiles such as HMO have changed in that period. So what we want to do is make sure that we improve the formulation of product, but also improve the usability of the product. So a good example of that is the new platinum product has the scoop in lid. But historically, we have had the scoop in the powder, which we know can be a bit annoying for consumers.

So we've improved both the formulation and the usability keeping in line with consumer expectations. And then also on the Genesis product, we've upgraded the formulation to have 6 HMOs. We know consumers are looking for a variety of HMOs within that formulation. And of course, once we've launched, we had 3 HMOs, and we've upgraded to 6 HMOs plus upgraded the probiotic itself to a human resident bacteria. So that also improves the positioning of the product. So English -- both the upgrades for the English label products to keep in line with consumer expectations.

Your next question comes from Will Twiss from Forsyth Barr.

If you look at kind of the initial recovery campaign that's underway, a lot of it is quite heavily focused on product quality and testing. Is that actually in response to anything you're seeing from consumers in terms of being concerned about the quality of the product and not just the product availability over the fourth quarter?

Well, no, not specifically for our product, but there has been a lot of concern among Chinese consumers in the infant and toddler category, given what's happened to the market in the first quarter of this year and also in other categories like nappy diapers have had issues as well. And there's been another recent sort of infant formula with another brand, I won't comment on specifically, but another concern recently as well. So I think generally, Chinese consumers, mothers are very conscious about the importance of quality in our category and they're very sensitive to it.

So we're just doubling down on that and making sure they've got 100% confidence in our brand in the category. And the other part of the confidence is not the quality, it's the supply, which is what the main issue that we had, which is we didn't have product in market. So we're giving them confidence around the availability of product and the distribution retail be back in all the national key accounts with some accounts with additional shelf space is really positive. And we'll be refreshing our point of sale and everything going forward. So there's a lot of work around that just providing our consumers with trust on quality and supply, which is the most important thing in our category.

Okay. That's helpful. And then if we think about supply chain costs, we know there were some additional costs kind of embedded in the cost base for FY '26. Can you just talk through or provide some more color around how much cost is in there relative to a normal baseline and then what the outlook is for some of those items into FY '27?

Will, it's Dave. We're not really getting into the ins and outs of the second half supply chain costs, gross margin. There's significant additional costs. There's some mitigating factors and some going the other way. I think the best way to think about it, like I said before, is start with your FY -- start with the clean, which is FY '25 and build it from there. I sort of gave you the building blocks a little bit earlier.

There are no further questions at this time. I'll now hand back to David Bortolussi for closing remarks.

Thanks, everyone, for joining the call. Before I finish, I'd like to thank our team for their incredible effort and impact during the year. It's been a challenging end to the year. And I think our team, particularly our China team and supply chain team have done a wonderful job mitigating that impact and now focus on our recovery plan going forward and all the other growth opportunities we have in the business. So thank you to our team and for our investors and analysts and look forward to catching up with you shortly over the next week or 2. Thanks for joining the call. Cheers.

That does conclude our conference for today. Thank you for participating. You may now disconnect.

Good morning, everyone, and thank you for joining us today. My name is David Bortolussi. I'm the Managing Director and CEO of the a2 Milk Company.

Today, I'm joined on our call by our CFO, Dave Muscat; and our business unit leaders, Li Xiao, Yohan Senaratne and Eleanor Khor. The team and I will present the results and outlook. And as always, there will be time at the end for questions.

During the presentation, we will focus on continuing operations, which excludes MVM that we divested during the half and occasionally refer to underlying results, which exclude a2 Pokeno. We've excluded a2 Pokeno from underlying earnings given that the site is currently underutilized and incurring manufacturing losses and transformation costs, which are short term in nature.

Starting on Slide 4, we've had a very positive first half of the year, reporting significant revenue and EBITDA growth and underlying EBITDA margin improvement. In our IMF business, we achieved revenue growth of 13.6%, which was well ahead of category growth.

We grew English label IMF by 21%, with strong performance in the CBEC and O2O channels, supported by growth in our new a2 Genesis product and from Vietnam. In China label, we delivered 6.5% revenue growth and achieved record market share in both the MBS and DOL channels.

Our Other Nutritionals revenue growth accelerated to 43% on a like-for-like basis, driven by our recent kids and seniors innovation, and we recently entered the pediatric supplements category and launched a new kid UHT product. Yohan and Xiao will speak to these new product innovations in more detail later.

Our Liquid Milk business continues to perform strongly with growth of 18.5%, driven by our core product range with much higher growth in our lactose free and grassfed product innovations.

We significantly advanced our supply chain transformation with the a2 Pokeno acquisition, MVM divestment and long-term milk supply agreement with Fonterra, which were all announced and completed during the half. And we've made a significant progress against key a2 Pokeno transformation streams, including advancing our China label registration amendment process, upgrading the facility and expanding our team. Our strong first half performance has enabled us to upgrade our full year guidance and declare an interim dividend at the high end of our policy range.

Moving to Slide 5, which summarizes our financial results. We delivered double-digit revenue and EBITDA growth of 18.8% and 18.4%, respectively, with our EBITDA margin consistent with prior year on a continuing basis. On an underlying basis, excluding a2 Pokeno, our EBITDA was up nearly 26% and our EBITDA margin was up 0.9 percentage points to 16.6%.

Net profit after tax and EPS were both up just over 19% on an underlying basis, and we are pleased to declare a dividend of NZD 0.115 per share.

Turning now to Slide 6. At a group level, our sales growth was driven by core products and recent innovation with some benefit from FX and the inclusion of a2 Pokeno sales, which are first half weighted.

Our growth continues to be driven by our China and Other Asia segment, led by English label IMF and Other Nutritionals supported by China label IMF growth. Our ANZ segment sales were up, primarily driven by growth in Australian Liquid Milk with stabilization of IMF sales in the Daigou channel.

Our U.S. business continued its strong performance, driven by growth in our core products and grassfed s. I've already covered our product performance upfront, so I'll move to the next page.

So turning to Slide 7. The China IMF market returned to growth in the half, up 3.6%, supported by a higher number of newborns during 2024, which was the Year of the Dragon. While the number of newborns in 2025 are lower than the Dragon year, there are positive indicators in 2026 with last year's marriage registrations up 11% and the China Central Government recently stating that birth rate stabilization is a national priority.

From a product perspective, the China label market has stabilized, supported by price recovery and stable volumes. English label growth continues to outperform China label, supported by product innovation and premiumization. And finally, the A2 protein and ultra-premium segments continue to outperform the category to our advantage.

Turning to market share on Slide 8. We remain a top 4 brand in the China IMF market and continue to gain market share to 8.2%. Within this, we achieved record high China label market share of 5.6%, and we remain well positioned in English label as the second largest player in the market with just under 20% market share.

Turning now to FY '26 and the company's outlook on Slide 9. I'm pleased to say that we've had a very good start to the financial year with revenue trending ahead of our previous expectations across all product categories and markets. As a result, we have increased our FY '26 guidance for revenue growth from low double-digit percent to mid-double-digit percentage growth versus FY '25 continuing operations.

We've also tightened our EBITDA margin range to approximately 15.5% to 16%, which is at the higher end of our previous guidance and expect our net profit after tax to be up on FY '25 reported.

As previously announced, the Board intends to declare a NZD 300 million special dividend, subject to regulatory approvals being received in connection with amendments to the 2 existing a2 Pokeno China label registrations for use under the a2 brand. The amendment process is currently underway and is progressing well.

Moving to Slide 10. We continue to execute against our growth strategy, which was recently updated after completing our supply chain transformation transactions. We adjusted our transform supply chain priority to focus on execution of our important transformation program at a2 Pokeno and on building capabilities to support future innovation and growth. And we've placed more emphasis on entering new markets, which is now called out as one of our key priorities.

We are tracking well towards our medium-term financial and non-financial goals and remain on track to achieve the majority of our targets, which are outlined on Slide 11.

Turning to Slide 12. Our strong first half result and upgraded FY '26 revenue guidance means that we now expect to achieve our medium-term revenue ambition of NZD 2 billion in FY '26. This is a year ahead of our amended plan and in line with our original 2021 Investor Day timing expectations.

Market and category growth drivers remain on track, and our emerging market strategy continues to advance with encouraging early performance in Vietnam as we continue to assess broader opportunities across Southeast Asia and the Middle East.

And from an EBITDA margin perspective, the a2 Pokeno acquisition is expected to support margin improvement going forward as we discussed at our full year results last year when we announced the transactions.

Moving now to Slide 13 and covering our supply chain transformation in a bit more detail. To recap, during the half, we successfully announced and completed the acquisition of a2 Pokeno facility and the sale of MVM as well as a long-term A1 protein-free milk supply agreement with Fonterra.

These transactions mark a key milestone in our supply chain transformation, which has been years in the making. Essentially, these transactions enable us to secure greater market access to the China label IMF market with strategic control over our registrations, growth in our core IMF business through portfolio expansion and innovation, accelerate the development of nutritional manufacturing capability and capture vertical margin and generate attractive overall financial returns.

Turning to the next slide, which provides a transformation program update. A dedicated transformation office led by our transformation expert was established prior to the a2 Pokeno acquisition to provide governance, planning and execution support to our Pokeno supply chain and wider a2 team.

Key transformation initiatives at a2 Pokeno are progressing as planned, including the China regulatory approval process, blending and canning trials, capital investment activities, ERP implementation and product development. And recruitment and manufacturing leadership and operations is well progressed to support execution of the plan. Overall, the program is tracking well with some areas ahead of expectation.

So that's the end of my introductory comments. And before I hand over to Dave to take you through the financials in more detail, I wanted to publicly thank our global a2 team for their outstanding contribution in delivering the results we've shared with the market today as well as for their exceptional work in our supply chain transformation. We're only a small team, but we've achieved a lot so far this year.

Over to you, Dave.

Thanks, David, and good morning, everyone. I'll start on Slide 16 with a summary of our group P&L. We delivered net sales revenue of NZD 992.6 million, up 18.8% on prior year.

Our gross margin of 48.9% was down 1.1 percentage points due to manufacturing losses at a2 Pokeno, which is currently underutilized ahead of our planned a2 Platinum transition from Synlait in the first half of '27, which will significantly increase production levels and improve a2 Pokeno's financial results.

Excluding these temporary a2 Pokeno losses, our gross margin percentage was slightly up, reflecting lower IMF ingredients costs and a net FX benefit.

Distribution costs were up due to higher freight rates and volumes related to Liquid Milk. Marketing investment increased in support of our China growth strategy, including awareness building campaigns to support our recently launched products, including a2 Genesis and kids and seniors fortified powders. Given the second half weighting of marketing expenses, our reinvestment rate was slightly down.

SG&A was higher due to investment in capability in support of growth in China and supply chain, including a2 Pokeno transformation costs.

Our effective tax rate improved due to reduced losses in our U.S. business and utilization of a2 Pokeno losses. Reported NPAT was NZD 8.4 million, including a loss from discontinued operations of NZD 103.7 million that was almost solely due to the MVM non-cash divestment loss of NZD 103 million.

As David mentioned earlier, we have declared an interim dividend of NZD 0.115 per share, totaling approximately NZD 83.4 million. This equates to a payout ratio of approximately 74% of NPAT and is towards the higher end of our policy range. The dividend will be fully franked and unimputed and will be paid on the 2nd of April.

Slides 17 and 18 summarize our segment and product performances with the key drivers covered throughout the presentation. It should be noted that a2 Pokeno is included in the China and Other Asia segment.

Moving on to Slide 19. Our closing cash balance at the end of the period was NZD 896.9 million, down NZD 164.3 million versus June '25, mainly due to the supply chain transaction net outflows of NZD 168.7 million associated with the a2 Pokeno acquisition and MVM divestment.

Operating cash inflows, excluding interest and tax, were NZD 140.7 million, representing operating cash conversion of 91%, which was in line with expectations and reflecting our inventory rebuild following Synlait manufacturing challenges late in FY '25, which temporarily reduced IMF inventory at June '25 and into the first half of FY '26.

Investing activity outflows included the previously mentioned supply chain transaction net outflows, capital expenditure and a reduction in term deposits. Cash flows from financing activities included the repayment of MVM's external banking facility prior to divestment.

Turning to Slide 20. Our balance sheet remains strong as we invest in our supply chain transformation and continue to execute against our growth strategy. Inventory was up approximately NZD 34 million, reflecting the inventory rebuild previously referenced with trade payables also increasing accordingly as we continue to progress towards target levels.

Intangible assets were NZD 105 million, primarily due -- were up NZD 105 million, primarily due to the goodwill associated with the a2 Pokeno acquisition. And the reduction in other liabilities primarily relates to the reduction in external MVM loans associated with the divestment that completed during the half.

That concludes the first half '26 financial overview. I'll now hand over to Xiao to take you through the performance of our China label business.

Thank you, Dave. Starting on Slide 22, we delivered China label MF revenue growth of 6.5%. This was supported by strong execution, China MF market stabilization and a favorable foreign exchange. This is a pleasing result given growth during the period was partially constrained by market shifts towards English label and the supply.

We achieved record China label MF market share, reflecting strong execution across both online and offline channels and supported by strong new user recruitment in FY '25, which is now graduating into later stages. Outside MF, Other Nutritionals also delivered growth, driven by recent senior and kids innovation that's resonating well with consumers.

Turning to the next slide. Overall, we continue to gain share in China label with total market share reaching a new high of 5.6% as well as brand health. Performance was strong across both our MBS and the DOL channels with each reaching record shares as we continue to execute well in our key channels.

Moving to Slide 24. New user recruitment remains a key focus. In mid-December, we launched a targeted marketing campaign in China, partnering with the well-known My Little Pony franchise. The campaign was designed to attract new users for the year of the whole.

We designed maternity gift pack and a fully integrated campaign across online and offline channels, including social media, which has generated strong consumer engagement and user-generated content.

Since launch, our brand has moved from ninth to first in search share on Little Red Book and Stage 1 new user recruitment has increased versus pre-campaign levels.

Turning to Slide 25 and taking a closer look at our kids and senior nutritional products, which are performing well. Our kids milk powder product has supported a turnaround in China label Stage 4 performance with the product now leading international brands in key channels. This reflects strong consumer acceptance, supported by a competitive formulation, good taste and appealing package.

In senior nutrition, we are building share in the ultra-premium segment with a steady online growth, supported by targeted seasonal campaigns and new user recruitment through family gifting. Across both categories, we continue to leverage the strength of the a2 brand in MF to attract new users and expand our offering to other life stages.

Slide 26 provides an overview of our new kids fortified UHT product, which we have recently soft launched into Costco and select online platforms. This is our first locally sourced UHT product in China, which enable improved freshness and high support formulation addresses an area of strong consumer interest.

Moving to Slide 27. Our focus on innovation has seen us expand our Other Nutritional portfolio through entry into a new category. The pediatric supplement category is a rapidly growing market with approximately NZD 8 billion in retail sales value and is an attractive adjacency to our core infant formula business. It is a fragmented category where we believe the a2 brand can be successful.

Continuing to the next slide. Slide 28 provides an overview of our new China label pediatric supplements range known as a2 Zhi Yi, which will be progressively rolled out during the second half of the financial year. We have 4 products in the range, which are focused on high-growth areas and formulated to provide functional benefits aligned to what the a2 brand is known for by consumers.

The locally manufactured products have a new and innovative packaging to maximize consumer and trade appeal. Near-term sales are not expected to be material. However, the long-term potential of the category could be significant.

I will now hand over to Yohan to take you through the English label.

Thanks, Xiao, and good morning, everyone. Looking at Slide 29, English label IMF continues to grow with sales up nearly 21%. Growth was supported by overall market expansion, growth in our combined CBEC and O2O channels and growing contributions from our a2 Genesis product.

It is also pleasing to see our ANZ IMF sales in growth with the Daigou channel stabilizing and continued share and sales growth in retail. We continue to deliver solid momentum in Other Nutritionals across all channels, led by strong growth in our milk powders portfolio with additional support from a2 Smart Nutrition and a2 Nutrition for Mothers. We also saw increased UHT volumes, particularly in Vietnam.

Turning to Slide 30. Momentum in the English label market has continued with English label now accounting for 20% of the total IMF market. A2 remains well positioned to benefit from the growth in this segment as the second largest brand in the English label market with our market share just shy of 20% and our online channels continuing to grow.

A2 continues to perform well in the CBEC and O2O channels with significant sales growth. On an MAT basis, a2 was a leading share gainer on CBEC from June to December last year.

Continuing on to the next slide, the rapid growth of HMO and specialty product segments continues to be a growth driver of the English label market. Our a2 Genesis HMO formulation has now been in market for a year and is performing well. We have invested heavily to build awareness, consideration and trial with our sales building month-on-month.

In the first half, a2 Genesis represented 6% of all our CBEC channel consumer sales with more than 50% of sales being for early stages, which supports future potential.

Turning now to Slide 32. We continue to develop our Vietnam business with our distribution expanding significantly during the half. A2 IMF and Other Nutritionals products are now ranging over 1,000 MBS stores and initial listings have commenced across national key accounts and e-commerce platforms.

As we execute in Vietnam, we remain focused on our broader emerging market strategy, assessing opportunities to further expand into other markets with a particular focus on Southeast Asia and the Middle East.

I'll now hand over to Eleanor, who will take you through ANZ.

Thank you, Yohan. Turning to Slide 33. Our ANZ Liquid Milk business has continued to perform well. We delivered double-digit revenue growth driven by growth in both our core and lactose-free ranges. In terms of market share, we outperformed the category with overall share increasing to 11.5% and lactose-free achieving a record high MAT share of 20.6%.

During the period, we were also pleased to complete the final stages of upgrades at our Kyabram processing facility to strengthen our operational capability and capacity.

Moving to Slide 34. In 2026, a2 proudly became the Australian Open first-ever dairy milk partner in the tournament's 120-year history. We activated across our priority markets in Australia and China with the partnership delivering positive results. During the tournament, a2 Milk was the only dairy milk to be served on site, reaching more than 1 million attendees and our bespoke co-branded frappes became a viral sensation on social media, driving exceptional visibility and brand engagement.

And with that, I'll hand back to David.

Thanks, Eleanor. And before I move on, I wanted to acknowledge that this will be your last investor call with a2, and thank you publicly for your outstanding contribution to the company over the past 7 years and leading our strategy function and ANZ business, which you've done exceptionally well. So thank you very much.

I'll now cover our U.S. business on behalf of Kevin Bush, who is unable to join us today. Our U.S. business has had a very good start to the year with revenue growth of 29%, driven by our core range and grassfed innovation across all channels. Our revenue growth was supported by positive market trends during the half with premium and specialty Liquid Milk market value growth of 11%, which was higher than total category growth of around 4%.

Our market share continues to increase with growth in household penetration and consumption and our profitability improved with an EBITDA loss of NZD 3.4 million. And finally, from an IMF perspective, our FDA submission remains under review and is progressing.

That concludes today's formal presentation. I'll now hand over to the operator for Q&A. Thank you.

[Operator Instructions]

Your first question today comes from Thomas Kierath with Barrenjoey.

Obviously, a lot of focus on the birth rate and the weakness of it that's been reported more recently. Just be interested in your comments around how Stage 1, I guess, is growing versus Stage 2 and Stage 3 and whether you're seeing any initial signs of that weakening birth rate in your numbers? And then I've just got one on Genesis as well.

Thanks, Tom. I might ask Xiao to comment on the stage performance at the moment and outlook around that.

Yes. So in the first half of fiscal year '26, we see Stage 2 have a very strong growth. Stage 3 improved and Stage 4 dropping, but we were helped by the newly launched kids fortified powder, we have a very strong, I mean, growth combined Stage 4 and kids fortified powder.

For the Stage 1, due to the supply constraint, we did see Stage 1 is dropping as well losing share. But I mean, we have started, I mean, the -- what we call early-stage campaign. And as we show in the slides My Little Pony, since December, I mean, to boost back the early new user recruitment after the improved supply.

So now we see a pretty encouraging early signal of, I mean, improved new user recruitment comparing with the previous month. And also, I mean, if you look at China label track record in the history, like in the fiscal year '25, our -- I mean, Stage 1 share improved from 3.1% in the previous year, I mean, to the first half, 3.9% and the second half of more than 4.2%. So we are pretty confident that we are going to turn around the Stage 1 performance, I mean, with all the, I mean, focused efforts on the early new user recruitment.

That's great. And just secondly on Genesis. I know initially, you were investing pretty heavily in that brand. So the sales that you were generating, you weren't actually necessarily making much profit as you were reinvesting. But where about that is that at the moment? And when do you start to see, I guess, a profit contribution coming through from Genesis?

Yohan, would you like to talk to Genesis?

Yes. Look, I think you're right. In terms of the focus for the Genesis product, we're definitely looking to invest in driving awareness through to trial. But the product itself makes quite a strong gross margin, just slightly below our Platinum gross margin. And then over time, we expect, obviously, the net contribution post the marketing spend to improve. At the moment, yes, absolutely, we're investing behind the brand, but I expect the net contribution to improve over time.

So our percentage margins were lower, the dollar margins were similar.

Your next question comes from Josephine Forde with Bank of America.

Congratulations, David and team on the result. My question is also in a similar vein on the China label market. Can you talk through your expectations on the continued brand consolidation, just given it was stable in the half? And then also just a bit more color on the market returning to growth and pricing in closing too?

Josephine, I think the -- even though there was a sort of a temporary pause in the level of consolidation, the top 5 is 58%, top 10 is around 78%. There were some kind of winners and losers within that -- within the sort of top 5 and top 10 during the period. But we fundamentally believe that the brand concentration trend will continue in the market. And certainly, the top 5 will gain a disproportionate amount of share over time. And maybe in time, there might even be corporate consolidation as well, which we've seen some evidence of over the last 5 years or so.

In terms of the growth going forward, it's pleasing to see, like I've been here 5 years and in effect 10 half year -- full year and half year reports. And the first time we've seen the category in growth for the half at 3 and a bit percent. That's based on Kantar numbers, and I do sort of caveat that Kantar is reviewing their growth numbers in March. So just important to look out for that. But definitely, the English label category is in growth and China label is flat to up.

The outlook, we continue to believe there will be ups and downs in the newborns numbers. The Year of the Dragon was probably higher than market expectations, and last year, clearly lower than expectations. But there's good reason to believe that the newborns will be up next year or this calendar year.

We're seeing marriage rates are up 11%. The last 3 quarters are up 20%, as you would have seen. And we've also got insight in terms of maternal registrations as well, and we're seeing those being up high-single digit at the moment as well for the first calendar quarter -- for the March quarter of this year as well. So I think the newborns will be up this year. It's difficult to predict how much, but probably in the low- to mid-8s.

But there is long-term socio demographic pressure on the newborns rate over time. So we're still expecting that to decline by low-single digits, but a degree of premiumization in the market to support the category, hopefully around flat.

So as we've always said, this is a share gain for us. We've been very successful with the strong brand and our execution behind that and innovation fueling growth now, where we've managed to more than our double our share from just over 4% back in 2021 to over 8% now in the market, and we think we've still got significant market share growth opportunity, both in China label and English label.

English label is doing really well at the moment, and China label has been growing for many years, and we'll have the benefit of the 2 additional registrations that we obtained through the Pokeno acquisition shortly as well. So I think in essence, I think the market should be relatively flat, and we still have a significant share opportunity gain in infant and other category expansion opportunities. I think the pediatrics supplements market entry is a pretty significant milestone today. So plenty of growth opportunities for us in and outside the infant category in China and new markets.

Okay. And then just on the guidance upgrade, since November, what's driving such an improved outlook? Like is this driven by English label? Or is it a more positive backdrop for the China label's improvement? Or are you seeing early read-throughs on these new marketing campaigns in the China label?

All of the above and probably the only thing you're missing there, so -- I mean the infant category has been pretty robust for us, and the growth has been slightly higher than we expected. But certainly, the Liquid Milk and Other Nutritionals growth at the beginning of the year and even at the AGM, we didn't expect such high growth in those categories, which is really pleasing.

That will probably come off a bit in the second half, but you can tell from our guidance, we're still expecting pretty robust growth for the full year with mid double-digit sales growth. So I mean all of those are contributing and it's kind of very pleasing for us as a team to see that really all categories and all markets are performing really well at the moment. It's terrific to see. It's a real credit to the team and also the health of the a2 brand.

Your next question comes from Matt Montgomerie with Forsyth Barr.

I might just come to Pokeno to start. Clearly, things are tracking quite well there. Just within the EBITDA losses for the first half of NZD 9.8 million, I think, of that, what was related to the transformation costs?

And then secondly, I suppose your guidance for the second half implies quite a meaningful step up in losses. I appreciate it was a full 6-month period. But yes, just be interesting to understand that.

And then with Pokeno tracking ahead of expectations for this year, you haven't changed your FY '27 outlook for Pokeno. Yes, maybe if you could just sort of step through that as well and why sort of that couldn't be improved over time as well.

Dave, do you want to...

Yes, I'll take that Matt. In terms of the transformation, I assume it's about 5 in terms of the transformation. So that's going through SG&A and the residuals going through gross margin. In terms of the step-up in losses, I think the way you've got to think about it is that, we are significantly ramping up the capacity of that site over the course of this financial year in advance of the transition at the start of the next financial year. So our under-recoveries are going to get worse before they get better. So that's why we have the ramp in terms of the second half.

And in terms of FY -- in terms of why it's better, overall, in terms of our sort of estimates around Pokeno is that, we set our expectations for this year at the time of the full year announcement where we were outside the company. We hadn't bought it yet. We haven't guided. And it was all based on our estimations from due diligence, et cetera, et cetera. So now we're getting closer to the numbers, and we can give more refined sort of outcomes. And then also what helped us slightly is that we have been doing some of our Platinum canning, as we alluded to at the AGM, during the course of this year, which helps us a little bit as well. But none of that changes our expectations for next year.

Yes. Perfect. And then secondly, just on guidance on China label. I know you haven't given breakdowns by the pieces, but would it be fair to assume similar levels of growth in the second half year-on-year as experienced in the first half?

I know, Xiao, you mentioned earlier sort of there were some supply issues impacting the half you've reported now, and there's been some sort of numerous moving parts over the last couple of halves with supply shortages, but just expectations for China label growth in the second half.

Matt, we're not providing sort of individual business unit or label-related growth guidance for the second half. As you'd appreciate, it's still uncertain. There's a long way to go through the half. What I can say is that, in terms of the infant category, as you would expect, we're expecting double-digit growth in infant in the second half. And for Liquid Milk and Other Nutritionals, we're expecting that -- the rate of growth to come off a bit, which you sort of have to conclude based on the guidance.

We're confident in China label and English label growth in the second half. But as to the specifics around it, I'm reluctant to sort of provide guidance on the components.

Xiao mentioned the supply challenges in this half. It's more -- probably less of a sales impact in the half. It's more -- I think Xiao was referring to the impact on user recruitment, which we had to reduce our level of activity during that first quarter, but we certainly ramped that out subsequently. And that's the experience we had actually going back a year in FY '25 and the first quarter of '25, we had a similar experience. So that's where that comment comes from. And definitely with the lower newborns and the -- some of the pressure from the supply chain constraints we have, we're very focused on increasing our new user recruitment and our early-stage share.

Your next question comes from Julia de Sterke with Morgan Stanley.

I just wanted to ask first, back to the -- some color on the industry numbers. Just in terms of the English label category, I know now you're kind of cycling some stronger industry numbers in that category. Where do you expect that penetration number to get to over the next couple of years? Are you sort of expecting that strong cadence of growth until you get back to kind of that 28% peak penetration? Or is this kind of industry growth starting to tail off in your view?

We're not seeing it tail off at the moment. The category is for the label cross-border business is growing quite healthy. I mean, double-digit growth over the last 4 halves, which is terrific. But as you know, like we're only at 20% of the total category, and it was a peak of 2018. Well, actually, it was even higher prior to that, but 28% in FY 2019 just prior to COVID.

So we think it's still got some way to go. But I don't think anyone can be conclusive in terms of where it will get to, but we still think it's got some more category growth ahead of it because there is some advantage that English label has over China label at the moment, particularly on formulation.

And then from our point of view, from a share point of view, at just under 20% share, we had a sort of peak share in the category in the mid-20s. And we're definitely focused on over time, getting back to sort of the mid-20 share in the category as well. So that's probably all the color I can give on that at the moment, Julia.

Got it. And then just wanted to ask on global competitor recalls that have been going around over the last couple of months. Acknowledge that it's probably still pretty early on, so you might not have too much color around what the ultimate impact will be. But has this factored at all into your guidance changes or how you're thinking about the market over the next couple of years and your market share opportunities?

No, it hasn't, Julie. I mean it's a very unfortunate set of circumstances for consumers, trade and the brands that are involved. So -- and we're not -- we're definitely not sort of tactically trying to be opportunistic about this. And we wish all those involved the best, because it is -- I mean, the infant formula category is -- this happens from time to time, and it's a very difficult circumstances.

But that's not factoring into our guidance. We're not banking on a major shifts towards our brand, English label or China label in that regard. I mean if there was any shift, it would probably be more like English label because most of the recall activity has been in that space, but that's probably all I'd like to say on that at the moment.

Your next question comes from Sam Teeger with Citi.

David, earlier on, you made a comment about potential for corporate consolidation. I was keen to understand just the thinking behind that and how you see things playing out?

Sam, I think most important -- like in consumer goods, the most important thing is brand concentration, no matter what the corporate ownership structures are in the marketplace. So that's what we're primarily focused on, and that's sort of the category dynamics lead to that.

I was just mentioned in passing that there has been some corporate consolidation by Nestle and Yili over time in particular. I mean there is a possibility of that, but we're more focused on and how we present that market share information is by brand, which is the most relevant no matter who owns what brands in the marketplace. So it's just an in-passing comment. So I don't think any corporate consolidation is imminent in the market at the moment. I think most of the players in the industry are really focused on their own portfolios.

Okay. And just wondering, when you saw the birth rate for 2025 come out last month, how did you balance up whether you should upgrade your FY '26 guidance now or potentially hold off for a few more months to ensure that the strong momentum continues?

Well, we sort of undertake a regular forecasting rhythm to our business. And based on our year-to-date performance and outlook for the end of the -- for the year to go, it's pretty clear at the moment that we should be in a position to achieve mid double-digit growth.

And I don't think that's particularly influenced by the newborns number at the moment, because the impact on Stage 1 in the market is sort of -- it's not as severe as what the decline in the newborns is, because you've got -- what's going on in the market is you've got sort of breast-feeding rates have declined. That's not something that we would promote because breast feeding is obviously best. But that has declined in the market based on the evidence that we've seen by different reporting on that. And also the extent and use of early-stage product has increased as well.

And it has a -- so there's a prolonged use of early-stage product as well. So I don't think you should expect the impact to be as significant. And it's also -- it's less than 20% of the market and of our business as well. So I think it's not a huge driver of this year's outlook. And as Xiao said, we're very focused on ensuring that our early-stage recruitment is optimized, and we set ourselves up well for the future. So not a big factor at the moment, Sam.

And then on the decline in breastfeeding rates, what do you attribute that to?

I think some of it may well be economic from what we've heard. A lot of mothers for economic reasons are feeling that they need to get back to the workplace pretty quickly. So I think there's probably some of that going on, and there's some social sort of demographic trends around that as well, which I not to comment on the call. So I think it's -- yes, I think there's some underlying drivers there. It's actually stepped down quite a bit -- several points over the last year or 2. So it's quite significant.

Your next question comes from Adrian Allbon with Jarden.

Maybe this is one for David, first of all. Just looking on Slide 18 and just trying to just understand like the Other Nutritionals growth, like it sort of like when you back out the Pokeno contribution, like it's just sort of NZD 30 million in terms of the China and Other Asia category. Are you able to kind of give us a steer of how much of that is these new products?

I guess -- yes, it's pretty significant the growth in kids and seniors. And then outside of that category, you got Genesis contributing quite a lot of the growth. I'll come back to you a little bit later. But probably overall, when you look at our growth, I mean the investment we've made in innovation over recent years, it's really pleasing to see that come through.

So if you look at our total growth for the half of just under 19%, if you adjust for the sort of FX impact and sort of Pokeno in the period, you've got sort of 15-ish percent growth underlying. And over 1/3 of that in the period was driven by innovation, specifically Genesis, the kids advanced product in China label and the seniors range that we've introduced. Now those products weren't there in the comparative period. So that's really just 6 to 12 months of growth coming through, which is pretty outstanding. So it is making a meaningful difference is the answer.

So of the total growth which was 19%, you sort of said underlying 15% and the innovation was...

Yes, if you take out currency and the a2 Pokeno impact, the sales associated with those, they're about 2 percentage points each. So call it around 15%, yes. And I'm saying that over 1/3 of that underlying core growth is due to innovation with the rest being the core portfolio.

Okay. And within that, obviously, the fortified products and Genesis are the main lifters in that 1/3 of the 15%?

Yes, it's around -- probably 30%, let's say, 30% for the half.

Okay. That's cool. And just like staying on the revenue side, just in terms of the pediatric entry, is the sort of -- is the unit economics quite similar to infant? It's probably an outsourced manufacturer, but like it is quite high gross margin...

Yes, it's quite a high margin category, similar to infant, yes, which is great. And it allows us obviously to reinvest to establish our awareness and consideration and trial in the category. So yes, we're attracted to the margin structure associated with it relative to our Other Nutritionals, the rest of that category, which is lower margin, but improving with the new innovation we're bringing to market.

Okay. Just in terms of the guidance, I'm presuming -- does the upgrade to 15% or midpoint -- mid-double digits, does that assume returning to target inventory levels? Or is that a risk buffer within your upgrade?

It assumes -- I won't be specific about it. But it does assume that we receive adequate supply during the period from Synlait -- and there's no major issues or disruption associated with our a2 Pokeno facility and transition and all that, yes.

Okay. And then just on the marketing side, the marketing intensity for the half, like it seemed to sort of be at the low end of sort of 17% on a continuing basis because I think when we were talking about that reset at the last result, on a continuing basis, it was -- I guess, the track record have been more like 18% of late. Are we expecting quite a step-up in the second half to support these new programs?

Yes. So in the first half, we pulled back a little bit on our investment, principally related to what I highlighted in terms of the supply constraints. So we pulled back a little bit on our new user recruitment activity, and that's why it's lower in the first half. But we did invest behind our new innovation that we brought to market. So that's why it's at 17% in the first half. So the second half will step up as we invest more in new user recruitment and our innovation in the marketplace. So that will step up. So overall, our reinvestment rate will be around the 18% mark.

It's similar to actually in a way, Adrian, to what happened in FY '25 because we had supply constraints in the first quarter, then we pulled back a bit on marketing. So if you have to look at the marketing reinvestment rate in '25, that was 17.5% in the first half and 18.8% in the second half and overall 18.1%. So I'm not saying specifically what it's going to be in the second half, but it's kind of a similar profile for similar reasons in a way.

Okay. That's helpful. And just a clarification on those Pokeno losses, did you say that they were NZD 5 million? And I think originally, at the last result, you were expecting NZD 10 million. Is that correct? I just didn't quite hear the end of...

No, no. No, I was referring to the half numbers, so NZD 9.8 million EBITDA loss and NZD 5 million of that's in SG&A. So it's only to the end of December. So there will be more transformation costs in the second half.

Transformation costs in the first half?

Sorry, that was NZD 5 million for the first half for transformation costs in SG&A and we've guided to about NZD 10 million for the full year.

Your next question comes from Craig Woolford with MST Marquee.

Can I just ask a question around the market share performance -- your English label market share performance, which was steady. Just trying to get a sense on when you -- what triggers you see for an improvement in that market share? The reason for the question is the commentary on Genesis looks very strong and some of the other products look stronger. So is there an inference that something else is losing share?

Good question. I might let Yohan answer that.

Yes. So yes, if you look on Slide 8, it shows our market share, particularly, if we look at the CBEC market share, we're slightly up on an MAT basis. If you look at the December monthly number, we're up a bit more. So that's about 20.1%.

And part of the growth is, obviously, there's the Platinum, which has been the base product for many years. But what we're seeing is incremental market share upside from a2 Genesis. And the primary channel of sales for that product is CBEC. So that's why you can see the CBEC market share trending upwards.

The other parts of the business are there or thereabouts. But as we roll out Genesis, we'll also roll it out into more O2O channel store networks as well. And so if we look at the English label market share trajectory, we're hoping to get to 25%. But currently, overall less than 20%. So there's about 5% market share that we're looking to gain. Part of that will come from Platinum continuing to improve, but then products like a2 Genesis, of course, offer some upside opportunity incremental as well to get us to 25%.

Share growth in that channel has been fantastic.

Yes. So we're the #1 on an MAT basis for the last 6 months. So -- and that's primarily driven by the success of a2 Genesis.

And in the half, the #1 as well.

Yes.

So what would drive Platinum share gains? Like, it's been a relatively steady a2 share of EL for a few half year periods now. What do you see as a step change in that Platinum products' share of the market?

Yes, you're right. It's been the workhorse for English label for many years and still is the biggest contributor to English label. Of course, as we go forward, we'll also look to upgrade our Platinum proposition. The last time we upgraded the proposition was back in 2022. And so as we move forward, we'll also look to upgrade the proposition and the packaging as well.

And Craig, as we transition from Synlait to our new facility, our Pokeno facility. So as you would expect, we're taking the opportunity to upgrade the formula on the packaging.

Great. That's clear. And just a quick one, just on the guidance, anything that sort of moved in the other direction was just the cash conversion. Apologies if I've misheard something, but I just wanted to -- it was 80% to 90%, now it's 80%. What's the reason for that shift in cash conversion?

Yes, Craig, probably the biggest change is the timing of the working capital build at Pokeno. So as we -- the transition that Yohan is just talking about in terms of the platinum moving in, we're going to have to start to produce base powder towards the end of the year and the start of the next financial year. So we just got better line of sight over the timing of that. So it's not worse than what it was. It's the same working capital build that we called out previously. It's just the timing of that working capital build.

Your next question comes from Richard Barwick with CLSA.

I've also got a question on English label because there's a couple of things here that don't quite add up, I don't think because if you look at the English label market, you're saying it was up 12% or I guess the Kantar numbers saying it was up 12% for the half, and you were growing your English label IMF revenue by 21%, but your share is holding about flat. Do we put down all that difference or the difference between the 21% growth in the market up 12%, is that Vietnam and other markets that sort of make up the difference? Or am I missing something here?

Yes. So part of it is Vietnam, and Vietnam has accelerated quite a bit. I think the key thing is that we've seen Genesis as well growing. So if you look at our PCP, we didn't have Genesis in it. And so that's a large contributor of our sales. But that's concentrating the CBEC channel. And then the last thing is we've been working on O2O channels. So you'll see our O2O share with Daigou is a little bit lower, and we've been making some operational upgrades to improve our consumer experience there. So yes, there's a few things going on there. I understand where you're coming from. But some of it is the Other Asia, if you like, outside of China. Some of it is a2 Genesis and some of it is some of the work we're doing in the O2O space.

I think, Richard, I'd also just Kantar data is helpful and looking at the longer-term trends, there's always anomalies in that. So if you look at the Kantar from a growth point of view rather than share. So Smart Path, the data for the total English category is up quite a lot, so over 20%.

Well, that's exactly what I was going to question. Do we -- I mean, you put the caveat at the bottom of that -- of the Kantar data. So do we take those share numbers with a grain of salt because that is a big difference. 21% plays the market at 12%.

Yes. I think Kantar is more relevant, the more aggregated you look at it. So total market, China label, English label. But when you get down into the below that, it becomes more challenging. They review their methodology from time to time. It's obviously a panel-based survey. It's the only full market survey that is available. So I wouldn't say take it with a grain of salt pinch of salt. It's really -- I mean, it is relevant, but I'd just look at it over time in terms of trends.

I mean if we take -- if we excluded it, then we'd probably be criticized for excluding it. So we're just including it to be honest.

No, no, I get that.

I know many analysts don't have access to it. Yes.

No, no, I get that. But I was just surprised that the difference between the 21% that you're growing, so that's a very clear number. And just really wanted to clarify, do we put the rest of it down to Vietnam and Co, it sounds like that's the biggest differential.

It helps, but we're still growing quite significantly in the core business in English label Genesis. Yes.

Your next question comes from Marcus Curley with UBS.

I just wondered if we could start with the slide that you're talking about the new pediatric supplements for the existing China label range. And maybe it's for Xiao, but just interested to know whether this is resulting in a substantial change in stocking by the mother and baby stores. Do they see this as now 4 products rather than one? Or is it a relatively small component of what's likely to roll out in the stores themselves?

Marcus, it's Yohan here. I can help to answer some of those questions. So firstly, the supplements market is quite fragmented. There's many different products looking at many different functional benefits. And often when consumers are looking to buy in the supplements category, they're buying for a specific functional benefit. So firstly, it's helpful to have a range of products because each product is targeted at a specific proposition and a specific consumer need. When sold into -- so these products are sold into both MBS stores and also online on DOL.

And so when we look at MBS stores, if you think of the way the key categories of sale, it's infant formula supplements and diapers. And supplements is a big driver of their business. And so having another set of supplements products in the market in their store that they can -- that is effectively companion to some of their a2 products in the early life nutrition space is obviously helpful for them as an additional sale.

And so it's probably best to think of each product as an individual product suited to a specific need. So you can see even the ones that we have on the page on Slide 28, they're very -- you can see they're focused on either immunity, allergy gut health or brain and eye health, areas that a2 are known for in the early life nutrition space. And so over time, we'd look to build on those depending on the success of these.

It's hard to say from the pictures. But in terms of -- are these individual infant formula products or just a container with supplements in them?

No, these are a container with supplements in them. So they're not infant formula, they're supplement products. And so you can see on the picture, it's a container with a set of supplements inside the sachets within each, with the exception of the Brain & Eye Health, which is a soft gel in blister.

And could you give us any perspective on how big the supplement market is as the share of infant formula in China label?

Got you. So if we look at the total supplements market, it's an NZD 8 billion market for pediatric supplements, represents 15% to 20% of the total supplements market in China, which is far bigger, of course. But...

I mean the last time we quantified that NZD 28 billion in our Annual Report. So NZD 8 billion versus NZD 28 billion. So it's quite significant. When we look at all the adjacencies that we're expanding into, this is the single biggest category. And most of it is addressable.

And the competitors there are sort of aligned with the infant formula brand. So like, for example, Danone would have the largest share? Or is it a different dynamic?

No, it's a different dynamic. On Slide 27, you can see the market shares by competitors in the online space. There's a lot of new brands entering the market. It's highly fragmented. And so there's an opportunity for a trusted brand to enter the market such as a2.

Okay. And then quickly, just on gross margin, David, you called out an improvement in the half. What are you seeing in terms of those trends? Are you seeing increasing benefits from lower ingredients costs? Or what should we be assuming?

I think for the second -- yes, we saw some of the lower milk and lactose costs coming through in the first half. But we're now seeing that reverse and some pressures coming through whey proteins. But then we've got some counters to that in terms of mix of business, should be more IMF weighted in the second half. So I wouldn't say overly too much change coming through in the near term.

The next question comes from Phil Kimber with E&P Capital.

Early stage, Stage 1 and Stage 2, I mean, previously, you've shown some market charts in prior reports of what Stage 1 and Stage 2 have been doing. And after the Year of the Dragon Stage 1 had grown rapidly and it started to come off. I couldn't see anything in this presentation. Is that -- has that now sort of moved to Stage 2 products at the market level? I know you guys are winning market share and got good growth, but I'm just trying to understand the market.

And then to put some context around that, I think you've said your China label sales are roughly half Stage 1, Stage 2 and the remainder is Stage 3, Stage 4. Is that the same across English label as well? So as a total infant formula business, are you roughly skewed half to early stage and half to Stage 3?

I'll hand to Xiao just on the Stage 1 trajectory in the market and our share. But so on the mix of stage share in the business, so we're roughly -- it's roughly sort of -- it's just under 50% across the total group, early-stage products, Stage 1 and 2 with China label being slightly higher and English label being slightly lower, if that helps, Phil. Xiao can you comment on stage -- I think Phil's question was around Stage 1 growth in the market and our share around that.

And Stage 3. Sorry.

Yes. And Stage 2.

So Stage 2 China label in the first half is strong growth. I mean the benefit from FY ' 25, we have a lot of Stage 1 new user recruitment, I mean, cycling into the Stage 2. But if you look forward it's going to be either flat or down due to -- now they are moving to the Stage 3. Stage 3 in the first half is improving, but you are going to see a stronger growth in the second half when they are Stage 2 consumer moving to the Stage 3.

Stage 1, as you can imagine, the whole segment is going on a downtrend, because of combination of less newborn baby. But hopefully, it can quickly bounce back into the new year, but also kind of help by this -- David mentioned the prolong usage and increased penetration. Those are all tailwinds for the Stage 1. But I think, for us it's more of a share gain in the new user recruitment because we have done extremely well in the past.

I mean demonstrate that we can almost grow the new user recruitment by 30%. [ Pity ] that we are constrained a little bit in this first half by the supply constraint. But now we have put all the focus, energy and money back, I mean, try to turn around and we are confident we are going to see an improving trend on Stage 1, no matter the market are going down or worse.

So Phil, just on the stage trend, I know most of you don't have access to Kantar, but -- so if you look at the stage, so in the half, the -- for China label, so the 2% growth is Stage 1 was still in growth, so high-single digit -- mid- to high-single digits. Stage 2 was low double digit. Stage 3 was down single digit, but the second quarter was flat as that sort of graduation comes through. And Stage 4 was down sort of high double-digit, if that helps in terms of the stage relative growth in the market at the moment.

There are no further questions at this time. I'll now hand back the conference to Mr. Bortolussi for closing remarks.

Thanks, everybody, for joining the call. I guess in closing, we continue to execute our growth strategy, focusing on maximizing our opportunities in China IMF, adjacent categories and new markets, which you've hopefully seen a lot of today. And we're pleased with our supply chain transformation progress following the acquisition of a2 Pokeno.

So I look forward to catching up with most of you during the course of the next couple of weeks, and thanks very much for joining the call. Cheers.

Good morning, everyone, and welcome to The a2 Milk Company's 2025 Annual General Meeting. My name is Pip Greenwood, and I'm honored to serve as the Chair of the Board. It's a pleasure to have so many shareholders joining us here in the room and online. I can confirm a quorum is present, and I now formally declare the meeting open.

Before I start -- before we start, I would like to introduce my fellow directors and management who are here with me today. To my right, we have David Bortolussi, our Managing Director and CEO; David Muscat, our CFO; Kate Mitchell, our Chair of Audit and Risk Management Committee; and Jaron, I hope to get this right. Jaron's got the longest title in the company, Chief Legal and Sustainability Officer and Company Secretary. And then to my left, we have Sandra Yu, the Chair of our People and Remuneration Committee, Lain Jager, Grant Dempsey and Antonio Rivera, who was known to us as Tonet.

Also present today, we have our auditors from Ernst & Young, our external legal advisers and our share registor MUFG Pension and Market Services.

Today, you will hear from me as Chair of the Board and from our Managing Director and CEO, David Bortolussi. After this, we will then put forward the resolutions as described in the Notice of Meeting and respond to questions put to us by shareholders.

With the formalities taken care of, it is now my pleasure on behalf of the Board to update our shareholders on The a2 Milk Company's progress over the last year. 2025 marks a significant milestone of the company's 25th anniversary. This is a moment to reflect on our journey, celebrate our achievements, and look ahead with ambition.

From pioneering the A2-type protein proposition to becoming a trusted brand across China, Australia, New Zealand, the U.S.A. and emerging international markets such as Vietnam, our commitment to quality, innovation and sustainable growth continues to define us.

FY '25 has been another year of strong execution. Despite ongoing macroeconomic challenges and evolving market dynamics, we remain focused on delivering against our growth strategy and our results continue to reaffirm the strength of our brand, the quality of our execution and the dedication of our very talented team.

Our financial performance was outstanding with group revenue up 13.5% and earnings per share up 20.9% in FY '25. We continue to make meaningful progress against our medium-term financial and non-financial goals and remain on track to achieve the vast majority of our targets.

This year, we saw the introduction of a dividend policy. Total dividends of $0.20 per share were announced in FY '25, representing a payout ratio of 71% and equating to approximately $145 million being returned to our shareholders.

In sustainability, we continue to advance our goals of protecting the planet, caring for our cows, rethinking packaging, progressing towards net zero and contributing to a nature positive future. We are committed to supporting the planet and the communities in which we operate.

Our people are the heart of our success. We continue to foster a safe, diverse and inclusive environment where our teams feel valued and supported. On behalf of the Board, I'd like to thank our incredible team across Australia, China, New Zealand and the U.S.A. for their dedication and hard work and contributing to our strong FY '25 results.

Since the end of the financial year, we have made significant progress in our supply chain transformation strategy with the acquisition of a world-class nutritional manufacturing facility in Pokeno and the divestment of our interest in MVM. The Board actually had the privilege of visiting Pokeno yesterday, which was a really exciting time for us all. David Bortolussi will speak about these transactions in more detail in his address shortly.

These transactions strengthen our strategic position and provide us greater certainty over future capital needs. As a result, the Board was pleased to announce its intention to declare a special dividend of $300 million, subject to regulatory approvals and connection with Pokeno's two existing China IMF products. We expect to provide further details on the special dividend within the next 12 months.

Turning to governance, Board renewal and succession planning have been a key focus since I commenced my role as Chair. Last year, we welcomed Tonet and Lain to the Board, bringing deep expertise and global IMF supply chain and international agribusiness leadership. More recently, Grant joined the Board, bringing extensive strategic and financial leadership experience. Lain and Grant will be standing for election today, and you will hear from them later in the meeting.

These changes reflect our commitment to ensuring the Board has the diverse perspectives and capabilities needed to support the company's strategic execution. My fellow Directors and I remain focused on growing shareholder value and serving our shareholders with purpose.

Before I close, I'd like to address my own reelection as a director, as I am standing for reelection today. I've had the privilege of serving on the Board since 2019 and has chaired since November 2023. I'm proud of the progress we've made and excited about the opportunities ahead.

I bring extensive commercial and governance experience including my current role is Chair of Westpac New Zealand and Director of Westpac Banking Corporation. I've previously served on the Boards of Spark New Zealand, Fisher & Paykel Healthcare, Vulcan Steel, and Russell McVeagh, where I also served as Chair and Interim CEO. I remain committed to realizing the company's strategic ambitions and representing the interest of our shareholders.

Thank you for your continued support and the investment in The a2 Milk Company. I now invite David to address the meeting. Thank you.

Good morning, everyone, and thank you for joining us today at our annual meeting. My name is David Bortolussi. I'm the Managing Director and CEO of The a2 Milk Company.

Over the past year, we've continued to deliver strong financial results and made substantial progress on transforming our supply chain. These outcomes are driven by execution of our growth strategy and the exceptional work of our talented teams around the world.

Today, I will share with you our operational and financial highlights from the past year, a slight adjustment to our strategy following the recent transactions, progress on our supply chain transformation, and an update to our FY '26 outlook.

Before I do that, let me recap on a2's journey to date. From humble beginnings in the year 2000, when the company was formed in New Zealand by scientist, Dr. Corrie McLachlan, and his business partner Howard Paterson to focus on the A2 Protein difference. We've grown into a global business operating in Australia, China, New Zealand, North America, South Korea and Vietnam. And we have a product portfolio that spans all life stages from infant and kids through to adults and now seniors.

It is therefore fitting that we celebrate our 25th year since formation by: acknowledging the achievements of our team, past and present, that have built The a2 Milk Company into what it is today; reporting record sales with sales growth across all of our markets; and categories and recently announcing a major step forward in our supply chain transformation that I'll speak to later.

It's been a remarkable journey to date, which all of us should be proud of, and I want to thank our shareholders that have supported the company along the way, including those here today with us.

More recently, we reported a strong FY '25 results to the market in August. We continue to execute our growth strategy, which saw us deliver record sales of $1.9 billion and double-digit growth in revenue, EBITDA and EPS.

We moved from a top 5, to a top 4 brand position in the China infant milk formula, or IMF market, driven by strong performance in both English and China label. We launched new products for infants, kids and seniors and we expanded into new markets.

As shareholders, you will be aware that last year at our annual meeting, we introduced a dividend policy for the first time in our company's history. Since then, we declared and paid dividends totaling $0.20 per share with a payout ratio of 71%. This marked an important milestone in our journey to deliver sustainable returns to our shareholders.

Moving to our FY '25 financial results. We delivered full year revenue growth of 13.5%. And importantly, earnings grew at a faster rate. So EBITDA was up 17% and net profit after tax and EPS were up 21% with strong cash conversion.

On the right-hand side of the slide, you can see that we have driven significant growth since FY '21 when we refreshed our growth strategy, achieving a compound annual growth rate in revenue, EBITDA and EPS of 12%, 22% and 27%, respectively.

Looking at our geographic segment and product category performance on the next page. Our growth continues to be driven by our China and other Asia segment, led by English label IMF and Other Nutritionals. Since FY '21, we've grown our other -- China and other Asia segment sales by a compound annual growth rate of 22%.

Our ANZ segment sales were flat with growth in our Australian liquid milk business, offsetting declines in the Daigou channel. Our U.S. business continued its strong growth and MVM experienced significant increase in external ingredient sales, mainly driven by higher GDT pricing and milk volumes.

From a category perspective, our total IMF sales grew by 10%, with English label the standout performer, up 17%, driven by growth in our CBEC and O2O channels. and a shift towards the English label category. China label was up 3.3% with record market share, which was actually a very good result in a market that declined by 5.6% and also having to manage significant supply constraints.

Liquid milk sales grew by 14% in total, with ANZ up 10% and the U.S. up 22%. Other Nutritionals continued to grow at a fast rate of 23% and supported by our new kids and seniors milk powder products launched during the year.

Turning to market share. Our overall China IMF market share continued to reach record levels, resulting in a2 rising to the #4 brand position in the world's largest IMF market with 8% overall market share. This is a major milestone for our company, which launched its first IMF product only 12 years ago, competing against the global leaders in the category and very capable strong domestic players.

We continue to ramp up our innovation with key new product launches during the year in the infant, kids and seniors nutrition segment. Our early results are encouraging, and we are hopeful that a2 Genesis, Kids Advance and our Seniors range features on this page here will continue to drive key growth drivers in our FY '26 results and beyond.

As we look ahead, we remain committed to investing in product innovation as a core pillar of our growth strategy to deliver benefits to our consumers at every life stage from the infant and toddler years, to healthy aging. We progressed our emerging market strategy, expanding the reach of our English label products into Vietnam through the launch of a2 Platinum in the first half and a2 Gentle Gold in the second half. The launches are showing positive early signs driven by our focus on building brand awareness, expanding our distribution across mother and baby stores, and activating and trade to remote trial and adoption.

As we continue to expand our footprint in emerging markets, we're also deepening our relationships in the most established and strategically important market being China. I'm pleased to share that recently, we expanded our long-standing strategic partnership with China State Farm, to now include English label IMF products in the cross-border e-commerce channel, starting with a2 Genesis from early next year.

This marks a significant milestone in our relationship with China State Farm, which began in 2013. Over the past 12 years, we have worked closely with China State Farm to build our China label IMF business, helping us to grow to over 100 distributors, and reach around 30,000 mother and baby stores across China as well as key online platforms. China State Farm's expertise and operational capability have been critical to our success in China.

This expansion has been well over 12 months in the making, and was formally recognized with a signing ceremony at China International Import Expo, a couple of weeks ago in Shanghai. It reflects not only the strength of our partnership with China State Farm, but also the strong relationship between China and New Zealand.

Moving now to our investment in the A1 protein free science, which is central to our a2 Milk brand proposition. Over the past year, we have continued to build on that foundation with the results of three new studies released in relation to maternal and infant nutrition and seniors cognition, further expanding knowledge of the unique benefits of a2 Milk.

We actually have our Chief Scientific Officer -- adviser, Dr. Andrew Clarke, here with us today. So if any of you have any further questions around those studies or the A2 protein difference, feel free to catch them after the meeting closes.

Shifting focus to sustainability on the next page. We have a clear road map in place to guide us towards achieving planet positive outcomes and net zero by 2040. Over the year, we've reduced emissions significantly supported on-farm initiatives and improved packaging performance.

Moving now to a brief strategy update. We have updated our growth strategy after completing our supply chain transformation transactions. Firstly, we have adjusted our Transform Supply Chain priority, to focus on execution of our important transformation program at a2 Pokeno, and on building capability to support our innovation and growth. Secondly, we placed more emphasis on entering new markets and called this out as one of our key strategic priorities.

Moving to the next slide. We are tracking well towards our medium-term financial and non-financial goals, and remain on track to achieve the majority of our targets. Our strong FY '25 performance has brought us much closer to our medium-term revenue ambition of $2 billion, and our supply chain transformation will support a more significant increase in EBITDA margins in FY '26.

Our English label IMF and ANZ liquid milk businesses are back on track, and our emerging market outlook has improved following the launch of IMF in Vietnam this year, which we're excited about.

I'll now turn to the progress we've made in transforming our supply chain, which is a key enabler of our future growth. In August, we announced two transactions that will transform our supply chain and market access, enabling us to build a better, higher growth, lower risk end-to-end business with significant value creation potential.

The first transaction relates to the acquisition of a fully integrated nutritional manufacturing facility, located in Pokeno, here in New Zealand that I'll refer to as a2 Pokeno. Importantly, as two existing China label IMF registrations and already produces two of our English label IMF products.

The second transaction we announced related to the divestment of MVM to Open Country Dairy to optimize our asset footprint following the acquisition of a2 Pokeno.

There is a clear strategic rationale for these transactions. In essence, the combined transactions: enable growth and share gains in China through market access and innovation; accelerate the development of a world-class nutritional manufacturing capability; and they capture attractive financial returns through vertical margin capture and incremental brand contribution.

In terms of financial returns, by FY '30, the combined transactions will deliver over $100 million of incremental brand sales and over $60 million of additional EBITDA through incremental brand contribution and vertical margin capture. We've been working on this strategy for several years and considered many options. Without doubt, the transactions we've completed are our preferred strategic, operational and financial outcome.

Turning to our newly acquired a2 Pokeno facility, which is strategically located in the Waikato region. This world-class site, which has proven capability in IMF manufacturing and is already producing two of our English label products. Importantly, we have secured a long-term agreement with Fonterra, for A1 protein-free milk ensuring supply flexibility and supporting our long-term growth ambitions. We will be investing significantly in the facility and expanding our team to enable the growth.

The next page highlights a key aspect of the strategic rationale for the acquisition of a2 Pokeno. Of the top 10 players in the China IMF market, a2 is the only brand in the top 10 with a single China label product, with the competition having between 5 and 21 registrations. It's obviously challenging to capture the full potential of the market -- in a market in China that's so large and complicated with only one product available to us.

The acquisition of a2 Pokeno is expected to increase our China label IMF product registrations from one to three in the near term, which will enable us to expand our product portfolio, develop differentiated consumer and trade propositions to increase market share, including in lower-tier cities.

An expanded China label portfolio will help us maximize our IMF opportunity in China by providing greater access to the largest segment of the China IMF market, with the China label segment of the market accounting for approximately 80% of the total market.

In the short term, we'll transition existing products to our A1 protein-free milk base, and we're in the process of seeking regulatory approval to bring them under the a2 brand, while planning for future innovation and a third registration slot.

Since announcing these transactions, we've made significant progress. We successfully completed the acquisition of a2 Pokeno facility and the divestment of MVM. We're advancing the regulatory processes to bring the existing China label registrations under the a2 brand. And more specifically, we have achieved MPI's approval of our updated RMP and have applied for GACC approval, that's customs approval in China. The next step beyond that is applying for SAMR approval of the amendments to the registrations.

We've already completed some blending and counting batches for a2 Platinum at the Pokeno side in collaboration with Synlait ahead of transition in the first quarter of '27 and have commenced short-term and long-term product development trials. We have made strong progress in our capital investment program at Pokeno and awarded several key contracts and have commenced our IT integration and ERP upgrade projects.

We've been hiring people and manufacturing leadership and operational roles over time. We'll add more than 100 new roles to the facility, providing significant development opportunities to our existing and future team members. And at the same time, we've ensured a smooth operational separation of MVM.

So to conclude this section, we are excited to secure a world-class asset to help us build our supply chain of the future. And at this early stage, our transformation program is tracking in line and in some cases, ahead of plan.

Turning now to FY '26 and the company's outlook. I'm pleased to say that we've started the year strongly with IMF, Other Nutritionals and Liquid Milk product categories, all trading ahead of expectations.

In addition, changes to actual and forecast currency rates reflecting depreciation in the New Zealand dollar expected to inflate sales and expenses with the impact on EBITDA not expected to be material. Having regard to both of these factors today, we have increased our FY '26 guidance for revenue growth from high single-digit percent to low double-digit percent.

We have also reconfirmed our EBITDA margin guidance to be approximately 15% to 16% and increased our net profit after tax guidance to now be slightly up on FY '25 reported.

Lastly, we increased our guidance for capital expenditures to reflect the accelerated progress of our a2 Pokeno capital investment program.

Finally, turning to capital management. The transactions discussed today provide us with clarity in relation to our future capital needs. As noted by our Chair in her address, the Board intends to declare a special dividend of $300 million, subject to obtaining regulatory approvals to bring the new China label registered products under the a2 brand, which is expected to take up to 12 months from when we announced the transactions back in August. Special dividend is expected to be unimputed and fully franked.

So that brings me to the end of my presentation. In closing, we've delivered a strong FY '25 result, executed two transactions and a milk supply agreement that substantially supports our growth strategy and have demonstrated disciplined capital management.

It's been a massive year for our team, and I do want to thank them all publicly for their exceptional contribution and impact. We're only a small team at a2 of just over 500 people and the teams achieved remarkable things this year, and I really want to thank them for that.

So for our shareholders, I look forward to answering any questions you may have after the formal business section of the meeting or afterwards after the meeting closes, whatever suits you.

So anyway, thank you very much for your time. I'll now hand back to our Chair.

Thank you, David. We now turn to the measures that require resolution, as outlined in the notice of meeting with a poll to be conducted for each resolution. The poll will be conducted at the end of each resolution and your ballot papers and online voting cards will be collated by our share registry.

The resolution set out in the Notice of Meeting are considered as ordinary resolutions. To be passed, that requires the majority of a simple -- sorry, that requires the approval of a simple majority of votes by the shareholders entitled to vote and voting on the resolution. Shareholders here in Auckland will be able to cast your votes by filling out the ballot form that you received at the registration desk, and they -- and which will be collected at the end of the formal part of the meeting.

Those attending the meeting online will be able to vote by clicking the, get a voting card, box on the online portal. If you require further information and guidance on the voting process please refer to the Notice of Meeting.

There will be an opportunity for shareholders to ask questions both on the resolutions being put to the meeting today and more generally at the end of formal business.

When I call for questions, for those of you who are attending in the room, please raise your hand and wait for a microphone to be delivered to you. Please clearly state your name prior to asking your question.

We will also be responding to questions from shareholders attending virtually via the online portal. [Operator Instructions]

I would like to take this opportunity to remind everyone that this meeting is being webcast, so you will also be heard by an audience outside of this room.

If we are unable to get through all the questions today within the time allocated, we will respond individually after the meeting.

We will now move to the resolutions.

Resolution 1 relates to the auditors' fees and expenses. Pursuant to the Companies Act, the company wishes to authorize the directors of the company to fix the fees and expenses of the company's auditor, Ernst & Young, for the ensuring year.

Are there any questions with respect to this resolution? Do we have any questions in the room? No? Do we have any questions online?

There are no questions online at this time.

I now propose that the directors of the company be authorized to fix the fees and expenses of the company's auditor, Ernst & Young, for the ensuring year and I put the motion to vote. Thank you.

The next resolution concerns my reelection as a director. I've asked Kate Mitchell, the Chair of our Audit and Risk Committee to chair this part of the meeting. Thank you, Kate.

Thank you, Pip. Pip is retiring by rotation in accordance with the company's constitution and the NZX listing rules and offers herself for reelection. The Board recommends Pip to you as a nonexecutive independent director and unanimously supports her reelection. You have already heard from Pip as our Chair earlier in the meeting where she also addressed her reelection. I now propose that Pip Greenwood be reelected as a Director of the company. Are there any questions from shareholders concerning this resolution? Do we have any questions in the room? No? Do we have any questions online?

We do not have any questions online at this time.

Thank you. I now propose that Pip Greenwood be reelected as a Director of the company, and I put the motion to vote. Thank you.

Thanks, Kate. The next resolution concerns the reelection of Sandra Yu as a Director, Sandra is retiring by rotation in accordance with the company's constitution and NZX listing roles and offers herself for reelection. The Board recommends Sandra to you as a non-executive independent director and unanimously supports her reelection.

I will now invite Sandra to address the meeting.

Good morning. I'm honored today to stand for reelection to the Board. Over the past 3 years, have heavy opportunity to contribute to the company's journey through a period of strategical evolution, particularly in strengthening our position in China and progressing the company's supply chain transformation. As Chair of the People and Remuneration Committee, I've worked closely with my fellow directors to ensure executive remuneration frameworks are fair, performance linked and aligned with shareholder interests, as well as supporting the company's focus on diversity, inclusion and talent management.

As an experienced company Director and Global Executive I bring over 2 decades of experiences in consumer goods and infant nutrition, including the leadership roles in Johnson and Unilever, where I focused on global brand transformation, innovation and modernizing go-to-market strategies through digital platforms. I believe my experience in China and across Asia continues to be highly relevant to the company's ambition. And I look forward to continuing to support the Board and management in the years ahead. Thank you, [Foreign Language]

Thank you, Sandra. I now propose that Sandra Yu be elected as a Director of the company. Are there any questions from shareholders concerning this resolution? Do we have any questions in the room? No? Chante, do we have any questions online?

There are no questions online at this time.

I now propose that Sandra Yu be elected as a Director of the company, and I put the motion to vote. Thank you.

The next resolution concerns the election of Lain Jager as a director. Lain joined the Board in December last year and is retiring in accordance with the company's constitution and the NZX listing rules and offers himself for election. The Board recommends Lain to you as a non-executive independent director and unanimously supports his election.

I now invite Lain to address the meeting.

Thank you, Pip. Good morning, and thank you for the opportunity to introduce myself as I stand for the -- for election to the Board. My background is an international agribusiness, most notably as CEO of Zespri International, where I led the company through a decade of global growth, innovation and strong financial performance. Since stepping down from Zespri, I've remained active in the sector through private investments and governance roles, and I'm excited by the opportunity to bring that perspective to The a2 Milk Company.

I believe the company is uniquely positioned in the global infant formula business, particularly in China. And I'm passionate about contributing to the company's continued success. I look forward to working with the Board and management team to support company growth and value creation for all shareholders. Thank you for your support.

Thank you, Lain. Are there any questions from shareholders concerning this resolution? Any in the room? No? Any online?

We have no questions online at this time.

I now propose that Lain Jager be elected as a director of the company. I put the motion to vote. Thank you.

The next resolution concerns selection of Grant Dempsey as a Director. Grant joined the Board in September this year and is retiring in accordance with the company's constitution and NZX listing rules and offers himself for election. The Board recommends Grant to you as a Nonexecutive Independent Director and unanimously supports his election.

I now invite Grant to address the meeting.

Thank you, Pip. Good morning. It's a privilege to be standing here for election following my recent appointment to the Board. My career spanned senior roles in finance, strategy and governance, including investment banking and most recently as CFO of 2 ASX companies. I've worked closely with Boards and executive team throughout my career on complex transactions, capital management and strategic transformation.

Since retiring from my executive roles last year, I focused on governance. I currently serve as Chair of Firmus Technologies and a small number of other ASX and private nonexecutive directorships across infrastructure, industrials and technology. I'm focused on ensuring strong financial discipline and transparency. I bring a deep understanding of strategic oversight and risk management. I believe my experience will complement there are already significant skills on the Board. And I look forward to contributing to the company's next phase of growth. Thank you.

Thank you, Grant. Are there any questions from shareholders concerning this resolution? Are there any in the room? Looking around, No? Chante, any online?

We have no online questions.

Thank you. I now propose that Grant Dempsey be elected as a director of the company. I put the motion to vote. Thank you.

Resolution 3 seeks shareholder approval to increase the Nonexecutive Director fee pool by $310,000 from $1,365,000 to $1,675,000. This adjustment reflects the increased scope and complexity of government responsibilities, the expansion of the size of the Board and benchmarking against peer comparators. The proposed increase will provide flexibility to fairly compensate current and future nonexecutive directors over time, while maintaining alignment with shareholder interests.

Further details in relation to this resolution have been outlined in the notice of meeting and the PwC benchmarking report, has also been made available to shareholders on the company website. As noted in the Notice of Meeting, a voting exclusion applies to this resolution.

Are there any questions from shareholders concerning this resolution? Is there any in the room? No? Are there any online Chante?

We have no online questions.

I now propose that the Nonexecutive Director fee pool be increased by $310,000 from $1,365,000 to $1,675,000 and I put the motion to vote. Thank you.

On to our next resolution, Resolution 4, to align with recent practices for New Zealand and Australian executive remuneration. The Board has committed to submitting the CEO's long-term incentive plan grant as a resolution on an advisory basis for the purposes of the NZX listing rules to the annual meeting, which is subject to this resolution today.

The company's LTI plan is designed to reward performance in support of the achievement of the company's growth strategy by targeting profitable long-term revenue and EPS growth. which requires appropriate investment. An overview of the key terms of the proposed grant rights to David is set out in the notice of meeting.

The Board considers the performance hurdles of the LTI plan sufficiently challenging and aligns with shareholder value creation. The Board recommends you vote in favor of this resolution, and we unanimously support this grant of performance rights to David Bortolussi. As noted in the Notice of Meeting, a voting exclusion applies to this resolution.

Are there any questions from shareholders concerning this resolution? Any in the room? No? Right? Chante, any online?

We have an online question from [indiscernible]. Can you please explain what on an advisory basis means in this resolution?

That means that it's nonbinding on the company that will be taken into account in any future consideration.

Any other -- are there any other questions?

We have no other online questions.

I now propose that the acquisition of 324,606 performance rights by the company's Managing Director and CEO, David Bortolussi, by grant under the company's long-term incentive plan be approved, and I put the motion to vote. Thank you.

That concludes the resolutions and there were a few of them presented to the shareholders for vote. Please now submit your vote for each resolution. Please select for, against, or abstain. For those attending in person, representatives from our share registor will now collect your voting cards. For those attending the meeting online, voting will close shortly. The results of the polls will be released to the NZX and ASX following the meeting.

[Voting]

Okay. I think the voting is complete. We'll now move to general business. I'd like to offer you the opportunity to raise any general questions. Please make your questions concise so that everyone who wants to raise a question has the opportunity to do so. If we're unable to get through all the questions today, as I mentioned earlier, within the time allocated, we will respond individually after the meeting.

I'd now like to open the floor for any questions from shareholders.

Do we have any questions in the room? We've got one up here.

John Clearwater, a shareholder. I'm very excited to see the results from the scientific study of the improvement in cognition for seniors, and with the big increase in numbers of seniors around the world, I feel that this should be the base for a really determined push in this region expanding to other countries and building further research. And please, I have a request. Please, please, when you have publications and good research to report, please give them at least space for an abstract or better a whole page for each of these studies, because I think they are very important for the understanding of the shareholders in the wider world.

Thank you, John. Yes, we're excited about the research. And for Andrew. Andrew, our Head of Scientific Research, which David introduced earlier. Do you want to just talk to the study very briefly, and then I'll comment on that.

It's good to see you here again, John. I see you on a regular basis. And so thanks for your attendance.

Look, 2025 has been a great year for a2 Milk Company's research, not only have we had 3 clinical publications that have been supported by the company, but a number of other groups around the world independently been publishing studies as well. So on top of our three, there have been another three that talk towards the benefits -- digestive benefits and lower inflammation that A1 protein-free milk and parts compared to conventional milk.

But talking to the three studies that were presented earlier, the maternal nutrition was very much a breakthrough study. It demonstrated that a mother consuming a2 Milk transferred the benefits through to infant, which was breast feeding. Now what was very comforting about this was, we first got reports anecdotally, with testimonials received from parents. And so it was a great pleasure to be able to explain to people. We now have the underpinning science for this benefit that's been reported over the years.

Looking at the Stage I infant formula study. Once again, it was a case of scientifically demonstrating something that was witnessed by consumers that a number of infants who consume A1 protein-free milk based infant formula, have better digestive comfort which is reflected in their crying, sleeping and -- which is great for the parents.

And the final study, which was presented, the MCI or mild cognitive impairment, demonstrated that removing A1 protein from milk enhance the benefits that the elderly enjoy from dairy owing to improved cognition as measured by the Montreal Cognitive Assessment, which is a gold standard measurement of cognition in the elderly as well as audio verbal learning tests. But I'd be happy to talk to you further afterwards.

Thanks, John. But as you pointed out, we do see the senior nutritionals as an opportunity for growth. And there are actually the three products we've launched over the year. So you can have a look at the product packaging. There's three different types of products. I don't know, David, if there's anything you want to add.

I think Andrew covered it.

[indiscernible]

I don't think it's actually available in New Zealand but hopefully, in the future, yes. Any other questions? So we have one over here. Just wait for a microphone.

I've been a shareholder for quite a long time in a2 and have appreciated all the works being done with over a few traumas that we've had. But one of the things is -- and to support a2 other than the dividends that you give me, I drink your milk. And I'm just -- and I've found it increasingly difficult to buy a2 Milk. It used to be in limited numbers in all the supermarkets. But today, there is -- it's not there. So I'm forced to drink another one, which my wife doesn't appreciate because she says it's much too creamy than one I do. But I want to know where -- when is it going to be available if at all?

That's a great question. Sorry, what was your name.

Sorry, Walter Smile.

Thank you. David will tell you, I'm a bit of a dog with the bone about the fact that we're not supplying a2 Milk in New Zealand. The Fonterra arrangement had come to an end and Fonterra didn't want to renew it. So we have been exploring other options. And I think we have found a supplier. So hopefully, in the future, we will have a2 Milk in our supermarkets. I don't know if you want to add anything, David?

It's still work in progress, but we hope to be able to update the market shortly. It's hard to tell when you're negotiating those sort of arrangements. And we hope that it's positioned differently and more available in the market as well. So we're very keen to restore our distribution of a2 Milk in New Zealand.

And we have launched in Australia very successfully lactose-free a2 Milk. So hopefully, in the future, we'll have a broader range here in New Zealand.

We have one question at the back.

I'm a shareholder. No, that's not the reason. You just don't want them to buy the product so that they will want it. End of the day, if you don't have the product, you'll have people go, where is a2, where's a2? My daughter-in-law is always saying, where's a2? So it's a good idea not to supply enough. But no, I just want to say thank you for this today. Very incredible what your people have done and how you've -- well, given so much positive news, it's just incredible. And especially also, you're doing the whole milk business in America. How is that going, by the way? And does Trump have anything to do with it? Or is it just that you just go on as usual and hope you'll leave in 3 years' time.

Do you want to answer that?

I'm sorry, I missed your name, but...

Small shareholder.

Small shareholder. No problem. There's no sign of any impact from the Trump administration of business there. It's a domestic business. Our whole milk business there, our core range of whole milk and 2% is growing very well -- particularly in the grocery and mass channel. On top of that, we have our grass-fed innovation, which for New Zealand shareholders will seem like that's not that significant. But in the U.S. market, grass-fed is a rare form of milk because of the farming practices there. It's been well received by the market in the natural channel, which is growing very well. And in the club channel on top of that, we've gained additional distribution over the last year as well.

So it's going very well the liquid milk business in the U.S. in terms of growth. So we're up 22% last year. Our challenge has been to improve the profitability of that business, which we've made real progress on over the last few years. So it wasn't long ago, we were losing over $30 million in the U.S. And last year, we lost $9 million, and we hope to improve on that this year, again, with a view of getting to breakeven by FY '27. And in addition to that, we're exploring the possibility of long-term approval for our infant milk formula in the U.S. as well. So still work in progress, still a challenge on profitability, but we're getting there.

[indiscernible]

In the U.S. or -- I mean we obviously have to go through the FDA approval to get our formula approved for our long-term sale in the U.S., but no particular issues.

Any other questions in the room? One over here.

I'm a shareholder from Australia. Just a thing I've noticed over time, there seems to be in supermarkets a focus on UHT milk rather than fresh. I've noticed fridge space has declined in a lot of supermarkets. And I'm just wondering, is a2 Milk seeing that happen? Has there been any push towards non-refrigerated, like non-fresh milk from the marketplace that might change how a2 Milk might direct things in the future?

Are you talking about New Zealand or Australia, in particular?

Well, I'm from Australia, and that's what I've noticed in Australia, and I don't know if that's particularly happening here. But I have noticed a large reduction of fridge space in many supermarkets. And the shelves for the UHT is growing. It's phenomenal.

Do you want to talk to that? I mean we have seen an improvement in our growth in liquid milk in Australia, but we do offer UHT products. Do you want to...

Maybe what you're observing is perhaps over the years, there's been an increase in plant-based alternatives, which are offering UHT at ambient temperature rather than being in the chiller space. So that sort of happened a bit over time, and that growth has moderated where it's relatively a low single-digit growth in plant at the moment. In fact, in the U.S., the plant category is in decline.

And then in relation to the chiller space of fresh milk in Australia, it's been relatively steady over recent years. We -- for our business, we've increased our number of facings and distribution across the trade as well because it's not only what stores you're in, it's actually the depth of distribution as well, which we've increased as well. And then you layer on top of that our lactose-free product. So we've actually gained a lot of distribution and facings.

Yes. So okay. So you may be replacing some of the practices, which is good...

Yes. Our market share is up like we're over -- we're sort of 11% market share overall. And our lactose-free business is over 20% market share now of the category, which is the fastest-growing category in the dairy market, yes.

Thank you for your question. Any further questions in the room? I'll just move to ask whether we have any online questions.

We have an online question from James Noble, in regards to the increasing chatter about artificial intelligence driven share market bubble and possible burst. What defensive steps or other will -- has a2 Milk take to mitigate this risk?

Do you want to answer that?

Sure. I think whether or not the AI-related companies valuation is above or below fundamental value. I don't think that's particularly concern for a2. We're more thinking as most companies are that the AI is around for the long term. It's quite a discontinuity in the transformation for most businesses. And individuals globally. So we're thinking more about how do we adopt and leverage that going forward in the front end of our business, in our sales and marketing activities, particularly in China.

And also how -- not only in terms of how we execute, it is how we actually influence the AI-related searches, which is different to previous web searches. So that's a challenge for us. And then in the back end of our business, we're thinking about adoption in various areas. We use it for cybersecurity and other aspects of our business, including supply chain and that. So we're thinking more about adoption.

In terms of steps to protect against that, I mean, we do use it, obviously, in our cybersecurity protection mechanisms to make sure we protect our data and information and have policies in place in respect to that as well. So I don't think it's a direct concern for us at the moment.

Next question from online.

We have the question from [indiscernible], what will the company's strategy be if your market share in China drops significantly? Will you stay in China, trying to turn things around or try to explore new markets in Europe?

I think as David mentioned, our performance in China has continued to grow, and it's a real focus for us as a company. In terms of Europe, I think there are some real constraints for New Zealand to be supplying into Europe. So it's not something that we're focused on at the moment. Is there anything you want to add to that?

No, just by way of context, the China infant market, why we and many other companies focus on that. It's over half the world's infant market in total in terms of value and an even greater share in terms of the profit pools associated with it. So it's a very -- the second biggest market is the U.S. So we've got a great position like we're #4 brand in the market now. So if the China market or our share within it, has concerns in the future, I mean, our first reaction is to double down and make sure that we address that and improve that situation because it's such a fundamental part of our business.

And beyond China infant milk formula, our strategy is to expand into adjacent categories in China and then also into new markets. And Pip's comment about Europe is absolutely right. I mean we're more focused on Asia, Southeast Asia and potentially in the Middle East in time as opportunities for us because the level of A1 protein-free intolerance in those markets is much higher and there's certain reasons why they are attractive markets to us as well.

Thanks, David. Is there any further questions online?

We have had a couple of questions on this topic, so we will ask a representative question. Is there any update on the Australasian class action against a2 Milk?

There is no current update for the market at this time. We're continuing to work through that with our lawyers. We've got an update as a Board coming up in early December, but there's nothing to update the market on at this time.

We have another online question from Susan [indiscernible]. Can you tell us how a2 Milk products are being received in Vietnam? Which products are resonating with the mothers and consumers?

We had a board visit to Vietnam just a few weeks ago, which was a really exciting opportunity for us to see the products in market. Do you want to talk about that more broadly, David?

Yes. It's a really exciting market for us. It's probably the most exciting market in Asia outside of China. There's just over 100 million people in Vietnam. There's about 1.4 million -- it's very hard to get precise information. It's about 1.4 million births per year, and there are various aspects about the Vietnamese market that make it attractive to us. The total value of the market is in the order of $2 billion and probably about half of that, $1 billion New Zealand is addressable to us. And so we recently launched our Platinum product and our Gentle Gold product.

So Platinum has had longer in the market. It's been really well received by consumers. The feedback and the reviews that we're getting terrific. Gentle Gold, it's early days yet, but there's actually a bigger segment available to us with Gentle Gold entering the market as well because Platinum is a more premium product.

And in addition to the infant category. We're also making available our Other Nutritionals products, so whether they be adult fortified milk powders or our UHT product or fortified UHT products for kids and adults as well. So we're really excited about the Vietnamese market and look forward to that developing over time.

Thanks. Chante, do we have any further questions online?

We have no online questions.

Thank you. So ladies and gentlemen, on behalf of the Board, I'd like to once again thank you for joining us today. It's great to see so many of you here and for engaging on the important measures of business and also for your support over the year. For those attending the meeting here in Auckland, we will have some refreshments just outside the doors. So please stay and join us for those.

I now formally declare the meeting closed. Thank you so much.