The A2 Milk Company Limited

Good morning everyone and thank you for joining us today. My name is David Bortoglisi. I'm the Managing Director and CEO of the Atu Milk Company. Today I'm joined on a call by our CFO, Dave Muscat, and our business unit leaders, Lu Xiao, Yohan Sanaratna and Eleanor Kaur. The team and I will present the results from Outlook and as always there will be time at the end for questions. During the presentation we'll focus on continuing operations which excludes MBM that we divested during the half and occasionally refer to underlying results which excludes Atu Pocono. We've excluded A2 Pocono from underlying earnings, given that the site is currently underutilised and incurring manufacturing losses and transformation costs which are short-term in nature. Starting on slide four, we've had a very positive first half of the year, reporting significant revenue in 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 CVEC and O2O channels, supported by growth in our new A2 Genesis products and from Vietnam. In China Label we delivered 6.5% revenue growth and achieved record market share in both the NBS 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 paediatric supplements category and launched a new kids UHT product. Johan and Shau 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 graft fed product innovations. We significantly advanced our supply chain transformations and long-term milk supply agreement with Fonterra, which were all announced and completed during the half. And we've made significant progress against key H2 Pocono transformation streams, including advancing our China-level 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 summarises our financial results. We delivered double digit revenue and EBITDA growth of 18.8% and 18.4% respectively with our EBITDA margins consistent with prior year on a continuing basis. On an underlying basis, excluding ATU Pocono, 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're pleased to declare our dividend of 11.5 cents 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 Pocono sales which are first half weighted. Our growth continues to be driven by our China and other Asia segments, 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 stabilisation of IMF sales in the Daigo Channel. Our US business continued its strong performance, driven by growth in our core product and grass-fed liquid milk. I've already covered our product performance up front, 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 stabilisation is a national priority. From a product perspective, the China label market has stabilised, supported by price recovery and stable volumes. English label growth continues to outperform China label, supported by product innovation and premiumisation. 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 four 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 FY26 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've increased our FY26 guidance for revenue growth from low double digit percent to mid double digit percentage growth versus FY25 continuing operations. We've also tightened our EBITDA margin range to approximately which is at the higher end of our previous guidance and expect our net profit after tax to be up on FY25 reported. As previously announced, the Board intends to declare a $300 million special dividend subject to regulatory approvals being received in connection with amendments to the two existing A2 Pocono 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 Pocono and on building capability 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're 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 FY26 revenue guidance means that we now expect to achieve our medium term revenue ambition of $2 billion in FY26. This is a year ahead of our amended plan and in line with our original 2021 investor day timing expectations. Marketing category growth drivers remain on track 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 Pocono 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, covering our supply chain transformation in a bit more detail. To recap, during the half we successfully announced and completed the acquisition of A2 Pocono facility and the sale of MBM, 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 enabled us to secure greater market access to the China label IMF market with strategic control over our registration. support growth in our core IMF business through portfolio expansion and innovation, accelerate the development of nutritional manufacturing capability and capture a 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 a transformation expert was established prior to the A2 Pocono acquisition to provide governance, planning and execution support to our Pocono supply chain and wider A2 team. Key transformation initiatives of A2 Pocono are progressing as planned, including the China regulatory approval process, blending and canning trials, capital investment activities, ERP implementation and product development. And recruitment in manufacturing leadership and operations has well progressed to support execution of the plan. Overall, the program is tracking well with some areas ahead of expectations. 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 $992.6 million, 18.8% on prior year. Our gross margin of 48.9% was down 1.1 percentage points due to manufacturing losses at A2 Pocono, which is currently underutilised ahead of our planned A2 Platinum transition from Sinle in the first half of 27, which will significantly increase production levels and improve A2 Pocono's financial results. Excluding these temporary A2 Pocono 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 SG&A was higher due to investment in capability in support of growth in China and the supply chain, including A2 Pocono transformation costs. Our PQ tax rate improved due to reduced losses in our US business and utilisation of A2 Pocono losses. Reported impact was $8.4 million, including a loss from discontinued operations of $103.7 million that was almost solely due to the MBM non-cash divestment loss of $103 million. As David mentioned earlier, we have declared an interim dividend of 11.5 cents per share, totalling approximately 83.4 million. This equates to a payout ratio of approximately 74% of MPAT 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 summarise our segment and product performances with the key drivers covered throughout the presentation. It should be noted that 8.2 Pocono 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 $896.9 million, down $164.3 million versus June 25, mainly due to the supply chain transaction net outflows of $168.7 million associated with the 8.2 Pocono acquisition and MBM divestment. Operating cash inflows, excluding interest and tax, were $140.7 million, representing operating cash conversion of 91%, which was in line with expectations and reflecting an inventory rebuild following similarly manufacturing challenges late in FY25, which temporarily reduced IMF inventory at June 25 and into the first half of FY26. Investing activity outflows included the previously mentioned supply chain transaction net outflows, capital expenditure and the reduction in term deposits. Cash flows from financing activities included the repayment of MBM'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 $34 million, reflecting the inventory rebuild previously referenced, with trade tables also increasing accordingly as we continue to progress towards target levels. Intangible assets were 105 million primarily due to the goodwill associated with the A2 Pocono acquisition and the reduction in other liabilities primarily relates to the reduction in external MVM loans associated with the divestment they completed during the half. That concludes the first half 26 financial overview. I'll now hand over to Zhao to take you through the performance of our China-labeled business.

Thank you Dave. We delivered China-labeled MF revenue growth of 6.5%. This was supported by strong execution, China MF market stabilization, and favorable foreign exchange. This is a pleasing result, given growth during the period was partially constrained by market shifts towards industry-level under supply. We achieved record China-labeled MF market share. and is supported by strong new user recruitment in FY25, which is now graduating into later stages. Outside IMF, other nutritionals also deliver growth, driven by recent senior and case innovation that resonates 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 DAO 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 horse. 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 nice to first in first share on Little Red Book, and the state-of-the-art new user recruitment has increased versus pre-campaign levels. Turning to slide 25 and taking a closer look at our case and the senior nutritional products which are performing well. Our case milk powder product has supported a turnaround in China-level stage four performance with the product now leading international brands in key channels. This reflects strong consumer acceptance supported by 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 a new user recruitment through family gifting. Across both categories, we continue to leverage the strengths of the E2 brand in MF to attract new users and expand our work offering to other life stages. Slide 26 provides an overview of our new K-Spotify 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 enables improved freshness under high-support formulation, addressing the area of strong consumer interest. Moving to slide 37, our focus on innovation has seen expand our other nutritional portfolios through entry into a new category. The pediatric supplement category is a rapidly growing market with approximately $8 billion in retail sales value and is an attractive adjacency to our core infant formula business. It is the 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 four products in the range, which are focused on high growth area 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 the 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 Johan to take you through the English label.

Thanks, Zhao, 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 CVEC and O2O channels, and growing contributions from our A2Genesis product. It is also pleasing to see our ANZ IMF sales in growth, with the DIGO channel stabilising 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 powder 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 the 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-level 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 CBET 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. A2IMS and other nutritional products are now arranged in 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, Johan. Turning to slide 33, our ANZ liquid milk business has continued to perform well. We deliver 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 car reprocessing facility to strengthen our operational capability and capacity. Moving to slide 34, in 2026, A2 proudly became the Australian Open's first ever dairy and 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 onsite, reaching more than a million attendees and our bespoke co-branded frappés 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. Thank you publicly for your outstanding contribution to the company over the past seven years in leading our strategy function and AMZ business which you've done exceptionally well. So thank you very much. I'll now cover our US business on behalf of Kevin Bush who was unable to join us today. Our US business has had a very good start to the year with revenue growth of 29% driven by our core range and grass-fed 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 is 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 $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.

Thank you. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. If you wish to cancel your request, please press star 2. Please pick up the handset to ask your question. Your first question today comes from Tom Carruth with Baron Joey. Please go ahead.

Guys, 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 one, I guess, is growing versus stage two and stage three 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.

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

So in the first half of fiscal year 26, we see stage two have a very strong growth, stage three improved, and stage four are dropping, but we will have the newly launched K-45 powder. We have a very strong growth combined, stage four and K-45 powder. For the stage one, due to the supply constraint, We did see this one is dropping as well, losing share. But I mean, we have started, I mean, what we call the 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 improved new user recruitment comparing with the previous month. And also, I mean, if you look at China-level track record in the history, like in the fiscal year 25, our, I mean, statewide share improved from 3.9% in the previous year, I mean, to the first half, 3.9%, and the second half, more than 4.2%. So we are pretty confident that we are going to turn around. the stage one performance with all the focus efforts on the early user recruitment.

That's great. Thanks Xiao. And just secondly on Genesys, 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 whereabouts is that at the moment and when do you start to see I guess a profit contribution coming through from Genesys?

Johan, would you like to talk to Genesis?

Yeah. 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, yeah, absolutely, we're investing behind the brand, but I expect the net contribution to improve over time.

So percentage margins are lower, but dollar margins are similar.

Great. Thanks, guys.

Thanks, guys. Our next question comes from Josephine Ford with Bank of America. Please go ahead. Thank you.

Congratulations, David and Tina, on the result. My question is also in a similar vein on the China label markets. 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 colour on the market returning to growth and pricing in common too?

Josephine, I think even though there was a sort of a temporary pause in the level of consolidation, the top five, 58%, top 10 saw around 78%, There were some kind of winners and losers within the top five and top gender in the period but we fundamentally believe that the brand concentration trend will continue in the market and certainly the top five 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 in evidence over the last five years or so. In terms of the growth going forward, it's pleasing to see, I've been here five years and in effect ten half year, four year and half year reports and it's the first time we've seen the category in growth for the half at 3.5%. That's based on Cantar numbers and I do submit KBS ads that Cantar is reviewing their growth numbers in March so it's important to look out for that but definitely the English categories 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. Marriage rates are up 11%. The last three quarters are up 20% as you would have seen. 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 eights but there is long-term pressure on the newborns rate over time. So we're still expecting that to decline by low single digits but a degree of premiumisation in the market to support the category hopefully around flat. So as we've always said, this is a share game for us. We've been very successful with a strong brand and our execution behind that and innovation fueling growth now. We've managed to 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 two additional registrations that we obtained through the Pocono 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 going in infant and other category expansion opportunities. I think the paediatrics 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, thank you. And then just on the guidance upgrade, just moving on. What's driving such improved outlook? Like is this driven by English label or is it a more positive backdrop for the China label improvement or are you seeing early read-throughs on these new marketing campaigns for the China label?

All of the above and probably the only thing you're missing there. 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 has 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. I mean, all of those are contributing and, you know, 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 real credit to the team and also the health of the A2 brand.

Yeah, great to see. Well, thanks very much, guys, and congratulations again.

Thank you. Your next question comes from Matt Montgomery with Forsyth Bar. Please go ahead.

I might just come to Pocono to start. Clearly things are tracking quite well there. Just within the EBITDA losses for the first half of 9.8, 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 that. It is a full six-month period, but, yeah, it would just be interesting to understand that. And then with Pocono tracking ahead of expectations for this year, you haven't changed your FY27 outlook for Pocono. Yeah, maybe if you just sort of step through that as well and why sort of that couldn't be improved over time as well.

In terms of the transformation, assume it's about five 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. 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 why it's better overall in terms of our estimates around Pocono is that we set our expectations for this year at the time of the four-year announcement where we were outside the company. We hadn't bought it yet. We hadn't got in. 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. None of that changes our expectations for next year.

Yeah, 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 So 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 hours of supply shortages. But just expectations for China-level growth in the second half?

No, we're not providing sort of individual business unit or label-related growth guidance for the second half, as you'd appreciate it. 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 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. Shael mentioned the supply challenges in this half. It's more or less of a sales impact in the half. It's more, I think Shael 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 FY25 and the first quarter of 25 had a similar experience. So that's where that comment comes from. And definitely with the lower newborns and some of the pressure off from the supply chain constraints we have, we're very focused on increasing our user recruitment and our early stage share.

Yeah, no, perfect. Thanks for the call.

Your next question comes from Julia Disturk with Morgan Stanley. Please go ahead.

Hi, morning, guys. Just wanted to ask first, back to some colour 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 categories or the label cross-border business is growing quite healthily. I mean double-digit growth over the last four and a half, which is terrific. of the total category and it was a peak of 28. Well, actually it was even higher prior to that, but 28% in FY29, just prior to COVID. So we think it's still got some ways to go, but I don't think anyone can be conclusive in terms of where it'll get to, but we still think it's got some more category growth ahead of it, because there are some advantages 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-20s share in the category as well. So that's probably all the colour I can give on that at the moment, Julianne.

Got it, thank you. And then just wanted to ask on global competitor of months, acknowledge that it's probably still pretty early on so you might not have too much colour around what the ultimate impacts 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 and the brands that are involved and 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 circumstance. But that's not factoring into our guidance. We're not banking on major shifts towards our brand, English label or China label in that regard. I mean if there was any shift it would probably It's an 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.

Great. Thank you. The next question comes from Sam Teager with CISI. Please go ahead.

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

Hi, Sam. I think 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 the category dynamics lead to that. I just mentioned in passing that there has been some corporate consolidation by Nestlé and Illy over time in particular. I mean there is possibility of that but we're more focused on 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, cool. When you saw the birth rate for 2025 come out last month, how did you balance up whether you should upgrade your FY26 guidance now or potentially hold off for a few more months to ensure that the strong momentum continues?

We sort of undertake a regular forecasting process. rhythm to our business and based on our year-to-date performance and outlook for the end of 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 think that's particularly influenced by the newborns number at the moment because the impact on stage one of 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, breastfeeding rates have declined. That's not something that we would promote because breastfeeding 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. 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 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 And as Shao said, we're very focused on ensuring that our early stage recruitment is optimised and we set ourselves up well for the future. So not a big factor at the moment.

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 demographic trends around that as well, which I'd prefer not to comment on on the call. So I think there's some underlying drivers there. It's actually stepped down quite a bit, several points over the last year or two. So it's quite significant. All right. Thanks, David.

The next question comes from Adrian Albarn with Jarden. Please go ahead.

Oh, good morning, team. Maybe this is one for David, first of all. Just looking on slide 18 and just trying to understand other nutritionists' priorities, Like, when you back out the Pocono contribution, it's just sort of $30 million in terms of the China and other Asia category. Are you able to kind of give us a feel of how much of that is these new products?

That's why, yeah, it's pretty significant, the growth in kids and seniors. And then outside of that category, you've got Genesis contributing... I think I'm going to do a little bit later, but probably overall when you look at our growth, the investment we've made in innovation over recent years, it's really pleasing to see that come true. So if you look at our total growth for the half of just under 19%, if you adjust for the FX impact and Pocono in the period, you've got 15-ish% growth underlying. And over a third 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 six 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... Yeah, if you take our currency and currency in the AG Pocono impact, the sales associated with that, you know, they're about two percentage points each, so call it around 15, yeah. And I'm saying that over a third of that underlying core growth is due to innovation with the rest being the, you know, the core portfolio.

And within that, obviously, the fortified products and Genesis are the main lifters, and that's a third of the 15 million.

Yeah, it's around 30%, let's say 30%, for the half.

Okay, that's cool. Thank you for that. And just staying on the revenue side, just in terms of the paediatric entry, is the unit economics quite similar to infant.

It's probably an outsourced manufacturer, but... Yeah, it's quite a high margin category, similar to infant, yeah. Which is great, and it allows us, obviously, to reinvest to establish our awareness and consideration and trial in the category. So, yeah, we're attracted to the margin structure associated with it relative to our... the rest of that category which is lower margin but improving with the new innovation we're bringing to market.

Okay, thank you. Just in terms of the guidance, I'm presuming that the upgrade to 15% or 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 Sinley and that there's no major issues or disruption associated with our A2 coconut facility and transition and all that.

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

Yeah. So in the first half, we pulled back a little bit on our investment, principally related to what Shara highlighted in terms of supply constraints. So we pulled back a little bit on our 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 user recruitment and our innovation in the marketplace. So that'll 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 FY25 because we had supply constraints in the first quarter then and we pulled back a bit on marketing. So if you have a look at the marketing reinvestment rate in 25, you know, 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 Pocono losses, did you say that they were $5 million? And I think originally at the last result, you were expecting 10. Is that correct? I just didn't quite hear the end of... No, no.

No, sorry. No, I was referring to the half numbers. So 9.8 million EBITDA loss and five of that's NSGNA. So it's only to the end of December. There'll be more transformation costs in the second half.

Transformation costs in the first half?

So there was $5 million for transformation costs in STN and we've guided to about $10 million for the full year.

Okay, that's cool. Thanks for that.

Our next question comes from Craig Wilford with MST Marquee. Please go ahead.

Morning, David. 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 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 Johan answer that.

Yeah. So, yeah, if you look on 5.30, 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 market share upside from ASU Genesis and the primary channel of sale 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 store options. And so if we look at the English label market share trajectory, we're hoping to get to 25%. They're currently overall at 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%. Yeah, so we're the number one on the MEC basis for the last six months. So, and that's primarily driven by the success of A2Gensys. And then the half, the number one as well.

Yeah. So what would drive Platinum's 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 chair of the market?

Yeah, you're right. It's been the workforce 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 Flashdome 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.

That's as we transition from Simlay to our new facility, the A2 Pocono facility. So as you would expect, we're taking the opportunity to upgrade the formula and 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 just wanted to, it was $80 to $90 and now it's $80. What's the reason for that shift in cash conversion?

Probably the biggest change is the timing of the working capital build at Pocono. So the transition that Johan 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've just got a better line of sight over the timing of that. It's not worse than what it was. It's the same working capital bill that we called out previously. It's just the timing of that working capital bill.

Understood. Thank you.

Thank you. Our next question comes from Richard Barwick with CLSA. Please go ahead.

Hi, Tam. 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% 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, 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?

Yeah, so part of it is Vietnam and Vietnam accelerated quite a bit. I think that 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 Daigo 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, you know, 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.

Thank you, Richard. I'd also just add that Kantar data is helpful and looking at the longer-term trends, there's always, you know, anomalies in that. So if you look at Kantar, from a growth point of view rather than share, so, you know, SmartHub, the data for the title English,

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

Yeah. I think Kantar is more relevant the more aggregated you look at it. So total market, China label, English label. When you get down into the below that, it becomes more challenging. They review their methodology from time to time and 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, a pinch of salt. It's really, I mean it is relevant but I'd just look at it over time in terms of trends. Okay, got it. We'd probably be criticised for excluding it, so we're just including it to be helpful. No, no, I get that. Many investors don't have access to it.

No, no, I get that. 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.

Although it did help, but we're still growing quite significantly in the corpus and English-level endometriosis.

Okay. Thank you.

Our next question comes from Marcus Curley with UBS. Please go ahead.

Good morning. 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 gel 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 four products rather than one or is it a relatively small component of what's likely to roll out in the stores themselves?

Hi, Mark. This is Johan here. I think I helped 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. So these products are sold into both MBS stores and also online on VOL. And so when we look at MBS stores, if you think of 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 their store that is effectively companion to some of the 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, you can see they're focused on either immunity gut health or brain and eye health areas that A2 are known for in the early life nutrition space. And so, you know, over time we 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 supplements, supplement products. And so you can see on the picture, it's a container with a set of supplements inside, and so they're sachets within each, with the exception of the Brain and Eye Health, which is a soft gel and a blister.

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

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

But is... Infant, I mean, the last time we quantified that is $28 billion.

Yeah.

So, 8 versus 28. 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's addressable.

And the competitors there sort of align with the instant formative brand? So, like for example, Denome would have the larger 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, you know, there's an opportunity for a trusted brand to enter the market, such as E2.

Okay. Thank you. And then quickly, just on gross margin, David, you called out an improvement. Yes. 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, yeah, 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 we wouldn't say overly too much change coming through in the near term.

Okay, thank you.

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

Hi, guys. Thanks for taking the question, and sorry if it's already been asked before, but early stage, Stage 1 and Stage 2, I mean, previously you'd shown some market charts in prior reports of what Stage 1 and Stage 2 had been doing, and after the Year of the Dragon, Stage 1 had growing rapidly and had started to come off I couldn't see anything in this presentation is that has that now sort of moved to stage two products at the market level I know you guys are winning market share and got good growth but I was just trying to understand the market and then to put some context around that I think you've said your China labor sales are roughly half stage one stage two and the remainder is stage three stage four 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 three?

Thanks. I'll hand the show out just on the stage one trajectory in the market now, Cher. So on the mix of stage share in the business, so we're roughly... 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. Yes. I think Phil's question was around stage 1 growth in the market and our share around that.

And stage 2, sorry Dave.

Yes. And stage 2.

Yes. So, the stage 2 China label in the first half is strong growth. I mean, the benefits from FY25, we have a lot of stage 1, I mean, new user recruitment, I mean, cycling into the stage 2. But, I mean, if you look forward, I mean, it's going to be either flat or down. I mean, due to, I mean, now they are moving to the stage three. Yeah. Stage three in the first half is improving, but you are going to see a stronger growth, I mean, in the second half when they are successful consumer moving to the stage three. Stage one, I mean, as you can imagine, I mean, the whole segment is going on the downtrend, I mean, because of combination of, I mean, let newborn baby. But hopefully it can quickly bounce back into the new year. But also, I mean, kind of help by this, David mentioned the prolonged usage and the increased penetration. Those are all pure wins for the stage one. But I think, I mean, for us, it's more of a sheer gain, I mean, in the new user recruitment. Because we have done extremely well in the past. I mean, I demonstrate that we can almost, I mean, 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 are put all the focus, energy and money back. I mean, try to turn around. and we are confident we are going to see a improving trend on stage one. I mean, no matter the market going down or, I mean, worse.

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

Yes, that's very helpful. Thank you.

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

Thanks, everybody, for joining the call. I guess in closing, we continue to execute our growth strategy, focusing on maximising our opportunities in China and 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 Pocono. So I look forward to catching up with most of you the course of the next couple of weeks and thanks very much for joining the call. Cheers.