Thank you for standing by, and welcome to the Bega Group 2024 Results Conference. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key, followed by the number one on your telephone keypad. I would now like to hand the conference over to Barry Irvin, Executive Chairman. Please go ahead.
Thank you, and welcome, everyone. I'm delighted to present this year's annual results, and particularly in the context of what's been a challenging three years, where we've had many external factors, beginning with COVID, then beginning with significant cost increases, followed by, in the year that we're currently in, a major shift in global commodity markets that have certainly challenged the business. But I think what is pleasing is that we have been able to continue to execute on strategy. We've been able to strengthen our balance sheet, and as we look forward, we see great opportunity for this business as we execute over the next four to five years in terms of that transition to a branded business.
If I was to go to the presentation, I will just go to slide three, which is titled Overview a nd I will give you a brief overview and then hand to initially CEO Pete Findlay , and then CFO Gunther Burghardt . In overview, and I guess I touched on it, the really strong performance this year has come from our branded business, and it is living up to all that we might have expected of it. Indeed, the results demonstrate the strength and the breadth of the portfolio. We do have market-leading brands, and we are investing in those key growth strategies categories.
So very, very pleased with how they've performed, and that's on the back of, you know, an execution of strong innovation and in-market activity that's driven value growth. Perhaps pleasingly in uncertain times and in difficult times, we've got strong results also on the international brand and food service business, where we've always seen great opportunity, but that opportunity is beginning to be realized, and we see great growth for that particular part of our branded business into the future. Importantly, we have had to transform parts of our business to respond to the changing marketplace and, indeed, the changing circumstances of the industry, particularly from a capacity point of view and a milk supply point of view.
So we've had a major organizational realignment, which Pete will talk more to, but it's made our branded business far more effective and efficient, and it's made our bulk business more agile. And I think those two things is what positions the company well for the future. We're, of course, always looking for opportunity, and we're always looking to improve efficiency and productivity. We've had some small corporate transactions in the acquisition of the Betta Milk business in Tasmania, and then the rationalization of that business into our Lenah Valley plant. We've announced only in the last few days the agreement to sell our orange processing facility, which is the facility that basically squeezes the bulk juice.
We are absolutely maintaining and committed to our orange juice branded business, but we've actually done a transaction there where we see a specialist orange grower buy that facility and enter into a long-term agreement with us in terms of how we might service our orange juice business. We, of course, have previously in our strategic review of the Peanut Company of Australia, that's still underway as we look to more simplify our business and make sure that we are driving productivity and efficiency.
The financial performance for this year, we would openly say that we still think there's much more to be achieved financially in the business, but very pleasing in somewhat uncertain times to report revenue growth of 4%, but you know, maybe even more pleasing to me on that branded strategy, branded growth of 6%. The strong branded EBITDA growth has offset the challenges that we've often talked about around farmgate milk prices in this current FY 2024 year, being disconnected to global commodity prices. We'll speak a little bit more about that later. I think importantly, really strong cash generation, delivering us a year-end leverage ratio of 1.3 times.
Moving to the next slide, which is the financial highlights, which, of course, I will leave Pete and Gunther to refer to in more detail. But as I said, you know, very pleasing that we've been able to improve performance across the board. Improve revenue growth, EBITDA performance, profit after tax, EPS, all of them improved. Importantly, for shareholders, we've announced a final dividend of AUD 0.04 per share, giving us a full year dividend of AUD 0.08 per share, which is up on last year by 7%. I mentioned it earlier, I think for me, it's always important that the business is able to execute on opportunities either internally or externally, and a net debt of AUD 162.4 million, reflecting that strong cash generation.
Very pleasing, giving us that leverage ratio of 1.3. If I move to the next slide, it's really just to make sure that we continue to reinforce what our ambitions are and what our vision is. You know, it sounds like a bold statement, but I do believe that we are well on the path of becoming not only a business that owns , some of Australia's most iconic brands, but the business itself is becoming the great Australian food company, as we look to continue to build and refine our business.
So, you know, we are very clear on what we want to achieve and how and how we intend to achieve it, which I think is reflected in our vision, purpose, and value statements. I won't dwell too long on slide six, which is titled Our Transformation, but it does talk about how the company celebrated its 125th birthday this year. And indeed, it's been a particularly busy time, I would argue, in the last 10 to 15 years of that long history.
I think we have indeed moved from a small cooperative on the lower South Coast of New South Wales, producing a singular bulk product and selling it really just in one state, to now executing the strategies that saw us first expand, grow scale, create adjacencies in the skills that we had, and then make the major decision to start to move into brands with that, first the acquisition of, of course, Australia's most iconic brand, Vegemite, and then add to that a series of dairy brands that we are presenting to you today. That I think significantly strengthens the business.
And I might say that the presentation of the business today, as compared to what it would've been even a decade ago, I think that business a decade ago would have found it very hard to operate in the circumstances that we find ourselves in today and in the last few years. Whereas this business, with its brand strength, can look forward with great optimism. Just to touch on sustainability, we've got some significant coverage in recent times, and I would encourage anybody that was interested to understand more about the circularity initiatives that we've launched in the Bega Valley to have a look at the Landline program that was on a few weeks ago. But certainly we've refreshed our sustainability strategy.
We've always built on the great food for better future themes that actually reflect, if you like, both the history and where we want to be in terms of a sustainable business for another 125 years, but we've very much embraced circularity, community, and importantly, collaboration in our strategy going forward. And that does include the fact that the Bega Group is one of the strong engines behind the circularity, the Regional Circularity Cooperatives, and indeed, the construction of the National Center for Circularity in Bega. This initiative, I think more than any other that I am aware of, demonstrates the importance of collaboration.
The range of partners in the cooperative, driving research, and implementation of outcomes that will make a sustainable difference, not only within the Bega business, but well beyond it. And indeed, I think we'll look to demonstrate, both within Australia and around the world, the right approach to sustainability and getting effective outcomes, both from an economic point of view, an environmental point of view, and a social point of view. So we're very excited about this project and very pleased with how it's been embraced by many of our partners and indeed, the research community, government and beyond. That is the briefest of overviews from me.
I think, obviously, it's very appropriate that I hand this presentation over to CEO Pete Findlay, who has been executing our refreshed strategy over the last two years. I think that it's demonstrable for all to see that we're having great success in positioning the business for the future. Pete, I'll hand to you.
Oh, terrific, Barry. Thank you very much, and thank you to everyone who joined the call, in particular, our shareholders, who have given us wonderful support over the last 12 months. If we just go to the next slide, which talks about strategic priorities, and I think it's worth just quickly discussing the strategic plan that we outlined about 18 months ago, and that has really driven our focus for the FY 24 period, and we've been working very hard to execute against that strategy. So, we had six key pillars. one was around protecting and growing our core business in the large grocery trade in Australia, which is particularly important to us.
We hold high market share in those places, and that has been a significant profit engine for us, and we realize the importance of continuing to work with our large partners for the benefit for ours moving forward. The second limb of the strategy was to win on the street, where traditionally we've been a little bit underrepresented, and that was outside of non-core grocery, trying to win in areas like food service and local trade and institutional business, hotels and restaurants and cafes, etc , and then the third limb of our strategy was to try and streamline our sites. We've always got a focus to try and improve productivity and efficiency to remain both domestically and globally competitive, given that we want to play in those areas in the future.
The fourth limb of our strategy was around sustainability, meeting both our community and consumer goals, and ensuring that we're in step with the requirements that we have to meet moving forward. The next part of our strategy was securing solids, and that was really around building a more resilient bulk business that could compete for solids in a time of high demand and continue to create good streams for those solids both in the international domestic markets and also support the growth of our branded business here in Australia and overseas, a nd then the sixth pillar was around our international opportunities, particularly in the branded space.
The business has always had a good footprint or presence in the Middle East, Southeast Asia, and Northern Asia. We just felt that there was opportunities to continue to expand in that space and really drive that forward over the next five years. And then that was all underpinned by organizational enablement, so getting our organization set up to deliver on that strategy and ensuring that it was able to operate in a cost-efficient way. And so I'm pleased to say that we've made good progress against that strategy during FY24 . Our core domestic grocery business has done well. We've had both volume and value growth by working closely with our key partners being Coles, Woolworths, Metcash, Aldi, and Costco.
We're extremely pleased that in an environment where there were significant shifts in and out of particular channels and retailer-owned brands, we were still able to work with those partners and drive volume and value growth. The second piece was around our chilled distribution network. We did see quite a few headwinds around out-of-home dining, which did impact our restaurant trade and our petrol and convenience trade, but we're still able to execute well in areas like food service, where we're able to actually take market share. We've got 14% growth in food service, and that's certainly helped mitigate some of those channels, but we're particularly pleased about the progress we made there.
Also in our customer experience, how we dealt with customers and how that cost to serve, where we've continued to make gains in place. Our international markets, we actually had a record year in our branded international business. We delivered just over AUD 250 million of revenue, which is up 11%. Significant growth in Southeast Asia and Northern Asia, in particular, around our yogurt and cream cheese business, which is high margin and very lucrative to us, so a really good year in our international markets. While we got growth on the top line, there was still a really strong focus around enhancing capability and driving efficiency and cost effectiveness into our business.
So we've done a lot of work around streamlining our sites, as Barry talked about before. We obviously completed the move out of our Canberra site by selling that business, releasing cash back into our result. Good news on that scene, got a terrific result there for with the sale of that business, and we're able to shift that volume into Penrith, so also creating good cost efficiencies in our white milk numbers out of Penrith due to that. We obviously bought the Betta Milk business in January of this year.
I'm pleased to say that within four months, we'd actually transitioned out of two sites that were previously owned by that business in Burnie in Northern Tasmania, and the Meander Valley Cream site, and we're able to put that volume into our Lenah Valley site and also drive six liter gains on our manufacturing capability in Tasmania, which was great. Then, obviously, the transaction we've just done with the Leeton Juice site, where we've sold that to Grove, who are able to nearly double the volume through that site and share those efficiencies with us. So whilst we still remain incredibly committed to our juice business, bottling and branding juice, we're now able to get an uplift in our production costs for that business.
Obviously, we're looking at the two PCA sites and how we get a better cost structure there for our business. So, that a lot of work done there. We also completed our restructure of our head office. We closed nearly 250 roles in the head office, generating close to AUD 2 million of annualized savings, and took additional roles out of some of our factories, probably another 50 roles out of our factories, which has also helped. So a lot of work happening there.
Met our sustainability commitments, which I'll talk to in a little while, and have now got an organization that we think is set up, particularly across the branded space, to focus on those two core of grocery and non-grocery, and in the international piece stemming off that. So, we're pleased with that. We did get growth in our business, and I think that that will be particularly important to have growth and momentum going into an environment where it is difficult for growth, I think, over the next 12 months, but also continue to work on our cost basis, and we look to do that while driving very targeted promotional campaigns, and we'll continue on that train of activity into it.
I'll move to the next page, which is just a couple of the financial highlights. And, I won't spend too long on this slide, but just to reiterate, some of the comments that Barry made and maybe, extrapolate on them a little bit. We effectively had, you know, an AUD 50 million-plus earnings hole this year, created by that disconnect between farmgate milk price and our commodity prices. And I was just really pleased to see the branded business be able to cover for that hole, and actually, give us a year-on-year highest earnings. And that was done through good top-line growth, great resilience from our brands, but also a lot of value creation that I talked about before. So really demonstrated the resilience of the business.
I think now as we see things start to normalize in the bulk business, we can continue to see an uplift in FY 2025 earnings. That really takes us towards that FY 2028 target of AUD 250 million of normalized EBITDA. Also really pleased around our balance sheet position off the back of that, and the team have done a huge amount of work under the guidance of Gunther around reducing inventory, really focusing our capital spend. So our capital spend is sitting below depreciation. I don't think that's a bad thing for our long-term growth from the team on areas where we think we can make a difference.
And that's actually allowed us to continue to increase our return on funds employed, and our asset terms in the business, and gives us flexibility by reducing our net debt and leverage ratio. When I joined the business back at the end of 2019, our leverage ratio was sitting over three times, and the fact that it's now down times with a really resilient earnings outlook, I think, is something that we can be really pleased. W e just move on to the next slide, which is titled Branded Business Momentum. And as I said, you know, generating a significant uplift in our branded earnings for the year.
That was done through good growth on the top line, created by volume and value growth to help mitigate significant cost that came through our business, but also a lot of really heavy work done around efficiency and productivity and driving costs. We've always realized that, you know, it's not a long-term strategy just to pass on cost increases to the consumer, and in fact, as the consumer begins to tire of those cost increases, particularly through FY25 , cost improvement and productivity will be absolutely key to our moving forward. We did a lot of work around retendering logistics services. We brought a lot of logistics back in-house and used, you know, excess logistics connectivity in the economy to drive benefits there.
We reviewed our fixed costs at all of our sites, and we're actually able to spread our services across a number of sites. Also, with the reduction of those sites I talked about, that will also play back into our cost footprint that it takes to support those site costs there. We changed a lot of shift structures. There was a real focus on driving operational output out of our particular lines, which allowed us to change our shift structures down, so actually producing more with less, which enabled a number of costs to come out of some of our larger factories.
And we targeted our promotional spend where we had operational leverage, so driving volume in lines and in factories in particular, where... And that was very, and we worked really hard with our large customers to do that in a targeted way. So, yeah, really good brand of business and momentum. As I said, our food service business grew dramatically, 14% revenue increase, and we think we can maintain that. We did a lot of work around setting up a proper food service portfolio. Specifically for the food service business and to meet those food customers' needs, we did a lot of work around chef selling, and we hired some terrific talent into that business to drive that.
We certainly think we can continue to win on the street in the future, and that will probably drive a lot of the uplift in our brand of business moving forward. I already spoke about the success of our branded business overseas, where you know this year that we would like to double the next four years as part of our FY 2020. So really good momentum in our branded business. We just move on to the next slide around innovation, which was core to that momentum. Our yogurt category is highly responsive to new product development. The team have spent a huge amount of time making sure we've got an innovation pipeline for yogurt and for the milk-based beverages, where a lot of our high margin and operational leverages .
In our business, we've got great size to support that, that growth and innovation. So there was some terrific work done around new pouch formats. You know, we did work on our Farmers Union Greek children's offering and our Yoplait no sugar offerings. And you know, that has led to us you know increasing our pouch outputs significantly. And so you'll know that we produced or put in place a new pouch line about 18 months ago, and in actual fact, that pouch line is near capacity, and so we'll do more than 10,000 tons. Two years ago, we were doing about 5,000 tons. So a really good uplift in that pouch capacity, and that's meeting our consumer needs.
Also really good innovation across our milk-based beverage category, and pleased to say that we've maintained our strong leadership in that area, with more than 50% share. You know, lactose-free and no sugar-added offerings were implemented. Our no sugar offering has now moved to about 8.5% of our total milk-based beverage offering and actually grew by about 23% year- on- year. Linking into functional trends and continuing to make that milk-based beverage offering very relevant. We obviously did our Darë plant-based offering, and we introduced our new intense range, which is actually one of our.
So, very, very important that we continue to invest in milk-based beverages, and I'm really pleased to say we've got some terrific innovation happening over the next , and formats, and new functional benefits in that space that we can continue to drive the growth of that moving forward. The next page, which is core brand growth. If we go to that, a significant investment back in our brands in the last 12 months, so ongoing investment in Vegemite. We celebrated our 100-year anniversary, which is terrific. We put some money behind Farmers Union, and we did the Aussie All- Rounder advertising campaign, which was particularly successful.
and I'm just moving a little bit closer to the mic there, which was particularly successful and drove 11% uplift in that space. And of course, we ran a Yoplait campaign as well, which helped drive growth into the Yoplait brand. We did a lot of messaging around some of the innovation around Yoplait, with no sugar added and lactose free. And that Yoplait, particularly our Yoplait tubs, really resonated with consumers who were seeking value, particularly in the H2 of the financial year. Dare continued to be strong. We had a no sugar added range, obviously, which I said we implemented particularly well against.
We ran a Daremergency , and, "Are you okay?" In-store brand activity around Dare, and really pleased to announce we've got some significant new material coming out to support Dare, both on TV and outdoor billboard over the next six months, which we're excited about. And we ran a Western Australian Masters Iced Coffee advertising campaign, which was just dipping our toes into how we support some of our local brands. We've got some terrific local brands, and, you know, we've got some really good uplift there, and so watch out for some news around what we do around Big M and Dairy Farmers in some of our other stages, which was really exciting.
We'll just move on to the next slide, and I thought it was just worth talking about our international market expansion, because we do see this playing a significant role for us in the future. Bega's always had a really good international brand of business. It tended to grow out of a push strategy, where we saw opportunities for, you know, products produced here in Australia under an Australian halo to be sold into international markets. That served us really well for a period of time, but we think to take it to the next level, we need to focus a little bit more on a demand-led strategy. So specializing products for those particular markets that meet consumer and customer needs. In particular, focusing on the food service area.
Out-of-home eating is a particularly big trend in places like Southeast Asia, Middle East, and Northern Asia. Developing products that meet those food service needs, working with chefs, and promoting those products in the right areas. We've done a fair bit of work around that. We have consolidated our distributors in those marketplaces. We've created relationships with those distributors that we think can best meet our needs, but we've also created direct relationships with retailers and food chains.
In Thailand, we've started a really good relationship with Siam Foods, who owns a lot of convenience networks in that part of the world, and we're working with them directly on cheese slices for their sandwiches and burgers and so forth, which is just starting to create some really good opportunities. We've also done some extensive branded work, so now across all of those countries, we've got a consistent green Bega branding, which is really helping us stand out on shelf and exhibitions and so forth. And we're building out our capability. So the international team will hit 26 people.
This year, we will just set up a marketing team that will be based in country, and we're looking to set up relationships with manufacturers in country. That gives us other optionality around second processing of our product. Very excited about our international brand of business. As I said, very strong growth in cream cheese and yogurt, and processed cheese. We will probably focus on those three categories. We don't wanna try and be too much to too many markets, and we're particularly excited about what FY 2025 has in store for this part an d we're already seeing good results in the Q1 .
If we move on to the next page, which is about our brand momentum, and it's something that we tend to talk about at these results, and sort of goes to what Barry was talking about. You know, our brand of business is now 86% of our business, significant growth, and we were really pleased that, you know, we're actually able to improve our branded segment, EBITDA margin, which was at 6.6% for the period. Still nowhere near where it wants to be, and we have aspirations of moving that. We're heading in the right direction, and we're pleased that some of the work we've done over the last 18 months is developing that margin.
We'll work on that margin through areas of growth, product mix, and just continuing to drive cost out efficiency. We move on to the next slide. This is a slide around our brand shares, and I guess we just come back to this slide because it highlights the strength of our brand share across core retail categories, but also highlights there's been reasonable growth in those categories, and so, you know, we continue to focus on areas where we're number one, around you know, milk-based beverages and spreads and yogurt, obviously high-margin categories for us, and areas where we'll continue to work with our consumers and customers to drive growth and innovation.
But good performance out of our white milk business and juice business, and even water ice, where we have strong share, and, you know, that gives us a platform to continue to grow on and drive it to our manufacturing site. If we move on to the next page, you know, we continually look at consumer trends, but the good news is that the four key trends that we sort of focus on, and that we evolved our strategy on, still remain in place and still remain very relevant to our categories and our product range. So, you know, better value's probably been heightened over the last six months, and I think will continue to stay heightened throughout FY 2025.
We've got good brands that can appeal to customers in this time of space, and we've got good pack sizes. So also, we see some customer segments still wanting convenience. We have seen a little bit of a swing back to those one-kilo offerings, and offerings of brands that bring perceived value to the consumer. And as I said, we think we play pretty well in that space. And we also have a terrific relationship with our customers who do retail our own brand. We continue to work with them on how we can meet their needs.
We saw particularly strong growth in Aldi and, you know, and Costco, and it'd be fair to say we're working with Coles and Woolworths all the time over retailer-owned brands. And in fact, yeah, some pretty good growth in the independents, where we supply a lot of their retailer as well. So as we've seen, consumers probably downtrade a little bit out of home eating into large grocery chains, and then within large grocery chains, down to retailer-owned brands. I think we've been pretty agile and pretty good in meeting those needs and moving with those consumer trends. Functional health is still really important. I read off some of the numbers around no added sugar at around, and around lactose-free.
We continue to see opportunities around high protein functional benefits such as calcium and probiotics, and in fact, you'll see a lot of that reflected in 12 months. You know, we continue to try and build products that move with our demographic changes. We are seeing shopping continue to be more frequent. We are seeing people still wanting product they can consume on the go, and that they're happy to give to their children, which is why, you know, we've had such strong growth in pouch. But also that Farmers Union program around the Aussie brand, appealing to new demographics, and new migrant groups who continue to use that in their cooking, particularly Middle Eastern Asian cooking. So that continues to be a focus for us an d sustainability.
While sustainability has a high awareness, you know, we need to continue to meet those awareness needs, but do it in a way that's commercially savvy, because we would say that we're unable to necessarily get consumers to pay more for those sustainability benefits. So it's important we balance those. If we just move on to the next page, which is about bulk business. So look, a really challenging year for our bulk business from a financial perspective, really caused by that disconnect between farm-gate milk price and commodity prices, and I'll show that in a couple of slides moving on, bu t I was really pleased with the way we did work in that environment to improve the resilience of our commodity business forward.
The team put a huge amount of effort into taking cost out of that business and making it more flexible, so we took out, you know, several million dollars of overheads. We looked at how we might create higher value markets, particularly around our proteins. So we opened up new markets, with protein concentrate in particular, and how we dry and process some of our whey concentrates and markets for that product in places such as China, and y ou know, how we really continue to double down and reinvest in our cream cheese business, which is working well in the branded space overseas, and how we might look to actually increase capacity. So a huge amount of work done within the commodity or bulk business to make that more resilient.
It would be fair to say that that allowed us to compete for the milk we needed in the FY25 procurement season. It also still gives us the capacity to pick up opportunity milk as that arises during spring flush, and I think sets the business up for a stronger result in FY25. We're actually really pleased with the way we were able to shape up and compete for milk in June as we went through that procurement season. A huge amount of work done. We actually think that the bulk business will return to profitability this year.
It still won't go back to the historical levels that we would have liked, but we think it's in a much better place than what it was. And hopefully, as we continue to build out some of those improvements after those, so FY 2022. One other thing I must highlight is that the work during the year on being able to move in and out of different streams. So we were able to pick up some benefits from higher fat prices, and alleviate some of those lower protein prices around skim milk powder and demand for infant formula, which was great. And we've also just installed new capability at our Tatura site that is actually helping produce non-dairy proteins.
And we've signed an agreement with a local provider for an offtake over the next three years, that we're hoping will end up being quite a lucrative stream for us, that is actually not attached to commodity dairy prices, which is terrific. We just move on to the next slide, I think it's worth looking at Australian milk production. It was actually a really positive year for milk production off the back of. You know, we haven't got the FY 2024 farmer profitability numbers, but we've certainly got the FY 2023 numbers, which was terrific, that farmers were able to have a really profitable year in FY 2023, and we think that will actually be replicated in FY 2024.
And we actually saw some an uplift in milk production, which was fantastic. So, some growth there, up to 8.4 billion liters. And with that, we've probably seen a little bit of contraction in capacity as people have pulled capacity back, which has probably helped that dairy connect a little bit better with our international commodity. It's pretty early to tell what milk production might do over FY25 , which years through July and August. We're hoping that milk production stays relatively well, maybe increases a little bit in the FY25 year, which would actually be the first time we've had two years of milk production growth since 2014 , s o that would be promising, c ertainly a stabilization .
If we move on to the next slide, which we've talked about in our half year results, this actually shows the Australian Farmgate milk price. Our published price, and it shows it against a basket of commodity milk products and the value of those milk products, and you'll see there the significant gap that we had to cope with during FY 2023, but more importantly, the reduction of that gap in FY 2025, and so what becomes important is that i t's not so much the milk price itself. In fact, we would love to pay a higher price to milk, but it's actually that relativity to that.
So that's come back in line, which is what will help us drive a profit back into our bulk business. This you'll notice, though, that the commodity prices still haven't improved dramatically, and we would've hoped that they would've lifted a little bit by now. They haven't. They've stayed relatively flat. Unfortunately, we don't see that improving, certainly in the H1 of FY 2025 , and probably out for the first three quarters of the financial year. So you know, we're seeing probably low demand still in China, and whilst suppliers come back or productions come back, particularly North America, we're just not seeing that demand line reciprocate and rebound. So we think that commodity prices will unfortunately stay pretty flat throughout .
The Farmgate milk price is much better. So if we just move on to the next page, where we look at our manufacturing facility, and we've talked about this. Obviously, we've now closed the Canberra site. We've bought and closed the two sites in Tasmania. We've now sold the Leeton facility, and we're reviewing those two sites at Kingaroy and Tolga. And so that's really about just continuing to try and optimize our footprint and get a better cost per unit out of our business. It also allows us to run a lighter overhead. So that's something we'll continue to focus on. We'll also look at where we want to shift production volumes to get that best operational leverage throughout the business.
As we look to try and drive volume and drive cost per unit. We just move on to the next slide, which is around investing in line with strategy. We did actually do some fairly significant projects in FY 2024. We obviously reduced that overhead footprint, which will drive, you know, AUD 22 million annualized savings, AUD 12 million, which are in the FY 2024 year, and we think actually aligns our sales organization better to our channels and actually allow us to invest in that sales organization. We maintained our CapEx, but I think did some really important projects that will drive benefit into the future. So we did finish our new digital sales platform, which is part of that win on the street strategy.
That we hope will enable growth by making us a lot easier to trade with, but will also drive cost benefit back into our cost to serve and distribution model. So we've been able to roll out good disciplines around minimum order values, reduce drop, increase drop sizes, reduce drops to our customers. So while we're able to engage with customers in a better way, but actually are able to service at a cost. So that's something that we're really excited about, and we're doing a lot of work on our cost to serve this year. We've got a number of projects in place that we're working through at the moment. We did some heavy lifting on integrating our core ERP systems. We will not be going to a single-core ERP rollout.
We just think that that's not the best way to spend our funds at the moment, but instead, we're putting some pretty smart middleware layers across the top of it that allows us to bring together our integrated business planning processes, you know, drive a much better demand picture across the business, and engage with our customers in a better way, and also take costs out of our, so we think that that's a much more effective way by putting layers of middleware in that actually bring our ERP systems together at points that make a difference, rather than trying to drive integration across. So that was really successful and we'll continue to roll out incremental changes in that space over the next years, and Gunther's sort of helping lead those.
And of course, Laverton and warehouse automation, that's a AUD 30 million project. We've kicked that off. That won't be in place until FY 2026, and we're hoping that that generates sort of up savings a year, and really future-proofs that hub in Laverton with all of our yogurt and a lot of our NBB go through. So, we think that that's the right strategy. So some good CapEx being spent. We anticipate that the CapEx will stay below that AUD 85 million depreciation number, somewhere around that sort of AUD 70 to AUD 75 million range. We'll be focused very much on the things that drive those strategic pillars that I talked about at the top of the presentation. Just moving to the next slide.
You know, I just thought we'd just expand a little bit on our large sustainability initiatives. You know, we do have our commitments around our 40% reduction of absolute Scope 1 and 2 emissions by 2030. We've obviously formed a risk and a sustainability committee, and we do monitor those on a regular basis. Really pleased to say that we're tracking well with that, and the team are doing a really good job on putting that in place in a way that also drives cost benefits through to our business, which I think is really important.
30% reduction in water by 2030 is also on target, and our net zero by 2050. Obviously, by hitting our 2030 targets there, we see a good 40/40/20 diversity numbers or HESTA commitments are also traveling well. I'm really excited about the Bega Circularity Project. We're obviously a member of that co-op, but one, proud of the impact that has on our brand and that it's in the home of the company, which is really important. But also, two, excited about the learnings we can take from that and spread across our other communities that we're obviously key players in, and bring benefits to our other communities, and our suppliers, and customers. The packaging continues to be a key part of that.
We're obviously, you know, have made significant APCO packaging commitments, and we continue to do well against those targets, and you know, we'll continue to invest behind that, so rolling out a lot of initiatives, particularly around our smaller packaging formats in milk-based beverages. We've won some great nutritional awards, and as I said, we're continuing to launch products that are better for you, that meet our consumer needs, but also, I think, have a great halo impact in our food industry, and you know, we're doing work around how we meet those reporting requirements that are coming at us very quickly, around climate change and the impact that has on our business.
And I think we're in good stead to do to move those changes and meet those legal requirements in a really responsible way and a way that allows us to guide our business in the future as well as communicate with our shareholders. So with that, thank you very much. And now I'll hand over to Gunther Burghardt.
Great. Thank you very much, Pete, and I'm gonna do in half a dozen slides, a whistle-stop tour of our financial results. The next slide is titled Profit and Loss, and throughout these, I'm gonna focus on our normalized results. So on the left side here, Barry's already talked, and Pete, about the sources of our revenue growth. I have a later slide where I'm really gonna unpack how our EBITDA, our profitability, has moved from FY 2023 to 2024, so I won't talk to that here. I did wanna touch on three or four accounts, though. As Pete said, our depreciation and amortization down to AUD 88 million this year, and consistently you'll see us invest in that AUD 70 million to AUD 75 million CapEx level, and not starving CapEx at all. We're investing in growth, we're investing in capacity, we're investing in savings and efficiency.
Where we've chosen to invest a little less than the last year is our bulk sites. So very choiceful in our bulk sites and very choiceful in some of our fresh white milk sites during the year, but not starving our CapEx program and investing where it matters. You will see us investing 15% to 25% a year in IT over the next three to four years as well, so that's important. You do see a net step up in the finance cost line, so it goes from AUD 23 million in FY 2023 up to nearly AUD 35 million. Now, AUD 5 million of that is interest rates themselves being higher for that 12-month period. The other AUD 7 million is the impact of the Vegemite Way lease.
We have the first full year of the sale and lease back of Vegemite Way, and we also renewed the Laverton lease during the year. So AUD 7 million is the combined total of lease impacts. Our normalized tax number is very close. It rounds right up to 30%, so nothing to say there, and that's what translates into 9.6 cents a share of EPS. What I'm excited about is the potential for our EPS to expand over the coming years. Pete's gonna come and talk to you in a few slides about our guidance for next year.
But even if we delivered on market consensus in FY 25, which is about AUD 195 million, if you assume your depreciation and amortization stays under AUD 90 million and declines a little bit, you've got EBIT of over AUD 105 million, right? We think that the AUD 35 million net finance cost is the peak, and they begin to slowly decline as we manage cash more efficiently, as we have a more robust balance sheet, as rates begin to decline. So then let's say it even stays above AUD 30 million next year, but it declines. Well, you're talking a profit before tax of over AUD 75 million. After tax, this is AUD 50 million of profit after tax. So already you're up over AUD 0.16 a share, which would be 60% growth against this year's EPS.
The point I want to leave you with here is the potential for Bega's earnings per share to expand over the time horizon of our strategic plan. That's very exciting. On the next slide, I've got a reconciliation between our statutory results on the left side and our normalized profit on the right side. I'm just gonna talk to the EBITDA row itself. Our statutory EBITDA was AUD 165 million, and from that we've deducted AUD 13 million. That was a non-trading material item, which was the sale of the Canberra site that Barry talked to and Pete. So we removed that from normalized earnings. We did have AUD 5.3 million of additional restructuring, and as Pete said, this restructuring was really targeted at our manufacturing sites, our logistics network.
What you're gonna see in the next slide is that this is one of many things that led to over AUD 40 million of efficiency programs across our supply networks. This was an enabler for that. You see the Betta Milk acquisition that we completed in December 2023. We have AUD 6.9 million of one-time costs as we consolidated production into Lenah Valley in Tasmania, and we also wrote off AUD 2.8 million of assets as part of that. So that is how you get from AUD 165 million of statutory earnings to AUD 164 million of normalized earnings. Now, the next slide is probably the one that's most interesting in understanding our profit evolution during the year. It's called profitability overview.
On the left side, you get 160 million, which was our normalized EBITDA from FY 2023, the prior year, and on the right side is 164 million, which is what we delivered in the most recent year. And in between, you see the key things that moved our P&L. So the first three blue columns, they are all about the branded business, and if you add them together, they add up to 71 million EBITDA improvement in the branded business. That's over 50%. So the first bar is about branded volume, mix, and price. So as Pete and Barry mentioned, it wasn't just about growing volume, it's actually about growing in the categories that matter. So for us, yogurt, milk-based beverages, spreads, those categories have substantially higher profit than some of the other categories we compete in.
I'm very pleased to see we grew volume and value in those categories, and we put a lot of our investment, a lot of our innovation into those super categories, and it really shows in this result. That drives category mix. We did take price to partly mitigate inflation in FY 2023. If you remember, in the prior year, there's a lead time to pricing. There's two or three months with some of our big customers. The great news is, as we got into FY 2024, we had the annualized benefit of that price, and we took some more price to try and get close to cost inflation. Didn't quite get there, but took some pricing, right? That's all bundled into that AUD 12 million. In the middle column, you see AUD 84 million of cost inflation. Inflation is decelerating, but it's not negative.
That's about a 3.5% cost inflation across our cost base. Labor's going up almost 4% in our factories. Energy and gas continue to increase, and some purchased areas like coffee and cocoa continue to escalate. So about 3.5% inflation. But what we're really proud of is the next bar. We offset more than half of that entire cost of inflation with efficiency programs. So AUD 43 million of efficiency and value creation programs, that's more efficient lines in our site, restructuring overtime, restructuring shifts. In the logistics network, it's consolidating cool rooms and making them more efficient. And a huge chunk of that is procurement savings from our procurement team.
So all three of those functions working together, and then, of course, overhead savings, as Pete talked about as well, were a big factor in the branded business, and a lot of the overhead savings we have are within that branded business. So over 50% growth. As Pete said, a tough year in the bulk business, so year- over- year, we dropped AUD 61 million in earnings in our bulk business. What I'm really proud of is, if you'd looked at commodities themselves, it would have been an AUD 80 million dollar decrease. But our bulk team went out in springtime. They found lower cost opportunity milk that was available during the spring peak. They made profit on that. They changed shift structures in some of the bulk sites. They became more efficient, and they mitigated almost AUD 20 million of that impact to get us to a minus 60.
So great work by our bulk teams. The final bar there is an AUD 9.7 million increase in unallocated overhead. And you may ask, with your restructuring, why is that number going up and not down? Right. So first of all, as I said, the biggest part of our restructuring savings was in the branded business, and as we changed our entire organization, we created some centers of excellence in the center. So, for example, finance is embedded in a number of business units, but we now pull that cost and show it as one shared service center. IT, likewise, we bring that into the center. So there was an AUD 5 million transfer of overhead costs as we restructure our organization into that unallocated overheads. The final thing I'll be transparent about is last year, we didn't have any bonuses for our employees.
We don't disclose what bonuses we pay our employees, but I'll tell you, in FY 2024, with a 50% growth in our branded EBITDA, there are quite a number of employees who rightly deserve some bonuses. It's not zero, it's not 100%, it's somewhere in between, and you see some of that in our allocated overheads. On the next slide, you get some key performance measures, and I would step back to our strategic and investor day on November 2023. At that time, we said, as we look at the next five years to FY 2028, there are two measures that are the most important to our strategic plan. The first of those is margins, gross margin, EBITDA margin, right? So you see an improvement of 1.4 points in our gross margin.
Now, we don't disclose gross margins individually for our bulk and branded business, but if you recognize that our bulk business declined by AUD 60 million plus in earnings, what you're getting is a huge improvement in our branding gross margin, for the whole group to move forward. So that's really encouraging. I'm going to pause for a second on dividends per share. As Barry said, a good 7% improvement in dividends per share. And I think what's exciting as you look to the next three or four years, is you'll see in our annual report that we have a bank of franking credits of over AUD 113 million. So as our EPS expands in the, in the coming years, as it will, the opportunity to reward shareholders with fully franked dividends is very strong, very compelling. So that's great.
The final thing at the bottom is return on funds employed. We've moved up almost 2.0% to 5.6%. Not nearly good enough. Our strat plan demands that we get to over 10%, and we will by FY25 year . We need to be in that double digits, but that's a great move forward. That was driven by net working capital reduction. That was driven by being choiceful about CapEx, and as Pete said, about selling some assets that maybe belong better in other hands, whether that's the Canberra site or the Leeton primary processing site. So a lot of work went into driving that ROFE forward, and we're very pleased with that result. The next page is the segments, and we've covered most of the numbers on this page.
I think the only thing I'll point out is, as part of that strategic plan day, if we've delivered AUD 200 million in normalized EBITDA in our branded business, what we've said is by FY 2028, we want to be at AUD 250 million. That only requires us to grow 6% a year CAGR in our branded business. So not an unreasonable target, right? And it allows us to step up investment in our brands and to really do that in a sustainable way. So there's a clear pathway to our strategic plan, and we've remained firmly on that pathway. The final couple of slides, the next one is titled Cash Flow, and I would say this was a real highlight of the year.
And, if you look at the operating activities, cash flow line in the middle of that, you see us almost break even last year in FY 2023, and we've gone up to AUD 134 million of operating cash flow in FY 2024. Very pleased with that. That's already over 80% cash conversion, and if you look in that top section of the cash flow, it's an income tax year where we had several million of additional income tax costs to form a consolidated tax group, and we're at the peak of the financing costs. If you normalize for those things, we're in the range of 90% to 100% cash conversion. So a very strong set of numbers, largely driven by working capital. Our working capital came down AUD 74 million, and that was predominantly driving down inventories, particularly in our bulk business.
Now, lower down, you see our, you know, investments in new PP&E and intangibles. That's our CapEx line. That was AUD 74.6 million. So I want to leave you with one thought on this slide: We funded our entire capital expenditure investment program with a reduction in net working capital. That's a great message. The final slide on the next slide is our balance sheet. Our receivables were up a bit. We did sell more in May and June of the year, leading to higher receivables, but there you see inventory dropping AUD 70 million year over year. So really strong performance there. And I just want to call out the payables line. Our journey on payables is going to be a three or four year journey. With smaller suppliers and farmers, we pay them quickly and we pay them on time.
But for medium to large suppliers, we need them to bear a fair proportion of the industry supply chain with us, so they need to be at 60+ days. As large suppliers come up for renewal, we are discussing payment terms and pushing those until we get to a fair outcome, and that is beginning to make a difference here. So net debt down over AUD 40 million and 1.3 leverage. What can you expect to see from us in FY25? We always do have a net investment in that H1 of the year. Remember, in spring peak, we get 60% to 65% of our milk in that first half. In December of 2023, we had a 1.9 leverage. We're gonna improve on that, and we'll probably deliver between 1.6 and 1.8 leverage, so it will improve.
By the end of FY25, we will improve on the one point three times, and we'll get somewhere between one and one point two times leverage or better. So very exciting, because once you get to 1.0 times, you're really talking about what kind of capital management? C an we do, to really reward our shareholders? So that's for me. I'm gonna hand back to Pete, who's gonna summarize where we are today and where we're going in the future.
Terrific. Thank you very much, Gunther, and so if we just move on to the slide, which obviously has the heading of where we are today. So I think we're really well-placed. You know, that's been a strategy that's been in place for some time now, but as we've been transitioning towards a branded business, we have iconic brands. They resonate with consumers in Australia and internationally. They're in places and have the ability to move with consumer desires and insights, yeah, particularly around functional benefits, around healthier eating, and around you know, snacking, and across a number of different day parts. So I think we're in a really good place with our iconic leading brands.
We've got an integrated manufacturing and processing network that is starting to operate well, but I think still has more improvement in it, and we'll be working on that over the next 12 months with our strategic review of PCA. But we're starting to get good benefits from that network. I think it's starting to sort of get to a place where we can really springboard off that. You know, we will start to or continue to invest more in technology around our logistics and around our bigger route network system. And so I just think that there's a lot of opportunity for productivity improvements within the business. I'm really happy with our agile response to the changes in the market.
You know, as I said, we've seen consumers trade in and out of channels and within category subsets, but I think we've got the ability to move with those different changes. They don't always suit you, but we have got good representation across a number of channels that allow us to defend against that. And as they continue to evolve, so as consumer sentiment and confidence comes back, I think we're well positioned to win in areas that are probably doing a bit tough at the moment.
You know, our branded acquisitions are ahead of business case, so both the Mondelēz and the BDD acquisitions are ahead of business, which has been terrific because our bulk business has, as Barry's alluded to and stated, has been under a lot of stress over the last three years. So without those businesses performing in the way they have, our results would have been a lot tougher. You know, I think there's still huge opportunity, though. I think we can continue to grow our brands both here and overseas.
As I said, I've talked about the excitement that we've got, you know, with the opportunities in our branded space overseas, particularly in Southeast Asia and the Middle East, which are growing areas as they transition into even higher protein diets and seek more dairy on a daily basis. So I think great opportunities there. I also like can extend our core brands here without necessarily having to go too far from their brand essence or what they mean. So, you know, we continue to see great runway for Dare in the beverage space, and for our yogurt brands into consumer needs. We think that we've got our bulk business in a good place.
So nothing like facing the headwinds that it had to face into over the last couple of years, and we think it will start to pick up on the opportunities as we continue to see that gap between farmgate milk prices and commodity prices narrow a little bit, and we're seeing a little bit more rationalization or sort of rational bidding in the milk procurement season this year. We think that that will probably continue, but we think our bulk business is gonna be really well placed to do that. You know, we'll continue to invest in cream cheese, milk protein concentrate powders, in lactoferrin, and in non-dairy proteins, where we can continue to make that business more resilient. We're happy about our balance sheet strength.
And you know, Gunther and the team have done a huge amount of work on that. And it's worth noting that that's also been done in an environment where our inventory levels have actually risen dramatically because of the cost of input. So that has been a hidden hit to our working capital, and the team have done a great job on that. And we think that we've got o ur people and capability is in a really good place. So obviously, we took costs out, and we'll continue to take costs out as we spend on our technology, and we look to automate and do things better. But we think we've got the right people driving those strategies. We're excited about their ability to take forward.
You know, looking into next year, as Gunther alluded to, we think we can continue to drive good outcomes for our shareholders through our returns on funds employed and the earnings per share accretion that goes with that. You know, we think that our strategy stands up, and we think that there's some really good work we can do against those strategic pillars that will continue to improve those results. It will be a slightly different year, so we're seeing a very challenged consumer environment. We accept that we're able to get some mitigation from high costs through price increases in FY 2024, although, as I said, we showed a good track record of value creation.
We think that that will not be in place in FY 25. Therefore, earnings will have to be driven through productivity and efficiency improvements. In fact, we've forecast very little price increase for the FY25 year. It will be done by improving our footprint, driving growth through volume by being competitive on price, selective promotional campaigns, and operational leverage. That's what we think will drive our FY25 year. We think our branded business can continue to grow through those opportunities, but it'll be sort of single mid-digit growth, and our bulk business will respond to that closing down of the gap between cost and commodity price, although it still will not get back to its original levels in the short term, because we do see commodity prices being reasonably constrained.
We've planned for that, and that's in our numbers. You know, we are calling out a group normalized EBITDA range of AUD 190 million to AUD 200 million. And we think that that's in line with where we wanna go around our 2028 strategy to hit a AUD 250 million earning run rate, and continue to improve our returns on funds employed. With that, I'd just like to thank the team for their outstanding work throughout the year.
As I said, we've had some things go against us, but that hasn't stopped them from working really hard in the areas where we can make an improvement, and therefore, we've been pleased with the ability to improve our earnings profile year- on- year in light of those challenges. And so I'd just like to thank all of the team for their support, and thank our shareholders for their support during that time. And I'll now throw back to Barry.
Thank you, Pete. Thank you, Gunther. I think before we go to questions, I think I'd just comment that what we've looked to present to you today is not only a comprehensive overview of the business, but also a reaffirmation that we have remained focused on strategy. You know, despite the fact that over the last two or three years, we've certainly had a number of headwinds, I think one of the things I'm most proud of is that we've put a team together that will definitely take us forward.
We've got a great team, and you can hear by Pete and Gunther's presentation, and indeed, if we went deeper into our executive team, particularly around that transition to branding, we've built genuine capability in brands that perhaps wasn't here, three to four years ago. We've retained our knowledge and understanding of bulk. So we present to you, you know, a very strong leadership group that can execute on strategy very capably. And, you know, I think Pete's comment that we remain fundamentally confident with the strategy that we set a number of years ago, and I think this result demonstrates a very good path to it, particularly in light of the outlook that we're presenting to you for the coming year.
So that said, very happy to open up the questions.
Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two, and if you are on a speakerphone, please pick up your handset before asking your question. First question today comes from David Errington at Bank of America. Please go ahead.
Morning, Pete. Good morning, Barry and Gunther. Pete, I really enjoyed your presentation, but if I could identify or if you could look at slide 27. I'm getting a lot of feedback. I don't know if you guys are getting that as well, but I'm getting a lot of feedback on the line. But, you know, if you on slide 27, that bridge of earnings where you've got your branded of 112 growth, then your branded cost efficiencies, or your branded cost inflation of 84, and then your AUD 43 million of value creation.
Knowing the retailers, that I know them pretty well, I've covered them for a long time, what they like to see your efficiency gains offsetting your cost increases. What you've done a wonderful job at is being able to secure that branded volume, mix, and price improvements that's been way over the cost minus the efficiencies. What my concern is going forward is when the retailers see this, and then when they hear Gunther talking about 60% EPS growth, my concern is that they're gonna come after you with a lot more aggressive promotional activity required. They're probably gonna seek, you know, pricing, you know, better pricing, more aggressive pricing. So what mechanisms...
I mean, you spoke about it in your summary there, you spoke about that you're gonna have a tougher consumer this year. What mechanisms, other than innovation, do you have to preserve, if you like, that wonderful achievement that you achieved? And can you go into that with winning on the street? Because I think that winning on the street is gonna be critical going forward for the next two or three years, in being able to preserve your profitability, because if you're just relying upon the major retailers, I think that that profit could be at risk. So could you give a bit of comment on that? Because I'm really interested to hear your views on that. Because while that's a wonderful achievement, that slide 27, I mean, it's all power to you. Congratulations.
It is also a threat, given that your reliance on the retailer at the moment, and your lack of, you know, on the street. So I think you know where I'm going there. I see that more as a threat, as I do as an opportunity.
Yeah, absolutely, David, and it's something that we're cognizant of. So I think the gap that we've got there is, it's really a restoration after that significant cost increase. So I would anticipate that costs won't continue to run at that level. You know, costs run 4% or 5%. So we think that AUD 84 million number will probably come back to a more normalized level. And in that situation, you're absolutely right, your value creation initiative is really, s o that I think think that'll be a more normalized profile moving forward, but I absolutely concur with what you're saying.
So if I just think of it from two ways, the first piece, I'll just stick with the large retailers for the minute, and then I'll move on to the win on the street piece, which I agree with you is super important, and that's why we have put it in as a strategic imperative, and why also international branded is in there as well. So completely concur. So we think that with promotional activity, and even in the first couple of months this year, we've really tried to lean into that. So where we've got operational leverage, and we can actually reduce cost by driving volume through aggressive promotional activity, we will. And we've done some campaigns around Dairy Farmers Yogurt, which has been particularly successful.
But you've been in Melbourne and Sydney a lot, you'll see that Pura and Dairy Farmers white milks come down to AUD 3.95, which we're getting very good uplifts and cost per unit benefits back into those sites. T hey really like an uplift in volume. So we'll use that volume lever, promotion lever, and mix to try and alleviate and work with our big retail partners. And we're always talking about how we get a more cost-effective outcome for consumers and stay relevant.
So I think that if you get on the front foot and work with them and set up a promotional campaign that drives benefits for them, for us, and for the consumer, that's sort of the way we'd like to alleviate that and keep driving our cost footprint down. So you know, we look at optimizing our sites, optimizing our distribution centers, so I think that's just an ongoing piece that I think we've still got a fair... You know, we've done a good job, I think, and we can continue to get better at. So that's that piece. Win on the street, it is absolutely a growth area for us.
Now, win on the street, it had some headwinds, but that's why I'm so pleased with the growth in food service. So petrol and convenience is down about 5% or 6%. And we're seeing merchandise purchasing in petrol and convenience down significantly. And we're seeing hotels, restaurants, and cafes also doing it pretty tough, and some of the QSR channels are doing it pretty tough. So the fact that we've been able to mitigate a lot of that just by winning market share in the street is being absolutely pretty cool. And that provides pretty good margin, particularly if you get your customer base right, your cost to serve right. So we think that will be a growth area for us.
We have about AUD 850 million of revenue sitting outside that core grocery area, and we think that, you know, we will try and drive that at sort of close to double-digit growth. Parts of that are growing at sort of, as I said, 14%, 15%, 16%, 17%, but some of it is doing a bit tough at the moment. We think as consumer sentiment improves over the next 12 months, that absolutely becomes a key linchpin for us. So, you know, AUD 850 million of revenue there versus sort of, you know, 1.3 billion dollars revenue in the core grocery piece.
So t here's enough scale there to grow that part of that business well. And then the international branded piece, you know, as I said, we wanna double that over the next sort of four or five years. We're just looking at sort of 15% to 20% annualized growth rate. We think that also takes pressure off that core grocery part of our business.
Yeah, it does , absolutely. So in summary to what you're saying, going forward, what we can expect is your channel mix will improve, you know, on the street, international. So it won't be as big a contribution, but hopefully, this is the brand and volume mix, it'll still be a positive contribution. But then you're hopeful that then the branded costs will come back, but your branded efficiency will offset that, so it'll be still hopefully incremental positive growth, but it'll be a lot different slide than what you presented this year. I'm assuming that's basically what you're saying, in summary?
Yes.
Then, David, I'd add one thing. If you go back one year to the slide that we put in last year, we had AUD 300 million of costs and only AUD 250 million of price, and our earnings came down. So it's really important to understand that this is, this is not some wild pricing thing. This is a restoration of where we were a couple of years ago, and if you see both slides together, it's a great way to look at it.
Yeah. Yeah, no, they're terrific slides, and well, it shows this year. Well done on executing, Pete and Gunther, and well done on a great outcome, because y ou don't see that slide very often for a producer selling into the retail channel.
Thanks, David.
Thanks, Pete.
Thank you. Your next question comes from Josh Kannourakis at Barrenjoey. Please go ahead.
Good day, Barry, Pete, and Gunther. Thanks for taking my questions. First one, just around the outlook and the guidance assumptions there. Could you give us a little bit more context, and apologies if you've done it already, just around branded and bulk in terms of, for branded, like, a bit more context around price, volume, margin. Similar with bulk, and the overheads, in terms of just the compositional sort of components that you think could break up, and the upside and downside sort of risks to each of those. Thank you.
Yeah, and I think, as Pete mentioned, Josh, good to hear from you. You know, we're you know, we're expecting sort of mid-single digit growth in our brand business. We had AUD 200 million of EBITDA this year, you know, mid-single digits kind of puts you around 210 or a little higher, right? So it's not massive growth, and within that, pricing may only be 1% or less in FY 2025. And so we're planning on a year where we know that pricing is difficult. We're not attempting to take huge amounts of pricing, and in some categories, we are adding frequency and promotion to make sure that we're representing great value to our consumers. We're seeing consumers move into larger format tubs of yogurt, for example.
So we're planning for a world where there's not gonna be a lot of price next year, and as Pete said, the most important thing in that is you drive mix into higher profitability categories where you can, and you have really great efficiency programs. So efficiency is gonna be paramount. So mid-single digit growth on that branded business. What's exciting is the bulk business returning to profitability. And when we got together with you and others, Josh, in Investor Day, a lot of people asked us as we were losing money in FY 2024 on the bulk business, "Should you sell that? Should you get out of it?" I think FY 2025 is gonna demonstrate very clearly why we're committed to that bulk business, and we're very confident that you see that return to profitability.
Whether that's 10 million , 15 million , or 20 million of profitability, we won't give any guidance on the breakdown at this point, but we're very confident that it returns to profitability, and the gap between farmgate and global dairy commodities is certainly a lot less than the year that's just finished. Does that help?
Yep. T hat's very, very helpful. Thanks, Gunther. So I guess as we're sitting there today, as you guys look down, because obviously it's still very early on in the year, is that sort of the bulk side of things, is that still where you see the key source of upside, obviously from a commodity perspective? And obviously just yeah, keen to understand some of where you see sort of some of the upside, downside risks across the portfolio.
Yes, Josh, it's Barry here, so you know, really what we're seeing is, you know, it's been a really good performance in branded this year, which, you know, to reemphasize what Gunther was saying, really a restoration of where we do expect branded to be after the challenging year of those major cost increases in the previous year, and we expect that to be stable with some small improvement and some opportunity, but the big turnaround will be in bulk, where obviously a very big hit this year. We've made some adjustments. We've I think created some greater efficiencies, but that key thing is that alignment of farmgate milk price, which is very well shown on the slide, demonstrating commodity milk values and farmgate milk price.
That's the key turnaround. That will be the big addition to why we feel so confident about the forecast next year. And of course, we are through milk procurement season, so we do have a number of knowns there, where we have been in global dairy commodities, selling for a great period of time. So we understand global supply and demand fairly well, and of course, we've now procured the milk that we require, and we understand our price. So there's a fair bit of certainty around where we think bulk should land.
T hanks, Barry. Final one, just around, maybe for Gunther, just on the D&A interest sort of profile. I know you started on that, and I do apologize if I missed it a little bit earlier, but just to give us the frame into FY25 on those characteristics. But then, you know, as we think in context, as you mentioned around that, heading out to the AUD 250 million of EBITDA, just what that starts to look like over the next few periods.
Yeah, absolutely. I think, Josh, one of the things I mentioned is that we'll continue to spend and invest in CapEx at a level that's slightly below depreciation, so we're sort of saying 70 million to 75 million, maybe in some years, 80 million. But the point is, it's below the 88 million depreciation. So what you can expect to see over the next three or four years is a gentle downward curve in depreciation. It might be a million or two a year. And you might say: "Why isn't it more than that, Gunther?" The only thing I'd say is, because we're investing 15% to 25% of our CapEx in IT, IT investments tend to have a life of five years, whereas production equipment can be 10 to 15 years.
Investment below D&A with a slightly different mix of investment to enable technology, but that will allow depreciation and amortization to drop AUD 1 million to 2 million per year over the next few years.
Great. And sorry, just on the interest profile as well, with respect to the total interest, including leases and stuff, Gunther.
Yeah, and I think that'll start to move slowly downwards. And, you know, there's a lot of great debate out there, Josh, about what interest rates are gonna do. We've heard higher for a little longer in Australia. Our view is in the next 12 months, though, you're gonna start to see rates decline, and so maybe it's April of next year. It depends which bank you listen to. I think the more important thing in our interest profile is what we do on our balance sheet. And so ignoring rate movements, we are confident that we continue to become more cash generative and more cash efficient, and that is what will drive interest rates down.
So maybe in FY 2025, you're just gonna see them move down AUD 2 million or AUD 3 million, but as we continue to get more cash efficient, obviously our interest costs will continue to fall. So I would model on average, a couple of million dollars decrease in financing costs a year, through to FY 2028, at least.
Fantastic. Thanks very much, folks. I think I might get some questions, guys, and well done on the results.
Thank you. Your next question comes from Phil Kimber at E&P Capital. Please go ahead.
Hey, guys. Can I ask just one clarification question and then one question on capital management? The clarification, just on slide 27, which I agree is a great slide. I thought Gunther said that 84 million step up in branded costs represented at about 3.5% inflation. I don't know if I heard that right or check that.
Yeah, that's about right, Phil. Yeah. And I'm just looking at the branded cost base and, of course, excluding the bulk cost base. Yeah, so it's about 3 to 3.5%. Yeah.
Okay, so that, that's the sort of magnitude that we might see again in FY 2025?
I think that I would say that inflation is beginning to slow, and so I would expect slightly less inflation. So for example, energy and gas, while they might still go up in FY25 , they won't go up as much as they did in FY24 , and there's signs that by the second half, they may start to turn the corner, as an example. We're starting to see some other commodities, like sugar, beginning to turn as well. So even if you exclude milk, which is going down, the cost base excluding milk should have less inflation than it did in FY24 , which is positive, with the exception of labor. You've got EBA agreements, so we need to have value creation and savings projects to offset labor.
But in other spend areas, we're starting to see that inflation is slowing a bit in a few of them.
Okay. And then the cost savings that you showed there of AUD 43.1 million, I mean, do they accelerate from here? Or is that a good way to think about efficiency projects in FY 2025?
I think it's a good way. That sort of 40 million kind of number, we're trying to target that in our logistics, procurement, and manufacturing network. We need to have sort of 30 million to 40 million every year in those networks, and then so , you know, I would continue to model that kind of number going, you know, around 40, going forward.
Great. And then my last question was just, you talked about I mean, the debt position was fantastic. And you talked about once you get under one times, you know, you can think about capital management. I mean, historically, the firm has probably been more centered on acquisitions than returning capital. So maybe it's a question for Barry. Just wanted to understand, you know, the thinking around that when those debt levels do get down towards those sort of ranges, that Gunther talked about.
Phil, I think we would obviously see the balance sheet strength as an opportunity to open up all options, you know? And I think, you know, we would absolutely say that, you know, whenever we've thought about acquisition, it's because it is absolutely aligned with the strategy that we want to execute. And that will always be the case, obviously, as we look for opportunities to improve the performance of this business. But where we don't see that opportunity, we obviously have the opportunity to further reward shareholders or make other decisions around capital.
But, I think, you know for us m y first rule of thumb almost always, Phil, after we've made acquisition, is to get that balance sheet back as strong as possible, as quickly as possible. And then once that is done, that opens up the option for us, and that option can be obviously to further reward shareholders, or it can be to further strengthen the business, you know, in terms of the strategy.
Okay, that's great. Thanks, guys.
Thank you. Your next question comes from Evan Karatzas at UBS. Please go ahead.
Thanks. Just two from me. Just on bulk firstly, so you're saying the commodity prices remain in line with FY 2024. Barry also talked about how you sort of have a good feel for what the cost base for bulk will be. Can you just give an idea of what the benefit from the 100 or so cent drop in farm gate prices we should expect for FY 2025, please?
Yeah, Evan, great to hear from you. One of the sort of rules of thumb we discuss with people is, you know, for every ten cent drop in farm gate milk price is sort of in that, you know, AUD 3.5 million to AUD 4 million kind of EBITDA benefit. So, you know, we'll get over AUD 30 million of benefit as farm gate milk realigns closer to commodity. I think the important thing for people to realize, though, is that the majority of that, so more than three-quarters of that, will go to the bulk business. Because what happens in the branded business, you get states like Queensland and New South Wales, they're often multi-year contracts that we have with farmers.
The milk price hasn't changed very much in those states, so the branded milk cost is not moving a huge amount. It'll go down a few million AUD, but not a ton, right? Most of the benefit in milk prices occurs in Victoria, where it's commodity milk and it's seasonal milk. And so of that AUD 30-some million that you get from milk price benefit, that's why you'll see most of that accruing to the bulk business. So where we lost AUD 18 million this year, well, if you add the better part of AUD 30 million to AUD 35 million to that number, that's where you start getting AUD 10 million, AUD 15 million, and AUD 20 million profit in your bulk business, that's what you'd be hoping for. That's why we're confident in the return to profitability of our bulk business.
Okay. All right. So around that 15 to 20s is a sort of a rough, I don't know.
10, 15, 20. Yeah, that kind of range. Yeah.
That's it, yeah. Wide range. Anyway, okay. Just the inventory reduction as well. Do you want to just maybe talk about that? Is there more to play out there for the bulk business, and did any of it come from branded at all, or was it all in bulk?
Our branded business has very tight inventory, Evan, and you tend to find, because it's a fresh business on the branded side, largely, you know, you tend to carry nine, 10, 11, 12 days of stock. And so there was a little bit of benefit in branded, and it was underpinned by very good integrated planning, right? So we did have some. The biggest stuff was processed cheese went down considerably. So we really aligned our processed cheese and cheese inventories overall, so to the right inventory level. The team in the bulk business also did a terrific job in a very difficult market climate of selling things like protein powders, skim milk powders, and we did produce extra butter this year. They did a great job of selling that as well. So the big downdraft was butter, skim milk powder, and cheese.
Those were the three things that led the inventory decline. I would say, as you look forward, we will have that net inventory investment in the first half, as we always do, and I mentioned that, so we'll deliver sort of 1.6 to 1.8 leverage at the half year. But by the end of the year, absent any of the great stuff Barry's talking about with M&A, just organically, you would expect our leverage to continue to drop by the end of the year.
Yep. Gotcha. Okay, thanks, I'll pass it on.
Thank you. Your next question comes from Mark Topy at Select Equities. Please go ahead.
Good morning, gents. First question, just on the farm gate, where it is at the moment, and just looking across the ditch to the recent moves there with Fonterra and I suppose their read on the commodity market - global commodity market. I'm just wondering, is there any risk that you see o r how do you see the possibility there might be some step-ups across the year, particularly given some of the unhappiness in the farmers, I suppose, that's venting publicly? But just wondering, how do we read that Fonterra move in turn, and the last GDT move up 5%?
Mark, I think there's always a bit of a risk of comparing the milk procurement market in New Zealand with the milk procurement market in Australia. Sometimes, you know, quite frankly, those movements are represented in a way that we wouldn't agree with. The reality of the Australian market this year, and I think what Gunther and Pete talked about, was that when we're talking about a restoring of profitability to the bulk business, it is nothing like the historic profitability of the bulk business over time. A part of that is because we still remain in a highly competitive milk procurement market.
And we would say, as we've gone out to market to procure milk, the milk prices out there at the moment, and we did say this at all our supplier meetings, as we were walking around talking about it, is that we have actually seen some of that improvement in that milk price already. So what we would need to see as far as farm-gate milk price movement in Australia is concerned, is an outsizing of what is expected to be overall an improvement in global commodity markets, but not significant improvement. That's different to the way New Zealand looks at it, where they are basically reflecting those commodity markets in their pay rates. Whatever they are, they are reflected.
In our case, we are doing a mix of responding to competition, responding to the fact that we've got a heavy domestic dairy industry here that supplies the domestic market. So it is almost inevitable that what you're seeing in milk procurement in Australia is that the predictable nature of what's going forward in commodities is actually being built in and taken the risk on by the dairy companies procuring milk. The difference is, this year, that is not just in total misalignment. That has come more into alignment, but still remain competitive.
Hence why we're communicating to our farmers that we would have to see some small improvements in the market have already been considered, and the risk, for the want of a better way of putting it, has been already taken by the company in understanding those improvements. Great to see those improvements arrive. It's why Gunther gives a bit of a range in terms of those improvements potentially not being sustained. But in reality, you know, we have to manage our milk procurement communication, and we don't actually manage it through the media. We manage it by going out and talking to our farmers, and they're well informed about where we sit.
Very good. And just in terms of then the cost inputs, and I suppose I'm particularly interested in one that has spiked up in terms of the orange juice global concentrate price. Just wondering if you might comment on some of these other cost inputs, and I think cocoa was mentioned as well, but how do you see the impact of that in FY 25, and managing that going forward?
Yeah, hi, Topy, it's Pete. It's been a significant orange shortage globally, which has driven both the price of concentrate up and fresh oranges up. So that has created a significant increase in cost and also the ability to actually procure fruit. So we're pretty happy with our fruit procurement, but it's certainly one of the categories that has dropped in volume. We've changed formulation to best mitigate that. And you'll see a fair bit of other juice coming out onto the market, so a lot of the juice manufacturers are transitioning into apple or other variants of juice to mitigate that.
But there's no doubt that you know, our orange juice business performed well below historical levels, and that's built into that result we've had, so we've managed that. The other item that has gone you know, it's increased in price quite significantly, has been peanuts. That's also managed within the result. But, you know, so that year-on-year growth, you got managed both pretty serious step-ups in oranges and peanuts that we don't think . We think the oranges will probably stay elevated for a couple of years, so that's built into our own rates.
We actually think peanuts will probably come back over the next year or two. That'd be the two big movements. Sugar's gone up, but it looks like it's probably coming down a bit now and cocoa. We do have exposure to cocoa, not nearly as much exposure as a confectionery manufacturer, but cocoa has definitely been elevated. -
Can we get a sense of how much, or the impact, or can you give us some idea?
W ithin those numbers, Mark, it'd be certainly more than AUD 10 million, probably closer to AUD 20 million.
Yeah. And then on the food service, so I guess making some good progress there, given the size of that market. Can you tell us about your ambitions, and obviously the size of that market and the opportunity going forward, and what's driven your sort of growth over the last twelve months?
Yeah, absolutely. So if I look at the size of that market, it's about, you know, sort of close to AUD 850 million across that non-grocery space. And we see, you know, we've got a fraction of the market share in that space. So you're right, it's a very ou t of home consumption in Australia, albeit it's doing a bit tough at the moment, is, you know, significantly weighted globally towards out of home consumption. So we are a country that likes to eat out, and particularly breakfast, which suit us. So we're very heavily weighted in breakfast. So we see a huge opportunity.
Most of our business has traditionally been white milk, and so our challenge is to continue to grow white milk, but actually just selling the rest of our range, and believe it or not, you know, because we've got, you know, different businesses, we actually weren't selling the range in a targeted way, and we actually didn't have the range set up to be sold altogether. So part of bringing that brand of business together and then splitting it out was to create a team that was dedicated to this part of the market. So we're now going, and with our new mobile application, we're now able to go to our customers directly with a full range of products, and leverage our distribution network to get the full range of the product in.
So, you know, we're now stopping. Our customers very traditionally just sold white milk, and we're selling them cream, we're selling them cheese, you know, mozzarella, Parmesan, we're selling them butter, and it blew up, you know, it's actually we actually picked up our spread sales dramatically in that part of the market as well in the last three or four months. So we're going with a proper offering. It's also designed for them, so things like cooking cream, which we never used to traditionally do, that's massive in pubs and clubs and pasta dishes and carbonaras. We're now developing with chefs, those sorts of products. The product range is improving. It's been completely branded on dairy, as Dairy Farmers.
We've recruited some terrific executives, in particular, we've got a strong Simplot experience who we would hold up as one of the exemplars in this part of the channel. And so we're just doing a whole lot of work that, as I said, revenue and food service went up by 14% last year, and we think we'll continue or accelerate that growth forward.
Yeah. What sort of market share do you think you might, you know, in five years' time, Yeah, market share's hard in this space, but I would say that across most of those areas where we're number one or number two, in grocery, we would probably be five or six.
Yeah.
So it sort of gives you an idea a nd if you think that space is sort of around the AUD 800 million-plus market, we think there's a huge opportunity here.
Yep, sure. And lastly, just on the cold chain, with sort of pressures, economic pressures under, is it fair to assume that maybe the growth sort of plans there have been a little bit stymied, or, or can you talk us through, I suppose, as you see consumers bouncing back, just how you, you know, the plans for the cold chain going forward, whether it's plant-based or other products that you can now slot into that cold chain?
Well, that sort of ties with what I was saying before around extending that range, because that range that I talked about. With food service, a lot of our product goes through traditional wholesalers, and we work really closely with them, and they're very important to us. But some of it goes direct, and that level of product that does go direct actually goes on those trucks, and so is actually building out efficiencies within our cold chain.
And what I've been really pleased about is that, you know, with the new sales team, with the new marketing team, that are focused purely on that channel, with the new technology around the new digital ordering platform that we've got, that's actually increasing efficiencies and the optionality to sell that through that full range to those customers. So, you know, we've got an aspiration. We'd love to go from sort of five or six to be the number one or number two player in that space. You know, dairy is the second biggest volume category in out-of-home dining, so we think there's significant room there very many times.
Very good. All right, thanks for your time there.
Cool.
Thank you. Your next question comes from Richard Amland at CLSA. Please go ahead.
Hi, guys. Just a quick question from me. The annual report says you guys pulled in 1.33 billion liters of milk this year, which is just a touch under the prior year, but I know you guys have spoken about, you got some favorable milk procurement in the second half. To what extent is your financial outlook, you know, exposed to the milk procurement? How much are you looking for? And what do you see as the risk?
Richard, as I said, milk procurement's fundamentally done in the month of June. We've largely done that, our milk procurement's stable, so w e've got the milk required and that we went after. In that procurement, we obviously build in all our forecasts for you know potential closes and things like that and some seasonal variants. The opportunity in bulk, it depends on what sort of spring we see, because obviously whilst we have our direct supply, when that spring flush comes, there are opportunities to purchase milk off other companies. That's something that's not essential, but always helpful as we look at that range that bulk might make and but yeah, so we're pretty comfortable with where we are with milk procurement.
I would say just, and Pete did mention this earlier, we've actually had quite a dry winter across much of our supply areas, which may surprise people, but that generally means that you start with a bit of a stronger milk intake, and we've seen that in the early months of this year. Milk intake is a little above where we thought it might be. The testing factor will be whether we get rain for the spring, you know, and we've got variation across our supply base about seasonal conditions, but nothing that's alarming us.
But at the moment, we're probably running a little ahead of what we expected, but we're not getting carried away because we just need to see how that spring period looks like.
Okay, that's great. Thank you. And it sounds coincidental. I had a poor connection when Gunther put out his medium-term or mentioned his medium-term branded EBITDA margin target, and I thought I heard 10%, but it could have been completely wrong, and I just wanted to double-check what that was.
You're talking about FY28 at the end of the Strat Plan?
I think that may have been, yeah.
Yeah, yeah. So I think Pete actually mentioned that, you know, we're aspiring to get to sort of that 10% EBITDA margin, sort of FY 28 or shortly thereafter, and we want ROFE to be over 10%.
Yeah.
Okay, that's fine. I just Missed it the first time.
Branded, yeah.
Wanted to make sure.
Yes.
Okay.
That's for branded.
Cool. That's it for me. Thanks, guys.
Yes. Yes.
Thanks, Richard.
Thanks, Richard.
Unfortunately, that does conclude the question and answer session. I would like to now hand back to Barry for closing remarks.
Thank you, everybody, and apologies that we've gone a little over time, but thank you for those, for the questions and indeed, as I think Pete mentioned, obviously this result comes together from because of a lot of effort in a lot of different areas. And so, you know, obviously thank the bigger team. It's great for Gunther and I to represent them in this call, but the reality is there's a lot of people out there working very hard to make sure they deliver on both the strategy and the operational results this year.
Also, of course, thank the shareholders, our dairy farmer suppliers and our other suppliers and, you know, all our other colleagues that have supported us over the previous financial year, and we look forward to continuing to improve next year. So thank you very much, everybody.
Thank you. That concludes the conference for today. Thank you for participating. You may now disconnect your lines.