Good morning, and welcome to the FY 2026 results presentation for Clover Corporation. I'm Peter Davey, the CEO and MD, and with me today is Andrew Allibon, who is the CFO and Company Secretary. Go to the results page. A really strong year for the company. In fact, a record year for the company, which I'm really proud of everybody that works here. It's been a wonderful year, a very difficult year to meet the performance. It just really shows that we've been on a path for long-term growth, and it's delivering, and that's what we've been trying to achieve and will continue to do. The year was highlighted by AUD 97.4 million in revenue at a 35.5% average gross margin across the business, a 4% improvement in margin. The revenue growth was slightly ahead of our guidance, which was AUD 92 million to AUD 96 million.
It was 13% improvement upon what was a very good FY 2026 at AUD 86 million. The gross margin is really a testament to the innovation that we have in this business, where we've further increased the product mix and getting the benefits of our vertical integration strategy, which we'll talk to in more detail. EBITDA at AUD 17 million is up AUD 4.7 million on the prior year and really driven by that sales growth and the gross margin improvement, but also our operating costs have been really held well in line as a percentage of our sales. Net working capital has increased to AUD 49.8 million. It's up AUD 7.5 million on the prior year, and it's really driven by increasing our inventory position by AUD 19.8 million.
To meet the increased sales that we're getting through, especially across our ARA and fish oil products, we've had to buy more inventory to meet that forecasted demand. The balance sheet remains very strong. We've got AUD 7.2 million in cash and pleasingly, we have no more interest-bearing liabilities. NPAT at AUD 10.5 million, up 50% from the prior year of AUD 7 million, with the increased drivers of lower expenses and an effective tax rate helping that number. From that, the board has declared a final fully franked dividend per share of AUD 0.0125 per share. Move on to the next slide. This operational highlights page, really the middle of it stands out to say exactly what we do. The adherence to our growth strategy, with investment in customer diversification and our new product development is what's delivering. It's delivered improved revenue, it's delivered improved profit margins.
What it's really done is position us for long-term growth. We've got customers with unique products that have developed their solutions, and they're utilizing our products in those, which is a real partnership in the marketplace that drives future long-term growth. Across the year, we've seen significantly improved demand for our high-quality ARA products from the infant formula market. Melody Dairies has delivered a profit in line with our expectations, but most of all, it's delivered a reduced cost for our business, which is benefiting our margin position. We've expanded our distribution network globally with 30 distributors now, and we have repaid all of our debt. CholineXcel has moved along. We've gone into registration of the product. We're now looking at commercial packaging options.
We've established a dedicated resource to help us enter the U.S. nutraceuticals market, and Ecuador continues to deliver for the business, and we're looking at further increases in its capacity. All of which I'll go into in a bit more detail. The product mix slide, which we've shown several times now, really continues to show the success of our innovation strategy, which is diversifying our sales and our customer base. When you look at that graph, the second half of FY 2026, near 2/3s of our sales are from 18 products and our traditional base products, which are three, one of which being oil, is now a smart 1/3 of our business. That's really helped drive the margin position of the business. What it's really doing is helping our customers with solutions that are driving their businesses, which improves our demand overall.
Really, the story of the year has been two things. Western manufacturers, especially infant formula market, have done very well into the infant formula market of Asia and China and Greater China. Then we've seen significantly increased demand for our ARA powder products. The ARA powder is a required inclusion in infant formula, and we have what we think, and as many of our customers do, the best quality product in the world. With that, we'll move on to the financials, and I'll let Andrew take those over for us. Thanks, Andrew.
Thank you, Peter. Peter's certainly highlighted the top line and the results in terms of margin over the course of the year, so I won't labor over restating those numbers. In terms of our revenue position, as highlighted, those 13% increase, prevailing increases in the ANZ Western manufacturers with around a AUD 10 million movement year on year and through our European Middle East base of a AUD 6 million increase, which offset some smaller declines through the Asian and Americans. In reference to Peter's commentary there, Western manufacturers, that's where we've seen good growth, and as Peter said, back into parts of the China, the Asia market. Again, Peter's highlighted there the margins, so I won't spend too much time on those, and there might be questions at the end of the presentation.
Our operating cost growth, an 8% increase, that really reflects our continued investment in people across the business and across all areas, be it finance, sales, and research and development. That's why costs are up there. Our new market development costs increased year on year, predominantly with the U.S.A. market expansion that we're undertaking, and again, we'll talk more to that later in the presentation. So, really pleased with the NPAT growth and our EBITDA percentage continuing to increase. For those that have had the opportunity to look through the Appendix 4E in more detail, you'd certainly see that as part of our result, we endured or had to account for FX translation losses of AUD 1.1 million. And I'm happy to talk to that a bit later as well. So great result in terms of EBIT. Just moving to the next slide, which is cash flow.
On the back of, I guess, great performance, we'd like to see more net cash inflows from operating activities. What we've highlighted in this slide is the significant increase in inventory. With inventory, 50% of it is raw materials, 50% of it is finished goods for FY 2026. The requirement for higher levels of raw materials and finished goods really translates to the supply chain, the time and length of our supply chain. We've got the demand to meet the customer's requirements, but we do need to order oil, we need to test the oil, we need to manufacture it into powder, we need to test the powder. We end up holding larger values of inventory, and that's fundamentally where the operating cash flows have gone over the course of the year. Purchase of plant and equipment, not significant, largely matching depreciation over the course of the year.
With the performance of Melody Dairies, which is the loan to associates, there was a repayment of a short-term loan that had been created some 18 months ago. Pleasingly, they've been able to repay back some of that assistance. As Peter said, our interest-bearing liabilities for Clover have now been fully repaid, so we're well-positioned to move forward on our capital planning program, which again, we'll talk to a little bit later in the presentation. I think in the half year's result, certainly the AGM last year, we sought shareholder approval for the company to support acquisition of shares to satisfy future vesting rights around our long-term incentive scheme. We purchased AUD 700,000 of shares, and that's detailed more fully in the annual accounts, and we'll continue to look at that position as we go forward over the course of the year.
I will now move to the next slide, which is the balance sheet. I've had references that it's considered a lazy balance sheet with zero debt, but pleasingly, the cash position we've been able to maintain. Trade receivables, good collections over the course of the year and through to the end of the year. The inventories, as I indicated, certainly up to support our customers. Trade payables, a little bit of extension, more timing related as we've purchased that inventory, hadn't settled debts with our trade payables to suppliers. In terms of a net asset growth, up AUD 5.8 million year on year, a great outcome. I will now hand it back to Peter. That was brief, but I think certainly questions later on.
I'll take you through the operational highlights of the year, and we'll turn to Ecuador first. Part of our vertical integration strategy has been the purchase and the construction of the Ecuador facility, where we sustainably extract tuna fish oil. That investment is now representing a contribution to our overall margin position because we source the oil at a cheaper cost. It now is 30% of our total raw material inputs in FY 2026, so it's a big part of our business. We are continuing to negotiate for additional supply of tuna heads. Effectively, the factory takes from the canning operations and the loining operations, the head, which obviously doesn't go in the can. We take the head, which would either be dried as a meal.
We extract the oil from it, and we bring it here to Australia then to cleanse and then supply through our products. We have invested in additional people during the year as we have grown the business, and we are committed at that site to source from suppliers who demonstrate sustainable fishing practices. It is quite a strict ruling, and any of our suppliers have to meet the EU standards, which are quite grueling. The second part of our vertical integration strategy on the next slide is our New Zealand investment. We have a partnership in a facility there. We are a 44% owner of Melody Dairies, where we turn our oils into powders. It has been a great year for that facility. It is well managed, it is well run, it is producing excellent quality product, and it has become much more efficient in its operation. We have customers continuing to qualify that facility.
It is now operating at near full capacity, 24/7, and Clover has got other facilities. 50% of our powders. Weekly, we are utilizing the facility along with our other partners and shareholders, and we will continue to pursue that business for improved productivity and reduced costs across it. Overall, both of those are now part of our vertical integration and contributing and helping that market position for the business and will for the future. I will move on to some of our product story. First one being choline, so an update of where we are. Choline is a unique product where we have taken a choline product, we call it CholineXcel. We have encapsulated that, so it is now a free-flowing white powder. Traditionally, choline is a very difficult product to manufacture with, and we have been able to turn it into something that is very easy to manufacture with.
It is very new still. We have provided samples to select customers under very strict conditions, until we got our PCT stage of intellectual property. We have applied for that. Now we have been granted the first step of that, which allows us to be a bit more open in terms of providing samples to customers for more trial work. The full patent protection follows that, but it won't be for four to eight years. The PCT stage gives us a degree of protection in the marketplace. We have gone through all our manufacturing trials, which has gone really well with the manufacturing partner. We are now looking at how we package that and the formats and the equipment required so we can increase our production rates. We have had customer trials since the first quarter of FY 2026 in nine different applications. Generally, customer trials will go from 12-36 months.
It depends on the shelf life of their product. Some will be relatively soon and some will be a lot longer. Overall, our current partner, and I expect that partner to be around for a long time, is relatively small to kind of provide us with enough product to do some small food and nutraceutical business. We are generally looking for a larger scale manufacturing so we can enter into the infant formula market. We have got all different sorts of things. We are pursuing toll manufacturing, joint ventures, and acquisitions. Everything is on the table at the moment because choline is going to be a wonderful product for this business going forward, and we need to be able to produce it at scale so we can meet demand as it comes on. I will move to the next slide.
Our two core ingredients that we microencapsulate and turn into powders are DHA, which is an omega-3, and ARA, which is an omega-6. I will take those two products, and I will give you a bit more detail about them. We have continued and will continue to invest in our R&D to create different alternatives and different representations of these products. It is the major part of where our portfolio growth has been delivering in terms of revenue and differentiation of our product offer in the marketplace. We have a whole range of products for the DHA, of non-allergenic, high fortification, and plant-based products that we really provide to a customer as a solution that they cannot get from anywhere else. These are unique products.
It allows us to have a great relationship with our customers, providing them with a solution to a problem they have, and so they can create unique products themselves. We are expecting that our change in our distribution structure, where we have aligned with external distribution businesses around the world, will further grow that marketplace as that gives us entree into other customers that we normally could not access. In the ARA growth market, we have seen really improved demand. We are known across the infant formula marketplace for having an extremely high quality product, and that has won us significant business over the last financial year. Going into FY 2027, we are seeing some really good projections and growth and discussions with customers that will continue that growth in the market. Really overall, we have seen good business last year, and we expect that to continue into FY 2027.
Our diversification in that area is growing. We have added new packaging equipment that allows us to present the ARA product in different formats that allow us to enter into markets that we have not normally been able to access. Move on to something quite new. Is the U.S. nutraceutical market. The U.S. market for nutraceuticals is enormous, and it has changed significantly over the years. The market is now looking for alternatives to the soft shells and capsules that it is traditionally been using. Powders, gels, liquids, gummies is becoming the new part of that marketplace. Why? Customers are sick of taking pills. They do not know how many pills they can take in the day. There is a much higher emphasis on taste and convenience of how products are being delivered. The sports nutrition market is growing.
Seniors and children especially have difficulty swallowing pills and tablets, so they are looking at different formats for delivery of their omega-3s generally. The marketplace itself is accepting and also requiring encapsulation technologies like ours to deliver on those products. Our technology is really well-positioned to deliver into nutraceutical formats. You cannot put straight oil into a powder or a gel or a liquid. You need to encapsulate it so it does not have the smell and taste, and our technology can deliver very high doses in very small particles. We have employed a nutraceuticals expert that is going to focus on the strategy for that marketplace, and he is looking at supply chain considerations and potential partners for us to acquire or enter that marketplace with.
We are using this as an entree to establish market presence in the U.S.A. for other products as well, like our gel form product, and we expect this to open the door for other opportunities for the business. We will see additional costs in the business driven by this. Over the next two to three years, we will gradually increase our expense as we look to enter this marketplace and start to enact that strategy to grow the market into something new. It's another leg to the business of where we can find new growth for the company going forward. We will move on to the next slide. The strategy and outlook. Everybody always looks at the outlook page. The strategic focus across the next year, choline will be a major market focus. We will release CholineXcel, although in limited volume until we get more capacity.
We will get more customer acceptance, we expect initial customer orders, and we will scale up manufacturing. A large part of the new product introduction to the marketplace is its certification by customers and the drivers itself. We find a customer, they have to do their own trial work, and then they have to come in to certify our manufacturing process. There is time involved in this process. As I discussed, the U.S. nutraceutical market is a new entry for us and we are looking for that for growth for the future. We have established a distribution network across the world. We will look to develop that through a pipeline of new sales and new customer applications. We will continue to invest in our facilities here and in people and potentially in other markets. We will continue to focus on the development of our products and diversification.
It's a clear strategy which has delivered growth and a good margin position for the business. We will look to continue optimizing our supply chain and the cost structures associated with it. By vertically integrating, we have delivered margin improvement, we have improved negotiation capabilities around buying products, but also the access directly of now supplying ourselves with a large percentage of our own manufacturing and our own supply chain for raw materials. The story of the future will be managing our capital for future growth, and we will invest in the future to continue growing this business as this year has been a good testament to show what we have been able to do. As we look to the following year and the next slide, the FY 2027 outlook.
Clover enters FY 2027 with a positive momentum, supported by the demand for its products, our vertical integration into our supply chain, and the expansion of our distribution network. All of those are contributing to the growth for the future. We do anticipate significant investment in the development and ongoing commercialization of our new products, and CholineXcel will take money to deliver to the marketplace. It needs manufacturing capability. Based on the current market and global conditions, the board expects revenue for the first half of FY 2027 to be ahead of the prior corresponding period. Thank you very much. We will now open it up to questions. Happy to take your questions. Hopefully, we can answer them for you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Caleb Weng with PAC Partners. Please go ahead.
Hey, Peter and Andrew. Just on ARA, you called it out as quite a big contributor for growth this year. Is that mostly in ANZ? Also, how should we think about the quantity and how much contributed growth this year versus how much we can expect in FY 2027 from ARA?
Thanks for the question, Caleb. It was a big contributor across the year. I think we grew sales by about AUD 5 million across the entire year. It was about AUD 4 million in the second half. So about 50% of the growth on the second half was driven by the ARA. It was global. So a lot of the sales went into the ANZ market, generally Asia, some China, and quite a bit into Europe. So it is not with one customer, it is with many. Look, the way we have entered that is we expect that to continue. So we would expect to see that second half continue into the first half of this year.
Yeah. Thanks. So that inventory buildup, I think you guys went from about AUD 35 million to AUD 44 million. Is that mostly just ARA building up, and can we see that as a sign of just your confidence in FY 2027's orders?
Yes, you are right. It is a combination of both the DHA oils and the ARA. ARA is a significantly higher cost product to buy in the oil, and the supply chain for it is significantly longer. We have had to buy in more inventory. Because we have had more sales into the European market, we have had to position finished inventory into the European market to support that growth. We are confident, as reflected in the outlook comment, we expect to have a great first half.
Yeah. Are you still going through the qualifying processes with some customers to establish our ARA supply, or are you already qualified for all the major customers?
Pretty much qualification is done. Most of what it is now, it is about more negotiation. There are customers that are continuing to come to us for supply. Qualification is done. We are pretty much qualified across the world with our ARA product now.
Yeah. Thanks. Just one final one from me. On Europe and Middle East, that sort of fell a bit backwards in the second half. Is that to do with, I think you highlighted before, there was a Middle East customer you had that was quite significant. Is it just them getting impacted by the war, or?
No, not really.
I'd say it's probably just more general timing. There's goods in transit issues that we deal with, so some of that could have played out in timing of the sales, Caleb.
Yep. All right. Thank you, guys. I'll jump back into the, back in the queue . Thank you.
Thanks, Caleb.
Thank you. Your next question comes from Mark Southwell-Keely with Select Equities. Please go ahead.
Hey, guys. Can you hear me?
Yes, Mark. We got you.
Awesome. Just a question, firstly, around your second biggest customer. Can you maybe just talk through the drop in revenue with that customer and what you might be expecting to see in FY 2027?
Yeah, a little bit of a shift in the customer mix over the course of the year. I think we would see an increase in number two customer over the course of next year.
In terms of the second biggest customer in particular, might you expect them to sort of return or surpass to their, say, FY 2025 level?
Yes, we would. Yeah.
Okay. Terrific. My second question is, I guess by exclusion, it is not necessarily financially or even commercially relevant, but just there is no mention of Premneo.
Can you maybe just give us an update on perhaps why that is the case?
I just didn't call it out. Premneo's maybe a little bit of an update for people that would be interested in it. I suppose because it's not going to be delivering revenue soon, we decided we wouldn't call it out this year. It did achieve expert panel sign-off in the EU market, and it's now going for regulatory approval in the EU, Singapore, Canada, and Australia, New Zealand. We are in the process of preparing dossiers for those registrations. We are in the starting process of doing a clinical trial for the Indian market, where it has to be registered as a pharmaceutical. We are negotiating the manufacturing contract for the product with an Indian manufacturer. We expect the product to be made, and we have employed a third-party business to help us with the commercialization of the product.
But that's probably two years off as we get the registration. It's because it's a bit of a long story, we decided we wouldn't report on it independently this year. But yes, there is progress on it. In fact, when we got the regulation, I was pretty chuffed because it's taken us some eight years to achieve that. It's a good step in the right direction.
Thanks very much, guys.
Thank you, Mark.
Thank you. Once again, if you wish to ask a question, please press star one. Your next question comes from Sam Pittman with Taylor Collison. Please go ahead.
Hey, guys. Quick one. Just on the ARA, how many months in the second half of the year did you benefit? Well, obviously, there was the announcement from one of your competitors causing a few issues in the ARA market counted at the end of January. But how long did it take for you to receive those first orders? What I am asking is how many months did you receive that benefit from?
Five months of good growth. As I said earlier, we saw a AUD 5 million increase in the ARA sales year-on-year. We got a little bit in the first half, most of it in the second half. We responded to it well. We benefited from a quality issue in the marketplace, which has given us some good growth, and we expect that to continue going forward.
Sure. Sure. I think in the chairman's letter, Rupert might have mentioned that he saw CholineXcel being a real driver of growth from FY 2028. Realistically, what steps would you like to see in the next 12 months to make sure that we are on track with where CholineXcel should be?
Look, the limiting step with CholineXcel is capacity. We have a current partner, which we manufacture the product with, which will allow us to do a limited release in FY 2027, so in this financial year. But it is small, so it is getting enough manufacturing capacity to be able to take it to a broader market. We have not been able to give it and show it to infant formula customers because we know that they will be desperate for a product, then we will not be able to meet their volume requirements. So it is really getting the manufacturing capacity in place. You may be aware from previous discussions, we were negotiating the purchase of a dryer, which we were very close to when it fell through, and it literally happened three times. So, we need capacity, then we would expect that to give us some good growth in the following year.
In 2028, we should see good sales out of it.
Sure, that makes sense. Yeah, obviously, great result, and congratulations. That is all from me.
Thanks very much.
Thank you. Your next question is from Stella Wang, who is a private investor. Please go ahead.
Hi. Good morning.
Good morning, Stella.
Can you hear me all right?
Yes, we can hear you, Stella.
Great. Just continuing the last question. In terms of what we expect to see for CholineXcel, should we see, firstly, you get a capacity solution through either JV or buying a new dryer first, and then start trialing with your infant formula potential customers, followed by potentially some sales into infant formula in FY 2028?
Yes. We have got to get the capacity before we can really offer it to the infant formula market. Once we have got that, they start doing trials with it, and you do not want them to start doing trials before you have got the capacity because you are just going to create demand you cannot fulfill. Most infant formula customers will be a minimum of 12 months. It would be late 2028, I imagine, before, unless we can get capacity quickly, and we have not been able to achieve that so far.
I see. That is fair enough. FY 2027 is a small sales contribution from the known infant formula usage, it sounds like.
Correct. Yeah.
Right.
We have already got customers identified that will take the product, but we have got very limited production capacity to be able to meet any further demand.
Okay. So, you have got the capacity for what you are thinking you might supply in 2027.
We're not going to.
Just roughly.
We don't release the numbers of our volume or value. We've got ideas, but we wouldn't want to discuss those.
Okay. Fair enough. My second question is about the significant increase in investment for new markets. I assume you're talking mostly about the U.S. market?
Yes. Yeah, that's right.
Right. Yeah, it's just that the history of the company in U.S. hasn't been that smooth, and indeed, the sales seem to be declining. I understand there might be some FX impact, but overall, last 10 years, if you look through the history, there hasn't been much uptick. So, I hear your comments on the nutraceutical trend, but commercially, is there any other trigger that gives you the confidence to put down real AUD behind this new push, and investment into the market? Do I hear that you might even buy a sales or local partner there for the nutraceutical markets?
The confidence is that there's a demand for alternative solutions to what currently is being offered in an extremely large market. We have solutions that can fill that. We haven't made any decisions about how we're going to win to that marketplace, so we've put a resource on that will look at that. We would expect that will drive expenditure because we'll then have to work out how we do it. That will probably be both through product strategy and through distribution strategy. So, I think the answer is that we're looking for partners that we will enter the marketplace with to help us get access. Yes, we've had difficulty entering the U.S. market. Traditionally, we get into marketplaces through the infant formula market. The U.S. market is quite protected.
We have one customer in there that does significant business, but overall, we haven't been able to crack the rest of the market. So, this is another segment where our products are very suitable for that we're going to spend some money and time on to add to the business. Of course, if we can see really good growth, we can get into the nutraceuticals market through the U.S. channel. We can then go and do it through Asian markets and through European markets as well. So, it's a new segment that we're looking at to try and get growth, and we've resourced it appropriately.
Great. Just last question from me, please, because ARA is a big driver of the growth and sounds like it is going to sustain into this current financial year. Just wondering, because that troubled other supplier in the market, they are trying very hard to get back into the supply chain of the older existing previous customers. Basically scenario, should we expect at least some of their big customers would keep a diversified supplier chain and at least you guys can maintain your status as a supplier even if the currently troubled supplier gets some of their share back?
We are part of a diversified supply chain now, so customers generally won't buy off only one supplier. They will normally have two to three suppliers. In most cases, we would have 60% to 10% of people's business because we will be one of multiple suppliers into a marketplace. Some of the larger business we have done on the back of the demand that has come through, we have actually contracted, so it gives us a fair degree of certainty about the business going forward, and that is for longer term, not short term. Will the supplier with quality issues get back in the marketplace? It is an opinion, but it is going to be very tough. They have made a major error, and I don't think many customers and even Chinese suppliers will buy off them. Very difficult to see them ever getting back to the share that they had, which was quite significant.
Great. Thanks for that. Thanks again for today's report.
Thanks for your interest, Stella.
Sure.
And always online. Wonderful. Thank you.
Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.