Earnings Call: H1 2026

Feb 15, 2026

Morning, everyone, and thank you for joining us today. My name is David Bortolussi. I'm the Managing Director and CEO of The a2 Milk Company. Today, I'm joined on our call by our CFO, Dave Muscat, and our business unit leaders, Dee Shao, Yohan Senaratne, and Eleanor Khor. The team and I will present the results and outlook, and as always, there will be time at the end for questions. During the presentation, we'll focus on continuing operations, which excludes MVM, that we divested during the half, and occasionally refer to underlying results, which excludes a2 Pocono. We've excluded a2 Pocono from underlying earnings, given that the site is currently underutilized and incurring manufacturing losses and transformation costs, which are short-term in nature. Starting on slide four, we've had a very positive first half of the year, reporting significant revenue and EBITDA growth and underlying EBITDA margin improvement. In our IMF business, we achieved revenue growth of 13.6%, which was well ahead of category growth. We grew English label IMF by 21%, with strong performance in the CBEC and O2O channels, supported by growth in our new a2 Genesis product and from Vietnam. In China label, we delivered 6.5% revenue growth and achieved record market share in both the MBS and DOL channels. Our other nutritionals revenue growth accelerated to 43% on a like-for-like basis, driven by our recent Kids and Seniors innovation, and we recently entered the pediatric supplements category and launched a new Kids UHT product. Yohan and Xiao will speak to these new product innovations in more detail later. Our liquid milk business continues to perform strongly, with growth of 18.5%, driven by our core product range, with much higher growth in our lactose-free and grass-fed product innovations. We significantly advanced our supply chain transformation with the a2 Pocono acquisition, MVM divestment, and long-term milk supply agreement with Fonterra, which were all announced and completed during the half. We've made a significant progress against key a2 Pocono transformation streams, including advancing our China label registration amendment process, upgrading the facility, and expanding our team. Our strong first-half performance has enabled us to upgrade our full-year guidance and declare an interim dividend at the high end of our policy range. Moving to slide 5, which summarizes our financial results. We delivered double-digit revenue and EBITDA growth of 18.8% and 18.4%, respectively, with our EBITDA margin consistent with prior year on a continuing basis. On an underlying basis, excluding a2 Pocono, our EBITDA was up nearly 26%, and our EBITDA margin was up 0.9 percentage points to 16.6%. Net profit after tax and EPS were both up just over 19% on an underlying basis, and we're pleased to declare a dividend of NZD 0.115 per share. Turning now to slide 6. At a group level, our sales growth was driven by core products and recent innovation, with some benefit from FX and the inclusion of a2 Pocono sales, which are first half-weighted. Our growth continues to be driven by our China and other Asia segment, led by English label IMF and other nutritionals, supported by China label IMF growth. Our ANZ segment sales were up, primarily driven by growth in Australian liquid milk, with stabilization of IMF sales in the Daigou channel. Our US business continued its strong performance, driven by growth in our core products and grass-fed liquid milk. I've already covered our product performance up front, so I'll move to the next page. So turning to slide 7, the China IMF market returned to growth in the half, up 3.6%, supported by a higher number of newborns during 2024, which was the year of the Dragon. While the number of newborns in 2025 are lower than the Dragon year, there are positive indicators in 2026, with last year's marriage registrations up 11% and the China central government recently stating that birth rate stabilization is a national priority. From a product perspective, the China label market has stabilized, supported by price recovery and stable volumes. English label growth continues to outperform China label, supported by product innovation and premiumization. And finally, the A2 protein and ultra-premium segments continue to outperform the category to our advantage. Turning to market share on slide 8. We remain a top four brand in the China IMF market and continue to gain market share to 8.2%. Within this, we achieved record-high China label market share of 5.6%, and we remain well-positioned in English label as the second-largest player in the market, with just under 20% market share. Turning now to FY 2026 and the company's outlook on slide 9. I'm pleased to say that we've had a very good start to the financial year, with revenue trending ahead of our previous expectations across all product categories and markets. As a result, we've increased our FY 2026 guidance for revenue growth from low double-digit % to mid double-digit % growth versus FY 2025 continuing operations. We've also tightened our EBITDA margin range to approximately 15.5%-16%, which is at the higher end of our previous guidance, and expect our net profit after tax to be up on FY 2025 reported. As previously announced, the board intends to declare a NZD 300 million special dividend, subject to regulatory approvals being received in connection with amendments to the 2 existing a2 Pocono China label registrations for use under the a2 brand. The amendment process is currently underway and is progressing well. Moving to slide 10. We continue to execute against our growth strategy, which was recently updated after completing our supply chain transformation transactions. We adjusted our transformed supply chain priority to focus on execution of our important transformation program at a2 Pocono and on building capability to support future innovation and growth. We've placed more emphasis on entering new markets, which is now called out as one of our key priorities.... We're tracking well towards our medium-term financial and non-financial goals, and remain on track to achieve the majority of our targets, which are outlined on Slide 11. Turning to Slide 12, our strong first half result and upgraded FY 2026 revenue guidance means that we now expect to achieve our medium-term revenue ambition of NZD 2 billion in FY 2026. This is a year ahead of our amended plan and in line with our original 2021 Investor Day timing expectations. Market and category growth drivers remain on track, and our emerging market strategy continues to advance with encouraging early performance in Vietnam as we continue to assess broader opportunities across Southeast Asia and the Middle East. And from an EBITDA margin perspective, the a2 Pocono acquisition is expected to support margin improvement going forward, as we discussed at our full year results last year when we announced the transactions. Moving now to Slide 13, and covering our supply chain transformation in a bit more detail. To recap, during the half, we successfully announced and completed the acquisition of a2 Pocono facility and the sale of MVM, as well as a long-term A1 protein-free milk supply agreement with Fonterra. These transactions mark a key milestone in our supply chain transformation, which has been years in the making. Essentially, these transactional, transactions enabled us to secure greater market access to the China label IMF market, with strategic control over our registrations, for growth in our core IMF business through portfolio expansion and innovation, accelerate the development of nutritional manufacturing capability, and capture vertical margin and generate attractive overall financial returns. Turning to the next slide, which provides a transformation program update. A dedicated transformation office, led by a transformation expert, was established prior to the a2 Pocono acquisition to provide governance, planning, and execution support to our Pocono supply chain and wider a2 team. Key transformation initiatives at a2 Pocono are progressing as planned, including the China regulatory approval process, blending and canning trials, capital investment activities, ERP implementation, and product development. Recruitment in manufacturing, leadership and operations is well progressed to support execution of the plan. Overall, the program is tracking well with some areas ahead of expectation. That's the end of my introductory comments, and before I hand over to Dave to take you through the financials in more detail, I wanted to publicly thank our global a2 team for their outstanding contribution in delivering the results we've shared with the market today, as well as for their exceptional work in our supply chain transformation. We're only a small team, but we've achieved a lot so far this year. Over to you, Dave. Thanks, David, and good morning, everyone. I'll start on Slide 16 with a summary of our group P&L. We delivered net sales revenue of NZD 992.6 million, 18.8% on prior year. Our gross margin of 48.9% was down 1.1 percentage points due to manufacturing losses at a2 Pocono, which is currently underutilized ahead of our planned a2 Platinum transition from Synlait in the first half of 2027, which will significantly increase production levels and improve a2 Pocono's financial results. Excluding these temporary a2 Pocono losses, our gross margin percentage was slightly up, reflecting lower IMF ingredients costs and a net FX benefit. Distribution costs were up due to higher freight rates and volumes related to liquid milk. Marketing investment increased in support of our China growth strategy, including awareness-building campaigns to support our recently launched products, including a2 Genesis and Kids and Seniors fortified powders. Given the second half weighting of marketing expenses, our reinvestment rate was slightly down. SG&A was higher due to investment in capability in support of growth in China and supply chain, including a2 Pocono transformation costs. Our effective tax rate improved due to reduced losses in our US business and utilization of a2 Pocono losses. Reported NPAT was NZD 8.4 million, including a loss from discontinued operations of NZD 103.7 million. That was almost solely due to the MVM non-cash divestment loss of NZD 103 million. As David mentioned earlier, we've declared an interim dividend of 11.5 cents per share, totaling approximately NZD 83.4 million. This equates to a payout ratio of approximately 74% of NPAT, and is towards the higher end of our policy range. The dividend will be fully franked and unimputed and will be paid on the second of April. Slides 17 and 18 summarize our segment and product performances, with the key drivers covered throughout the presentation. It should be noted that a2 Pocono is included in the China and other Asia segment. Moving on to slide 19. Our closing cash balance at the end of the period was NZD 896.9 million, down NZD 164.3 million versus June 2025, mainly due to the supply chain transaction net outflows of NZD 168.7 million associated with the a2 Pocono acquisition and MVM divestment. Operating cash inflows, excluding interest and tax, were NZD 140.7 million, representing operating cash conversion of 91%, which was in line with expectations and reflecting our inventory rebuild following Synlait manufacturing challenges late in FY 2025, which temporarily reduced IMF inventory at June 2025 and into the first half of FY 2026. Investing activity outflows included the previously mentioned supply chain transaction net outflows, capital expenditure, and a reduction in term deposits. Cash flows from financing activities included the repayment of MVM's external banking facility prior to divestment. Turning to Slide 20. Our balance sheet remains strong as we invest in our supply chain transformation and continue to execute against our growth strategy. Inventory was up approximately NZD 34 million, reflecting the inventory rebuild previously referenced, with trade payables also increasing accordingly as we continue to progress towards target levels. Intangible assets were NZD 105 million, primarily due to the goodwill associated with the a2 Pocono acquisition. The reduction in other liabilities primarily relates to the reduction in external MVM loans associated with the divestment they completed during the half. That concludes the first half 2026 financial overview. I'll now hand over to Xiao to take you through the performance of our China label business. Thank you, Dave. Starting on slide 22, we delivered China label IMF revenue growth of 6.5%. This was supported by strong execution, China IMF market stabilization, and the favorable foreign exchange. This is a pleasing result, given growth during the period was partially constrained by market shifts towards English label and the supply. We achieved a record China label IMF market share, reflecting strong execution across both online and offline channels, and is supported by strong new user recruitment in FY 2025, which is now graduating into later stages. Outside IMF, other nutritionals also delivered growth, driven by recent senior and the kids innovation that's resonating well with consumers. Turning to the next slide. Overall, we continue to gain share in China label, with total market share reaching a new high of 5.6%, as well brand health. Performance was strong across both our MBS and the broad channels, with each reaching record shares as we continue to execute well in our key channels. Moving to slide 24, new user recruitment remains a key focus. In mid-December, we launched a targeted marketing campaign in China, partnering with the well-known My Little Pony franchise. The campaign was designed to attract new users for the Year of the Horse. We designed maternity gift pack and a fully integrated campaign across online and offline channels, including social media, which has generated strong consumer engagement and user-generated content. Since launch, our brand has moved from ninth to first in search share on Little Red Book, and the stage one new user recruitment has increased versus pre-campaign levels. Turning to slide 25, and taking a closer look at our kids and the senior nutritional products, which are performing well. Our kids' milk powder product has supported a turnaround in China label stage 4 performance, with the product now leading international brands in key channels. This reflects strong consumer acceptance, supported by a competitive formulation, good taste, and appealing package. In senior nutrition, we are building share in the ultra-premium segment, with a steady online growth, supported by targeted seasonal campaigns and a new user recruitment through family gifting. Across both categories, we continue to leverage the strength of the a2 brand in IMF to attract new users and expand our offering to other life stages. Slide 26 provides an overview of our new case modified UHT product, which we have recently soft launched into Costco and select online platforms. This is our first locally sourced UHT product in China, which enables improved freshness and a high support formulation, addresses the area of strong consumer interest. Moving to slide 27, our focus on innovation has seen us expand our other nutritional portfolios through entry into a new category. The pediatric supplement category is a rapidly growing market with approximately NZD 8 billion in retail sales value, and is an attractive adjacency to our core infant formula business. It is a fragmented category where we believe the a2 brand can be successful. Continuing to the next slide. Slide 28 provide an overview of our new China label pediatric supplements range, known as a2 Zhiyi, which will be progressively rolled out during the second half of the financial year. We have four products in the range, which are focused on high-growth area and are formulated to provide functional benefits aligned with what the a2 brand is known for by consumers. The locally manufactured products have a new and innovative packaging to maximize consumer and trade appeal. Near-term, sales are not expected to be material. However, the long-term potential of the category could be significant. I will now hand over to Yohan to take you through the English label. Thanks, Zhao, and good morning, everyone. Looking at slide 29, English label IMF continues to grow, with sales up nearly 21%. Growth was supported by overall market expansion, growth in our combined CBEC and O2O channels, and growing contributions from our a2 Genesis product. It is also pleasing to see our ANZ IMF sales in growth, with the Daigou channel stabilizing and continued share and sales growth in retail. We continued to deliver solid momentum in other nutritionals across all channels, led by strong growth in our milk powders portfolio, with additional support from a2 Smart Nutrition and a2 Nutrition for Mothers. We also saw increased UHT volumes, particularly in Vietnam. Turning to slide 30, momentum in the English label market has continued, with English label now accounting for 20% of the total IMF market.... A2 remains well positioned to benefit from the growth in this segment as the second largest brand in the English label market, with our market share just shy of 20% and our online channels continuing to grow. A2 continues to perform well in the CBEC and O2O channels, with significant sales growth. On an MAT basis, A2 was the leading share gainer on CBEC from June to December last year. Continuing on to the next slide, the rapid growth of HMO and specialty product segments continues to be a growth driver of the English label market. Our A2 Genesis HMO formulation has now been in market for a year and is performing well. We have invested heavily to build awareness, consideration, and trial, with our sales building month on month. In the first half, a2 Genesis represented 6% of all our CBEC channel consumer sales, with more than 50% of sales being for early stages, which supports future potential. Turning now to slide 32. We continue to develop our Vietnam business, with our distribution expanding significantly during the half. a2 IMF and other nutritional products are now ranging over 1,000 MBS stores, and initial listings have commenced across national key accounts and e-commerce platforms. As we execute in Vietnam, we remain focused on our broader emerging market strategy, assessing opportunities to further expand into other markets, with a particular focus on Southeast Asia and the Middle East. I'll now hand over to Eleanor, who will take you through ANZ. Thank you, Yohan. Turning to slide 33. Our ANZ liquid milk business has continued to perform well. We delivered double-digit revenue growth, driven by growth in both our core and lactose-free ranges. In terms of market share, we outperformed the category, with overall share increasing to 11.5% and lactose-free, achieving a record high MAT share of 20.6%. During the period, we were also pleased to complete the final stages of upgrade to our current processing facility to strengthen our operational capability and capacity. Moving to slide 34, in 2026, a2 proudly became the Australian Open's first-ever dairy milk partner in the tournament's 120-year history. We activated across our priority markets in Australia and China, with the partnership delivering positive results. During the tournament, a2 Milk was the only dairy milk to be served on-site, reaching more than 1 million attendees, and our bespoke co-branded frappes became a viral sensation on social media, driving exceptional visibility and brand engagement. And with that, I'll hand back to David. Thanks, Eleanor. Before I move on, I wanted to acknowledge that this will be your last investor call with A2, and thank you publicly for your outstanding contribution to the company over the past seven years in leading our strategy function and ANZ business, which you've done exceptionally well. Thank you very much. I'll now cover our US business on behalf of Kevin Bush, who was unable to join us today. Our US business has had a very good start to the year, with revenue growth of 29%, driven by our core range and graphite innovation across all channels. Our revenue growth was supported by positive market trends during the half, with premium and specialty liquid milk market value growth of 11%, which is higher than total category growth of around 4%. Our market share continues to increase, with growth in household penetration and consumption, and our profitability improved with an EBITDA loss of NZD 3.4 million. Finally, from an IMF perspective, our FDA submission remains under review and is progressing. That concludes today's formal presentation. I'll now hand over to the operator for Q&A. Thank you. Thank you. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. If you wish to cancel your request, please press star two. Please pick up the handset to ask your question. Your first question today comes from Thomas Kierath with Barrenjoey. Please go ahead. Guys, obviously a lot of focus on the birth rate, and the weakness of it, that it's been reported more recently. Just be interested in your comments around how stage one, I guess, is growing versus stage two and stage three, and whether you're seeing any initial signs of that weakening birth rate in your numbers. And then I've just got one on Genesis as well. Thanks. Thanks, Tom. I'm going to ask Xiao to comment on the stage performance at the moment and an outlook around that. Yeah. So, in the first half of fiscal year 2026, we see stage 2 have a very strong growth. Stage 3 improved, and the stage 4 are dropping, but we'll have at the newly launched Kids 45 powder. We have a very strong, I mean, growth combined stage 4 and Kids 45 powder. For the stage 1, due to the supply constraint, we did see stage 1 is dropping as well, losing share. But, I mean, we are started, I mean, the what we call the early stage campaign, and as we show in the slide, My Little Pony since December, I mean, to boost back the early new user recruitment after the improved supply. And so now we see a pretty encouraging early signal of I mean the improved new user recruitment comparing with the previous months. And also I mean if you look at China label track record in the history like in the fiscal year 2025 our I mean stage value share improved from 3.1% in the previous year I mean to the first half 3.9% and the second half of more than 4.2%. So we are pretty confident that we are going to turn around. ... the Stage One performance and innovates all the, I mean, focus efforts on the early new user recruitment. That's great. Thanks. Thanks, Yao. And just secondly, on Genesis, I know initially you were investing pretty heavily in that brand, so the sales that you were generating, you weren't actually necessarily making much, you know, profit as you were reinvesting. But whereabouts is that at the moment? And when do you start to see, I guess, a profit contribution coming through from Genesis? Yohan, would you like to talk to Genesis? Yeah. Look, I think you're right. In terms of the focus for the Genesis product, we're definitely looking to invest in driving awareness through to trial. But the product itself makes a quite strong gross margin, just slightly below our Platinum gross margin. And then over time, we expect, obviously, the net contribution posts the marketing spend to improve. At the moment, yeah, absolutely, we're investing behind the brand, but I expect the net contribution to improve over time. So, some percentage margins are lower, but dollar margins are similar. Great. Thanks, guys. Thanks, guys. Your next question comes from Josephine Forde with Bank of America. Please go ahead. Congratulations, David and team, on the result. My question is also in a similar vein on the China label market. Can you talk through your expectations on the continued brand consolidation, just given it was stable in the half, and then also just a bit more color on the market returning to growth and in pricing in coming through? Josephine, I think the... Even though there was a sort of temporary pause in the level of consolidation, the top five, 58%, you know, top ten, still around 78%. There were some kind of winners and losers within that, within the sort of top five and top ten in the period. But we fundamentally believe that the brand concentration trend will continue in the market, and certainly the top five will gain a disproportionate amount of share over time. And maybe in time, there might even be, you know, corporate consolidation as well, which we've seen some of the evidence of over the last, you know, 5 years or so. In terms of the growth going forward, you know, it's pleasing to see, like, I've been here 5 years and in effect, 10 half year, 4 year and half year reports, and first time we've seen the category in growth for the half at 3 and a bit%. That's based on Kantar numbers, and I do sort of caveat that the Kantar is reviewing their growth numbers in March, so just important to look out for that. But definitely the English label category is in growth, and China label is, you know, flat to up. You know, the outlook, we continue to believe there'll be ups and downs in the newborns numbers. You know, the Year of the Dragon was probably higher than market expectations, and last year, clearly lower than expectations. But there's good reason to believe that, that the newborns will be up next year, or this calendar year. We're seeing, you know, as marriage rates are up 11%, the last three quarters are up 20%, as you would have seen. And we've also got insight into in terms of maternal registrations as well, and we're seeing those being up, you know, high single digit at the moment as well for the, first calendar quarter, for the March quarter of this year as well. So I think the newborns will be up this year. It's difficult to predict how much, but, you know, probably in the low to mid-eights. But there's, you know, there is long-term socio-demographic pressure on the newborns rate over time, so we're still expecting that to decline by low single digits, but a degree of premiumization in the market to support the category, hopefully around flat. So as we've always said, this is a share game for us. We've been very successful, you know, with a strong brand and our execution behind that and innovation fueling growth now, where we've managed to, you know, almost double our share from, you know, just over 4% back in 2021 to over 8% now in the market. And we think we've still got significant market share growth opportunity both in China label and English label. English label is doing really well at the moment, and China label has been growing for many years and will have the benefit of the two additional registrations that we obtained through the Pocono acquisition shortly as well. So I think, in essence, I think the market should be relatively flat, and we still have a significant share opportunity to gain in infant and other category expansion opportunities. I think the pediatric supplements market entry is a pretty significant milestone today, so plenty of growth opportunities for us in and outside the infant category in China and new markets. Okay, thank you. And then just on the guidance upgrade. Since November, what's driving such improved outlook? Like, is this driven by English label or is it a more positive backdrop for the China label improvement, or are you seeing early read-throughs on these new marketing campaigns in the China label? All of the above, and probably the only thing you're missing there... So the, I mean, the infant category has been pretty robust for us, and the growth has been, you know, slightly higher than we expected, but certainly the you know liquid milk and other nutritionals growth at the beginning of the year and even at the AGM, we didn't expect such high growth in those categories, which is really pleasing. That'll probably come off a bit in the second half, but you can tell from our guidance, we're still expecting pretty robust growth for the full year with mid-double-digit sales growth. So, I mean, all of those are contributing and, you know, it's kind of very pleasing for us as a team to see that really all categories and all markets are performing really well at the moment. It's terrific to see. It's a real credit to the team and also the health of the a2 brand. Yeah, great to see. Well, thanks very much, guys, and congratulations again. ... Thank you. Your next question comes from Matt Montgomerie with Forsyth Barr. Please go ahead. I might just come to Pocono to start. Clearly, things are tracking quite well there. Just within the EBITDA losses for the first half of NZD 9.8, I think. Of that, what was related to the transformation costs? And then secondly, I suppose your guidance for the second half implies quite a meaningful step up in losses. I appreciate it is a full six-month period, but yeah, it'd just be interesting to understand that. And then with Pocono tracking ahead of expectations for this year, you haven't changed your FY 2027 outlook for Pocono. Yeah, maybe if you just sort of step through that as well, and why that couldn't be improved over time as well. Yeah. Do you wanna- Yeah, I'll take that. In terms of the transformation, assume it's about five, in terms of the transformation. So, so that's going through SG&A and the residuals going through gross margin. In terms of the step-up in losses, I think the way you've got to think about it is that we are significantly ramping up the capacity of that site over the course of this financial year in advance of the transition at the start of the next financial year. So our underrecoveries are going to get worse before they get better. So that's why we have the ramp in terms of the second half. And in terms of FY twenty... In terms of why it's better, overall, in terms of our guide, our sort of estimates around Pocono, is that we set our expectations for this year, at the time of the full year announcement, where we were outside the company, you know, we hadn't bought it yet, we hadn't got in. It was all based on our estimations from, you know, due diligence, et cetera, et cetera. So now we're getting closer to the numbers, and we can give more refined sort of outcomes. And then also what helps us slightly is that we have been doing some of our platinum canning, as we alluded to at the AGM, during the course of this year, which helps us a little bit as well, but none of that changes our expectations for next year. Yeah, perfect. And then secondly, just on guidance, on China label, I know you haven't given breakdowns by, by the pieces, but would it be fair to assume similar levels of growth in the second half year-on-year as experienced in the first half? I know, Xiao, you mentioned earlier, sort of there were some supply issues impacting the half you've reported now, and there's been some sort of numerous moving parts over the last couple of halves of supply shortages. But just expectations for China label growth in the second half. Matt, we're not providing sort of individual business unit or label-related growth guidance for the second half. As you'd appreciate, it's still uncertain. There's a long way to go through the half. What I can say is that in terms of the infant category, as you would expect, we're expecting double-digit growth in infant in the second half. For liquid milk and other nutritionals, we're expecting that the rate of growth to come off a bit, which you'd sort of have to conclude based on the guidance. We're confident in China label and English label growth in the second half, but as to the specifics around it, I'm reluctant to sort of provide guidance on the components. Xiao mentioned the supply challenges in this half. It's more, probably less of a sales impact in the half. It's more, I think Xiao was referring to the impact on user recruitment, which we had to, you know, reduce our level of activity during that first quarter. But we certainly ramped that up subsequently, and that's the experience we had actually going back a year in FY 2025. In the first quarter of 2025, we had a similar experience. So that's where that comment comes from. And, you know, definitely, with the lower newborns and the, you know, some of the pressure off from the supply chain constraints, we're very focused on increasing our user recruitment and our early stage share. Yep. No, perfect. Thanks for the color. Your next question comes from Julia de Sterke with Morgan Stanley. Please go ahead. Hi. Morning, guys. Just wanted to ask, first, back to the, some color on the industry numbers. Just in terms of the English label category, I know now you're kind of cycling some stronger industry numbers in that category. Where do you expect that penetration number to get to over the next couple of years? Are you sort of expecting that strong cadence of growth until you get back to kind of that 28% peak penetration, or is this kind of industry growth starting to tail off in your view? We're not seeing it tail off at the moment. The category is, or the label, cross-border business is growing quite healthily. I mean, double-digit growth over the last four halves, which is terrific. But as you know, we're only at 20% of the total category, and it was a peak of 28. Well, actually, it was even higher prior to that, the 28%, in FY 2019, just prior to COVID. So we think it's still got some way to go. But, you know, I don't think anyone can be conclusive in terms of where it'll get to, but we still think it's got some more category growth ahead of it. Because there are some advantages that English label has over China label at the moment, particularly on formulation.... And then from our point of view, from a share point of view, at just under 20% share, we had a sort of peak share in the category at in the mid-20s, and we're definitely focused on, over time, getting back to sort of the mid-20% share in the category as well. So, that's probably all the color I can give on that at the moment, Julia. Got it. Thank you. And then just wanted to ask on global competitor recalls that have been going around over the last couple of months. Acknowledge that it's probably still pretty early on, so you might not have too much color around what the ultimate impact will be, but has this factored at all into your guidance changes or how you're thinking about the market over the next couple of years and your market share opportunities? No, it hasn't, Julia. I mean, it's a very unfortunate set of circumstances for consumers, trade, and the brands that are involved. So, and we're not, we're definitely not sort of tactically trying to be opportunistic about this. So, and we wish all those involved the best, 'cause it is, it... I mean, the infant formula category is, this happens from time to time, and it's a very difficult circumstances. So, but that's not factoring into our guidance. We're not banking on a major shifts towards that brand, English label or China label in that regard. I mean, if there was any shift, it would probably be more related to English label, because most of the recall activity has been in that space, but that's probably all I'd like to say on that at the moment. Great. Thank you. Your next question comes from Sam Teeger with Citi. Please go ahead. Oh, hi, all. David, earlier on, you made a comment about potential for corporate consolidation. But was keen to understand just the thinking behind that and how you see things playing out. Hi, Sam. I think the most important, like in consumer goods, the most important thing is brand concentration, no matter what the corporate ownership structures are in the marketplace. So that's what we're primarily focused on, and that's sort of the category dynamics lead to that. I just said, I was just mentioning in passing that there has been some corporate consolidation, you know, by Nestlé and Yili over time in particular. I mean, there is possibility of that, but we're more focused on how we present that market share information is by brand, which is the most relevant, no matter who owns what brands in the marketplace. So it's just a passing comment. So I don't think any corporate consolidation is imminent in the market at the moment. I think most of the players in the industry are really focused on their own portfolios. Okay, cool. And just wondering, when you saw the birth rate for 2025 come out last month, how did you balance up whether you should upgrade your FY 2026 guidance now or potentially hold off for a few more months to ensure that the strong momentum continues? Well, we sort of undertake a regular forecasting rhythm to our business and, you know, based on our year-to-date performance and outlook for the end of the year to go, you know, it's pretty clear at the moment that we should be in a position to achieve mid-double-digit growth. And I don't think that's particularly influenced by the newborns number at the moment, because the impact on Stage 1 in the market is sort of not as severe as what the decline in the newborns is, because you've got... What's going on in the market is you've got sort of, you know, breastfeeding rates have declined. That's not something that we would promote, because breastfeeding is obviously best. But that has declined in the market, based on the evidence that we've seen by different reporting on that. And also the extent and use of early stage product has increased as well. So there's a prolonged use of early stage product as well. So I don't think you should expect the impact to be as significant, and it's also, you know, it's less than 20% of the market and of our business as well. So I think it's not a huge driver of this year's outlook. And as Shas said, we're very focused on ensuring that our early stage recruitment is optimized, and we set ourselves up well for the future. So not a big factor at the moment, Sam. And then, on the decline in breastfeeding rates, but what do you attribute that to? I think some of it may well be economic, from what we've heard. You know, a lot of mothers are, you know, for economic reasons, feeling that they need to get back to the workplace pretty quickly. So I think there's probably some of that going on, and there's some social, sort of demographic trends around that as well, but not to comment on the call. So I think it's, yeah, I think there's some underlying drivers there. It's actually stepped down quite a bit, you know, several points over the last year or two, so it's quite significant. All right. Thanks, David. Thanks, Sam. Your next question comes from Adrian Allbon with Jarden. Please go ahead. Oh, good morning, team. Maybe this is one for, for David. First of all, just, just looking on slide 18 and just trying to just understand, like, the other Nutritionals growth. Like, it's sort of like when you back out the Pocono contribution, like it's, it's just sort of NZD 30 million in terms of the China and other Asia category. Are you, are you able to kind of give us a steer of how much of that is these new products? I guess why... Yeah, it's pretty significantly growth in kids and seniors. And then outside of that category, you've got Genesis contributing, you know, quite a lot of the growth. I'll come back to you a little bit later, but probably overall, when you look at our growth, I mean, the investment we've made in innovation over recent years, you know, it's really pleasing to see that come through. So if you look at our total growth for the half, you know, just under 19%, if you adjust for the sort of FX impact and sort of Pocono in the period, you've got sort of, you know, 15-ish% growth underlying. And over a third of that in the period was driven by innovation. You know, specifically Genesis, the Kids Advanced product in China label, and the seniors range that we've introduced. Now, those products weren't there in the comparative period, so that's really just, you know, 6-12 months of growth coming through, which is, which is pretty outstanding. So it is, it is making a meaningful difference, is the answer. Sorry. So of the total growth, which was 19, you sort of said underlying 15 and the innovation- Yeah, if you take our current currency and currency in the a2 Pocono impact, the sales associated with that, you know, they're, they're about two percentage points each, so call it around 15. Yeah. And, and I'm saying that over, over a third of that underlying core growth, is due to innovation, with the rest being the, you know, the core portfolio. Okay. And within that, obviously the fortified products and Genesis are the main lifters in that third of the 15%? Yeah, it's around 30. Probably 30%. Let's say 30% for the half. Okay. Right. No, that's cool. Thank you for that. And just like staying on the revenue side, just in terms of the pediatric entry, as the sort of, is the unit economics quite similar to infant? If, like, it's probably an outsourced manufacturer, but like, is it- Yeah. Quite a high gross margin? It's quite a high, quite a high margin category similar to infant. Yeah. Okay. Which is great, and it allows us obviously to, you know, reinvest, to establish our awareness and consideration and trial in the category. So yeah, we're attracted to the margin structure associated with it, relative to our other nutritionals, the rest of that category, which is lower margin, but improving with the new innovation we're bringing to market. Okay, thank you. Just in terms of the guidance, is the... I'm presuming the top, does the upgrade to 15% or midpoint, mid-double digits, does that assume returning to target inventory levels, or is that a risk buffer within your upgrade? It assumes, I won't be specific about it, but it does assume that we receive adequate supply during the period from Synlait, and that there's no major issues or disruption associated with our a2 Pocono facility and transition and all that. Yeah. Okay. And then just on the marketing side or the marketing intensity for the half, like, it seemed to sort of be at the low ebb of sort of 17% on a continuing basis, 'cause I think when we were talking about that reset at the last result, like on a continuing basis, it was, I guess the track record have been more like 18% of late. Right. Are we expecting quite a step up in the second half to support these new programs? Yeah. So in the first half, we pulled back a little bit on our investment, principally related to what Sha highlighted in terms of supply constraints. So we pulled back a little bit on our user recruitment activity, and that's why it's lower in the first half. But we did invest behind our new innovations that were brought to market. So that's why it's at 17% in the first half. So the second half will step up as we invest more in new user recruitment and our innovation in the marketplace. So that'll step up. So overall, our reinvestment rate will be around the 18% mark. It goes, it's similar to actually, in a way, Adrian, to what happened in FY 25, because we had supply constraints in the first quarter then, and we pulled back a bit on marketing. So if you have a look at the marketing reinvestment rate in 25, you know, that was, that was 17.5 in the first half and 18.8 in the second half, and overall 18.1. So I'm not saying specifically what it's going to be in the second half, but it's kind of a similar profile for similar reasons in a way. Okay. No, that's helpful. And just, just a clarification on those Pocono losses, did you say that they were NZD 5 million? And I think originally at the last result, you were expecting 10. Is that correct? I just didn't quite hear the end of- No, no. No, sorry. No, I was referring to the half's numbers, so NZD 9.8 million EBITDA loss, and NZD 5 million of that's in SG&A. So it's only to the end of December. There'll be more transformation costs in the second half. Transformation costs in the first half? Sorry, there was NZD 5 million in the first half for transformation costs in SG&A, and we've guided to about NZD 10 million for the full year. Okay. No, that's cool. Thanks for that. Your next question comes from Craig Wolford with MST Marquis. Please go ahead. Morning, David. Can I just ask a question around the market share performance, your, your English label market share performance, which was steady. Just trying to get a sense on when you, you know, what triggers you see for an improvement in that market share. The reason for the question is the, you know, the commentary on Genesis looks very strong, and some of the other products look stronger. So is there an inference that something else is losing share? ... Good question. I might let Yohan answer that. Yeah. So yeah, on, if you look on slide 30, it shows, our market share. Particularly if we look at the CBEC market share, we're slightly, up on an MAT basis. If you look at the, December monthly number, and we're up a bit more, so that's about, 20.1%. And, part of the growth is, obviously there's the Platinum, which has been the base product for many years. But what we're seeing is incremental, market share upside from A2 Genesis. And the primary channel of sales for that product is CBEC. So that's why you can see the CBEC market share, trending upwards. The other, parts of the business are, there or thereabouts. But as we roll out a2 Genesis, we'll also roll it out into more O2O channel store networks as well. And so if we look at the English label market share trajectory, we're hoping to get to 25%. We're currently overall less than 20, so there's about 5% market share that we're looking to gain. Part of that will come from Platinum continuing to improve, but then products like a2 Genesis, of course, offer some upside opportunity, incremental as well, to get us to 25. Share growth. Yes, share growth in the CBEC channel seems fantastic. Yeah. Yeah. So we're the number one on an MAT basis for the last six months. So, and that's primarily driven by the success of a2 Genesis. In the half, the number one as well? Yeah. Yeah. So, what would drive Platinum share gains? Like, it's been a relatively steady A2 share of EL for a few half year periods now. What do you see as a step change in that Platinum products share of the market? Yeah, you're right. It's been the workhorse of English Label for many years, and still is the biggest contributor to English Label. Of course, as we go forward, we'll also look to upgrade our Platinum proposition. The last time we upgraded the proposition was back in 2022. And so as we move forward, we'll also look to upgrade the proposition and the packaging as well. Great. That's as we transition from Synlait to our new facility, a2 Pocono facility. So as you would expect, we're, you know, taking the opportunity to upgrade the formula and the packaging. Great, that's clear. Just a quick one, just on the guidance, the only thing that sort of moved in the other direction was just the cash conversion. Apologies if I've misheard something, but just wanted to... It was 80%-90%, now it's 80%. What, what's the reason for that shift in cash conversion? Yeah, Craig, probably the biggest change is the timing of the working capital build at Pocono. So as we transition that Yohan's just talking about in terms of the Platinum moving in, we're gonna have to start to produce base powder towards the end of the year and the start of the next financial year. So we've just got a better line of sight over the timing of that. So it's not worse than what it was. It's the same working capital build that we called out previously. It's just the timing of that working capital build. Understood. Thank you. Thank you. Your next question comes from Richard Barwick with CLSA. Please go ahead. Hi, team. I've also got a question on English label, 'cause there's a couple of things here that don't quite add up, I don't think, because if you look at the English label market, you're saying it was up 12% or I guess the Kantar numbers saying it was up 12% for the half, and you were growing your English label IMF revenue by 21%, but your share is holding about flat. Do we put down all that difference or the difference between the 21% growth and the market up 12, is that Vietnam and other markets that sort of make up the difference, or am I missing something here? Yeah. So part of it is Vietnam, and Vietnam's accelerated quite a bit. I think that the key thing is that we've seen Genesis as well growing. So if you look at our PCP, we didn't have Genesis in it, and so that's a large contributor of our sales. But that's concentrated in the CBEC channel. And then the last thing is we've been working on O2O channels, so you'll see our O2O share with Daigou is a little bit lower, and we've been making some operational upgrades to improve our consumer experience there. So yes, there's a few things going on there. I understand where you're coming from. But some of it is the you know, other Asia, if you like, outside of China. Some of it is a2 Genesis, and some of it is some of the work we're doing in the O2O space. And I think, Richard, I'd also just- I'm just wondering. Kantar data is helpful, and looking at the longer term trends, there's always, you know, anomalies in that. So if you look at the Kantar from a growth point of view rather than share, so, you know, smart half, the data for the total English category is up quite a lot, so over 20%. Well, that's exactly what I was gonna question. Now, do we... I mean, you put the caveat at the bottom of that, of the Kantar data, so do we take those share numbers with a grain of salt? Because that is a big difference. 21% plays the market at 12%. Yeah. I think Kantar is more relevant the more aggregated you look at it, so total market, China label, English label, but when you get down into the below that, it becomes more challenging. They review their methodology from time to time, and it's obviously a panel-based survey. It's the only full market survey that is available. I wouldn't say take it with a grain of salt, pinch of salt. It's really, I mean, it is relevant, but I'd just look at it over time in terms of trends. Yeah. Okay. Right. I mean, if we take, if we excluded it, then we'd be, you know, we'd probably be criticized for excluding it, so we're just including it to be- No, no, I get that. Many of the analysts don't have access to it. Yeah. No, no, I get that. So I was just surprised that the difference between the 21% that you're growing, like, so that's a very clear number. And just really wanted to clarify, do we put the rest of it down to Vietnam and Co? And it sounds like that's the biggest differential. Well, it helps, but we're still growing quite significantly in the core US and English label a2 Genesis. Yeah. Yeah. Okay. Right. Thank you. Your next question comes from Marcus Curley with UBS. Please go ahead. Good morning. I just wondered if we could, you know, start with the slide that you're talking about, the new pediatric supplements for the existing China label range. And maybe it's for Gel, but just interested to know whether this is, you know, resulting in a substantial change in stocking, you know, by the mother and baby stores. Do they see this, you know, as now four products rather than one, you know, or is it, yeah, a relatively small component of, yeah, what's likely to roll out in the stores themselves? Hi, Marcus, it's Yohan here. I can help to answer some of those questions. So, firstly, the supplements market is quite fragmented. There's many different products looking at many different functional benefits, and often when consumers are looking to buy in the supplements category, they're buying for a specific functional benefit. So firstly, it's helpful to have a range of products because each product is targeted at a specific proposition and specific consumer need. When sold into, so these products are sold into both MBS stores and also online on DOL. So, when we look at MBS stores, if you think of the, you know, the way the, you know, what the key categories of sale, it's infant formula, supplements, and diapers. Supplements is a big driver of their business, and so having another set of supplements products in the market in their store that they can... That is, you know, effectively companion to some of their a2 products in the early life nutrition space, is obviously helpful for them as an additional sale. And so, it's probably best to think of each product as an, as an individual product suited to a specific need. So you can see even the ones that we have on the page on slide 28, is, you know, they're very, you can see they're focused on either immunity, allergy, gut health, or brain and eye health, areas that a2 are known for in the early life nutrition space. You know, over time, we'd look to build on those, depending on the success of these. It's hard to say from the pictures, but in terms of, are these individual infant formula products or just a container with supplements in them? No, these are a container with supplements in them. So, if they're not infant formula, they're supplements, supplement products. And so you can see on the picture, it's a container with a set of supplements inside. And so they're sachets within each, with the exception of the brain and eye health, which is a soft gel and a blister. And could you give us any perspective on how big the supplement market is, you know, as a share of infant formula in China label? Gotcha. So if we look at the total supplements market, it's an $8 billion market for pediatric supplements. Represents, you know, 15%-20% of the total supplements market in China, which is far bigger, of course. But is- I mean, the last time we quantified that, it was $28 billion. Yeah. In our annual report. 8 versus 28. It's quite significant. When we look at all the adjacencies that we're expanding into, this is the single biggest category, and most of it's addressable. And the competitors there are sort of aligned with the infant formula brand. So like, for example, you know, Danone would have the largest share, or is it a different dynamic? No, it's a different dynamic. On slide 27, you can see the market shares by competitors in the online space. There's a lot of new brands entering the market. It's highly fragmented, and so, you know, there's an opportunity for a trusted brand to enter the market, such as a2. Okay, thank you. And then quickly, just on gross margin, David, you called out an improvement in the half. You know, what are you seeing in terms of those trends? Are you seeing increasing benefits from lower ingredients costs or what should we be assuming? I think for the second, yeah, we saw some of the lower milk and lactose costs coming through in the first half, but we're now seeing that reverse and some pressures coming through through whey proteins. But then we've got some counters to that in terms of mix of business, should be more IMF weighted, in the second half. So, we wouldn't say hopefully too much change coming through in the near term. Okay, thank you. The next question comes from Phillip Kimber with E&P Capital. Please go ahead. Hi, guys. Thanks for taking the question, and sorry if it's already been asked before, but early stage, stage one and stage two, I mean, previously you'd shown some market charts in prior reports of what stage one and stage two have been doing, and after the Year of the Dragon, stage one had grown rapidly and had started to come off. I couldn't see anything in this presentation. Is that? Has that now sort of moved to stage two products at the market level? I know you guys are winning market share and got good growth, but I'm just trying to understand the market. And then to put some context around that, I think you've said your China label sales are roughly half stage one, stage two, and the remainder is stage three, stage four. Is that the same across English label as well? So as a total infant formula business, are you roughly skewed half to early stage and half to stage three? Thanks. I'll hand over the stage one trajectory in the market and our share. But so on the mix of stage share in the business, so we're roughly, it's roughly sort of, it's just under 50% across the total group, early stage products, stage one and two, with China label being slightly higher and English label being slightly lower, if that helps you. Yes. Charlie, comment on stage... I think Phil's question was around stage one growth in the market and our share around that. Stage two. Sorry, guys. Yeah. And stage two. Yeah. So the Stage 2 China label in the first half is strong growth. I mean, the benefit from FY 2025, we have a lot of Stage 1s, I mean, the new user recruitment factoring into the Stage 2. But I mean, if you look forward, I mean, it's going to be either flat or down. I mean, due to now they are moving to the Stage 3. Yeah. Stage 3 in the first half is improving, but you are going to see a stronger growth, I mean, in the second half than there are Stage 2 consumer moving to the Stage 3. Stage one, I mean, as you can imagine, I mean, the whole segment is going on a downtrend, I mean, because of a combination of fewer newborn babies, but hopefully it can quickly bounce back into the new year, but also, I mean, kind of helped by this. David mentioned the premium usage and the increased penetration. Those are all tailwinds for the stage one. But I think, I mean, for us, it's more of a share gain, I mean, in the new user recruitment, because we have done extremely well in the past, I mean, demonstrate that we can almost grow the new user recruitment by 30%. Pity is that we are constrained a little bit in this first half by the supply constraints, but now we are put all the focus, energy and the money back. I mean, try to turn around, and we are confident we are going to see a improving trend on stage one. I mean, no matter the market, going down or, or, I mean, worse. Yeah. So just on the stage trend, I know most of you don't have access to Kantar, but so if you look at the stage, so in the half, the, for China label, so the 2% growth is stage one was still in growth, so high single digits, mid to high single digits. Stage two was, you know, low double digits. Stage three was down single digit, but the, the second quarter was flat as that, as that sort of graduation comes through. And stage four was down to the high double digits, if that helps in terms of the stage relative growth in the market at the moment. Yes, that's very helpful. Thank you. There are no further questions at this time. I'll now hand back the conference to Mr. Bortolussi for closing remarks. Thanks, everybody, for joining the call. I guess in closing, we continue to execute our growth strategy, focusing on maximizing our opportunities in China, IMF, adjacent categories and new markets, which you've hopefully seen a lot of today. We're pleased with our supply chain transformation progress following the acquisition of a2 Pocono. I look forward to catching up with most of you during the course of the next couple of weeks, and thanks very much for joining the call. Cheers.