Earnings Call: H2 2021

Aug 26, 2021

Thank you for standing by, and welcome to the Aytu Milk Company Limited FY 'twenty one Results Release. All participants are in a listen only mode. I would now like to hand the conference over to Mr. David Ekers. Please go ahead. Hi, everyone. Thanks for joining the call today. Given the lockdown restrictions in various geographies, we're all dialing in from different locations. We're cognizant that COVID-nineteen restrictions will likely be affecting you as well and hope you and your families are safe. On the call today, we have David Bordeluci, our Managing Director and Chief Executive Officer and Raees Strauss, our Chief Financial Officer. David and Rice will present the full year results with some additional updates and our outlook, and there will be time at the end for questions. And with that, let me hand it over to David Watulusi. Thanks, David, and good morning, everyone. There's no hiding from the fact that this Past financial year has been a very challenging year for Aytu. The company was impacted by unprecedented levels of uncertainty and volatility Due to the prolonged impact of COVID-nineteen and a rapidly changing China infant nutrition market. That said, there are areas of the business that performed well With market share gains in our China label infant nutrition business and Australian fresh milk businesses. However, we were impacted by China market growth reducing Significantly, and disruption to cross border English label infant nutrition and other nutritional sales, which we have updated the market on previously and taken actions to address. We've commenced our growth strategy review and while I can see many opportunities to drive growth and create value in the future, The near term outlook in FY 'twenty two is challenging and it will take time to recover due to a soft outlook for the China infant nutrition market And the ongoing impact of COVID-nineteen on our English label business. Moving to Slide 5 and a summary of our results and additional updates we've announced today. Group revenue came in at CAD1.21 billion an EBITDA margin of 11.1 percent excluding NBM costs. Both of these are within the guidance range we provided in May And Rice will take you through the financials in more detail in a moment. We have responded to the challenges that We've had this year and focused on a number of key initiatives in the second half. In particular, we've taken aggressive action to address excess inventory issues, I'll provide an update on shortly, rebuilt the executive team and reorganized the Australia Pacific organization to provide more management focus on our key businesses, Increased our planned investment in our brand in China to drive demand, commenced our growth strategy review, which we'll provide an update on to the market, And completed the NVM acquisition in partnership with China Animal Husbandry Group and reviewed capital management options. I often get asked about our brand health, which we track regularly. Our brand health is strong overall. China label has improved consistently. And while English label metrics weaken somewhat in the earlier part of the year, there was some improvement in the Q4 on the back of our China marketing campaign. Turning to slide 6, given the significance of the actions taken in the Q4, we thought it was important to provide an update on this upfront. General inventory dynamics are improving as a result of the actions we took. Our own inventory has reduced, reflecting the stock write down and related initiatives And the age of stock we are selling to customers for both China and English label has improved significantly. As far as inventory in the channel is concerned, China label inventory is approaching target levels with some further rebalancing required in the Q1. For English label, inventory across CBEC and Diigo has improved and is at target levels. The combination of these actions by swapping longer dated Stock with distributors is improving our product freshness at retail for our consumers, particularly compared to what it would otherwise have been if we hadn't taken the action. Visible market pricing in Seabed and some Daigou channels has improved. However, there is still some aged stock from last year being sold by certain wholesale traders and online platforms, Which is holding back some of our price recovery. Whilst it is difficult to tell with certainty, we are expecting that this will clear in the first half, Probably by the end of the 11 and 11 peak trading event. I'll now hand back to Rice to take you through the financials. Thanks, David, and good morning, everyone. I hope everyone's keeping safe and well. Turning to Slide 8 and the key financials. As David already noted, FY 'twenty one was a challenging year, impacted by unprecedented levels of uncertainty and volatility due to COVID-nineteen. Revenue for the year was particularly impacted by the challenges in English label as well as actions taken in the second half To pull out some key points relating to the financial results of the business, Breaking down the revenue results, group revenue declined by 30%. Importantly, our China business label Delivered growth of 15%. China label now represents the highest revenue of all segments of the group. The English label result was poor with CVET decreasing 51% and Dido sales Decreasing 52%. As you are aware, a number of initiatives have been put in place to address this And rebalanced the inventory levels in the trade. Fresh milk in Australia performed very well, Growing over 10% as well as gaining share. Revenue in the U. S. Decreased by 3.7%. However, the losses were substantially reduced by $17,000,000 Gross margin decreased significantly, primarily due to the $109,000,000 stock write down. I'll touch on gross margin in a bit more detail on the next slide. The shape of the P and L was impacted by a number of costs below gross margin. Distribution costs were higher. This was due to the increased shipping rates and U. S. Freight, which have also been impacted by various COVID-nineteen related restrictions and we have incurred higher warehousing costs due to the higher levels of inventory held throughout the year. Marketing investment was lower than FY 2020, but broadly in line for China and Australia. In other words, the lower spend reflects the change in approach in the U. S. For the year. Employee costs were lower overall, mainly due to the reduction in incentive benefits. However, this was partly offset By our continued investment in our people, we added people in China and further improved our corporate capability. Admin and other costs were lower as a result of reduced consulting costs, offset by the ERP implementation cost And a significant increase in insurance premiums. I also want to point out that our effective tax rate Was marginally higher than last year due to the proportional increase of the U. S. Losses and the MDM acquisition costs, which are not tax deductible. Our NPAT was therefore $81,000,000 which represents a 79% decline from prior year. Coming back to gross margins on Slide 9. The decrease in FY 'twenty one was primarily due to the stock write down. However, there were some additional factors as well. Liquid milk represented a higher proportion of sales relative to infant nutrition compared to last year. And within infant nutrition, the reduced amount of the higher margin English label products Have impacted our gross margin. Additionally, we experienced adverse foreign currency movements, particularly in the second half. And COGS was a bit higher, driven by the increase in milk prices. The underlying gross margin, If you back out the one off stock write down, it was 51.3%. Moving to Slide 10. Our balance sheet remains in a strong position with clothing Klotzing cash position at 875,200,000 Operating cash flow for the year was $89,000,000 significantly behind the prior year due to the lower sales And the fact that the inventory was not converted into cash due to the stock write off. The business made a number of key investments during the year, including the high value milk processing facility, the ERP implementation and the Synlay capital raise. Despite these investments, the business was still able to generate a net positive cash flow of $21,000,000 Post year end, we utilized $268,000,000 to complete the acquisition of NVM. I'll now hand back to David. Thanks, Rice. I'll take you through the regional performance for infant nutrition and then I'll hand back to Rice to take you through liquid built for ANZ And the U. S. And other nutritionals. The China infant nutrition market structure is changing rapidly after many years of strong growth. In volume terms, the market decreased in FY 'twenty one, primarily driven by a significant reduction in the birth rate impacting early stage products, partially offset by an increase in product penetration. Value growth was flat as premiumization was not enough to offset the decrease in volume and was partially offset by increased promotional activity. Competitive intensity has increased and local Players continue to gain share against the traditional multinational brands, driven both by the strength of local brands in domestic channels, as well as an overall mix shift from cross border to domestic channels. Our China label infant nutrition sales grew 15% for the year. However, sales in the second half decreased 7%. This reflected the impact of the actions we took from the Q4 to reduce channel inventory, The cycling of a high comparative period as well as a lower birth rate and increasing competition just mentioned. While our ex factory sales reduced, it is important to note that our retail sales, that is our sales from mother and baby stores to consumers as measured by Nielsen, We're stronger than our ex factory sales and ahead of MBS market growth, resulting in an increase in share. We invested in the brand and via in store Devotion particularly in the Q4, which we've illustrated in the next slide. The MBS channel continues to be a great opportunity for to engage with our consumers and increase our distribution and gain market share. On Slide 14, we highlight some of the key activities during the year in terms of brand comps as well as investment in point of sale materials, promotional people, Mama classes and large Our 12 month rolling market value share in MBS was 2.5 at the end of June versus 2.4% at the end of December and 2% at the beginning of the financial year. Distribution has also increased to nearly 23,000 stores and we have increased the proportion of marketing investment allocated to China. Turning to Slide 16. We've spoken several times about the challenges in our English label channels, and I won't labor the points here. We believe that the actions taken in the Q4 will put us in a better position for FY 'twenty two than we would otherwise have been in. We're also improving the way we operate to gain better control of inventory and increasing channel visibility. There's been a reduction in overall inventory as well as an improvement in product freshness And market pricing has improved since our May announcements. Slide 17 shows our market value share in CEVEC and Daigo. The challenges we have experienced in English label channels clearly put pressure on our share. I also want to point out, as I'm sure it will come up in Q and A, we are again showing Kantar data. Kantar data has been expanded and covers a broader range of consumers, which we think is more representative of the business and the market. While limitations still exist, it remains the only comprehensive source for Daigo sales and share data. I'll hand over again to Rice to take you through the other original updates. Thanks, David. So moving to Slide 18. It was another good year for the Australian fresh milk business Double digit revenue growth in a mature category as we have continued to invest behind the brand. We're also pleased to have achieved another record market share of 12.2%. As the brand overindexes In retail versus out of home, the first half benefited from the impact of COVID-nineteen restrictions, growing at 17%, With growth in the second half reducing to a more moderate 6% as restrictions were lifted. This consistent performance over a number of years highlights the importance of continued brand investment alongside high quality products to drive awareness, loyalty, sales and share. Some images on Slide 19. So some of the investment activities And also the in store executional excellence delivered by our passionate team. Turning to Slide 20. It was an extremely difficult year in our other nutritional segment. Revenue was down 38%, also impacted by the challenges in the Daigo and reseller channel. We are examining our product and channel approach as part of the growth strategy review to drive demand and ensure other opportunities are explored to maximize the full potential of this segment. We shifted our execution approach in the United States in FY 'twenty one with lower marketing investment And increased price investment with the objective of improving conversion, household penetration and shelf presence. The business leveraged trade investment to being priced to an affordable premium, as well as increasing range, Overall, for the year, revenue decreased by 3.7% with an improved EBITDA result. Revenue in the second half was down 23%. This does reflect a reduction in distribution due to the exit of a club channel customer across a number of regions in the U. S. As well as unfavorable foreign exchange and the phasing of trade spend being more weighted to the second half. Volume growth for the year was up 13% or 26% up if you exclude the major club customer. Slide 22 shows some of the key marketing, trade and PR activities undertaken to build the brand and to engage with consumers. Despite spending less in marketing and more in trade and price activities, we ranked in the top 2 brands in the category for brand loyalty and realize an increase in prompted brand awareness. And Slide 23 shows our national footprint With distribution now up to 26,800 stores. Turning to Slide 25. Post year end, we completed the acquisition of the 75% interest in Matara Valley Milk. In so doing, we're pleased to have formed a partnership with China Animal Husbanding Group. The strategic rationale for this acquisition is very strong, but it will take some time to realize all the benefits this acquisition brings. It had previously been expected that post the acquisition, MDM would process additional third party volumes. However, due to the changing dynamics in the market, this has been significantly reduced. In addition, we have now revised down Volume assumptions that our products will be transferred to NVM during this transitional period. This will increase the EBITDA loss expected from MDM in FY 'twenty two to $20,000,000 for the 11 months Compared to $10,000,000 that we indicated previously, we still expect MVM will return a positive EBITDA during FY 'twenty five. MBM is exploring further business development opportunities and will seek to work with additional third parties to improve its financial performance. I draw your attention to Slide 26, which is one we've shown before to highlight our I won't go through this in detail now, but of course, I'm happy to address any questions. The key point is that the framework prioritizes investment in growth initiatives ahead of returning capital to shareholders. We indicated in our May announcement that the Board would consider a potential share buyback and that we provide an update in our results. Capital planning is an ongoing activity for management and the Board, and our current capital planning process is considering how to maximize the value of our To create value by investing in the business and through potential acquisitions to complement existing operations rather than returning capital to shareholders. We also consider it prudent to maintain a conservative cash reserve in these uncertain times. This is particularly relevant in the context of volatile consumer markets, which continue to be impacted by COVID-nineteen. The Board has therefore decided not to undertake any capital returns at this time. It's important to note While several mechanisms are available when considering the return of excess capital to shareholders, the effectiveness of these options is impacted by our ownership structure and taxation profile. For any potential on market share buyback, Consideration would need to be given to the company's available subscribed capital, which at the end of 'twenty one Was in the order of $175,000,000 Handing back to David now. Thanks, Rose. As you know, in May, we also announced we were commencing a growth strategy review to consider how best to respond to the change in China market dynamics. The review is underway and we will update the market on 27 October through a virtual event with our wider leadership team. The review is focusing on the China infant nutrition opportunity, particularly how to maximize our China label growth and involve our English label distribution channels. It's also focusing on rethinking our product portfolio and developing an innovation pipeline as well as capturing adjacent growth opportunities. A further aspect that we are focusing on is how we enhance our brand positioning and comms to ensure continued distinctiveness and relevance to Chinese mothers. Turning to slide 29. In FY 2021, we made significant progress in our sustainability agenda. We're proud of what we are doing in this space for our people, in animal welfare and farm environmental plans and through various community support programs. We've made a number of commitments and investment invested in initiatives to operate in a way that creates a positive impact on the planet, Particularly in relation to addressing coal fired boilers at Synlay and MVM. We plan to provide further details on our goals and strategy at our Investor Day in October. Slide 30 shows our executive leadership team. There were some vacant positions when I started, I've also bolstered the team recently to build capability and provide more dedicated management focus on our key businesses and global functions. Hopefully, you'll be able to meet and engage with the team virtually at our Investor Strategy Day in October. Turning lastly to our outlook. Over the past year, it's been necessary for the company to provide specific guidance updates in response to market dynamics and company specific factors materially impacting our outlook at the time. In our announcement release this morning, you will see that we have provided qualitative outlook in relation to FY 'twenty two To provide the market with the company's expectations in relation to the potential shape of our results this coming year. We appreciate given the challenging result this year and continuing uncertainty and volatility that a detailed qualitative outlook is necessary, We've tried to be helpful in this respect. I don't propose to read out the outlook in its entirety, but we'll summarize key aspects of it now. I would encourage you all to review and consider the full statement we have provided, which takes precedence over my comments now. In summary, we expect the following in relation to FY 'twenty two. We expect the China infant nutrition market will reduce in value due mainly to a sharp Our China label business will grow sales and achieve a modest increase in share. A wide range of outcomes is possible for our English label business and that the company is targeting sales stabilization. Our Australian and U. S. Milk businesses will deliver modest growth. We've quantified the sales On earnings impact of including NBM, which as Rice just mentioned, there's a greater loss than expected due to lower volume assumptions. From a phasing perspective, first half of 'twenty two group sales to be marginally lower and our second half sales to be significantly and PCP respectively. Gross margin percent to be broadly similar to FY 'twenty one levels, Excluding the impact of stock write downs, but before taking into account MVM in FY 'twenty two, A planned increase in our marketing and capability investment, NVM and other factors will increase total SG and A significantly. In terms of EBITDA, it's difficult to predict with precision the wide range of outcomes possible with respect to FY 'twenty one levels before the impact of stock write downs. And finally from a net profit after tax perspective, the market should expect an increase in depreciation and a high effective tax rate in the range of 37% to 39 Thanks very much, David. I'll ask that we open up for questions now. Rachel, can you please open up for the first question? Your first question comes from Larry Gandler with Credit Suisse. Please go ahead. Chinese consumers are more prepared to buy locally made product and perhaps buying that on the basis that there are additives and improved quality. So where does that position the English label? What's the differentiating feature for that brand today? Or where do you want to get to? Well, I think our English label business has been and continues to be positioned well. We have one of the most premium brands In the market, the quality of our product is New Zealand source and the overall A2 proposition which we have leadership on the market has always been a compelling proposition together with somewhat of a lifestyle positioning around the brand as well. So that still holds true. I guess what's happened to us is that COVID-nineteen has disrupted our cross border business is we have lost The activity and support of a proportion of thousands of doggos that have helped build the brand successfully. And that's the area that we I think from a Product and brand positioning point of view, I think the proposition still holds. We've just lost that push marketing and we've got to work creatively to think about how we continue to generate that demand pull for the product going forward. I think over time, you mentioned product formulation, That leads me to kind of innovation. We've had a very, very narrow portfolio. It's been incredibly successful over time, And we haven't had the need to innovate. But going forward, we'll share some thoughts on this in our strategy day. We definitely need to innovate going forward In formulation and breadth of our portfolio as well to drive growth. Fantastic. Thanks, David. Thank you. Your next question comes from Chelsea Leitveda with Forsyth Bar. Please go ahead. Thanks. Good morning, team. Maybe if I can start with China label and conscious the 4th quarter had quite a few moving parts in it, but obviously quite a big step down This is recent kind of trends. I guess I'm trying to interested in how much of that is actually your intended Work to reduce channel inventory. And maybe if you can give us any color or how we should be thinking about the increased marketing spend that is going through That area and what that's actually driving, I'm just trying to get a little bit more context on what's the underlying exit run rate if you like? Yes, Chelsea. The most of that decline is due to the well, there's a few things going on in the China label business. Overall, the 15% growth was for the EBITDA. As you point out, the second half was the reported number was down 7%. There's a lot going on there and driving that result. So we're obviously Cycling COVID in the previous year that led to a spike in demand, the market is slowing and competition is getting more difficult as I was just discussing. Inventory rebalancing in the second half and particularly in the 4th quarter did have an impact. We haven't quantified that explicitly, but We did pull back on our shipments into distributors and our distributor shipments out to some extent to retail, And there's a little bit of that rebalancing that needs to happen into the but we're still working on in the Q1 of this year. The MBS sales at retail as measured by Nielsen were pretty healthy for the period. They were significantly higher. So they were like something in the high teens I think for the second half, which was greater than Channel sales as measured by Nielsen. So that's why our share obviously went up in the second half. So the combination of our rebalancing Has really had an impact on that plus cycling a tough comp, but what's encouraging is that our retail sales, which is the most important thing That's in MBS and also in Dole has been pretty positive throughout the period. I'll also highlight currency. Currency has had not an immaterial impact. The second half was down 7%, But if you did it on a constant currency basis, it was down 2% as well. So there's a lot going on in that second half for our China label business. Hopefully, that provides you a bit more color. Yes, I appreciate it. And just second question for me. In BM, I appreciate you've given us a bit of context on your revised thought process here. What I'm trying to understand is, it has changed a couple of times now. How confident are you in the revised assumption sets around what you're transitioning Your product to that facility and maybe just how we think about sort of the path from FY 'twenty two to get you to profitability as you've sort of continued to I'll take your thoughts when we get to FY 'twenty five and also the CapEx spend potentially along that way. Sure. Yes, I'll hand to Rice on this in a moment. He's pretty close to this transaction over the period, but I'll just reemphasize the importance, the long term importance of that acquisition and the partnership we have there. So, there's Yes. For me, I'm supportive of the acquisition. I think it makes entire sense for the future and future proofing our business. Strategically, the partnership we have with China Animal Husbandry Group in relation to MVM It's really important for us from a market access point of view, insight in terms of the market and relationships, etcetera. So it's a really important partnership that we have Forged with China Animal Hospital Group in addition to State Farm, China State Farm, which we already have a partnership with and as you know, probably know that both of those entities A part of CNADC, which is a really important state owned enterprise. So that's extremely important. Secondly, the diversification of our supply chain risk. We've had this Great relationship with Hinlay which continues, but having all of our registration and production in one facility in Donsanto is a level of concentration We're not comfortable with in the long term. We hope that we're able to develop a dual source proposition with Finlay over time. And this will also provide us the opportunity to get closer to manufacturing and innovation opportunities for us going forward. So the strategic rationale Still holds strong, but in the meantime, volume impacts have impacted the near term financial outlook for NVM. But I'll let Rice answer some of the other questions that you raised. Yes. Hi, Chelsea. So, look, you're absolutely right. The big issue that we've got with MDM, Like the issue that we have, the market being down in IMF means that the 3rd party sales that They have also come down. So, that's one big issue that the assumptions that we had and the volumes that they had, their forward orders have And during this transitional period, but unfortunately as our volumes have dropped, we're unable to make the quantity of the transfer that we thought. So, those two issues is what's really driven down the assumptions. In terms of the path to profitability, It is the same. We are confident that we can get this business to profitability. As David said, the strategic intent is absolutely there And we do believe that we can navigate to get this business to profitability using our volume. In terms of CapEx, Yes, we've been very clear that we will invest in terms of building capabilities, particularly in the labs and things like that. The business over time, we will continue to invest, but of course, we will adjust that investment in line with the market. And therefore, our plans will adjust as they have for further expansion. Of course, we wouldn't do until the market has recovered. Hopefully, that answers your questions. Yes. Thank you very much. I appreciate the color. Your next question comes from David Errington with Bank of America. Maybe, Rice, this might be to you, although, David, you might want to provide a bit of color too. But your first my first question is on margin And the outlook for margin going forward. Raees, I think your gross margin, if we exclude the write down, Went from 56% to 51%. And if I read it correctly, you're basically saying But that 51% is going to sustain in 52% in 2022. And that's largely because of COGS increases, mix, etcetera. And so expect the gross margin. But then what worries not worries me, but it's a statement of Reality, but your cost of doing business in 2022 is going to be sizably higher because you have to increase Marketing spend back to 20 levels, which is roughly what's that about $25,000,000 employee costs are going to have to return. You've got Mature Valley costs are going to go in there. So you're probably looking about a $50,000,000 increase in your cost of doing business On a flat gross margin, is that the right way to read through to cut through your commentary With regard to your outlook? Yes. Thanks, David, and I hope you're well. Let me try and So gross margin, yes, so if we take the FY 'twenty one gross margin and you add back the obsolete stock provision, Yes. So, you'll get to about what the underlying number is, but then you do have to overlay MDM on top of that, Which will take that margin down by 3% or 4% because we, of course, have to consolidate MVN. Right. So that's the first thing. In terms of then sort of the other investments, you're right that we will be increasing our marketing costs, as we've certainly said. With regards to overheads, we'll get some reversal of costs like the ERP And the MDM acquisition costs. However, they will be more than offset when we have to put back the Incentive type costs, we expect there'll be a little bit of travel. So actually, our gross margin our overheads will be higher Then FY 2021. Well, to clarify, I think if we do gross margin, Because I'm not that smart. I'm pretty basic as David will attest. But I think the gross margin in 2020 was 56%. Excluding the write down, it dropped to $51,000,000 So what you're basically saying is you're going to get $80,000,000 of Sales from NBM, but your gross margin is going to drop to 47%. That's basically what you're saying on gross margin. And then we can do the Calculations on your cost of doing business line. That's pretty well to summarize, not putting words into your mouth, but that's basically what you're saying. What's going to happen? You're a little low on the gross margin. I'd go up a little bit. But in principle, yes, your logic is right. Your math is slightly wrong. I'd lift it a little bit. A little bit, yes. So 48, yes, okay. And David, most of the reduction in the underlying business is mix driven. There's a little bit of COGS pressure, but most That's a mix. And what you've just worked through then is roughly right. Yes. Okay. Okay. The second question, David, and this is a bit more of a generic one. Well, it's not generic. It's getting to the guts of the future of A2. And Obviously, investors are wondering whether we're catching a falling knife or whether you're actually going to stabilize this business and to grow. It looks as though, as you're saying, you're working hard to stabilize it. First half is going to be tough, but then you're expecting a significant improvement in the second half. I know that you're going to give us a bit of an outlook and you're going to have got some ideas. Clearly, I know you too well. You've got ideas and plans And you want to keep that to yourself in October, but can you give us a few sniffs as to 2 or 3 key points As to why you believe why you want us to not what you want us, but why we should believe that second half is going to be sizably better, You've said that the China market is really tough. You've said that it increased competition. You've said all of this, it's really tough now. It's a different market. So why should you get a better second half in terms of sales performance? Why should we 2 or 3 key points. I know it's You're going to try to keep it to October, but I think we deserve a little bit of a pre sway, if you like, or a precursor as to why we think 'twenty two is going to be It's going to second half is going to be better. Well, it's a great question, David. The second half of this year obviously was impacted by market Conditions and also the channel inventory issues we had and inventory rebalancing. So in effect, when you look To the second half of this coming financial year, we are cycling hopefully what should prove to be a softer comp in FY 'twenty one. And when I look into the second half of this current financial year, there are we've got in essence, we've got 4 businesses. 3 of them are performing pretty well at the moment and one of them well, in accordance with plan and one of them is challenging. So, our China level domestic business Has grown 15% during the period. And if you adjust for if you look at retail sales, you adjust for currency, it's actually better than that, but the market is But the China level domestic business continues to grow well. Our domestic milk business in Australia and New Zealand is growing well. It's a market leading position there and continues to grow. COVID, as we come out of restrictions, hopefully, for many reasons, not for milk sale purposes, but hopefully as we come out of that, that will take a bit of That will be a bit of a headwind as in home consumption goes off out of home. The U. S. Business is expected to continue to grow top line. A real challenge, as you know, is our cross border English label business and we're focusing on stabilizing that. But if we can stabilize that and achieve the growth that we're expecting in the other markets, Then we should be able to deliver that growth in the second half. We've also got NVM sales, which are a little bit second half way, they're coming in as well. So hopefully, we should be able to deliver that second half and that's why we've clarified that phasing to the market. The big issue for us, the big uncertainty for us And it could we're targeting stabilization. That's what our plans are built on. But as we've called out in our outlook statement, there is a wide range outcomes in relation to our English label business and as you know it's a high margin business. It could be positive or it could be negative around that stabilization goal. So that could swing quite significantly in that given the operational leverage in the business, it can have a pretty significant impact on the underlying result. And we've seen how much that's impacted us in the past financial year. So hopefully that gives you a little bit more color on the second half, but also highlights The risk and the opportunity associated with our English label business. Okay. Thanks. And we're starting to see now, Dave. I'll just add one final comment on that. So all The pain that we took in May on our stock write downs, that was very painful for us and our shareholders, but we're starting to See, that's starting to have an impact in terms of inventory getting back into more balance, stock freshness improving, particularly our Sales into our distributors and then starting to progressively flow through to product freshness on shelf. And the Pricing, the secondary market pricing, which is an important indicator for engagement of the Daigo and other participants in the channel in our business is starting to improve as well. There's still some old stock from last year, that June, July peak orders that we've talked about in the past, still clearing through the channel. That's still deep in the channel. That's frustrating and it's holding back some visible price movement. But hopefully, that will clear as we move into the 11:11 event and then hopefully we'll get stronger price recovery. So I'm hoping all that it could be possible that we end up with a better The second half in English label, but it's really hard to predict. Yes. Well, thank you, David. Appreciate it. Thanks, David. Thank you. Your next question comes from Ana Guyan with Goldman Sachs. Please go ahead. My first one is sort of a follow-up on the inventory comments earlier. Just looking at the quantum of the write downs, the write offs this year, it looks like majority of it has gone towards CVAC and sort of English label product, I should say. Just thinking sort of can you give some color in terms of based on your early Look into the China label inventory level at the moment. Can you give us a feel for further sort of write up there, please? I might hand over to Rice if you have any further comments. But yes, you're right. Most of the write offs were in relation to our English label business and Our inventory levels in distributors for English label in our And also with our Seabed platform in terms of our distributors in Hong Kong and China And also the platform inventory, so of Tmall and JD and all the other platforms that we deal with, They look to be well balanced at the moment and very close to our targeted levels. So we don't have any concern there. My concern, I was just talking to David about then, is that Stock that was sold last year is still in the channels and still being sold on C2C platforms and even B2C as well. So That's the concern there, but that's deep in the channel and that needs to clear in the second half. Our China label inventory, we've made some progress on that, but Taken time to execute the swaps of inventory to improve freshness and also to pull back on our shipments in and get that into balance. It's not far away from our targeted levels, but I hope we've made progress on that in the July and currently in the August month, and I'd hope by the end of the first That's at targeted levels. And that reduction in sales associated with those shipments are factored into our guidance for the year going forward. And Anna, just to help you with the allocation, about $19,000,000 of the Write off provision was allocated to China label. The rest was all English label. Right. Okay. So $50,000,000 towards China segment and out of that $50,000,000 Inward China label, so the residual 30 would be CEVAX related? Correct. Yes. Okay. That's super helpful. And then my final question is on marketing in China. Can you give us some color in terms of how you're thinking About allocating marketing spend in China, perhaps if you can talk about sort of that online or digital With social media versus offline and also off the back of maybe June 2018 sales event, have you had any observations in terms of So we will so I know we're going to we're planning on increasing our total level of marketing and Nearly all of that increase is going to go to China market. In terms of mix of channel mix of that marketing, we'll definitely be operating Digital spend and all the components that go with that. We will also be incrementally increasing our offline below the line spend in The areas that are highlighted in the presentation in terms of all the trade work that we do in promotional people and Mama classes and trade shows and point of sale and investment in flagship stores, etcetera, which is really important in terms of engaging with our consumers at point of sale. So the above the line work that we do drives awareness and engagement in the brand to be Now one of the few brands when a mother enters a mother and baby store where it's kind of top of mind, but it's really important at that stage to have the In store execution to convert that opportunity at point of sale. So that's why we attack it as many brands do from both above the line and below the line and we're dialing up our investment. Yes. And then just that efficiency question around perhaps your operation on the back of June 'eighteen Some promotional activity in 618. We achieved a pretty good result in that respect, but we were trying to get inventory balanced and We didn't want to heavily promote and fuel further price reduction because of the balance between Seabed and Daigo sales. So we're conscious of that. We've got that a little bit out of whack in the Q2 of last year. So we wanted to manage that carefully. But in terms of our Q4 above the line campaign, we've dialed back our traditional spend on TV, etcetera, and we've We've dialed up our digital spend, and we've found that we've improved our reach and our impact across China, and that delivered a better result in terms of our Brand health metrics, which is probably the most objective way of measuring that in the Q4, we got both an improvement in our China label, Brand health as well as our English level in the Q4. Excellent. Thanks, guys. Appreciate it. The next question comes from Tom Kearth with Berenberg. Please go ahead. Good morning, guys. Just a question on I think you mentioned Pricing was improving in the market for your products in China. Can you just talk to like month to month sales trends? Like Have they kind of bottomed now do you think? And is that improved pricing indicative of better underlying trading performance there? Well, it's tough. When I was referring to the pricing, I was referring to observed Seabed pricing on the major platforms, but also B2C and C2C pricing that we see in Taobao and even on TDD, we kind But also the wholesale pricing on Hipac and SeaTent as well. So we're just looking at multiple kind of different elements of supply chain, what What is happening with our secondary market pricing and we've seen that Seabed during the second half, we through not over investing in promotional activity, We've seen that remain reasonably stable and high and we've seen our English table pricing in the diagram reseller market Yes, improve a bit, particularly in Stage 24, and we're starting to see some recovery in Stage 1 and 3 as well. So we're starting to see that improve. Our rate of sale, it's probably not meaningful, Tom, to be commenting on at this stage because of The stock rebalancing that we've done has just had such dramatic shifts in our English label business that it's probably not that meaningful for you. The only thing I would say is that our retail sales generally our distributor sales and our retail sales are better They're now shipments in. So that gives me some encouragement for the year ahead. Yes, okay. Cool. That's helpful. And just the second one, In terms of kind of share loss or competitive intensity, is it the domestic Chinese brands that are Proving tougher or are you noticing the big foreign brands kind of increasing investment and improving pricing etcetera? Where is the competition? Yes, the competitive intensity and activity across the market, both from a marketing investment point of as well as promotional activity is pretty much across the board. In terms of so both domestic players as well as traditional multinational companies. In terms of share gain, from a multinational point of view, we're one of the few brands that have held and marginally increased share over the period. Many of our international competitors have lost a bit of share during the period. The domestic players have picked up substantial share, In particular, the 2 key market leaders that you're aware of. So they've had a pretty significant gain. If you have a look at Nielsen and SmartPath, Nielsen Data And Smart Pass out of the Dole as well, you can see pretty significant shifts in share in that. I think Faheir share for the year is up, I think, roughly about 5 Stanton and Joanna Baer is up, a couple of points as well. So they're pretty significant share movements over the course of the year. Yes. Cool. Thanks very much, David. Thank you. Your next question comes from Marcus Curley with UBS. Please go ahead. Good morning. David, I just wondered if you could quantify, if you can, the level of channel tightening that you've done in English label product in the second half. Obviously, it Yes. It'd be quite helpful when we think about the comparative comp heading into 'twenty two. We haven't Marcus, we haven't clarified that specifically because I think there's you've almost got to look at it Across the full year and with the benefit of hindsight, probably there was a bit more that went in, in the first half and even The second half of twenty twenty and then we've tightened a bit in the second half. So David asked me about what gives us in the second half growth that we're predicting, and we said that would be significant, and we wouldn't say that unless we expected greater than 10% growth on TCP in the second half. That should hopefully give you some indication, but it's probably a little bit misleading to say we'll pull back ex I mean, we could quote Tins or sales sales into distributors, but it's probably a little bit misleading because of the balancing across the year because We took out some in the second half, but probably there was more that went in, in the first half. So it's I probably prefer not to do that. And then just secondly, can you talk a little bit to what you think has happened in terms of your Sell outperformance in English label over the course of the half. And I suppose when we look at your guidance comments for Yes, the first half of this year would suggest that you're expecting that to weaken. And if that's the case, could you give some color in terms of what's driving that? The Seavac in the second half, So our sales were down 65% from memory And the SmartPath was only down about 12%. And the SmartPath measure of our sales at retail for the platform to SmartPath Track in English, label is down 14%. So you're looking at distributor sellout and SmartPath sellout in the teens, but our sell in was down materially like at 65 So I don't know about that. That's probably more of an impact than it was in the Daigo area, but that might give you some color on what the underlying sales rate might be. The only thing I would say, just a word of caution around SmartPath, though. It is probably the most it is the most objective measure of sales in e commerce. But one of the things just to be Cautious about with our business is that there's a degree there and we'll get more control over this over time, but there's a degree of cross channel sales between Daigo reseller retail sales ex Australia, New Zealand, we think there's a degree of channel cross channel sales from those sales into the CBEC platforms as well, Because when you look at Seabed platform overall, that was up marginally And our share was only down marginally, but our shipments in were down quite a lot. So there's a degree we think there's a degree of stock coming across from other channeled into Seabec and then being sold out again. So as all this stock kind of unravels in this first half of this year, we should hopefully see more Clarity around those numbers, and that's why we sort of noted in our release that this may put pressure on our CPIC share going forward. So it's I apologize, like it is pretty messy in terms of data points at the moment as all this stock kind of clears through the system. Yes. I suppose my point here is I was just trying to understand where the potential downside comes from in English label. You're mentioning here sell out metrics which are down mid teens in the second half. Your sell in was down Yes, 50%, 60%. Where's the downside to sell in As we head into next year, given that gap? Well, the downside is I mean, the 2 biggest downside is The impact of the birth rate, which is could have a significant impact on our business, including English label, And the unless we can reengage the Daigo effectively, they have been incredibly supportive and effective in building our brand over So unless we can get the channel economics right, reengage the Daigo to support and push our brand, then the impact on Stage 1, And the rolling impact on our English label business could be quite significant. So in our announcement, we said, and I just think I was talking about it before, We have lost share in Daigo, but particularly in Stage 1, which is a concern. And that's something that we need to focus on. And part of our strategic review is focusing on How we manage the overall channel evolution of the Daigo business, but also how do we reengage and activate on new user recruitment as well, which The Daigo channel has been so successful for us in the past, but our Stage 1 share is down quite a lot. Okay. Thank you. Thank you. Your next question comes from Adrian Albon with Jarden. Please go ahead. Good afternoon. Hi. Just wondering on the China label size, Can you just give us an update? Like, obviously, you would have had to reset your KPIs with your distributors. What sort of level of Is there any level of increase required in terms of support for them to resubscribe the volume growth? I think over the past my understanding, like over the past year or 2, we have been working on restructuring out The number of distributors in the territories in which they serve and then also trying to get the incentives right between front margin and back margin Trying to put a little bit more on the back margin and hold our distributors more accountable for activity in the market. So there's no There's nothing really specific that I would be prepared to share that's not commercially sensitive around our goals and plans with our distributors around that, but just Only to say that we are incentivizing them more for growth and activity To build to acquire new accounts and build our distribution and to activate those accounts and generate same store sales. Right. Okay. And so and is that sort of incentive like is that sort of getting netted off against your sales? That's not below the line sort of stuff, is it? No, it's not at all. Sorry, Rice, you're jumping? Yes, I was going to say that just comes into your above your net revenue. Okay. Yes. But between gross sales and net sales, we only see the net sales. Yes, understood. Just in terms of like in the presentation, obviously, quite key to the full picture of the business. You sort of said There's quite a step up in the Q4 marketing into China. And like you've given us some sort of sense of what the difference for the China label retail sales versus You will say also close. Are you able to kind of like give us a little bit of a bridge on how you're judging the effectiveness of that marketing spend like in terms of some of the brand health metrics that you sort of talk about qualitatively that sort of don't really share consequences in? Adrian, I will undertake to provide more disclosure and transparency on this at our Strategy Day in So I know this is it's obviously a critical aspect to our business and the market's concerned about that and looking for more transparency. So just a few sort of high level comments and we'll come back to it in October. We track our brand the most relevant measures All the effectiveness of the spend is our brand health tracking. Hopefully, over time, that will translate into consumer engagement and sales. But the most objective measure we look at is our brand health tracking. So we do that on a quarterly basis and there's a panel of 10,000 Mothers that respond to that and that's a rolling panel, it's not the same 10,000 each time. And we track brand health through the funnel. So from awareness through to loyalty or by most often, NPS and also some attitudinal equity measures that we ask as well. So the Q4, we the results from our brand health tracking showed that our China label business across nearly all metrics Improved in the Q4. Our English label had come off recently in the last couple of Brand health trackers, but pleasingly that improved in the Q4, but it's not back to where it was at the Start of the financial year, but it is really pleasing to see that recover in the somewhat in the at least half of that recovery in the Q4. We'll share some of these in a little bit more detail for ourselves and to the extent we can relative to the competition as well in our October session. But hopefully, that gives you a little bit of color on what we do and where that's the trend of it. Yes. That was good. Thank you. And then just maybe finally, Are you able to kind of give us a quick summary of, I guess, all the stuff you've put in place to have a better track of inventory Through the supply chain? But what's different relative to sort of what was happening in the sort of the first half of the year? Yes. We haven't had much in the past because there hasn't been a real focus of the business because the main thing we've been trying to get hold of stock to sell in the market. We've made a lot of progress on that. I might Rice talked to some of the measures that we've put in place to date. And it is a bit of a journey, but we've got a lot of scope for improvement in this area. Yes. So what we've done is we've now built and been working with our major Daigo customers To actually build automatic interfaces between their systems and ours. So we've created now Ultimately, a data warehouse where we can get that data coming in. We've got automated now Stock movements and reporting through our distributors and we are currently in the process of building that automation Into our CBEC distributors. So, as David said, we never had this before. We moved immediately to getting this information When the Board initiated this work so we could get the information manually, we are now building that so it's automatic. It's now part of our regular reporting, both through management and through to the Board. So, we are very close now to our inventory. And I said this automation, which we expect to be complete by the end of the calendar year. Do you want to talk about Look, we're still working on traceability as well, which is the other side to this? Yes. So, the traceability system is obviously Very important. This is about ensuring that, as David mentioned before, the way that we track product Because there is cross channel sales goes into various areas, Previously, we've had no visibility. We put this tracking traceability system in place. This is being rolled out. We expect to have it fully operational by, I believe it is now October. But of course, the product Needs to be sold through the system for it to be able for us to use. So we initially had it at 1 of Synlays facilities, it's now being put in place across all of their facilities. We're also working with Mainfreight. They've now put it Through their facility, as that product gets sold through the supply chain, we will be able to trace it. Of course, all that does is tell us Where the stock has come from, it doesn't by itself fix the problem. It just tells us that the stock In a particular place, wherever we can pick it up from, where it was originally sold to. Thank you. Your next question comes from Sam Tighe with Citi. Please go ahead. Hi. Good morning, David and Rex. Hi, Sam. Good day. When you assume a stabilization of the High margin English label in FY 'twenty two. Just keen to understand what are you assuming regarding border openings and Chinese Tourists and students returning to Australia? Sam, we're not assuming any material change in that. If and when that comes back and there's more free movement of people across border, which would be Great outcome. For many reasons, that would be an improvement on our plans that we're currently assuming at the moment. It is still challenging for us. And I think we're sort of starting to see that even though the sales in the Q4 were not great, but we're Starting to see some early signs of stabilization, but the delta variant that's impacting the world at the moment is having an impact on people aren't traveling Join the 2 territories, but it's having an impact on freight and logistics again, which is concerning. So I'm hoping that won't have a material impact I'm hoping that will stabilize as well. But in the longer term, we all hope that mobility comes back and that has a benefit to our business. But at the moment, we're not factoring that into next year. All right. Thanks. And how likely is it that you will look to commence local manufacturing in China As part of the strategic review going on right now? Look, it's not part of our immediate plans. It is Possible in the future, the growth strategy review that we're focusing on is really focused on the front end of the business. And I won't preempt that work at the moment, but part of that will be to identify What we think our portfolio of the future should look like from a brand point of view in market, brand positioning and the categories that it should be in and the price points that we should be in, etcetera, Segments that we plan, as you know that our local business there at the moment focuses on the ultra premium segment, which is the fastest growing segment, more well positioned within that. The super premium segment is also growing and it's a big market that we don't play in domestically. It would be Probably challenging for us to play in that market on a fully imported premium point of view and it may be that over time if we decided that we wanted to enter into that space, It may be appropriate that we would need local manufacturing capability, but that's there's a few jumps in that logic, which we haven't worked through yet and that's probably somewhat down the track. As we mentioned in the call, our main focus at the moment is making sure that we get the most out of our NVM acquisition and continue to partner effectively with Finlay on our fully imported product. Your next question comes from Richard Barwick with CLSA. Please go ahead. Thanks. Hi, guys. The May downgrade you indicated then the expected, I guess, effective FY 'twenty one revenue, once you backed out the fact you'd held back sales, etcetera, it was close to 1.3 bill. And Once you backed out the inventory write down and so on, an EBITDA margin of low to mid-20s. Just not that I've seen it, I couldn't you don't seem to have mentioned that those sort of metrics again. I just want to double check if those sort of metrics there, do you think that still holds or do they still apply given the way the 4th quarter finished up? I'll let Rice comment on that, but that was merely a statement At the time, if you took account of the impacts that we had, then if you we added back the stock provision and The MDM one off costs and the ERP write off of the costs that we're investing in Implementing the system, that's kind of what you get to by definition. Right, spent a little bit of time with David just exploring The margin and profitability impact of rolling into next year. So there are other variables at play, but, Rice, have you got anything further you'd like to add to that? Well, just to clarify, Richard, you're talking about 'twenty one or 'twenty two? Just trying to understand the basis of your question. No. Well, that comment was made on effectively an underlying FY 'twenty one result. So I I figured that's a useful starting point also to think about as we move into FY 'twenty two. So I'm just double checking if those metrics or those parameters as provided, if You still think that was that held effectively given when you gave that in early ish May, Obviously, a bit of water had to go under the bridge to get through to June 30. Yes. So, we are in line with the guidance that we provided in May And the key metrics that we explained are still relevant. So, there hasn't been any material change. The main change When you're looking through in 'twenty two, of course, is NVM that we've already explained. Yes. Okay. Yes. I guess, you're probably referring to the 1.3 sales. Mean, that was a, let's say, point estimate and it could be a half a month, a few percent around that. The context there was a statement in relation sort of like pro form a this is what otherwise FY 'twenty one might have been. The context has changed quite a lot. So there are other business specific things impacting our outlook for 'twenty two. And then also, I think The outlook in terms of the birth rate impact in this coming year is probably more significant month by month. I think We and other industry participants are sort of getting a perspective on that. So it's uncertain, but I think it is fairly significant next year. Okay. All right. Thank you. And the second one is around the Matura Valley Milk. Obviously, The loss that you got into in FY 'twenty two is bigger. And you said, yes, you're still clear on the pathway back to a breakeven FY 'twenty five. I mean, the way we should be thinking through that is that sort of that $20,000,000 loss, is The best guide for FY 'twenty three and 'twenty four? Or is it a gradual work back from the 20 mill back to something closer to 0 in FY 'twenty five? What's The pathway most likely to look like? So, look, the pathway would be a gradual. It won't be an all of a sudden. That said, we've, of course, got to work around our commercial and confidence supply contracts as to when Items can actually be transferred, how quickly the milk pool gets built up in NVM. But generally speaking, we would expect it to be a Sort of gradual movement to that pathway to profitability. I'm sorry, that's not particularly clear, but that's just where it needs to be. And then just to clarify, you also made comments before about the CapEx associated with MVM as well. So can you just outline exactly what the CapEx expectations are? Because I presume the canning and sort of packaging is still going ahead. Can you just confirm what that looks like on a, I guess, a 'twenty two, 'twenty three basis for CapEx? Yes. Look, Sort of split it into 2. There will be regular CapEx, as you'd expect, with a manufacturing facility And there will be some investment done in 2022, 2023 in terms of building up the labs, and I would call that small scale investment. The blending and canning facility that we talked about, we need to obviously align that with the market. And because of the drop in the volumes in the market, that will not be happening certainly in 2022 in terms of there won't be any cash outlay for that in 2022. We need to reassess when is the right time to build that in line with the market dynamics. Okay. All right. That's, I guess, a delay on what the original expectations were? It's well, yes, in terms Well, We'll have to have a solution for blending and canning like it's not really viable just to have the drying facility. So We'll have to work on the scale and capability and timing of that, and that works in progress. Okay. All right. Thank you, guys. Your next question comes from Stephen Ridgewell with Craig Investment Partners. Please go ahead. Yes. Hi. I was just trying to understand the guidance for or indication for the first half of twenty twenty two, It seems to imply revenue ex portfolio down, say, down about 5% to 10%. Does that guidance bake in some growth in China label in the first half? And then does it also present We're seeing a double digit decline potentially in English labels. Just trying to get some growth post for the first half. Yes. Rice, do you want to I mean, yes, we're planning for growth in China label in the first half, but we're cycling Yes, some stronger comments. So, Rice, do you want to comment on the growth profile, what we're factored into the plan? Yes. So, look, It is exactly what we said that we expect there will be growth in China label Both in the first half and the second half. But of course, it will be more in the second half than in the first half. So I'm just trying to be clear on I'm not going to give clear guidance in terms of Quantification, we just do need to refer you back to that outlook statement in terms of how the phases are going to work. It's very important. We can't give Any quantified guidance based on the variability? And the first half that we're cycling from 'twenty one, I mean, the our shipments in China label and English label were they're pretty high. So We're cycling that going into the first half of this year, obviously, so in a softer market. So it's probably a helpful context. Yes. That's helpful. And then just on the U. S. Business and the outlook for the year that the loss will be A little bit reduced in FY 'twenty two. It still applies a pretty decent EBITDA loss In the current financial year, I think you gave us a little bit of color on the strategy to turn that business around. And what kind of time frame should we be expecting that perhaps we could get a bit closer to breakeven? Is there Yes. I think look, I Believe the company in the past has given some timelines and numbers around it, but I'm a bit reluctant to do that at the moment. We'll work on our plans to We might just give a bit more of an indication around that in October, but I think the team has done a great job in building the brand In the U. S. And building distribution, nationwide distribution, which is great, but we're still subscale and unprofitable. And what we need to do to the business We need to scale it and leverage the great investment that we've done in the brand over the years, build that scale and importantly improve the margin structure in the business Our delivered margins are not where they need to be sustainably, and we need to work On that, in improving our cost of goods as well through potentially through different supplier arrangements or Some participation in manufacturing, who knows, but we fundamentally need to scale and improve the profitability of the business going forward. Thanks. Thank you. And we're working on we'll share more in October around growing in terms of scaling the business and growth Through innovation that we're working on at the moment, including our half and half product That we've launched recently and then building distribution on that. We'll give you an update on that and hopefully some other initiatives that we'll be able to share with you in October as well. Your next question comes from Jonathan Snake with Bell Potter Securities. Please go ahead. Yes, thanks. Hi, guys. Can you hear me okay? Yes, very well. Yes, great. Look, just a couple if I can. Look, I'm going to come back to the inventory one again, Some of these sales numbers, but simplistically, if I'm listening right, I've gone through your report and there's a fair bit of detail in there. But You're saying that in Seabed, the sell out was down 14% year on year. The sell in was down About 65% year on year, so there's a 50% difference there. If I looked at offline, I think you Quote that the market was up 13% and your market share was up a little bit. So in the second half, I'm referencing here. So you should have got that, but your sales are down into the channel by about 7%. So there's about a 20% undersell there. And if I look at your Daigou comments around Kantar, it looks like the market was down in the second half somewhere around about 40%. Yes, you lost a little bit of share, so maybe you're down 45% or something, but your selling was down 87%, So there's about a 40% underselling there. I mean, is it as simple as going that your selling rates That's below the sell out rate by the looks of it. It looks like there's almost like a $200,000,000 Difference in terms of revenue, is that the kind of impact that you would say Inventory swaps, because that's obviously lost sales and pullbacks, that kind of thing. I mean, am I doing the math completely wrong? Or is that roughly Just give me the difference between the sell in and the sell out. Yes, yes, yes. It's quite material. Yes. No, I understand where you're coming from. In relation to China label, I think that that's a way to look at it, but also just again, I would Just ask you Jonathan, the rest of the market to be just cautious about the birth rate impact on the market and the rolling impact year on year. So that's something you'll need to consider there. In English label though, it's very challenging to look at it that way. There's a lot of product that went into the market Over the past 12 or 18 months, COVID related spikes in demand that just and the brand was running hot and There's multiple layers in the supply chain that kind of absorb that supply over a long period of time. And we're still seeing that's why I put that caveat on the seabed numbers is that there's a lot of repurchasing in the market of that product that's Being resold and it doesn't necessarily mean that that demand is when everything settles and that stock clears out of the system On a sustainable basis, it doesn't necessarily mean that that's all going to resume and bounce back. And that's what I'm very cautious of. But We could pop the result of the company by pulling back on marketing and flooding the channel with stock, but that's not going to build a sustainable business. And We've just got to be cautious and wait. We're being very careful in our stock allocations and management of the business now To make sure that we rebuild the pricing and brand equity and perception in the market and continue to invest in the brand and we'll see how that responds. It's probably just a bit early to and I think it's really a little bit dangerous to assume that we bounce back in English label to that extent that quickly based on the sellout in the market on the platforms versus what we've sold in. Yes. But looking at the sellout rates, The 20% to 50% higher than your sell in rates, if you look at the year on year changes in the second half. I guess that's what I'm trying to get my head around Because that would seem to imply or you could figure out then from that whether the second half baseline is right last year or not. Yes. All I'm saying is, I guess, in China label, you can think about it that way. Be careful of what's going on market. Also, just you probably can see from our presentation that our rate of distribution expansion Has come off from what it was historically. So distribution, typically what happens is when we enter a store, We ramp up and grow sales for a period of time and then it starts to mature. And the distribution expansion has been driving a lot of our growth. So just be cautious. That's one thing that our strategic review will be focused on is, 1, how can we continue to expand our distribution, but how can we improve our same store sales going forward. And then the mix of our business in China was also something to be careful about because we over indexed the K and A cities And under indexed in a way to BCD. So our share of K and A is quite significantly higher. It's almost 3x what it is in BCD. And the birth rate impact is disproportionate the other way in terms of the impact on K and A where the birth rate is falling a lot faster than it is in BCD. Yes. And can I ask one on the U? S. And I know you're going to touch on this on the Strategy Day. But Obviously, your guidance on the tax rate kind of implies that you're not going to bring any tax assets next year to account In the U. S, which means that you obviously don't have any visibility that that thing is going to be profitable in the next 3 years. You're hemorrhaging $30,000,000 $35,000,000 a year into that business, have done In excess of that for the last 3 years. Yes, I'm kind of struggling to see why you're still there. It looks like it just hasn't worked, full stop. I mean, in the U. K, you pulled out well before this and I was a previous management team. But Your tax rate guidance is basically telling us you don't think there's a profit until 2.25 at the earliest. I don't get why you're still in that market at all. It seems like you're chasing a pretty skinny margin in liquid milk. Wouldn't you be better off Just pursuing a licensing agreement or something like that, that you had in New Zealand just to eradicate the losses and the cash drain, Because it seems like the biggest opportunity for you from a management time perspective is getting China right, the backward integration and margin shift. It just seems like it's a huge distraction and a huge loss for something that you clearly don't think is going to be profitable in the next 3 years. Yes, we'll share a bit more on this again in October. But you're right. I mean, at the moment, our plans are that it's It's going to take several years to get the business to breakeven and then to get leverage beyond that. We've invested a lot of money in the brand and distribution to date, and I think we're on the cusp now. The brand is really well positioned, some really encouraging signs there. And I think we're on the cusp now I've either taken it to that next level or maybe in the longer term reevaluating our options. But at the moment, I think there's a great band that's Being built by the team, we've got opportunities. I'm hoping we may have some business development news to Either between now October or at October in terms of scaling the business, and then we need to work on our margins going forward. And if we ultimately Can't get comfortable with the risk return proposition associated with that, then we may well consider other options. But I think that's a little bit premature at this You're welcome. The next question comes from Xavier Waterstein with Key Asset Management. Please go ahead. Hi, guys. I just got a couple of quick ones on trade spend. I noticed the rebate payables almost doubled to about 70,000,000 Just want to know if you think there's been a structural change and how much of the profit pool needs to be shared downstream? And also, I guess given that The trade spend has become an increasingly important line item that complements marketing. Would you consider reporting gross versus net revenue to help investors get a clearer picture? Rice, do you want to answer that question, Jose? Yes. Look, with the rebate payables, The reason that that's happened is because of the timing of payments with China State Farm because last There was a receivable on the balance sheet that allowed us to net off the payments. So, Your logic is exactly right. Why is that number up when volumes come down? But it is just because last year, it had been paid, netted off, and this year, it isn't. So hopefully, that answers that question as to why the rebate payables is higher. And the second one on reporting gross versus net like some of the other Aussie distributors do? Well, look, we have talked about this internally. The way that we operate with China State Farm, we have a fairly complicated gross up arrangement. It's not something that we intend on Making a change of at this point. So, but it is something that we have talked about internally. We do manage internally The trade spend, of course, and we get good visibility. But in terms of if you're suggesting why are we not reporting it, Is there something that internally we've decided is not the right thing to do at this point? We have our Trade structure and incentives and things like that are slightly different in ways to the market and it's a little bit commercially sensitive as well. But David, we'll take on board your feedback and have a think about it. All right. Thank you. Thank you. There are no further questions at this time. I'll now hand back to Mr. Bottellusi for closing remarks. Thanks, Rachel. Thanks, everybody, for joining the call today. So it's been a challenging year. It's a difficult result to explain, and our outlook is a little bit complicated. So I hope you appreciate The level of disclosure and transparency were provided in our announcements today and the discussion that we've just had. I look forward to continuing the discussion with our investors and the analyst