Thank you. Good afternoon, everybody. Joined here today, Andrew, Phil, and Richard to answer any of your questions by now. Hopefully, you've had a chance to review the video, had a read of the results that came out this morning. Probably a headline from our perspective. We're really pleased as a leadership team with where we've landed this year. A lot of hard work, of course, that goes into these results. To be sitting here today delivering a decent set of numbers for our farmer owners and unit holders is something that we are all very proud of. With that, I'll hand straight to the host to take us through the questions, please. Thank you.
Thank you. Once again, if you do wish to ask a question, please press star one. If you wish to cancel your request, please press star two. If you're on a speaker phone, please pick up the handset to ask your question. Your first question comes from Ari Decker from Jarden. Please go ahead.
Oh, good afternoon. Thank you. Yeah, just the first one just on the CapEx in FY2025 at $930 million. That's quite a bit above what went through the cash flow statement at $700 million. Can you just sort of talk to that and just sort of confirm that there are some timing differences that will need to be incorporated into the cash investment in FY2026?
Yeah, that would be that playing out, REF. We will see a bit of timing, obviously, just in terms of how things are ordered and when they actually come through. We would expect we will see that pick itself up in 2026, purely timing.
That sort of, you know, because $200 million, you know, it's a decent chunk. I guess this was a ramp-up year, so more likely to occur. Is that reflected in the payables balance at FY2025?
Yeah, everything would be appropriately accounted for in that way, yes.
Yeah, okay, great. Just on the growth you've sort of signaled in EBIT through to FY2028, you could put it at circa $250 million as sort of a target. Can you just talk to the extent to which that's sort of an aspirational target versus a very clear path on what needs to be done, with low execution risk, which way you'd characterize it? Also, talk a little bit to the key drivers of the EBIT uplift from continuing operations.
Yeah, sure, Ari. I'll have a go and then pass back to Andrew for a bit of the detail. It's far more than an aspirational target. This is something that we are clear as a leadership team what we are going after. It comes across the board from a new business. You see that the investment in Studholme, which will come online next year, the new investment in new HT cream at Edendale. Seeing those things commissioned and delivering upon their business cases is an important part. We recognize there's some costs to be removed once the transaction completes and a little bit of stranded costs that sit within the organization. We're acknowledging that needs to also be done. Far more than an aspirational target.
I wouldn't go as far as to say they're a line by line for every dollar that goes behind it, but certainly clear plans and the way that we operate as a leadership team and our board in terms of plans and delivering upon those is very clear in how we operate these days. I feel very confident. The execution risk, I mean, we're still on a global business and we've got people out there playing games in the geopolitics and the like. That's always a risk, but no more into the future than what we've been dealing with for the past four or five years.
Thanks.
Perhaps the only thing I'll add to that, just around the business space about us continuing to, we're executing the strategy that we've been executing for the past, you know, 12, 18 months. This is about us being really clear. We know what we're doing in ingredients. We know what we're doing in food service. This is the extension of that. It's not a whole lot of new things on top. We do obviously have the new capacity coming online, which Miles has already talked about. We see that should start off the line coming out to 2026. Two other things. One is that obviously there's a cost element to this. We have some very robust plans to take out any of the stranded costs related to the consumer business. We're very confident in that space.
As we get out to FY2028 in particular, we'll start to see the ramp down of those ERP costs, which, you know, 2026 will be a big year in terms of what that looks like. We'll start to see that ramp down as well. If you look at it, yes, there's a cost element, which we feel very comfortable on. We're executing the same strategy we have been for the past, yeah, 12, 18 months.
That's very helpful, Kyle. I guess the one follow-up, one thing you haven't sort of addressed is, and it's a difficult one, but just I guess price relativities and the benefits also of hedging and your risk management tools.
Is there a neutral view taken on that, given the benefits you've had in the last couple of years? Or are you assuming that you retain some of that?
No, no. Essentially, we assume in reversion. We would go back to the sort of long-term averages, to be fair. We've had a benefit in 2025, certainly in terms of our hedging program. It's actually helped us offset some of that narrowing price relativities that we saw in 2025. In terms of our way out, we're not assuming any benefit coming through in that space.
That's great. Thank you. There's CapEx guidance provided for 2026 and 2027. Over the last couple of years, you've been very clear in signaling the lift in CapEx that is coming, sort of sitting at circa $1 billion through the balance of this decade. Just confirmation, given the amount of decarbonization, wastewater, and then your broader CapEx program, that the level of investment around $1 billion for the further out beyond 2027 remains appropriate as previously guided to.
Yeah, I think probably what we'll see, you know, 2026, 2027, it might be slightly a sneak, a tiny bit over $1 billion. Like I wouldn't be surprised if we get into sort of $1.05, $1.1 billion potentially even. It does come back down though after that. For 2028, 2029 onwards, I think we would see that coming back to more of a level that's more in line with sort of our, you know, depreciation replacement. I see this as an uplift that we're doing in the next few years, and then we'll see it come back down towards the end of the decade.
Okay. Just because of the materiality versus depreciation, just to be clear, from 2029 onwards, you'd be signaling CapEx sort of around $600 million?
Much closer to that level, yes.
Yeah, okay. No, that's helpful. Thank you. Just last question, just net debt at the end of FY2026. You've provided a sort of 2025 starting point, excluding Mainland. There's a CapEx, I guess, increase, including some of the CapEx from the previous year that needs to come through. Would you see net debt when you get to the back end of this year still being on kind of a glide path to the $2.6 billion level signaled for 2028, or do you think that the debt profile could be quite flat through the period through to 2028?
Yeah, I mean, we're definitely on a glide up. I wouldn't expect it to be particularly high during 2026, but as that sort of, you know, memory, of course, that we're paying a lot more tax payments, et cetera, so cash, you know, there's more cash going out the door. We see that kind of flow through. I think through 2027, 2028, you'll see it go up towards that $2.6. I think, you know, FY2026 will probably be a relatively light change.
Thank you.
Thank you.
Your next question comes from Matt Montgomerie from Forsyth Barr. Please go ahead.
Hi guys, good afternoon. Well done on another solid set of numbers. I might just go back to Ari's question about bridging us to FY2028 in terms of operating profit target. Andrew, you made a comment about, I guess, being very comfortable on the cost element. That comes out. It'd be useful if you could, I guess, quantify what portion of that, call it $250 million bridging from FY2025 to FY2028, is the cost base versus, I suppose, the mix change through the ingredients and food service divisions?
Yeah, so I mean, I think broadly, Matt, we'd probably see about 50-50.
Okay.
Yeah.
That's helpful. Just on ERP costs, I think you've sort of signaled $250 million over 2025 and 2026. At what point do you have a number in for 2027? Because there's obviously still probably a couple hundred million there left to go. Is that all happening in 2027? I guess it'd be useful to phase us into 2027, 2028.
I get where you're coming from. There will definitely still be some spend in 2028. That's the way that we've got it phased out at the moment. If you wanted to put a number in 2027, say, you know, $70 million to $90 million, maybe somewhere around that sort of number. Definitely 2026 will be our peak year. We'll see it come off in 2027, and then there will still be a little bit left in 2028.
Yeah, perfect. There may be one for Miles, just on the balance sheet in terms of, you know, I've noted the change in gearing guidance coming through from two to three times to less than three times. I suppose if we look at the balance sheet forecast implied, we're looking at maybe 1.1, 1.2 times gearing to EBITDA in 2028, using the numbers you've provided. I guess my question there is like, where's the comfort levels now in the business?
I suppose what I'm getting at is scope for further, I guess, special dividends over and above, I guess, paying the top end of your dividend payout policy range.
I wouldn't bank on any further capital returns at this point until we've made further progress throughout 2026 at least. As you see from the residual funds from the sales, circa $700 million, we'll put that through the capital allocation framework and make some decisions throughout 2026 and beyond. The rationale for the movement from two to three is to not be under pressure to move back into a two to three. If we feel comfortable less than two, we will do so. It's just a signal that we'll certainly be less than three, but on the more conservative end of that, certainly in the near term.
Yeah, makes sense. One more, Miles, you and the broader management team have done a fantastic job over the last seven or eight years, I guess. What do we call tidying up the low-hanging fruit? Clearly, the consumer's the last major jewel. I'd be interested around any further, let's call it low-hanging fruit you see. I note China consumer in particular, obviously a reasonable drag still over the last couple of years, which is now included in food service profitability. That feels like one, but I suppose comments on that plus anything else that you see from your point of view.
Sure. Generally, low-hanging fruit implies they're quite easy, easy things to get hold of. Trust me, it's been a heck of a sort of six or seven years, but I'll put that aside for the moment. Look, we acknowledge there's work to do in China, but you know, the rationale for keeping China consumer is all about the link between Anchor and Anchor Food Professionals. It's very much aligned in that market. Beyond Anchor, you'd need to understand where we take that business into the future. It's certainly been on our ticket for the early part of this financial year. You'll see some progress on that because we know it's an important element.
What I think you're starting to see play out this year, the year prior even to a certain extent, is that as you start to get more focused on what we know that we're here for, we're starting to deliver. To see our way away from consumer at some point throughout 2026, notwithstanding, of course, there's going to be some transitional service agreements that need to play out. Once we're sort of free of that, then I think we're just the tip of the iceberg in terms of where we can take this organization. There's still a heck of a lot more to do, but I wouldn't say it's low-hanging fruit. There's still a lot to be done.
Thank you, Phil. Yeah, costs are probably not the correct language, but thanks for that.
No worries. Thank you.
Thank you. Your next question comes from Joshua Dale from Craigs Investment Partners Limited. Please go ahead.
Hi guys, well done on a very solid set of numbers yet again. The first question, your return on capital target is 10 to 12%. It looks like you could probably get a higher return than that by just buying back your own shares. Given where your balance sheet's at or is going to be at, is a buyback something you're considering?
We'll always look at that as part of our capital allocation frameworks as we evolve through. That is certainly part of a discussion that we'll have with the board.
Got it. Again, in light of the strength of your balance sheet, it was sort of interesting to note that you've kept your dividend policy payout range at 60% to 80%. In what scenario do you think we could be looking at a 60% payout?
Yeah, there's nothing sort of in the foreseeable future. You know, like much of you on this call, I suspect our farmers and our board have got some pretty long memories. The last thing they want us to see is to start to get too excited and start to change our thinking. Just making sure that there is an element of, you know, let's realize why we're here. Yes, the last couple of years we've paid sort of the top end of our policy, in fact, even beyond that when it was at a lower range. It's important we keep the range there because, you know, things happen and when you're dealing in an international market and storms come up on you, you know, bloody quickly, it's important we keep that flexibility and conservative nature of the balance sheet. You know, you've seen the strength of the balance sheet.
You've seen our history in delivering and therefore paying out at the higher end. That's certainly how management is focused on, but, you know, we need to be conscious of whose capital we're dealing with here.
Thanks. Last question, the existence of the Fonterra Shareholders Fund, does the strength of your balance sheet lead you to take another look at whether it's worth keeping that in its current state?
Like the earlier conversation that Andrew said, I think all these things are always on the table, but it's not a hot topic right now.
Okay, thanks very much.
Thank you. Once again, if you wish to ask a question, please press star one. Your next question comes from Marcus Curley from UBS. Please go ahead.
Good afternoon. I just wondered if we could go back to the stream returns, Jens. Could you give us some sort of color in terms of how you would sort of quantify that in terms of the benefit in the FY2025 year? By the look of things in the presentation, you're sort of expecting a similar number for FY2026, if that's correct?
Not quite. If you look at FY2025, we'd probably see, with the benefit of our hedging book, we would see about $100 million, $100 million, and maybe just $120 million max would be the benefit that we saw versus FY2024 in terms of that space. That's certainly what we were seeing. That is because of the benefit of the hedging book. Obviously, stream returns are narrowing. You're seeing that narrow towards the end of the year. We've started out in FY2025 in a reasonable spot, but we certainly don't see that that's where we would actually end through the year. We do see it changing. We see it in 2026 sort of reversing back to where we were in FY2024, essentially the sort of space. It's more of a long-run average, and that sort of mean reversion is certainly what we'd be expecting it to go through.
What was the number in 2024?
In 2024, yeah, about 100 less than FY2025, yeah.
Okay, so $120 million benefit going to, broadly speaking, a $20 million benefit.
A $100 million headwind, but baked into the guidance for the continued operations in FY2026?
Yes, that's right. Yep.
Could you then provide a little bit of color in terms of where the, let's say, the underlying growth in the business is coming from in FY2026, you know, against the backdrop of that $100 million headwind?
Yeah, we do continue to see good margins in market. That's clearly there, particularly from an ingredient standpoint. We've got good, robust demand there, which we're seeing continue through. Food service is one that we're going to need to watch pretty carefully. Those high milk prices are definitely putting some pressure on margins in food service. We do need to see that pricing in the market particularly goes up there. Still volume growth, yep, but I would like to see margins come up a little bit. The other thing that we have the benefit of in 2026 is that we did have some one-offs in FY2025, probably about $80 million worth of one-off costs in 2025 from impairments, et cetera. We won't have those in 2026. We're getting the benefit of that on the other side.
Those one-off costs of $80 million weren't normalized out in the FY2025 result?
No, we didn't do any normalizations with the exception of the costs related to the divestment.
Okay. Where did those one-off costs occur?
Sorry, I missed your question. What line items were the one-off costs in FY2025?
Oh, you'll see it in a couple of different species, predominantly in Q4.
A couple of smallish, smallest in the grand scheme of things, but they add up, quality issues we had earlier in the season, an exit of a business earlier in the year, and brand impairments. That happens with our profit in a bit.
Quite a few small, I mean, certainly we used to talk $80 million in each item, but a number of small things that added up to about $80 million that, you know, we decided not to normalize.
Second question, just on the guidance. Does it incorporate the benefit of the lower net debt in that continued operations EPS?
At the moment, you know, that would be a relatively small space for us. Obviously, we've done the continuing business. Depending on what time the sale comes in and how long we hold funds for, there may be some potential upside in terms of us holding funds until we can distribute it back to shareholders until we have more clarity on exactly when completion date is, when funds come in, and when they'll go back out again. We won't make any other projections on that, but there is a potential there for some upside.
You mentioned briefly, or it was just acknowledged, that the China consumer business is still loss-making.
Could you talk a little bit about what sits in behind that? I know, Miles, you briefly talked to it and what the plan is around that.
Yeah, the plan is pretty clear. One thing that we did do, and part of what's dragging it down, is one of the impairments does sit in there, but also that we had some costs related to actually taking out some costs. We made some, basically we took the team size down and we had some redundancies and stuff to pay. There were some one-offs related to right sizing, I guess you would call it, the business. We actually had to impair from a brand standpoint as well. That's what was sort of dragging it down through 2025. We do still have some further cost optimization to do within that business during 2026. As Miles said, we will actually then trim the portfolio a little bit as well.
We'll take out some of the more tangential products, get really focused on what does create value in that space, which is more of your core Anchor and less of some of your other parts. That just gives us a much more, gives us a smaller business, but actually one that is more profitable than it was before.
I guess the way to describe it is that, you know, as it's been up until now, it's been a standalone consumer business while it reported into the Greater China business at a high level. You know, standalone and therefore sort of ran their own destiny. Their job now is to facilitate the growth of Anchor Food Professionals. That completely changes the way you go to market. You still want to make sure you have a presence in some of those retail channels, but it changes the way you go about it and how you spend your AMP, how many people you need, your approach to distributors. It's a completely change of model of which Andrew said, you know, we've picked up a fair chunk of those redundancy costs in the current, in the last year, which gives us a platform to then go forward under a new operating model. That said, still more to do.
Miles, does that include exiting some of the products, for example, like UHT?
Can I say maybe? There's obviously people involved in all this. Work to do, but I think you know what I'm saying.
Sure. Okay, thanks a lot.
Thank you. Your next question comes from Nick Marr from Macquarie. Please go ahead.
Good afternoon. I'm just on the guidance. Could you just talk through what the main drivers of the bottom end and the top end of the guidance range will be over the year?
Yeah, obviously, probably two things. Food service margin, we really need to make sure that we can keep food service, one, growing, but also that we can keep margin in place. Food service margin definitely there. Stream returns is always going to be something that plays out in the variability within our P&L. That is probably, that would be the other biggest part that's playing there.
Yeah, that downside while it's almost around in the area, you know, we are watching carefully the tariff situation in the U.S. I mean, the 15% starts to bite, and while we've had some success with our key customers in that market, we're starting to get a bit of pushback as well on that. We're watching that closely, and you could see us sort of moving down on the guidance if we don't have any success there.
No, that's helpful. Just talking about the Mainland investment and the sort of numbers there, if we were to adjust for the divestment cost, it looks like it's $368 million of EBIT. It's quite a lot higher than, you know, we were probably thinking. If we go back to the original presentation, it was $200 million of kind of in-scope EBIT before some of the changes and the perimeter and whatnot. Could you just talk through what's been the driver from that $200 million to, say, the $368 million where it's landed?
Yeah, so there's three key things that are at play there. Four actually, if you include it's FY25 and not 2024. The perimeter is different. If you look at what we had put out before, we are now including the Middle East food service business, but also a manufacturing facility within Saudi is in there. There is a bigger perimeter than was originally there. We have the benefit, yeah, we also have the standalone costs. What we presented was a business that would be standalone. That means that it had a lot of additional costs within there that are required in order for it to operate as a standalone entity. Those were costs that we obviously disclosed through the due diligence, but that cost would not be stuff that necessarily existed already because it was part of a broader entity.
As a separated entity, because it's not being created as independent, it will go to, you know, go to across the lack to lease. Some of those standalone costs are just not required. Certainly they weren't in place in the business during FY25. That's probably the two biggest parts of it if I think about what the changes were. It's the perimeter and then the fact that the standalone costs weren't included.
The underlying growth piece, sort of how much has that been year on year, and what's driven the majority of it?
Yeah, actually two parts. The Australian ingredients business was probably the biggest part of that. Obviously, coming off quite a tough FY2024 where they had a particularly high milk price in Australia, the Australian ingredients business was probably the lion's share of that. Actually, the consumer margins held up pretty well in the context of a high milk price. It was actually a good performance for Mainland in total, but the big driver would be the Australian ingredients business.
That's great. Thank you very much.
Thank you. Once again, if you do wish to ask a question, please press star one. We'll pause a moment for any further questions to register. Thank you. Apologies, you do have a follow-up question from Ari Decker from Jarden. Please go ahead.
Hello. Yeah, just quickly on capital management. Could you just talk to the ability to tax effectively distribute post the $2 return? I guess just comment on how much available subscribed capital will be left post that $2 return?
Yes. Post the capital return, relatively little, I think. We are in the middle of hunting down to see if there's any in any of the sort of, you know, predecessor companies, et cetera. At the moment, there would be very little that would be on top of what we're paying out now. Okay, thank you. No problem.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Hurrell for closing remarks.
Great, thank you. Thank you very much for your attendance and your questions. Of course, the team are available if there's any follow-ups that you may wish to have. Again, thanks for your support.