Good day, and welcome to the Skelarev Holdings Half Year Fiscal 2021 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to CEO, David Meara. Please go ahead, sir.
Thanks, Karina. First of all, welcome, everyone. I look out the window and it's a stunning blue sky in Auckland, and we're at level 2. So good news for us in Auckland. I'll go through the slides carefully.
So if you could turn to Slide number 1, which is the scatter up key points for the half year 'twenty one. I'm really pleased that the fantastic result due to the EBITDA of our team will widen a challenging environment. So net profit after tax, $19,500,000 up 61 percent on the prior corresponding period. You can read the bullet points. The second and third bullet points are just about the 2 provisions.
The record equity provision EBITDA, dollars 15,300,000 up 56 percent on the prior corresponding period and a record industrial division EBITDA of $15,500,000 up 50 2 percent on prior corresponding period. I'm really pleased that this is a broad based improvement in the business And almost all parts of the business contributing. And where it's slower, there's still growth opportunities. So overall, it's been a fantastic effort on behalf of all the teams. We paid a record operating cash flow of $35,100,000 up 33 percent on the prior corresponding period.
It's funded dividends, CapEx and a significant reduction in debt. It's a reflection of the strength of our OEM customer base that can pay us and the essential consumable nature of many of our products, which means repeat business. The directors have determined that there will be an increased interim dividend by 0 point 0 $1 to 0.6 $5 per share paid on May 18th March 2021 and included as previously to 50%. I'm sure there'll be an opportunity to discuss the guidance. Guidance previously was $30,000,000 to $35,000,000 We've increased that to a range of $33,000,000 to $37,000,000 Just a note on COVID, remains a significant issue for many of our people in Europe, and the U.
S. In particular and sorry, in Europe and the U. S. In particular. And until recently, Victoria and now, of course, we've had a little blip in New Zealand again, and that will continue to cause disruption through this year.
But overall, our leaders and teams are managing the impact that COVID can have on logistics and operations very well. And we'll come back to some of the issues that we see going forward, but I'm very confident that we have the team to deal with those issues. So we move to the next slide, Slide 2. This is the financial highlights for half year 'twenty one. You know the revenue EBIT and EBITDA, and as I said, that this reflects the broad based gains we've been making.
I talked about the dividend. A little bit more on the operating cash flow. If you remember last year, the full year operating cash flow was $48,000,000 For the half year this year, it's $45,100,000 CapEx, net of disposals at $2,300,000 dividends at $14,600,000 Right of use asset lease liability payments of $2,200,000 and debt reduction of 15,500,000 dollars I think the cash flow helps emphasize again the value of our low cap model where in many cases customers contribute to the development of our new products. And we've been doing some work on we talked about new products and some of the feedback has been what does that actually mean. So for the first half year first half result in 'twenty one, FY 'twenty one, it's 21% of our revenue comes from new products.
Now it's important we define new products in a way that, yes, for example, if we have a product that has a new compound that meets new standards, it's considered a new product and product enhancements are considered new products. If we include recent acquisitions, for example, Silclear, that means that the percentage of revenue from new products over a 3 year period,
and that's the revenue in
the half year 'twenty one, will be 25%. That kind of gives you a feeling about the rate of innovation of products, which I know has been of particular interest. Moving on, we have the bridge, which sort of explains the change between, obviously, half year 'twenty and half year 'twenty one. And if we go as extra rise, the first two are really growth in contribution from sales and, of course, silclear. So that's a large part of the agri growth.
Silclear is going well. It's contributing in line with our expectations. We've had gains in potable water market share in U. S, Asia and Australia. At this point, you might wonder why did we mention Asia.
And previously, we talked about the growth with Merlin in the U. S. And we had good growth opportunities, not only with Merlin, but particularly with Merlin into China. So that's where the comment around Asia comes from. We've made good gains in Australia.
We have a very good leader in Australia driving through potable water applications for effectively infrastructure pipelines in Australia, so that's going very well. And another highlight has been we talked about the phone business at the annual meeting, so some good examples of some of the UBEC product in particular. And we've had high growth for UBEC materials globally. So that's a fantastic product, and we're seeking to maximize the revenue and earnings from that particular product. There's been sustained demand for footwear in New Zealand.
I think in New Zealand, one of the areas of interest has been our competitors have struggled to get supply. We have struggled to keep up because, of course, I believe we've been gaining market share. And just the logistics challenges have made it difficult. Having said that, we're in very good shape. I look out the window and hope that we won't have any kind of weather incident later in the year.
But we're on a very good path for having a good year and full year. This includes government grants and sorry, government grants includes the forgiveness of the BBB loans in the U. S. And Australian jobs and for payments. And in some ways, that gain has been one way of thinking about it is it's been offset by the corporate costs, and maybe not related, but increasing provision for defending a claim against the divestiture of Luca bond business.
And there's a particular comment around that in the release. This goes back to 2,008, the business we've already said in 2,008. To be honest, we don't know the full details. So we provision really our expected legal costs. But over time, as we get a clearer understanding of the position, of course, we'll make that clear to everyone.
If we go into the 2 divisions, we'll start with the agri division. So that's Slide 4. You can see rubbery of sales are up in all of the markets, notably Europe. And Silke's performance is very good. Remember, the prior corresponding period was only 2 months, and we've had good gains operationally.
The gains in operations have really come mainly at Woodrum, not only Woodrum, but mainly at Woodrum. And it's a combination of focusing on cycle time improvements. We've reorganized the shift. Some of that was caused by COVID, but we've also reviewed the allocation of people to particular areas of the business. And consequence of that is we had far better inventory management and an improved lead time.
So what that's doing is, in effect, lowering our cost of production but giving us capacity for free, which is helpful as our volume goes up. So in other words, we believe the operational gains are keeping up with the need for capital investment. In other words, the capital investment will be very low. The footwear sales growth, you can see it's up 16% in New Zealand, both rural and higher channels. International was interesting.
It's up in the U. S. Due to the dielectric routes and down in Europe, partly, I think, because it's just a very confusing time with Brexit and a number of other issues. But the operational performance of the footwear, of course, predominantly it's made in China, has been very good. And I previously have referred to Martin Lee and his team have done a fantastic job.
The next slide is just a reminder of some of the products that we have focused on. So what we do in Agri, there's no I apologize, there's no page number on that slide. But the addition of the silicon tubing, silicon tubing, it's interesting, when we acquired Silclear, our target was our key customer, GEA, in the U. S. We still haven't won that business.
But what's interesting is, Ian Bradbury, not Ian Bradbury, Ian Bradbury from SilkClear has actually grown the business well. It's not that we don't have the opportunity with GEA USA and we went on farm testing and everything like that. It's just that they've become very preoccupied with what's happening in the U. S. Related to COVID.
But of course, there's a point where that will flow through. We're very confident that the quality of SIRCLARE tubing will give us further opportunities in the future, just picking on one part for example. Okay. On to the Industrial division. So you can see that revenue is up 7% and EBIT's up 52% against prior corresponding period.
We've had good growth from potable water and wastewater applications and good market share gains, we believe, in Australia and the U. S. I mentioned the UDET foam product in particular. It's significantly up in all markets. We've had very good growth from our decks, roof and ceiling products in Australia and the U.
S. And Europe. And overall, our margin and cost improvements. It's been interesting, in particular, in Melbourne, where the team, a large part of our decks, roof products in Australia, we've had our team in lockdown for up to 6 months. In that time, they focused on logistics improvements, just a series of small improvements that are sustainable and showing a better way of running the business.
So that's been a fantastic year. The pipeline of new products is good, and so we have good depth and good breadth. And so we're confident of continuing to grow our business. I mentioned the PPP loans and the drop in subsidies. So really, the next slide is what we do industrial.
You can see the unit product on the left. I'm sure many of you have seen that. Potable water needs are going to keep increasing. We see the back trends for both the industrial products, potable water in particular, but also going back to dairy. You've all seen the milk pricing a bit and the demand for protein remains strong.
So let me dwell on a couple of things, and then we would welcome questions. So I should have mentioned I have Graham Lending with me, of course. And the CFO, Scullor App, and he'll, I'm sure, provide more detail as we need it. If we look at what opportunities have come up, the first thing I think is that, as I said, the strong back wins for protein mean that the agri business, the dairy business, which is really about milk and protein, still has a long way to go. It's not that we don't see issues in the future.
It's just that the demand for protein means if you took a 3 to 5 year view, it looks very strong. And opportunities are arising. I've mentioned this before from the Dimavel acquisition of Avon Milk, right? And of course, we've been developing the business with Silclear. So that has thrown up opportunities with key customers.
It's in our hands to drive that through, but we still see growth opportunities through that as well as just the backwinds of natural growth. That's some particular examples from Agri, not all of the examples. And then on the industrial side, as I said, the potable water opportunities are there. The infrastructure spend that we've been waiting on for a long period of time. We're still not necessarily seeing a lot of that.
You can see it in New Zealand and in other markets. The structure is breaking down. So it will happen, and we will benefit from that. But in particular, we have specific projects we've been working on that will turn into revenue in the latter part of this year and early next year. So the obvious question is why have we changed guidance?
Well, we expect a better result. And just I wrote a note before just to emphasize, we're not aiming for the midpoint. So the range reflects the uncertainty we face. So just the key issues that we face. First of all, this increasing disruption to logistics.
In some cases, we sell on a delivered basis. So in the last month of the year, that can have a big impact on revenue. At this stage, we don't think so, and we think we're managing these risks well. But the point is, which we're trying to give guidance for the 30th June now. And so in some areas, the uncertainty has increased, certainly around the logistics side.
A couple of examples of things we've done. We've broken down large shipments into more frequent small shipments. We've air freighted in some cases where customers got in trouble. And usually, that's the customer's cost. But of course, going forward, we need to be thinking better ways of doing that.
There's been increasing costs, both related to freight, that's congestion charges, but also we've seen the increase in key raw materials. And also recently, we started to see availability of raw materials as an issue. For example, Dow Jones, a large chemical company, has limited sales of certain products to the U. S. Market to support U.
S. Customers. None of these are unusual. I just emphasize, we focus on these because these are things that can inhibit our business. But actually, we've been managing these things even before COVID.
And we I think we've shown over a number of years, we actually manage these processes well. So again, it comes down to the strength of the team that we had, and we had the skill set and the people that can actually solve these issues. So overall, I'm quite confident about that. And then something I don't talk about a lot is the Kiwi dollar. Obviously, that can have an impact.
So the volatility of the Kiwi dollar, Graham does a great job of our hedging program. But beyond that, we're really focused on our key customer growth. And but the only concern I have in any way is something the inability for me to travel, which can limit the opportunity for acquisition. But overall, we have a very strong balance sheet. We've increased the dividend, so hopefully shareholders get some benefit from that, and the outlook is bright.
It's as bright as looking out the window at the moment. I'll stop there and welcome questions. Thank you.
And we'll go ahead and take our first question. Caller, please go ahead.
Yes. Good morning, David and Graham. It's Guy here from 4th half. Congratulations on strong half result. First question for me, significant margin expansion across both divisions.
Can you give us a bit of a sense
of how much of that is driven by the operational gains you talked to versus changes in the product mix, particularly, I guess, in industrial, where you're seeing growth in construction and mine? Yes. So you want to focus on industrial? It is a combination of factors, Guy, and we talked about this yesterday with the Board. As a matter of fact, as you know, our industrial business is a collection of different businesses.
So in some instances, we've successfully deployed resources, deployed people to take cost out of the supply chain, so reduce freight costs. In sum instances, we've continued to improve the product mix. So we've seen some gains there. And we've made some improvements in our manufacturing in the areas where we manufacture our own products as well. So it really is a combination of factors.
It's no one single factor, as David's already touched on.
And similarly, on the Agri division, I guess the improved margin splits, in my view, relatively close to fifty-fifty between credit volume and operational improvements.
Yes. Thanks. I guess part of the Jonathan question is trying to understand what is an appropriate or how much of those margin expansions enduring going forward. I know you've previously talked targeting a 17% EBIT margin in the industrial business, 18%
in this period, obviously, boosted
by a couple of one offs in the government grants and the like. But is that have you revised those kind of EBIT targets or longer term EBIT margin targets? I think the first thing is, Guy, David's always targeted 20% of the industrial business. We did a bit of a debate about that over the years. So I mean, those targets are still in place.
Of course, it depends on what the mix of businesses at any point in time. But David commented on the potential headwinds that we have in terms of freight costs and raw material costs. We start to see those towards the end of the first half, and we see them in the second half. But we're not without the capability to find ways to deal with those as well. So we're not planning on shrinking our margins.
Perhaps it's a best way to put it.
I think if we can grow sorry, if I can split it into the 2 different businesses, they have slightly different dynamics. And so as you know, our main growth area is the U. S. Market. And so we're very focused on the U.
S. And thinking carefully about how we produce more in market to reduce geopolitical risk. So I think that's really important. And of course, that takes away some of these logistics issues that we're having. So we're giving that a lot of thought at the moment, and we're developing our plans for taking advantage of that, if that makes sense.
The thing I'd say is that the agri division, in my view, has always had the potential through the we talked about the investment in Woodrum. It was a large investment, over $68,000,000 including the land. And we're starting to realize some of those improvements. Those are sustainable going forward. The margin at the front end where if we are in a super commodity cycle, and this affects industrial in the same way, it simply comes down to the ability to pass on raw material costs, and that's an individual customer by customer question.
At the same time, of course, they resist that at the start. And in between, you have a lag on raw materials. So the way I'd sort of summarize that is given our stock of raw materials, the impact of raw material price increases is not something I'm worried about for the end of the year result. But I'm thinking hard about it for the 2nd 3rd year sort of outline years. We do have a choice.
In many cases, of course, there are many new raw materials that come on board. And if you get them fully tested, you can often engineer out the cost of raw materials to some degree. And that's what we've shown we're very good at, whereas some of our competitors have outsourced to suppliers, that kind of thing. But just talking generally, from an agri division point of view, there are more gains to be had in terms of structuring our business to give shorter lead times to take away the tyranny of distance with our key customers, particularly in the U. S.
And I think on the industrial side, we had similar opportunities. So we've been working very hard operationally for 3 years, and it's pleasing to me. We started to see it last year. You can see it in the operating cash flow quite quickly, and we think that will continue. So I'll stop there so other people have a chance.
But thank you. They're good questions.
Yes, great. Thanks guys. Yes, that's all the questions for me.
And we'll go ahead and take our next question. Caller, please go ahead.
Hi, Gaither and Graham. It's Christian Bale from Jarden. Also congratulations on the really good results. I've got a few questions for you. Sorry, you could bear with me.
How much was the pull forward from Brexit that you mentioned in the commentary at an EBIT level?
Yes, relatively small. I think we made comment in the commentary of we believe the first half was boosted by at the impact level by $500,000 And that's an aggregation of some deferral from the previous year, which we talked about at last year's year end, and a little bit of pull forward from Brexit. It's always hard to really accurately assess what might have been brought forward until you actually have 2 or 3 months down the track to see how your numbers have changed. So that portion primarily relates to the agribusiness, and that is where we noticed it both from a deferral from last year into the first half and a bring forward from the second half into the first half. That said, obviously, we're what do we expect, 7 weeks into the new year now?
And our results continue to trade well in that first part of the period. So nothing particularly notable from Brexit, but there is still a lot of uncertainty there. And when we talk to our leaders, what works with 1 customer or one market is a little bit different somewhere else. So they are, I guess, daily issues that we're dealing with in terms of just trying to navigate this new era.
Yes, Colt. Sorry, I didn't mention David. Dollars 500,000,
I think. Thanks for sticking with me. So I need that level, dollars 800,000, give or take.
Cool. And I guess looking forward to the maintenance then, we can get through in 5 years' time, like in, say, FY 26, with $55,000,000 in debt sound crazy. Graham's passing the ball to me. I'm just thinking, funnily enough, I don't think that's out of the question. Of course, the big question is acquisitions.
Can we find aligned businesses? And we're spending quite a bit of time on that now because that's I think the very small bolt on acquisitions we've done, it shows the power of getting those kind of acquisitions right. And Silke is one example. The NexSys Performance Foam is performing in line. And even Simlim, Simlim is a capability that probably gives us our expansion opportunity in the U.
S. Quite quickly. And so we've been considering, for example, instead of making silicon tubing in the U. K, maybe we should set up a manufacturer or acquire a business that would have a customer base that's attractive in the U. S.
So those are the kind of things we think about. But just if your question is around organic growth over that 5 year period, I see no reason. We have no shortage of key customer and key product opportunities to get to that kind of number. I mean, 5 years is a long way out given a number of things happening in the world. We focus very hard on 3 years out, just to give you an idea.
And so as I said, Graham and I are very focused on the next year. In some cases, this year, we have orders through till June already. So in other words, we have a little bit more certainty about that. Now that's not taking into account the disruption and logistics I talked about. So we could have in one case, we have orders out till the end of June, but we could lose a month's sale simply by not being able to get the product to customers.
So putting all that together, we've given guidance for the end of the FY 'twenty one full result, dollars 33,000,000 to $37,000,000 But looking forward, we do have strong growth plans for the following 2 years. And that's why we'll keep reporting the percentage of new products as a percentage of our revenue. This is something relatively new for us. And we'll make our definition clear because it's all on the definition, as I'm sure you know. But really, Graham and I have been focused on the 2nd year, so FY 'twenty two, that that is where we need to demonstrate our ability to continue to grow the business.
Acquisitions would be on top of that, to say, clear. Okay. Okay. So putting it another way, 3x FY 'twenty four, just through organic growth, you could get at least $45,000,000 per year? Years.
The short answer is yes. We will do it, but you know it's been through that through years. Okay. Great. And what will that look like?
Like where's that growth going to come from? Like is the revenue split going to be fifty-fifty agri industrial? Are you able to talk to that a little bit? Well, the obvious place we are looking very hard we're not ignoring New Zealand because obviously we had a New Zealand shareholder base. And by definition, we had more control in New Zealand than other markets.
But the obvious market we're looking at is the U. S. The U. S. Has the largest scale up opportunity.
And previously, so just one reason we're confident about growth in the U. S. Is, as I've mentioned in the past, a large private company we're doing a lot of work on, there would be a big change. It's about executing. We had won the business in that sense.
We just now need to start making the product and delivering it. And that was in the hand sanitizer area. So I don't think even if COVID goes away, I think we've seen that in New Zealand. The change in the nature of how we work means that hygiene, personal hygiene is going to be at a high level going forward, without a doubt. I haven't read Bill Gates talk about this stuff.
Anyway, the important thing there is that we that's one example. But even with our existing customers, so for example, we are now putting in place more tooling for Mullen, both for the U. S. And for China, as I mentioned earlier. So it's a combination of both new products and new customers.
But even with our existing customers, we're gaining market share in the markets. But our target is really the U. S. That doesn't mean we're not looking in Europe and Australia and places like that. But clearly, I've seen this before, if we acquired a business or if we got a new customer, the scale of the U.
S, you can just loosely, you can add a 0 to the numbers. So the debt is obviously our key focus. Remember, a lot of the development is done in New Zealand, particularly for the industrial product. Well, actually for agri as well. What am I saying?
It's really our focus on product development is really in New Zealand. And that's why I'm positive about our ability to continue to innovate because we have our hands around that in that sense. So I hope that gives you a sense of our confidence in that. So like the economy, you expect pretty much strong growth across every single division. So necessarily, the split might not change apart from some particular divisions like hygiene, for instance, Is that, Conor?
Well, the industrial division, by definition, has roughly doubled the revenue. So there are more opportunities here. But if you think of the product base, dairy is relatively narrow into liners and tubing and filters and things like that, whereas on the industrial side, you can take the same silicon tubing and it has more applications. So I think inevitably there'll be a stronger shift towards the industrial division. But I don't mind which way it goes.
But the opportunities, I think, are going to be more strongly on the industrial side for growth in the U. S. Market. Okay. Cool.
And so
look, I know that you guys sort of indicated that you're confident in those growth stories. But are there any particular projects for clients other than the hygiene on that you can provide, like example of? I just gave one with Mullen as an example. But of course, there are others. I don't usually go through project by project.
I know that would help everyone understand what's happening. But remember, it's a capability thing that we do. And so for example, the Cinlim acquisition has a number of mask opportunities, and they people could see those as flyby, I guess, is the way to say it. But we have meaty opportunities with Cola, with Mullen. We're looking hard at the pipe ring opportunities.
We've announced one several years ago about that didn't really work in that sense. But it's not like we're not looking. But I guess we're not relying on I guess what I'm trying to emphasize, we're not relying on one big opportunity to change the game. We have a series of opportunities, and they will they vary from more of the same that we control to completely new. Now completely new products for completely new customers is the highest risk area in terms of delays, the beat of delays as opposed to losing the business.
So again, in the areas that we focused on, we very rarely lose business. We tend to gain market share. So when we started with Merlin, I can remember it was USD 1,500,000, and it's grown considerably. Initial target was US3 million dollars and we're well beyond that now. And yet we're still seeing new opportunities.
The similar opportunity was a material opportunity with liquid silicone, and I still think there's opportunity to be here. So instead of being sort of focused just on a particular growth market like potable water or agri, underneath that business materials thing, we believe we have some of the best rubber chemists for black rubber. We believe we've shown we have capability in silicone, and we believe liquid silicone is part of that future. So you can kind of see a theme there as we evolve our understanding of what is really our strategy. So if we come back to our strategy, it's identifying customers with a problem that they cannot solve with their existing suppliers, and they turn to us.
And that's where we get that first chance to look at. And that's through a combination of our compounds. That's through and the ability to create new compounds to meet increasingly strict standards. And it's the combination of the tooling. And it's putting all that together into a package.
And also, remember, getting the customers to contribute to that development. And often, that's significant, if that makes sense, which leads back to the LOCAT model. So I believe it's not only just that we can achieve this growth. We can do it in a capital effective way. And you'll note, one thing Graham and I focus very hard on is to make sure that capital allocation, which for me is people and dollars, so it's not just dollars, it's people and dollars through the big opportunities.
We would be spending more than half our development time on the industrial side on the U. S. Market. Yes. Okay.
Cool. And then just, obviously, monitoring the fact that you experienced efficiency gains in your capital life, how much extra capacity do you have left with the current within your current operations to fulfill the growth aspirations in the future? I'll split it into 2 parts. One is if we take Silclear, we put on a second shift. And so round figures, we probably have another 40%.
But again, with relatively little capital, we could increase the capacity at Silke here. This is tubing, really. And we could also use that capital to set up a new, but that's minor. When we take wood run, round figures, we're running at about 75% of what I believe is capacity, and we can ramp up quite quickly. So in fact, our improvements effectively are giving us capacity for free.
So as volumes go up, I think I made the comment earlier that I believe we can, through efficiency, not need to spend more capital. There's a minor amount in terms of changing the tooling and things like that, but not much. So we could probably grow volumes 30% to 40% for liners. We had 2 machines that made black rubber tubing, but I still believe that and so there's at least 50% to 80% more capacity on tubing in some of those critical other parts. But to give you a sense of that, if the growth were, I don't know, 15% a year compound on volume, we could probably keep up with that.
The bigger question is going to be, are markets going to allow us to manufacture in New Zealand and ship? So for example, is the U. S. Going to review where products come from? And that's probably the bigger issue.
So we're very focused on thinking about a market supply manufacturing supply. Sorry, Graham?
I was just going to say, and to add that on the industrial side, as you know, predominantly, we design and then we have our partners manufacture. So that's very scalable in terms of on occasions, that requires us to make some capital investment. If it's specific equipment, it's more general equipment than the capital investments made by our partners. And our commitment is the tooling, which in some cases, customers are contributing to. So it's pretty scalable on the industrial side.
Awesome. It's super helpful. Thank you, Doug. And if you were to have any more phone calls, are there any particular areas that you are focused on? Or is there anything that comes up possible?
When we find something, we'll let you know with everyone else. But I'll give you an example. When we realized there was probably a trend towards silicone, we scoured the world reviewing the producers of silicone tubing. When I say silicone, mainly tubing because we didn't have an offering there, a small one in New Zealand from a local manufacturer. But in general, we weren't in the game.
So we did our analysis. We found around, I guess, 13 companies worldwide that produced in reasonable volumes, silicone tubing. We had our rubber chemist do a full analysis
of the quality. Out of
that, we came up with 3 top companies to target. The best one was Silclear, and we've acquired it. We haven't forgotten the other companies. So there's potential in that area. But don't just focus on silicon.
That's one example. And then if you take some of the things we do on the industrial division in the U. S, there's not only silicon opportunities here, and there are also liquid silicone opportunities there, if that makes sense. But I guess and we're not afraid of a large acquisition. So the fact that they've been small bolt ons, I think that's more because the nature of our competitors, just like us, we tend to be a small part of a larger system.
So our competitors are relatively small. They're of the order of even a big one would be NZ30 to NZ50 million dollars, the acquisition cost. So it's not for lack of wanting or trying. And Christian, if you've got any suggestions, feel free. But again, without it overlooking New Zealand, it helps if we acquire New Zealand because we pay tax here and it helps the invitation for us and our shareholders.
But I know that sounds very general, but as you can see, we're targeting the areas. So one obvious area we focused on was silicone, but there's also key suppliers. So I'm using that as an analogy of how we think about this. There are other key suppliers of silicone. We thought we bought the best one, and we did a good job on that objectively.
So yet there's still opportunities. There are still other suppliers to GEA USA as an example. So who are they? We know who they are. And of course, you need a willing seller.
So we've identified companies who might want to buy. But until you know that there's a willing seller, then you can't take it further no matter how much you want to do that. That's why, coming back to it, we're thinking about our expansion ourselves. But of course, that's slower. Acquisitions are faster if you get them right.
I hope that helps. It's our philosophy about acquisitions. Yes, yes. That definitely gives me a sense. Yes, sorry, because obviously, a little bit new to
the company, so I'm just trying
to get an understanding of it. Yes, that's super helpful. Thanks for answering my question. I'll let someone else talk. Thanks, Christian.
That's good. Cheers. Thank you, Karina.
Great. We'll go ahead and take our next question.
Good morning, Graham and David. It's Chris Pooley from Craig. How are you?
Hi, Chris. Good
day. Just a question on the dividend lift. Is there any reason why the dividend is only up sort of 18% when impact was up sort of 60%? Is that sort of highlighting you think those sort of margins that feature sort of an indication of unsustainability of those sort of into a mixed percent?
Chris, I think if you look at our guidance and if you compare our full year guidance impact for this year compared to what we achieved last year, obviously, the uplift for the full year is forecast, whether you're on the range, to be more modest than what we achieved in the half year. And typically, we pay a proportion of our dividend as an interim and a proportion as a full. So yes, to answer your question, our guidance in itself provides a perspective that we do not expect the second half to be as strong as the first half. It's also worth remembering the first half last year was down on what we'd achieved in half year 'nineteen at an impact level. And when we reported that result last year, we highlighted how the January month had been very strong, which means on a year to date basis, we were kind of back on track.
So I
think it's kind of worthwhile noting as well as the half year last year was a little weaker from a timing point of view and a little weaker than it was in FY 'nineteen.
Sorry, Chris. Just to maybe answer it in a different way. The directors, and we had a good discussion yesterday at the Board meeting, are always considering how we can return cash tax effectively to shareholders. So at this stage, clearly, the directors approved a $0.01 increase in the dividend. We are considering other ways that we could do that.
But it's not a lack of certainty of the cash flows. It's really important. So and of course, we will consider the dividend for the full year at later in the year when we understand how the business has gone. But at this stage, we're confident that the cash flows will continue to improve. Having said that, we have this inventory thing at the moment.
So we just when I say inventory, our inventory is probably lower, in particular, with footwear, for example, than I would like it to be. So net net, we're improving the business faster than we're improving the business faster and we continue to get the growth clearly for the more cash coming through.
And where did you land on the most tax efficient way to return capital?
Well, we don't have it. So with our ASC, there are certain things we can't easily do tax effectively. So I guess the obvious thing is there would be an on market share purchase, but we haven't announced anything like that. And of course, the share price at the moment, it would have been great in March or something to consider. And we did to be clear, we did have a high level chat about how do we do this.
But the reality is our options are quite narrow. The pressure is on Graham and we could do an acquisition and use case in that form, I guess. But at the same time, we think hard about shareholders. And if we were to increase the dividend now, I mean, that could cause issues with imputation. There's a number of factors that we have to consider.
We consider those very I guess what I'd say is this is of very deep interest to the directors and representing all shareholders, and we take that seriously.
Okay. And then into the fees targeting, I mean, certainly, our activity in margins, it's obviously substantial uplift. But in terms of what's sustainable, I mean, are you confident you come through the first half of next year and you hit these margins again or because of subsidies and you pull forward, we should be looking at sort of somewhere in the middle, especially the light agri going up to sort of the 30% margin. Is it more sustainable potential given efficiency gains at Exemptor and maybe mid-20s? Will there be a few points of looking forward into the next first half?
Where we have growth, I tried
to answer that. Let me go through
it carefully. If we have further volume growth, the overhead stays near enough the same. So the margin drops through. So it's about 40%, I guess, on agri, if that makes sense. So that's one way of thinking about that.
Subsidies are almost irrelevant in terms of our thinking.
Yes. I think I'd add that the benefit of those subsidies and the PPP loan, if you don't know what it is, it was the payroll protection proceeds in the UK sorry, in New Ears. And obviously, that's been a benefit of the industrial business, and we would not expect a repeat of that. So as a one off on the industrial side, you could probably be able to back that out. But of course, the whole reason that subsidy existed was because businesses were suffering somewhat as a result of COVID.
Now what happened was that money was funded back in FY 'twenty. But the commission process, if you like, which was where the impact of COVID was born and the results of the Industrial Division last year, you'll recall, but the opportunity to have those monies forgiven obviously is balanced in new financial periods. So perhaps the way of looking at the subsidies there is, let's say, relate to the second half of last year rather than the first half of this year when you're looking at the earnings impact for the industrial division.
Yes. So we can take it, the traditional 23% EBIT margin, 30% in the norm?
I don't know about the norm, but certainly, we are working very hard to deliver that on a full year basis. So you're right, if you go back over the last 5 half years, it's 22% to 23% or 23% to 22%, whichever way you look at it. And 30% is a significant change. And as I said, about half of that is sustainable through operational improvements. They're not dead.
I mean, we're working very, very hard on operational improvements now. And what happens is if you get the growth in volumes, so your top line margin improvement and you're improving your operational side, you get that double whammy gain, given away a little bit with logistics and most of our growth is overseas, as we pointed out, a lot in Europe. Those opportunities through the deal of our acquisition of milk right will continue to provide back wins certainly through this calendar year. But if we lock that in place, I don't think these people are switching just on price or anything like that. They're switching because they don't want to for various reasons, don't want to deal with Milkright, where they were comfortable with milk rights.
So they don't want to deal with B Wizzelle, but they were comfortable with milk rights. And some of those switches are permanent. So and it's related to not just the liners, but the equipment that you use and things like that. So I think we're in a good position to it's not a given that it will be 30% in agri, you're 18% in the industry, but our targets are higher than that.
Chris, I just want to say, perhaps to add on the agri division. It's typically, you had, as you'll appreciate, a stronger weighting in the second half. And if you look at the full year EBIT percentage of the Agri division last year, it was 27% versus the first half of just under 23%. So there's a couple of factors. Obviously, we've made the acquisition of the Silclear business, which is a high margin business.
So that benefits, and we'll continue to realize that benefit. And when you laid it alongside some of the gains that we've made from an operational point of view, I think it's certainly fair to say that we would expect the EBIT percentage to continue to be higher than what it was in the preceding period. We highlighted there's a little bit of extra pull into the first half of this year's results for Agri. But I think the important point to say is we believe we've moved it to a sustainably high level.
Yes. And how much increase in EBIT did Sinclair provide this year, or the extra 4 months? Can you sort of just drive that?
Yes. So this year, around about $800,000 compared to the contribution it made in the first half of last year. So just under $1,000,000
And EBIT.
If you get your ruler out in my bridge, you should be able to
see it. I mean, that's the impact, is it?
Yes. So just write that up because the U. K. Tax rate is a bit below 20%.
Okay. Cool. That's great. And very good result, guys. It's nice to be questioning whether things are sustainable after such a good result than the other way around.
So well
done. Okay. Thanks, Chris. Very nice.
Thanks, Chris.
Thanks, Chris.
Thanks.
Thank you. And it appears we have no further questions at this time. I'd like to turn the call back over to today's presenters for any additional or closing remarks.
Well, from my point of view, as always, I appreciate the efforts of all our team. I'd like to thank the directors through tough times. We had a number of teams meetings. It's an interesting process, but I think we've had good support from the directors of the board. And just a fantastic result, which I'm delighted, as I said, for the teams who worked incredibly hard in difficult circumstances, and I appreciate the interest in the company.
Thank you very much. And on behalf of Sam and me, thanks for the opportunity.
If you would like to have
a 1 on 1 or something, please reach out. Thanks very much. Thanks, Karina.
Thank you. Once again, that does conclude today's conference. We do appreciate your participation. You may now disconnect your phone lines.