Bega Cheese Ltd

ASX:BGA

Thank you for standing by, and welcome to the Bega Group Full Year 2023 Results Conference. [Operator Instructions]I would now like to hand the conference over to Mr. Barry Irvin, Executive Chairman. Please go ahead.

Thank you, and welcome, everybody. Very pleased to be with you for this FY '23 results presentation. And I think it is fair to say this year can be described in many ways, but I think dynamic may well be the most appropriate. We began the year with a rapidly rising global commodity prices, which are -- we saw farm gate milk prices go to record high levels in the midst of -- coming out of the impact of COVID and having rapidly rising inflation in many other parts of the business.Of course, that soar has happened to be very agile around how we might face into those challenges. I'm pleased to report that I think we've managed those significant variations, which are actually included, and then a rapid decline in commodity prices in the second half of the year very well. And I think importantly, we positioned -- we continue to position the business well for growth, and we continue to be very confident in our strategy, even though we're dealing with some very dynamic circumstances in the last year or 2.I think if I take you firstly to the key messages slide, which is on Page 4 -- sorry, Page 3, if people are following the presentation. I think the thing that we would say that we are delighted with is the branded strategy. So that disciplined strategy that we've had for some of the last 5 years in earnest, if you like, beginning with the acquisition of the Vegemite and Peanut Butter grocery business right through to the more recent acquisitions of Lion Dairy & Drinks.That predominantly branded strategy that sees us with some of Australia's most iconic brands had certainly delivered for us in the second half. It delivered -- it, of course, faced the challenge of getting some significant cost increases into the market in the early part of the year, but might having those brands performed well with retaining their positions in terms of market share and growing volume.That again is the key theme as we look forward. We continue to invest in those growth categories. We continue to invest in our brands and in our higher-value products whilst we've recognized the challenges in the bulk commodity area of the business, we do still also recognize the opportunity [indiscernible] and dairy nutrients.We have announced at the end of June that we are restructuring the business to accelerate the alignment of the organizational branded strategy to the branded strategy. That was always part of the strategy, but we had some opportunities, which Pete will talk to a little later around how we can speed that alignment up.I've mentioned interestingly, the volatility of the year that we've seen here. As far as the commodity market is concerned, we did see those rapid rises, but we then equally saw rapid falls with the commodity markets, decreasing by -- in excess of 30% in the second half of the year and that, of course, impacted the performance of our whole business.Interestingly, while historically, we would have seen farm gate milk price reset to a reduced commodity value in Australia in historically, this year, we haven't seen that happen. So as we look forward to FY '24, we do continue to see what has been an increasing disconnection between the international commodity value of dairy products and Australian farm gate milk price as volumes have decreased and indeed capacity has remained high. And again, we'll chat about that a little bit more later in due course, but it hasn't moved up to make the decision to right size our commodity infrastructure, make sure it's in a position to support our brands and take opportunities in the international markets and in the commodity nutritional markets when they arise.But it was -- I think it's an important decision to say that we will steer into the challenges that we see across the industry in terms of milk production and our capacity, right size the commodity infrastructure and, of course, that has meant that we've also taken a large impairment on those assets issue that has impacted our financial results. It is important to note that that's a noncash impairment.I think importantly, given the volatility, given the changing environment, but also given the right opportunities we see going forward, particularly in our Brand business that our balance sheet is strong. I'm really pleased to report that we finished the year, the financial year with a strengthened leverage ratio of 1.6.If I do go to the result, I'll turn to the next page, Page 4. And look, we do think that it's more appropriate to chart the normalized results, particularly in a year where we've had such a large change and indeed a large noncash impairment. And I would -- the only other comment I would make about that noncash impairment, it reflects -- it does not -- it's not a reflection of the quality of the infrastructure that we own, but it is a reflection of the fact that the volumes of milk available and indeed the cost that we have to pay for that milk is not playing that infrastructure fall the way we would like that to occur. So that results in cash impairment.From a normalized point of view, it was a volatile year and a challenging year. And in terms of those price increases, Gunther will talk a little more to later. They have impacted our overall performance. The 2 key things being that the timing of getting the price increases through into our branded market -- into our branded business and indeed the decline in commodity soar has -- present a normalized EBITDA of $160.2 million.I think I won't dwell too much on the other financial outcomes. Obviously, from a statutory point of view, there was that large impairment after tax impairment of $230-odd million that did see us announce a statutory loss.Perhaps the only other comment to make -- pleased, although it's a lesser dividend than last year given the circumstances that of the year that we've been and we're pleased to add to the $0.045 dividend that we announced at -- $0.045 per share dividend that we announced at the half year was a further $0.03 given sort of full year dividend of $0.075.Moving to Slide 5. And I think as we manage the variations that can exist when you're in food and agricultural business, it's important to be confident in your strategy. And the reality is that our strategy has not changed. It's actually the service have reinforced the importance of the strategy that we have been working on over the last 5 years, and indeed the strategy that we will adopt in the next 5. And that still remains to become a great Australian food company and create breakthrough for a better future.So what we want to do is make sure that we're producing food that is good for people, that is creative and sustainable as possible and to deliver it to people in a manner where they can easily use it at a price that is affordable and in a way that is sustainable. So our strategy has not changed and the strength of our brand reinforces the fact that we're very confident that we will execute that strategy well.If I take you to the next page. And many of you would have seen that this page or variations of this page in terms of how far the business has come from fundamentally a small large commodity business into now what I would call an emerging brand is how I have it. And I think that interestingly as this page is presented, you see some of our most iconic brands there. And the arrow to the future is pointing to those brands, which I think is metaphorically and literally true. We see the future in our branded business being full of great opportunities.Interestingly, that does include the fact that we think that our infrastructure, our existing infrastructure, including our commodity infrastructure, will play a very important role in supporting those brands. So it still has a very important role in our business going forward and in our forward-looking 5 year key plan.But there's no doubt that the brands this year and particularly the second half of this year demonstrated the strength in this business and demonstrate the opportunity for us to be able to increasingly deal with the volatility in farm gate milk price, the volatility in farm gate milk volumes and indeed the variation in opportunity might come [indiscernible]. The reality is, which, again, Pete will talk about later, is that we've just seen great momentum in those brands once we actually did the step change in pricing that was required.On Page 7, we talk about our approach to sustainability and circularity -- the circular economy. We've obviously historically made our undertakings regarding Scope 1 and Scope 2 emissions and are working hard to understand our Scope 3 emissions and the actions that we and our suppliers can take in that area.I won't dwell too long here. We obviously align ourselves to United Nations' Sustainable Development Goals. I think we are -- we have a number of programs within this business across the various footprints and areas of environmental impact that we have and I think we'll make very solid progress in all of them, and actually quite excited about a number of the programs that we've implemented or intend to implement as we look forward.Ladies and gentlemen, that's a small introduction from me. We do have -- I do have Pete Findlay and Gunther Burghardt with me, our CEO and CFO, who are both presenting their first full year set of results. It is fair to say that Pete's been with us for a while as CFO and then Chief Operating Officer and stepped up into the CEO role, and taken the challenge with both hands. And I'm delighted with the executive team that Pete put together on the decision and indeed the restructuring that he's implemented to make sure this business is in great shape for the future.So, I'll hand to Pete, who will then share his presentation with Gunther, and I'll come back to you and chat at the end of the presentation. So Pete, over to you.

Terrific, Barry. Thank you for the introduction, and I'll just move straight on to the next slide and jump straight into the momentum that we feel we now have in our branded business, which has carried us forward.So as Barry talked about, we're hit with a significant cost increase across the business through the milk procurement period of last year. And in fact, in other materials as well as we saw spikes in crude oil prices flowing through to resin and capital box and logistics.But I was just incredibly pleased with the team and the way our brands and our categories stood up in that period of significant upheaval. We're actually able to put through about $260 million in price during the first half -- pretty much the first half of the year to cover a lot of that cost exposure. And yet as we get to the end of the year, we've still been able to grow volume across that branded business by approximately 5%. So we're incredibly pleased with that result.We feel that it really signifies resilience of our brands and the way they resonate with our Australian consumers. So we're very pleased by that. We're able to get volume growth across our core grocery channels. But also in other areas, in particular, in the convenience channel where our team did a great job with our milk-based beverages, white milk and juices where we saw 20% volume growth and actually 30-plus percent value growth in that channel and also doing particularly well in food service using our strong distribution team and our unparalleled coverage in that space to increase field sales volume by 25%. So really good growth outside of the core grocery branch.We also did a restructuring program during the year. So as part of -- we've consolidated our branded business now, from 3 divisions into 1. And then we've allocated that division across core grocery and nongrocery. We brought together a number of different sales teams, marketing teams, R&D teams, logistics and planning teams.And during that process, we've eliminated about $20 million of annualized cost of which we'll pick up about $12 million in this financial year, around about 200 people have come out of the business. It was fortunate that we're able to drive a fair bit of that through vacancy rate, and we have separated over 100 people in the last month. But we now face into this New Year with a structure that we think aligns with our strategy. We're able to win in market, but it is a sustainable cost base for us moving forward.We've also focused on our capacity rationalization. So we closed our Canberra plant during the year, maintained our Canberra milk brand and presence in Canberra, but we're now manufacturing that volume out of Penrith, which I think is a good initiative. We've also put in a substantial amount of automation into our site. So through ADV, automated driverless vehicles, automated palletization, just to give a few examples, which is allowing the blockages in our sites to be eradicated, getting better flow through. And I think that that will actually allow us to get better equipment effectiveness rates as we move forward. So we're happy with that.We've also maintained -- we also maintained a strong CapEx program. So we've finished our Wetherill Park sustainable packaging project, which is the blowing of fully recyclable PET bottles on site, which gives us a great sustainability outcome, but also the blowing on site provides us with a good cost benefit and in market, the new models are fabulous. And that's probably one of the things that contributed to an outstanding [ NBV ] result for us during the year, which obviously drives significant margins for us.We completed that new pouch line at Morwell that was commissioned just at the end of the year. Happy to say that that's now up and running and is driving a lot of significant product innovation in that area and also cost out for us. So we're really excited about that. And we commenced work on a new digital sales platform. So as you know, we do about 40,000 deliveries a week to a very big customer base. And we were using a 15-year-old portal that customer experience is very poor that we did some work on that prior to launching the project.We've worked on over 100 customer pain points. I'll be really pleased to see that our new portal for those customers will be put in place in October, and it will drive a significantly different customer experience for us. So we're really happy with the way that the CapEx projects have fallen.If we just turn on to the next page, which is really about the innovation and growth in our brands. I firmly believe that the performance of our volume growth in a period of very unsettling month recently, the cost increases was driven by the strength of our brands and the innovation and focus we continue to put into our brands.We had a substantial amount of market investment, which will enable that pricing growth. And really there was a focus around fewer better programs in our high-margin, high-growth categories. So we trimmed that down. We've got great focus into those high-margin, high-growth categories. And I think the volume performance speaks for itself.We did celebrate our Vegemite 100th anniversary, just being superbly executed by the team. We've got terrific expenditure around that. And it's interesting to note that our Vegemite volumes actually grew this year, which is under the second time in 20 years. So we've always seen good value growth in Vegemite, but the fact that the teams were able to get volume growth out of that category, which is incredibly important to us, was outstanding attribute to their work.So we're noting that with Vegemite celebrating its 100th birthday, we now have 4 iconic brands in our stable that are more than 100 years old. So a huge amount of heritage there. And I think most pleasingly, is that they remain incredibly contemporary and all of those brands actually grew last year, both in volume and in value, which was exciting for us. And I think that bodes very well for our future.Really strong milk-based beverages performance. So milk-based beverages grew by 5% volume last year, double-digit value growth. And we had some terrific activity happening across those. But that is our second highest margin category. So we're incredibly pleased with the performance of that product and the way it's still resonating with our customers and the fact that customers chose not to trade out of that category even though price did increase.And a second half in our international branded business was also strong for us. So we did more than $200 million worth of sales in branded products across Southeast Asia and the Middle East last year. We think we've got continued growth in that area. We've pulled in our focus really around cheese and yogurt, processed cheese, cream cheese, fresh cheese, and yogurts. We pulled in our focus, done a lot of work on our rebranding, and we're really pleased with the results. We actually think that that part of our business will continue to grow next year.Just moving on to the next slide, just talking around the innovation programs that we've had. So some really good innovation around yogurt, MBB white milk and spreads, in particular, obviously, very focused, as I said, high growth, high-margin items.We delivered some really good campaigns around lactose free which I was particularly pleased with take us a long time to crack the white milk lactose-free market, but we've launched in South Australia and New South Wales with really good success. And our growth rates there all being off a very small base, actually quite stunning. So we're looking forward to where that's going to go this year. That obviously list the margin of our white milk business.We had lactose-free into milk-based beverages, which just been tremendously for us. And we've done a number of reduced sugar launches. We've also pulled milk-based beverages into a small 300 ml bottle, which is going incredibly well. So just helping extrapolate the number of occasions that people will consume our products on.We did our milk-based beverages flavor rotations. We had dairy [indiscernible] particularly successful for us. I'll talk about that in a little bit further down the track. We did announce [indiscernible] rotations to our flavored private milk supplies. And we couldn't be happy with where that flavored milk business is going. 52% market share in retail would have a higher market share than that, if you went across nonstructured retail. We just don't have that data, but we're incredibly pleased with the way it's performing and also the doors that open for us with the rest of that range. So just incredibly pleased with that. And it was one of those key contributors to our actual convenience growth.Key yogurt innovation, including the expansion of our pouch/snacking opportunities and range. So we see pouch as the fastest-growing category in yogurt. We're really excited now that we've just doubled our capacity with our new line that's going in it more well and actually reduce cost. So the ability to drive our equipment effectiveness there will be a huge fillers, of course if we can get that volume through. We've done some really successful launches around our children's pouch category, which is an area of high growth. And we're really delighted with some of the early signs of that launch. And we've also gone into sugar-free, lactose-free yogurt, which we're really excited about.We did exit the Vitasoy joint venture. And look, we had a terrific relationship with Vitasoy for a long time. It was mutually beneficial to both of us. But by exiting that agreement, we really feel that it unshackles our potential to move into further plant-based opportunities and use our range and our brand to do that. We're really excited to announce a distribution agreement with MILK LAB. MILK LAB is obviously the most premium plant-based milk in the country and is very strong in the route trade, so once again, it allows us to open doors for our range in that space and gives us really strong presence there.We obviously launched plant-based cheese, which we're really excited about. And I'm very pleased to announce that we will have a plant-based flavored milk range coming out late in the financial year, early in the calendar next year. And based on the strength and brands we think we can literally drive some value there. So really excited about some of our plant-based opportunities as they arise.Just turning on to the next page. This is a page that will be not lost on our investors who have been following us for a while now and really just shows a journey that the business has been on over the last 20 years, but particularly the acceleration in the last sort of 4 or 5 years of really growing our revenue through our branded business.And you'll see now that we're now an 85% branded business. If you look back to sort of 2016, we would have been likely to have been a 40%, 45% branded business. So the transition has been quite significant. And I think it's just worth noting that as we grow towards -- we grow in excess of $3 billion of revenue, we are now adopting a branded business through that revenue growth.We just move on to the next page. This is a page we'd like to reflect upon. We look at this page on a monthly basis. It's our brand shares in the Australian retail category. So it's really across core retailers and convenience. It doesn't talk about our route business. But you'll see that what we're really pleased about is we've retained our #1 position in yogurt-based beverages and spreads. They have our 3 highest margin categories, the categories that are in growth, and we've maintained our #1 share. So we're very pleased about that. That's something that we continue to focus on.The other thing is that -- and it looks [indiscernible] a little bit within this, it is our fresh white milk business, and what happened with that business last year. We were actually able to drive growth in the fresh white milk last year for the first time in a number of years. Our fresh white milk as a total across all channels actually grew by 10%. And in that process, we're able to clean up profitability. We're able to add lactose-free to offer more functional benefits and increase our margin. And we're also able to win on the street. So we're able to take a lot of good volume in that unstructured space, which is traditionally in the business was a strength of many, many years that we probably lost that way a little bit in that.And if you take out the [ ROB ] factor, we're a clear #2 and closing the gap on that #1 player quite rapidly. So very pleased with our white milk business. It is important because it drives probably in through our plants and distribution network. So whilst we love the margins on NBV and on yogurt, that milk -- that white milk business through volume and improvement in margin is still really import to us. And so we're absolutely delighted with the way that we've been able to win there.But let's move on to the next page. Something that we continue to focus on, we think, is key to growing our brands. Our brand is standing up in a tough environment is our connection or engagement with our consumer. And so we've been very focused on 4 key consumer trends and try to play into those consumer trends. And I think that's still some really good stead over the next 12 months, and we'll continue to stand in a good stead as we roll out our strategy.And they are -- the key things we always look at are better value, functional health, the demographic changes that are happening within this country at the moment and sustainability. And so if we just focus on better value, to start with. We are seeing cost of living pressures happen across retail. We are seeing a number of consumers switching to retail on brands. And so that's why we felt it's been incredibly important for us to play into that space and to keep attention to the fact that our offering has got to be able to provide good value. And be able to [indiscernible] across 8 or 9 of our top categories, we really only lost volume in one, and that was peanut butter, where there was a shift to ROB, imported ROB product out of South America. But we've been able to hold our volumes and in fact, grow in volumes across all categories except for peanut butter. So we're really, really pleased with that. And it's something that we need to stay very much achieving to us as we're seeing continued pressure come on the consumer over the next 12 months.Functional benefits is something that our customers are constantly looking for. We firmly believe that dairy product has a huge amount of functional benefits, but how we ready that for our customer and continue to tweak that. And so we do offer sugar -- more sugar-free offerings, lactose-free offerings. We reduced salt and peanut butter in Vegemite. So -- and we really try to drive probiotics, added calcium and the amount of protein into our offerings. So very conscious of building on that functional health position for our customers.Also, demographic evolution of Australians, we've seeing a lot of Australians from the subcontinent. We're seeing those numbers grow, and from how is it growing, and so how do we continue to make products relevant for them and relevant for each of the dairy processes that they use our products in. So we had a strong famous Union Greek style promotional campaign around not just using yogurt breakfast time, but also using yogurt in cooking as the day passed, around lunch time and dinner, which was very successful.And also the fact that consumers are now shopping more and more on the go, which was playing into our convenience offering. So small pack sizes pouch, which is I want to be consuming easily on the go. So we're conscious of that trend.And then sustainability. We want to be able to meet our customers' needs and wants some design sustainability and to be held to account by our customers around sustainability and what they see is important. I think that's something that we'll focus on we need to be playing a sustainability in a way that customers see is important.So we just move on to the next page, and we'll talk about our branded market strategy. So we still want to focus on growing core grocery. It's incredibly important for us. We have a strong heritage in this space. We have great brands that perform well in this space. We want to work with those key customers to continue to grow in those areas.We were flat and worse last year, but we had 3% growth in cold, 7% growth in independents. That's volume growth. We actually had positive volume growth across all of those 3 channels but volume growth -- and it's really getting more people consuming more often across more occasions and across our core categories and our core brands. And so that will continue to be something that we focus on and working with those big customers in a really constructive way, which I was really pleased with how the team did that over FY '23.We backed really well in core customers, but we're still under-indexed in food service and convenience or outside those core grocery channels. And so a real focus for us will be winning on the street and competing really hard in that space. And there's no reason why we shouldn't. We've got a terrific sales force. We've got a national cold chain distribution network. We've got great relationships with other distributors. So we feel that we can play well within that space.But we know that when we ship focus in this area with our sales team and our logistics team and get the product offerings right, we can win and we've see some terrific sort of insights there into picture on convenience. We've set some great insights into our food service channel. So we know that when we get it right, we can win. And we're also really excited about this new restructure the way we can now package our portfolio together and go with this channel with a full complete portfolio, not just across milk and cream but cream cheese, cheese, butter and all those terrific offerings that we have. And so that's leading a way out into our organizational enablement, the way we set up and how we can look at and how we engage with our customers.And yes, a terrific win there, to hear actually became the #1 in [indiscernible] brand in convenience in the last quarter, July, which is just an outstanding result. And that was really kicked over by the deer intense launch that we had. But it just shows that when you've got a sales team really focused on something you've gotten off and working with that part of the market, we can get significant lift. And as I said, we grew convenience by 20% volume last year, which was outstanding.We will continue to streamline our sites. We've got a great set of sites, but they do do a bit of everything. So how do we think about where we want those sites and what they actually do to create -- to upheld equipment effectiveness numbers but also to deliver a better result for our customers in that specific geographic areas. And we still think that we've got great exposure to those international brand markets. That's a little to streamline our brands and streamline our offering and our distributors to those markets.Let us turn on to the next page, this talks about Australian milk production. And we've shown some of this stat before, but I think it's really important just to revisit this because it talks a little bit about the industry and our response to the industry.So it's pretty common knowledge that milk production has been in decline since -- certainly since 2002. And we see milk production in 2023 getting down to around that 8 billion liter mark. And during that period, we've seen relatively minor rationalization in industry manufacturing capacity. In fact, in some instances, we've seen new capacity brought on. And what that [indiscernible] most people will be aware that that's actually reducing milk availability and -- through that overcapacity. And it's actually increased competition for milk in Australia. And what we've seen in particular in the last 3 to 4 months is this created a significant disconnect between farm gate milk price and commodity milk prices.So during that process, as commodity prices fell down and rose again, just a continual consistent pattern, we would see the farm gate milk price roughly follow that sometimes with some timing differences. But what we're seeing now is a complete disconnect over the last 3 or 4 months.How that impacted us is that we've reflected that disconnect with an impairment of our commodity assets. Our commodity business will struggle in FY '24. It is worth calling out within our commodity business, we do have 2 different businesses. We have a nutritional business, which produces lactoferrin and in formula powders [indiscernible]. That business is actually remaining reasonably stable in our commodity business, which is based around bulk butter, bulk skimmed powder, whole milk powder, cream cheese is actually going to suffer significantly from that disconnect in FY '24.So that's why we've been paying out our bulk business. What we will do though is we will work -- we'll work on that business over the remainder of the year. We have got some tolling arrangements. It's volume arrangements we're committed to for FY '24. But we will look at that business over this year, and we will reshape that business for FY '25. And what we want to do is make a business that is far more agile that has parts that can be wasted as costs that could be pulled out that will make us far more able to deal, we're starting to have price fluctuations in volumes. And so we think that there is a way forward for that bulk business. But in the FY '24, it will really struggle. And it's one of the reasons why we remain, we believe, relatively flat year-on-year.We move to the next page, it just highlights what's been happening. This page shows -- the red line shows where commodity prices are heading from an index point of view. It also shows on the green line, our farm gate milk price in Victoria, which is -- which traditionally has been correlated with those export trends. And it also shows the major grocers private label price index, which actually sets a lot of the retail shelf price here in this country.And you'll see there the graph demonstrates what I was talking about, which is something we're going to have to face into where commodity prices have dropped quite dramatically. Farm gate milk price has stayed elevated. We paid a record price 2022 of $7.14 per kilo. That went up again to $9.55 in FY '23, with the rising, sharp rise in commodity prices. Farm gate milk price has only dropped marginally down below $9.55 this year, but you'll see there that there's been a massive drop in commodity prices.I guess the good news out of this graph, though, is that, like I said farm gate milk prices have stayed in touch with domestic milk prices or domestic prices on shelf. And as I said, we stayed heavily exposed to that and are very happy with the farm gate milk price and how that fits with our domestic branded business. So that's something that we remain very pleased about.I'll just go to the next page. This is our manufacturing network. I won't spend long on this page, except that we're down to 19 sites after the reduction of Canberra. We're pleased with -- to have a geographic spread of sites. It's always good to be exposed to markets, but we will continue to look at how those sites play out with our network and how we might optimize those in the future.Well, let's move on to the next page. It's talking about our dairy infrastructure and how it supports our brands and markets. So with that disconnect in farm gate milk price, we will look to restructure our commodity assets, particularly Koroit and Tatura. And we'll look to see how we can strip those back to fit the current circumstances. And the good news is that we think we can do that with an early modeling.However, those commodity sites still play a huge part in our future. As we model the growth in the domestic business out over the next 5 years, we will need to rotate in our network, just to cope with the sheer seasonality of milk. And so they become entangled to growing in our domestic branded business. And you'll see there that in actual fact, only 4 of our branded sites are really stand-alone. The rest of our branded sites, milk sites actually rely on connectivity with those large commodity sites because they take volume that are going into those sites at -- during peak season. And they also produce byproducts to those sites that are valuable in the manufacturing process. So in actual fact, we see Tatura, Koroit and Lagoon still being incredibly important to our branded future.I'll just turn to the next page, and I'll talk about our dairy commodity strategy in a little bit more detail. So I've alluded that we think we can change our commodity sites to fit what we need them to do in the future and to be able to cope with a disconnect between farm gate price and commodity pricing and also a reduction in volumes. So we'll do a lot of work on that over the next 12 months, but we think that we see a way forward with that.We'll also continue to focus on high-value commodity and nutritional products. So our lactoferrin business remains very strong. We think there's a future in that. We think we've got the ability to evolve our nutritionals business to take advantage of some of the things that are happening in the market locally here. And we still think that we could retain commodity capacity within those plants. So if situations do change, we can take advantage of that. So we'll be looking at from our capacity. We'll be looking sheer structures and so forth that enables to ride out environment like this. But if things were to change, we could ramp that scale pretty quickly to take advantage of those market dynamics and market changes. So, we are still very comfortable with our commodity assets and how we can use in the future. We'll just use it differently. I think is the point I'm trying to make.I'll now switch to Gunther and let him talk about now some of our financial results.

Fantastic. Thank you very much, Pete. And up on the next slide, our profit and loss line. I've been focused mostly on the normalized table on the left side. As Barry said, that probably is the most sensible one in understanding our results.Our net revenue grew 13%. What you're going to see as we get in the segments later on is that the branded side of the business grew 16%. Within that, volume was a little under 5% of that growth, about 4.5%, and we had over 11% value growth. And I think one thing I want to leave you with there is because we took multiple waves of pricing throughout that first half of the year, in particular, by the time we hit Q4 of the year, we actually had well over 13% pricing across the branded business. And so some of that will carry across into next year. So that's very positive.Bulk was up 80% and its sales growth, and that was a tale of 2 halves as Pete and Barry both alluded to the first half had very strong commodity prices, and they declined a lot in the second half of the year.Now the EBITDA there, you see that at $160 million. That's down 11% year-over-year. The inflation that we had really was all there in July, farm gate milk price inflation, logistics inflation, oil inflation, other sources of inflation. They were all there from July. But the pricing, of course, there's a notice period for some of our customers, and so the pricing will lag the cost inflation.The depreciation and amortization a little under $102 million. And as we look forward to FY 2024, what you can expect to see is that we will have some increase in depreciation and amortization due to the sale and leaseback of Vegemite Way, but that will be more than offset by the asset impairment that Pete discussed earlier. So we actually expect net depreciation and amortization next year to fall a little bit just shy of $100 million.Net finance costs were definitely up and nearly doubled in the year, and that's really just about the rate that we pay on interest. I think you're seeing that across a lot of corporates these days. So that may be those higher in FY '24 as we get the full year impact of the higher interest rates.On the next page, we have the reconciliation between our statutory results on the left-hand side of the page and our normalized results on the right-hand side of the page. And I won't dwell on this one too long. But clearly, compared to our statutory results on the left, we removed the sale of Vegemite Way, which is a nontrading onetime benefit. We also removed the $276 million pretax asset impairment and the cost of restructuring. And this restructuring program, obviously, as Pete mentioned, is key for us. It's how do we align our organization best to our new strategy and ensure success over the next 5 years.The other cost line at under $5 million is really software as a service. So Pete talked about the B2B platform, we were investing there and a few other IT initiatives that will help our efficiency and growth over time. And so that's that normalization. And I'll talk a little more later about tax consolidation. So when we take all of those, we arrived at our normalized P&L on the right side.Now the next slide, which is called profitability overview among the financial slides. This is probably the most interesting one that really tells the story of the year that was. And this is an EBITDA waterfall that moves us from FY '22 to FY '23. So on the left side, the prior year, we made $180 million of EBITDA. And there you see the big red bar. So what I've done in the next 3 columns is I've split out the branded business, the branded side of the business. So first of all, the cost increases mostly farm gate milk but also, as I said, things like logistics and other sorts of inflation, $290 million. That impact was right there from the beginning of July.So the business reacted as quickly as it could, multiple waves of pricing and got $256 million of in-year pricing. Now that's about 88% of the total price increases we took, which implies that about $35 million more of the price that we took will carry across into the F '24 year and provide a benefit.Then you see finally $28 million benefit in EBITDA from our volume growth. And so as I said, just under 1/3 of our entire volume growth was delivered across these and market-leading brands. So that's great.Then you get to the bulk EBITDA, and I've kept that. I haven't broken out price or volume or COGS in both. It's an $18 million year-over-year impact. I think the thing I want to draw your attention to here is that actually, when you look at our EBITDA from FY '22 to '23, it goes down by $20 million, $18 million of it is explained by the bulk business. So substantially all of it. So I think that's really important to note, and it sort of signals the strength of the branded business.The final thing I'll point out there is a $7 million reduction year-over-year in unallocated overheads. And for those of you who are looking at that full year result in unallocated overheads, you'll actually see that it has a slight negative overhead in the second half of the year. It is disappointing for our employees, but I want to acknowledge that we came out of the first half, having put in place a lot of strong pricing and brand programs. We were very confident in the second half of the year, rightly so in our branded business.But when we go out to that second half of the year, the plunge in commodity prices meant we didn't achieve what we had internally set as our objectives, and therefore, we did not pay bonuses across the organization. And that's really the biggest single driver of that low cost in unallocated overhead in the second half of the year.On the next page, we have a few key performance measures, and I'm not going to dwell on this slide too long. I think the strong growth in revenue in both years. And you see 45% in FY '22. That's really the first full year of the Lion Dairy & Drinks acquisition. And then again, a robust 13% in the year that just finished. So very pleased with that.What we're clearly not as pleased, often said, is an impact of the cost inflation and the higher farm gate milk prices is the gross margin. And it dropped on a normalized basis by 3 points to 19.4%. So if you look at the 5-year strategy that Pete described, he is going to describe more later in this presentation, one of the single most important things for us is driving that margin back up. We're committed to growing that margin by at least 1 point to 1.5 points every year over the next 5 years. And how we do that through pricing and promotional excellence, through mix, through cost efficiencies across our network through procurement, that's going to be absolutely vital and creating value for our shareholders and driving our results back up.The final thing I'll point out at the bottom of that is the improvement in our leverage ratio from 1.8x at the end of the prior year to 1.6x. So we do finish the year with a balance sheet that has sufficient strength to weather these variable commodity markets.The following slide really tells the story on the quarterly performance, and it's entitled brand momentum and commodity impact. And we haven't put numbers on the Y-axis here. What this is showing though is our EBITDA margins in an illustrated way on a quarterly basis in the most recent year, FY '23. And in the blue there, you see the branded result obviously hit quite hard in that first quarter with the cost inflation. We need to see it growing throughout the year very strongly as our price and mix and innovation initiatives begin to land, so very encouraging.But you can see from the peak of the commodities, which occurred really in October of 2022, a strong downward trend is that commodity business was impacted by the commodity pricing, and it actually went into the negatives in Q4, which you see on that graph. So really a tale of 2 halves for both segments in our business.The following slide is the segment slide, and I think we've talked to a lot of those key points. I would say something else on the unallocated overhead side. We have focused extremely strongly in that second half on cost savings. So whether it's being things like travel or eliminating consulting or maintaining vacancies, we've had a lot of good programs to optimize the results in the second half of the year.Final point I'll call out on this slide in the bullet points below the table in FY 2024, we really believe that substantially all of our profitability will be generated by the branded business. And so that's a big call out. And finally, of course, Pete talked about the restructuring of the bulk business, really driven about flexibility of the ability to ramp it up and down in the future. It's about how that business supports our branded business, that's important.Next slide is our cash flow. And listen, the operating cash flow the year just passed by shows us $8 million on this chart. And the key issue here, obviously, is inventory. Inventory is up $110 million. Now I think it's important for people to understand, if you go back to the prior year at the end of F '22, commodity prices were rocketing. They were climbing very fast from sort of March 2022 up to a peak in October.And if anything, in the prior year, when there's a rising commodity environment, very easy to sell all sorts of inventory, we're now selling inventory at a much more normal pace. We have -- we finished the year with inventory at $430 million, that's 7 or 8 weeks of stock. So we're not concerned by our inventories. They're trading more normally. But in the prior year, I think we sold at a much faster rate, given the climbing commodity markets, which prevail at that time.So not the operating cash flow result we want. And clearly, that's going to be a big focus at F '23, how we optimize that. In terms of investing activities, so the Port Melbourne site sale and obviously, the Vitasoy joint venture sale, absolutely critical.So I think the final thing I'll say about inventory is it's not about a big increase in weeks or cover. It's really the effect of farm gate milk price being substantially higher and other sorts of cost inflation. And those things make up the majority of the change in inventory value rather than weeks of coverage.I'll finish off on the last slide, which is the balance sheet slide itself. The trade receivables are up essentially in line with sales, again, no change in terms -- no major changes in terms of the days receivables, so that's good. And then you see through areas like lease liabilities and right-of-use assets, they're going up as they're sort of impacted by the Port Melbourne sale on leaseback. And then the impairments are impacting areas like the intangible assets in the properties, plant and equipment. So hopefully, that gives some insight to our financial results.Back to you, Pete.

Terrific, Gunther. Thank you. So we just swing on to the next page, and I won't spend too long because it's very consistent with what we've been talking about for a number of years now. But the business is very committed to the United Nations sustainability standards, which means that we have a focus around food nutrition, diversity, inclusion and quality, greenhouse gases, packaging sustainability and water sustainability. And I'm pleased to say that we've moved forward in all of those areas, both through our products, initiatives that we've got within -- with our people within the team. How are we looking at our greenhouse gas and carbon footprint into the future and the targets we've set ourselves for 2030.I've talked about packaging sustainability, which to this point in time, it's been about -- not just about driving sustainability outcomes, driving cost outcomes and driving outcomes for our customers. And obviously, water sustainability is something that we look at on a continual basis.So if we just switch on to the next page. It's just I think a point to reflect on where we are at today and how I see the business. It's been terrific to spend time at all of our factories and get out in the market with our teams to see how we show up with consumers across different channels, both here in Australia and internationally. But I must say I'm actually really energized and feeling extremely positive about the tools that we have at our disposal for this business.Obviously, we've talked about the headwinds that our commodity business is facing at the moment. But as I said, I think we have a path forward with those. But if we look at our branded business, where we think that how momentum will come from over the next 5 years. We have got some unbelievable brands iconic that resonate well with our customers. They fit within the right price points and they continue to be extremely relevant with where we're heading. We think that we can grow those. We think these -- not just growth within the accountings but also some adjacencies and we're incredibly excited about that.We do have integrated manufacturing process across our sites. We can cope with seasonal milk. We can cope with milk come at us and we can optimize value, and we think that's a really important part of our business. And we think it gives us a competitive advantage, particularly in the dairy space.With what's happening around our commodity sites, we could be agile to changing markets. If the commodity market stays bearish, as it is at the moment, we feel that we can set ourselves up for that in the future. But if we do see opportunities and that changes that we can respond to that and that could be -- we can make money out of that.We have -- both of our branded acquisitions are now traveling ahead of business case. So the Bega Foods business, the Mondelez spreads business has been an outstanding acquisition. It's never really a business case and the BDD business is on its second half run rate and how is traveling over the first couple of months of this year and how we believe we'll travel the next year will also be well ahead of business case. So we continue to be extending with the opportunities at those 2 businesses providers.There's a plethora of opportunities for the branding pricing innovations and efficiency programs and margin improvement. We feel that we've got white milk, which is a huge part of our volume heading in the right direction. But we've got some terrific margins to play with. And certainly, the fact that yogurt MBB and spreads are in growth is something that we think gives us a huge opportunity and just the channels of those categories are playing in. There's still a [indiscernible]. So we're really excited about that.And therefore, I believe that the brand contribution that we've seen in the second half of last year, into the first quarter of this year and that we think we can maintain throughout FY '24, this will be really exciting. And it will, in FY '24 counter those commodity headwinds that we've seen. And through FY '25 and '26 and beyond, we actually push the business forward. So we see terrific amount of opportunity there.Those challenges remain in the commodity market. So we have to face into those. We've done that with the accounting treatment with the payment, but we will make tough decisions throughout FY '24 to ensure that commodity business is set probably for FY '25. And with that, we see FY '24 normalized EBITDA of about $160 million to $170 million, so within that range -- within that, we see a significant reduction in our commodity earnings, but being mitigated by a significant growth in our branded business. Both of those movements are quite material, and we remain therefore excited about that branded business and so there will be the full encounter those commodity headwinds that we've seen.We turn on to the next page. So just to sort of talk a little bit more about looking forward. I've spoken about our strategy, just to reiterate that. We are disappointed with where our share price sits and the impact of that has on shareholders. But we believe that we have a way to turn that around. We have implemented or taken to the board a 5-year strategic plan earlier in the calendar year. That's been sized off and we're in the process of making that.And I think we're seeing -- we're already starting to see benefits. And part of that was the restructure program that we put in place. It's therefore with a strong level of confidence that we can call out. But during this period, we think we can lift our EBITDA to $250 million plus with a growth rate of greater than 10% during that time frame. And that will be primarily driven by our branded business.We think that the new business looking forward and the changes we will make to our commodity infrastructure over the next 12 months means that we'll be far less exposed to farm gate milk price volatility and farm gate milk volumes. And as I said, when you go back to that chart, I'll show you where we got the alignment between farm gate milk price and the branded value of milk on shelves in Australia domestically. We feel that the farm gate milk price will play less and less a role in our profitability and sustainability.And so we now feel that we have the people capability and the people set up and that branded business structured the way that will enable really strong growth, not just across our core grocery business, but into that non-grocery part where we're still very significantly under-indexed. So I look forward to the next 5 years with a great deal of enthusiasm and optimism. And I think that we'll start to see that change in our business during FY '24.Barry, I think it's back to you now.

Thank you, Pete. Thank you, Gunther. I hope everybody found that presentation very responsible. Probably, I'll save my concluding remarks until after questions. I'm happy to go to questions.

[Operator Instructions] The first question today comes from Evan Karatzas from UBS.

Just looking at the 5-year targets you've given. I was just hoping you could provide some more information around, I guess, the building blocks to get to that number from the FY '24 guidance of this $160 million to $170 million to $250 million. I mean like what are you assuming bulk earnings return to? Is it the $40 million you did this year and the rest is driven by branded? And then I guess like what underpins the growth in branded? Just some of the buckets or the building blocks, however you want to look at it, just to bridge out from today out to $250 million, if you can, please?

Yes. Sure, Evan. So we think that the restructuring work that we will do over the next 12 months with our commodity business will alleviate the performance we're going to have in FY '24. Does it ever get back to where it's been traditionally? Perhaps not. So our longer-term modeling has -- our nutritional business staying pretty static. Our commodity business coming back from where it is this year, but probably the bulk business never getting back to that $40 million mark, maybe a little bit below that. But it really is around the branded business.So if we look at our branded business, we've still got upside in capacity in milk-based beverages, which is growing, as I said, was growing 4% or 5% last year, very strong margins. We've still got capacity in our yogurt business, and we think that, that can continue to grow at its current rates. In fact, we grow at this current rates, we could add up to another 20,000 tonnes of yogurt over the next 5 years. That's certainly not a stretch that's simply maintaining both rates.And so as you start to get those volume performances through those 2 particular categories, you start to get some of the significant margin drop to the bottom line. We also are significantly under-indexed in non-grocery, so across food service, hospitality, QSR and a number of those channels. So if we can -- and we -- it's never really been in the business's [ DNA ]. But if we can start to grow those channels even at modest levels, we start to see a significant improvement in our margin and in margin growth. And that optimization of that footprint, we saw what happened with Penrith, we think that there's ability to restructure a lot of our plants, simplifying a lot of our plants, get out our equipment effectiveness out there [indiscernible] which drops money to the bottom line. We may close some plants. We're still looking at that. We think that, that footprint allows us to take out a lot of cost and continue to attack and reflect on our overhead structure as well.So if you look at those different pots across our branded business, we still think that there is significant growth. And so that target is an organic target. It doesn't build into any inorganic growth. And it obviously has us with a very strong balance sheet at the end of it. So I think the business is at check at the time that it's really, really well poised. Does that give you some color?

Yes. So I just sort of picking up the tail, it seems like around the mid- to high -- let's say, mid-single-digit type top line in branded. Can you put any numbers or quantify the cost out of the efficiency program, just so we can have that as a bridge item or a building block that you're sort of expecting in your modeling?

It's a bit hard to answer the 5-year bottle with you over the phone. But there is more cost to come out of the business. There's no doubt about that. The way we operate, we've got a very large cold chain distribution network. We feel there's opportunity to optimize that, more opportunity to optimize our plans. With that comes overhead reduction, you get flows back at your structure, not manufacturing, I mean structure. So there's still lots of opportunity there, and we'll come at that. But probably a little bit early and probably the wrong format to go through specific building blocks.

I think the only thing I would add to what Pete was saying is that it is fair to say that in the year ahead, the disconnection is the largest disconnection I'd ever see between farm gate mill price and commodities. Now inevitably with those milk commodities, they do turn as a global supplier response to those change farm gate milk price and every -- in other parts of the world, obviously, farm gate milk price has already responded to those reductions, and you're then seeing supply, therefore response.So as we look into FY '25 and beyond, there is a statistical likelihood that there will be a greater alignment between farm gate milk price and global commodity prices, given that they are likely to improve but we'll not rely on that or waiting for that. So we -- I mean, Pete sort of think about cost, the cost out in our commodity infrastructure, if you like, will be a cost that delivers greater flexibility. And so we will pay costs out. So we are not so exposed to that big disconnections, but we would still retain the flexibility. And you can probably -- the way you -- as you interpret what the guys are trying to do, we're not reliant on commodities, but they are actually dragging the result in the year that we're in. They may not be quite as much of a drag in FY '25. There are ever scenarios that they could go back to helping us little, but we're not reliant on that.And I think when you look at Pete's terminology of $250 million plus in the 5-year strategy or within the 5 new strategy, I think you can probably interpret from that, that there are scenarios where that plus can come from, commodities or the timing in which we reach $250 million can be quicker given that we create -- that we take that exposure away, but remain able to respond to the opportunities to enable to come in that space.So the real effort this year is to get that flexibility and cost out in commodity. So it doesn't drag because they're branded by many, is doing the job for us really well. But it's the drag that is actually [indiscernible].

Your next question comes from David Errington at Bank of America.

If I could follow up on that, Barry. I mean, I was talking to the guys at Treasury Wine, and they face a similar situation, different circumstances, but they're also trying to get flexibility in their bulk production capabilities. But I've got to be honest, I've never seen a darn where you can keep 2 large facilities open, Tatura and Koroit, where you keep them open. And I think where you, as you say, try to reduce volumes, but at the same time, keep that flexible capacity. I don't think I've ever seen that being able to be achieved. And I think Treasury Wine themselves are closing Karadoc and then trying to outsource it, in other words, take capacity out. I don't know how you're going to be able to do that. So would you be able to give us a bit of an overview as to how you can achieve that objective because if you could, it would be fabulous, but I just don't know how you're going to be able to do it?

I'll make some comments and then I'll hand to the guy that have got actually executed. But the opening comment would be, I think Koroit is a good example, right? So I think -- and that was what Pete was alluding to earlier. I think when we look at our 2 big sites, Tatura and Koroit [indiscernible] the important role they do play in supporting those branded businesses. So milk is processed [indiscernible] up the road to Sydney and beyond in terms of making sure we've got the right volumes to service our branded market. And then it's a matter of what other things it does. Of course, it does like the [indiscernible] which is a very good contributor and makes a difference to us. Koroit, a little of the same in that it's marshaling milk from -- in the West, and it's sending it off onto our facilities in Chelsea or over to Salisbury or even to more [indiscernible] cheese more valuable than milk powder. So they are integrated.Now if you -- I guess the comparison I would give is that in the more seasonal parts of the world, if we think about Ireland and if we think about New Zealand, the process of mothballing and then bringing on line drives, so they operate full part of the year or indeed in the spring peak, 6 to 8 weeks of the year is well established and been part of their practice for a very long time. So there's no doubt [indiscernible] Koroit where there are 4 large dryers, one has not been utilized too much in recent years. But the opportunity to make sure you've got your core higher-value nutrient dryer working and your other dryer flexible to work for part of the year and have a workforce that's actually attuned and online to that. It is part of how we deal with it. So it is probably more looking at how that practice is done in areas that do rely on seasonal volumes and then making sure that we bring those practices into those facilities.Taking those facilities out and closing them actually could create challenges around how we support the branded growth and particularly as much as Dave and I talked about it before, whilst I'm an optimist around where milk supply may go in the future and what may occur, reality is like half a statistics that are in front of me, which is it continues to decline and you need to make sure that you can source milk from the pools that are stable or indeed have the opportunity to grow. And that -- and if you look at areas, say, for example, there's just a continued decline in Queensland, there's a continued decline in New South Wales, it becomes important to take the capacity away to actually source milk in the areas we want -- also would have the potential to weigh the brand business.But I think, Pete, I'll hand over to you now, that was going to be a short answer, but turned out to be a bit longer. But I'll hand over to Pete, who might add some more color.

David, I'm certainly not going to pretend that I am an engineer. And so that would be a gross mistake. But Barry is right for us to get milk contract, milk with farmers to provide milk-branded business. We will inevitably have excess levels of milk during the flush or during the spring. We do need big dryers to be able to process that. But these factories are actually quite compartmentalized. So the biggest and most expensive infrastructure on them is often the dryers. And so if you're taking through a certain amount of volume, you may well have 4 dryers running. And to give you an idea, a dryer has a replacement value of $70 million to $150 million. They're big bits of kit, they hate milk and turn it into powder. So the energy costs are extremely high, and they need to be clean regularly and maintain neatly.So if you decide that you want to switch off volume because those drivers aren't running at an optimal rate, you can actually switch them off and the cost actually -- the cost to actually drop out in big chunks. And then, so if you right size your milk and you're absolutely optimize to use certain numbers of drives at certain times of year you can actually take chunks of cost out.So you sit there with all of your capacity running, manufacturing capacity running at a certain level of milk and your hold on, you hold on, you hold on, as you want to cover overheads. But if you actually decide to make step changes, you can actually carve out big chunks of cost. And that's the financial outcomes of that plan pretty substantially.So we'd probably -- multiple -- some of those assets have the ability to do turn them back on if dynamics changed. But more than likely, we would be running those plants well under capacity but able to take significant costs out if required [indiscernible].

Sounds promising. It sounds very promising. If I could go into a second question, and it's a complement here, but I suppose a bit of concern. But it's on Page 23, which Gunther said. And I think that slide really does highlight how well you guys have executed your pricing strategy and being able to get those costs back. I mean it really is a superb chart there, and it's Kudos to your management team.I suppose the concern is that when I look at that, it means that the consumer in Australia is wearing all the cost of the inflation in the supply chain and in the cost of goods. And I'm just wondering, this come in the last quarter or so, you got to be positioned so as you can meet, as you say, a value proposition. What can you do if you could elaborate a little more, both Pete if -- and Barry? What can you do to ensure that your brands can compete against retailer-owned brands? Because listening to retailers all week, they're talking about consumers are really now becoming increasingly value-conscious. You've had a fantastic year, second half being wonderful, and that slide is brilliant, and congratulations. But going forward is the big issue because I'm not necessarily certain that the consumer is going to be able to pay for the entirety of all the cost increases that's coming through the supply chain?

Yes, I think you're spot on. And that's why when I talked about those 4 consumer insights that we basically run everything through in our business daily and weekly [indiscernible] is one. And I think within that significant price increase, what I will say is that I think the team, [ Dan and Adam ] who run that great job, the front end of our business, did an amazing job because they put the prices through at points that still enable us to grow volume. So I think we've done a really good job of it in '23. And I am incredibly pleased with the way that the sales team, the category takes -- came together to do that.And we did do price increases. So it was done in a pretty controlled -- some people sort of said you should have done -- few are bigger, but we did do it in a very responsible way, but it's always a challenge. And so we will look to try and optimize that network, optimize formulation, optimize our procurement to ensure that we do stay…

It's probably worth mentioning that when we look across the portfolio, which is where the portfolio becomes important. So as you look at that consumer behavior in a more indolent brand like yogurt, they still want the brand that they trust and they like and if you go -- if you take that to probably the biggest [indiscernible] that brand is less price sensitive, if you like, in terms of people that might trade down to something else because it's really -- it's a bit of a threshold, if you like, as the trading drops through convenience or whatever else on the way on the building side.So Pete mentioned earlier, where do we see some of the trading down when you see the [indiscernible] for example, of course, we don't see the [indiscernible] at all because the consumer is just 100% loyal to that product. So I think we'll see it in different parts of the portfolio. But overall, I think it's probably fair to say that the first quarter, the brand has stood up very well as we've seen some of that consumer behavior is not coming through in all categories of our brands, if you like.

I think one thing I'd add, David, is we have taken another round price that's effective at the beginning of this fiscal year. It's more like a low to mid-single digit. But you're right that the headline pricing we took in the double-digits, that's not going to happen in F '24. What will be important is promotional excellence. So how do you vary frequency to focus on the more profitable parts of your range? It's going to be much more nuanced how you do that in an environment where we know the consumer is going to hit the mortgage cliff and get a little fatigue. But our portfolio is pretty well positioned for a difficult economic times, this is ideal for milk.

Yes. I think with respect to the consumer, David, and capable [indiscernible] continue to provide innovation, continue to focus hard on working with your customers and to keep sort of showing up at the best in your brands, and to keep growing [indiscernible] cost. So I think one of the traps we could have fallen into and I hope we haven't is just to put the price up. And we've been really focused on the team, being strongly honest with ourselves, saying, are we still growing volume, are we still driving efficiencies through our plants, are we giving back to the consumer. That has been something we've certainly talked about and thought about a lot of the time. But you're right, it will be -- it will continue to be a challenging over the next 12 months.

Well, it sounds like all your controllables, you're executing really well. So well done on that. It's just the uncontrollables that are causing grease, but really thank you for your answers, they're great.

Thank you, David. And you're right, our control a little bit tender, hit you in the side of the head.

Your next question comes from Josh Kannourakis of Barrenjoey.

Just a couple of questions. So firstly, on guidance into '24, could you give us a little bit more of a breakdown just on within the branded side, sort of price volume sort of assumptions on that? And then on the commodity side or the bulk side, just what you're sort of depending in terms of the sort of commodity environment, any improvement or any deterioration from the sort of current levels?

I might hand it to Gunther.

Yes. Fantastic. Thanks, Josh, for the question. And Pete alluded to it earlier to say, actually, we expect pretty much all of our profitability in FY '24 is going to come from that branded side of the business. And I would say that some of the building blocks for that, the amount of price intake will moderate to David's question. So instead of being something in the double digits, you're expecting something in the sort of low to mid-single digits in terms of net price accretion. So we're going to be looking to things like mix and cost savings to drive margin higher.But as I said, when we talked about the 5-year strategic plan that Pete Barry laid out, where we need to have at least 1 point to 1.5 points of margin expansion every year. And it's going to be how we achieve that margin expansion through promotional excellence and cost savings. That's going to be the thing that drives our branded business forward.So I'd be looking for the branded business to earn all of it. We are assuming that the commodity prices remain subdued throughout the year. Is there a potential in Q4 that they start to come back up seasonally as they sometimes do? Maybe. But we are not focusing on commodity prices bailing us out in F '24 within that number. And so, you have a result in F '23, where the bulk business earned over $40 million. We're assuming almost no contribution from the bulk business in F '24. So it is branded business momentum driving all of the results.And we did as a final thing, in our June announcement, we called out a $12 million in-year benefit from our restructuring efforts, and that will annualize at over $20 million, which will bring some benefit to F '25 as well. So that's probably the other building block to think about.

I mean just on that, the commodity business, you've got New Zealand [indiscernible] price trade in at around mid-$6 -- mid to low $6. You've got sort of production has come off in the U.S. and Europe. But only just come off and you've got sort of demand. So the supply will start to [indiscernible] but you've got demand hasn't taken off yet in China. And so we're not forecasting any improvement in in commodity prices between now and certainly April the earliest. So we haven't built in any rapid rise in commodity prices.

And can I just ask just in terms of a broader question then. In terms of -- if we look at some of your peers in the market that have maybe been a bit more exposed or less exposed to the branded side, more exposed to commodities, how do you think that shakes out across this year? I mean we've sort of been praying for some rationalization in manufacturing capacity that hasn't really happened. Maybe we could just have a little discussion on that and how you sort of think about the year ahead?

So Josh, I do feel like I've been here before, which probably just has been around too long but -- look, I always have the view that inevitably, the market has its way, if you want a better way of putting it, sometimes, it is a little slower than you may expect. And I think we probably thought for a number of years now that rationalization was necessary and needed to occur. And even sometimes, as Pete mentioned in these press statement I was a little surprised but people are building more infrastructure rather than rationalizing infrastructure.I think we are seeing some genuine pain points from some of our competitors, particularly the smaller ones that might singularly product exposed or exposed to international commodity markets. Again, what I would probably say is that the -- I think for some, this year will be very painful because I mean it was what Gunther and Pete alluded to this, it's very hard to see no matter how effective or we should all [indiscernible] you can do with a liter of milk that is priced -- that is priced well over in internationally traded commodities, if you're essentially a milk or a commodity, I think that there's just not a return there.So I think it's what tolerance might remain after a number of years of difficulty, but I would expect that, that tolerance for some businesses might be growing, which might bring about some rationalization. Certainly, I would not want to see the sort of impact that we fill back in '14, '15, '16 when you did see major upheaval in the industry. But I think if rationalization doesn't occur this year, you would expect. It always occurs slower than you expect and to a certain extent, Pete alluded a bit in the question, those tech change decisions can be hard. So in the end, when you're looking at piece of infrastructure, you do all you can to keep it efficient and keep it operating well. And quite often in commodities, you think you will do that because there will be a better day next year. I think it's been a while and really that we've seen a better day because every time there's been an improvement in commodity, it is reflected strongly [indiscernible] beyond.So my view would be that rationalization is likely to occur. My hope would be that there is a [indiscernible] industry doesn't need significant upheaval impacts, particularly impacts [indiscernible]. I think my only other statement would be that we're not waiting for it. So we are not reliant on it part of the -- I guess part of what we've been working toward -- and despite some of the volatility in headwinds we faced, we now have a business that we say it's very complete and a strong business, we need to make those hard decisions ourselves around our commodity infrastructure. We'll do that. We're not reliant on other rationalizations to take this business forward. It will go forward with it and may go forward a little more effectively if that will occur.

Your next question comes from Phil Kimber at E&P Capital.

I was just going to ask on -- and sorry to be quite specific here. On the unallocated overheads, I know you've explained the issue there. They move around a lot. I mean, how should we think about them into FY '24? Hopefully, you guys -- bonuses come back? Is FY '22, which was just under $20 million, a good sort of place to start? Or if I took the first half of '23, they're probably going to be closer to $30 million in a normal year. So I'm just a bit confused around those?

Yes. And I think -- yes, thanks, Phil. And I think your second one there, we sort of said let's take the first half of '23 and kind of double it. And obviously, we'll get some savings in there. So of the $12 million in-year savings that I talked about from the restructuring effort, some of those are in the branded business. Some of those are in the bulk business, but there will be a few million that also are in the unallocated overheads and in the corporate function. So I would double the first half of F '23 and then take $3 million or $4 million off, and you'll have a reasonable estimate.

And then just mechanically in the second half because that number was actually a gain. I get when you -- if you don't pay bonuses, you don't have a cost, but it actually was a positive. Was that like a reversing a provision that you've taken for those bonuses in the first half? And again, sorry to be drilling in on 6-month numbers, but it was actually -- I just want to make sure there was no abnormal gain or anything in the unallocated line?

No, no, there wasn't. And yes, we had -- I mean we came out of the first half. And by that point, a commodity peak was reached in October, the commodities had started the slide, but we certainly didn't predict where they were going, and we knew we had done so much in terms of price and mix in our branded business. So we accurately predicted a huge second half in branded, and it was delivered. What we didn't predict is what would happen to commodity.So we had been accruing bonuses throughout that first half and unfortunately, reverse them entirely in the second half of the year. And then we really went hard on cost, travel, consulting everything, right, to sort of optimize the result we could get in that commodity situation. So it is a big reversal, and it's a complete -- it's a reversal of all of our bonus provisions, unfortunately.

The only thing I would add, [indiscernible] no plan in adding. I know that everybody would observe that the key management personnel didn't receive any bonuses. But there can be circumstances within parts of the business were where you will give bonuses because of the extra effort on all of it because -- and Gunther is right, that commodity crash, which is the only way to describe it really, was way more brutal than we expected. We did expect that we would be looking after some people in the business. We've made the decision [indiscernible] that just wasn't going to be possible then we had to -- and we had to reverse a whole lot of them.

And then with the -- I mean, we can -- you got enough data points now on your guidance to think about the composition. So just to confirm, I mean, if I look at that second half branded business, which basically doubled on the first half, I would have thought, and correct me if I'm wrong, but the first -- in a normal year, if we ever get to see a normal year, the first half for the branded business should actually be stronger because milk costs in terms of how farmers are paid in the farm gate price in the -- during the spring flash, they get a lower price. So should we assume that actually the first half will be quite strong for that branded business, even just for that issue, that milk costs are lower in the first half than in the second half?

Yes. I'll let the other [indiscernible]. I mean I think we've got to be a little bit careful when we think about milk cost because we've got to think about it across the country. So we've got to think about -- so everybody tends to focus on and indeed, our published number tends to be the Victorian price because that's the one that's willing to take commodities, but the milk price is linked to our branded products, particularly in the states where there's deficits that as we go into this year, they're the same. They're the same, could be approved [indiscernible] across the spectrum of the other states.So it is always -- and it's always a little bit of [indiscernible] short of breaking down sort of every regional price and it's some pricing that's required around volumes and indeed around profiles. It means that the milk that is fundamentally destined for those brands, it's traditionally pretty stable in price and is reflective of the brand that it's going in to.

Where we can, we allocate milk to the branded business at that cost. So it actually reflects the more expensive flatter milk that goes into it. And so if you look at Queensland milk, New South Wales milk, WA milk, [indiscernible] smaller volume, quite a large chunk of [indiscernible] cost as such. So the branded business tends to wear pretty flat evenly priced expensive milk.

And can I ask one last one just on inventory? I heard the comments there about sort of normalization. How should we think about that given global commodity prices have come down a lot, I mean, farm gate prices are a little bit. Should that -- if we think about the value of the inventory, I would have thought that would probably drop in FY '24. I was bit surprised that hadn't dropped already in FY '23. Is that correct? Or is -- am I thinking about that wrong? I get that there's a volume part of inventory, the price part, if anything is coming down?

And I think, Phil, if you look at it, it is mostly value that drove up the F '23 inventory. So the big thing in that chart that Pete showed with the sort of difference in farm gate milk price. I mean farm gate milk was up 30% year-over-year, right? And so that's the biggest part of that sort of $290 million COGS bar. If I were to break out the bulk section that I showed in that waterfall chart, actually, our total costs increased to almost $400 million, right? So the main driver of inventory was value rather than liters, if that makes sense.

And does that -- I mean, in theory, that should unwind in FY '24. I'm thinking of your cash flows in FY '24. I mean your inventory value should actually come down or if they're based in part on global commodity prices?

I'd say we -- what we'll do is we're starting the year, obviously, with that value of inventory and the higher farm gate. What we've seen in the recruiting season, obviously, for FY '24 is that milk hasn't dropped that much, so the value per liter, if you want to think about it this way for the year ahead that we've just started is going to be very similar to the year that we finished. And so what that means for me is we'll have a bit more of a normal seasonal pattern that we would expect for inventories, which is inventory investment will go up to December as we have our spring flush in and we received the spring build, and then you'd expect to see inventory drop back again in the second half of the year as you sell through after that spring flush. So I sort of expect a normal buildup and then draw down of milk, but from that higher base valuation.

[Operator Instructions] Your next question comes from Mark Topy at Select Equities.

First question, just around the milk optimization, I guess. And can you just give us a feel of how perhaps milk is being now allocated more into the retail business and perhaps moved away from the commodity or the bulk business? And also, you alluded in the bulk business to being able to perhaps take advantage, get away from skimmed and whole milk power into higher-value export products. Maybe if you could touch on that point as well?

Yes, sure, Tops. So we -- I mean the business has been very successful at doing this after the years finding niche or finding profitable streams for milk in the bulk business. So in fact, during the year, the guys did a terrific flip, cream cheese volume soften, which has traditionally been a really strong mix versus cream cheese volumes softened in China, and they swung into cheese, they bought some farms and which is a really nice move. We don't see that within the numbers, but that actually added building to a result that was under pressure.So we'll continually do that. What I would say is though that with this disconnect now, the skimmed bulk butter mix or some those lower commodity mixes are completely underwater. And so we need to try and avoid those at all costs, which is what we're trying to do. So as we look to our domestic business, and I think just going to the numbers the other day of the guys, we've just swung another 50 million liters of milk into our domestic business in our planning since we acquired our volumes. So that's the growth in MBB. That's the growth in cream. And we will continue to try and find more and more opportunities in that domestic mix.And then within that, so volumes within that core grocery space sort of growing in a reasonable clip, and we're happy with that. But it's where we really under-indexed the market outside of grocery and food service and so forth. That's where we'll start to really focus our attention and try and shift commodity milk from the commodity market into those higher-returning domestic areas. And we have the capability to do it. We've got all the finished good capability. We've got distribution network and we've got the sales team. It's just a matter of continuing to push that.And then how do we use that skim in different ways, skim is obviously the core byproduct of our milk intake. We produce more fat items. That's how we continue to use that skim in a really effective way and the guys are continually looking at ways of doing that, both within the domestic market, but obviously also exports to continually try to actively do that. That was a long answer.

No, I suppose when we look at the cheese price, it's probably been a bit more resilient than, for instance, the white milk price in the global index so wondering is that you can be able to tilt on that. But more broadly, I guess the point you mentioned in terms of now competing against the Kiwis in terms of the farm gate where they're at in export markets. I just wonder how does the export business -- when the Kiwis got the ability to drop their farm gate the way they have, how does Australia -- is Australia at a structural disadvantage going forward now in not having that ability and how do we compete in export markets even in the current year?

Well, I think we can still compete across our higher returning streams. So cream cheese market remains strong, lactoferrin remains strong, some of the infant formula powders remains strong. So it's just a matter of trying to focus on growing those markets. And so, we're still making money out of those streams, certainly not making money out of our bottom streams.

Yes. So I think, Mark, the reality is in those, if you like, pure commodities, and it's not just New Zealand where we're not competitive with it. It's a number of other exporting regions around the world. It probably goes more to my discussions with Josh around how the industry rationalizes and how the industry faced into those challenges and is part of how -- why we've -- it's never enjoyable to have to take an impairment, but it is important to restructure to it. And I think that we will -- we will inevitably see that there will be a realignment.This year, as I said earlier, this is the biggest disconnection I've ever seen. I don't think that disconnection can be sustained as we look into international markets. The ideal outcome, of course, is the disconnection still within the commodity markets return and -- or at least go halfway back to where they might have been. So I think it will probably be a combination of a return in the strength of the commodity markets, which are ironically enough, I think, will be driven by the fact that those low prices around the world will impact supply and that -- and so you'll probably see a little bit of a halfway meeting, which will mean that Australia will still have to be very specific about the styles of commodities and the sort of product to produce things in the future. But I don't think it needs a total exit.

And just perhaps following then just to touch, obviously, I suppose already is that China has been the crux of the lower demand in global markets. Barry, I just wonder if you can talk to their own -- give us some read of the landscape that you're sort of perceiving in the China market. Obviously, they've ramped up their own internal whole milk and skim milk production, but what is the outlook, particularly when we look at this China economy?

Yes. So I think you're right, Mark. I think we're seeing ongoing softness in demand out of China and has been a big driver if you think that global commodity markets. In terms of the -- I think it's the weakness in demand that is perhaps more of a concern than the fact that they're producing a little more themselves. I think it is the general slowness in the China economy that we would probably know as more material in how we look at globally traded commodities around the world. So again, I think we have to adjust to that.I mean the only other commentary I would perhaps add to it, which is a little bit inverted. But of course, we're seeing some of that weakness in demand across the various industries result in a change in the back of the Australian dollar as the Australian dollar continues to decline. And of course, if you're an export, you're rather pleased to see that occur because it does help you open the position. So we are seeing a weaker Australian dollar mitigate some of the, if you like, competitive pressure or pricing sensitive obviously.So I think we did see with those hugely [indiscernible] milk price and pay [indiscernible] presentation. We did see in our Asian markets in particular, we reached price points that were not acceptable to the buyers. And we did see that those price points -- it's seeing decline in demand. So that's been largely absorbed, but I think the Australian dollar does play a bit of a mitigating role in that. But certainly, I would agree with you that China is a big part of -- China demand is a big part of the reason why you've seen those slight leveling.

The comment seems to me that they're just destocking completely at the moment. So they're out of the market. Is that how you're reading it and so they might come back into the market in the second half?

It's always a combination, Mark. But I think we've all been around long enough that when commodity prices are rising the way the warehouse fill up rather quickly because they want to try and avoid the next level of rise. And when they're falling, the warehouse is empty and they [indiscernible] because they're hoping that the next week it might be a little bit cheaper than last week. And I think we are obviously seeing that behavior. It's why at the extremes of the volatility, that it tends to over swing and then overcorrect because it's always those that are trading in commodities, particularly things like milk powder they can put the -- they do have to build a warehouse certainly -- it's interesting when you were -- in my long experience, people might have something to add to this, but when global margin prices are rising, all your customers want long-term contracts. And when they're falling and when we know the long-term contracts [indiscernible] what you might be able to sell to the next week at current market price. And so that's the nature of that business is you manage that, buy the mix that you have, buy the mix of customers you have, et cetera, but I think that's a long way of saying.It's always a little opaque when you're trying to work out what's in part -- in countries like China, but the behavior seems to indicate that as you described, the destocking in a falling market and they'll restock less when they start seeing the market rise.

No, I think that's right where we've said that the market got very short on the way down.

And lastly, just to confirm in terms of the guidance commentary earlier that sort of -- or factors in the latest sort of decline, let's says, over the [indiscernible] in August pretty severely. So is that guidance kind of incorporate that? Or just to be clear on that.

It's current, Mark, but it's what it is, current guidance. So it's -- yes, we're taking a look at all the dynamics we're dealing with.

Your next question comes from [ Karleen Dowe ] at Australian Dairy Farmer.

I was just looking around the -- you pointed to the disconnect between the market and the farm gate milk prices being down to declining production and the underutilization of plants. I was just wondering to what extent has the mandatory code of conduct and the changing in the way that dairy farmers contract with companies contributed to the disconnect?

I don't -- not significantly. I would say that the reality is the 2 big factors, the ongoing to clients. So if we think that to the early 2000s, we were looking at -- we were looking at 12 billion liters of milk in this country. We're now looking at 8 billion. And so 4 billion liters of milk sort of exiting for a variety of reasons [indiscernible] point to some of the big reasons, I would say, when you look at the impact of the Murray-Darling scheme in Northern Victoria that was -- were once 3 billion liters of [indiscernible] the impact in regions like Queensland and all the New South Wales as well, those areas are all operating in deficit.So if you looked over the period of time that, that came down, you would say farmers went through very difficult weather conditions over an extended period of time, the millennial drought and then further drought that followed interestingly in some regions, then floods that actually damaged them almost equally as much. We saw international commodity prices and currency mean that the pricing for milk did not make daring attractive. And therefore, you saw that decline. And really what you've seen is the decline in supply, you've seen a decline in manufacturing infrastructure. So quite frankly, it is just a straight out competition for milk.Now in saying all of that, one of the challenges with the code is that we -- there are limited abilities to risk manage making movements in things like global commodity prices because you're operating in a year when you see other, if you like, exporting nations around the world, there is more flexibility in how you can manage that risk, if you like. But that would be the observation I would make. But in terms of where we see the disconnect coming from, it is scarcity of milk and for a number of the reasons that I added and a non-rationalization of daring infrastructure that the -- from the farmers' point of view, it's plenty of people watching -- plenty of processes wanting to go and hitting hard for it. The danger is, which we see in many industries that sometimes that bidding can be too hard. And actually, in the long term it is not the right outcome given what you prefer is an industry where profit is made in all parts of the sector that will generally mean that it's a healthy industry, so very important for farmers to be profitable, equally important to processes and customers to be profitable and everybody in between when you get to a circumstance where there's one sector that is not successful, whether it's the farm or whether it's the processor in terms of the long-term health of the industry, that's not what you want.

And in terms of the milk supply growth, how important is that to Bega? And are you trying to do anything to grow your milk supply?

Look, I think -- I mean, it's interesting. From my perspective, we have seen in the last 2 or 3 weeks, particularly some of the most ripple prices that we've seen and actually [indiscernible] in a lot area. It has no prompt in milk supply growth. I think there are a number of reasons for that, whether it's labor scarcity, whether it's succession planning, whether it's scale and innovation. So I think there are a lot -- or even it can be some of those issues around sustainability as well. And so my view is that we need to be working really closely with our farmers to try and help them address whatever the issues might be and encourage the good economic growth and any innovation that we can help them bring or any practices that we can do with them.So I think there's still -- it's interesting -- my observation again in the area of farm supply is that I have some wonderful suppliers and wonderful [indiscernible] but other companies, where you see a large percentage of -- or a good percentage of young farmers, in particular, investing in new technology, growing, expanding their operations, looking to buy the farm next door. So I'm always keen to say I don't see the dairy industry as an industry that across the board, all farmers are either shrinking or thinking about exiting. That's not actually what's happening.What we're seeing is a section of the industry, very keen to grow, very keen to bring innovation. And we're seeing another section industry that have got to the -- got close or near retirement age, particularly in the last 12 months to 2 years, I've seen net property values increased substantially. They've seen the value of their animals increased substantially. And when they -- and they've seen properties trade rather quickly, so if they were thinking about retirement, they may have been brought that retirement forward. And I think it's -- so it's not that there is not people growing in the industry. It's just that really they are not offsetting those for other reasons may have decided to leave, which is why I think it's really important to think about succession and even it's important to think about models that may see young people enter the industry because I think that's become increasingly difficult as we see the explosion in land prices and even the cost of constructing a dairy, for example.So I think there are things -- so I'm not entirely [indiscernible]. I see some great work done around dairy farms growing. I think it's about how we get that succession right and indeed how we can carry some new entries, which I think is other challenge. And there are challenges, I might say they are not unique to Australia [indiscernible].

Great. Thank you.

Thank you. Well, everybody, I think that might be the last to call us in.

No further questions, please ahead.

I'll wrap up. Thank you all for listening. It's turned out to be quite long investor call, but I always think that is good. Always pleased to share a comprehensive view of the business. I hope that from all the people have heard, the reality is we have a business that we think has great opportunity for me. We've got a great team that have shown their capability in the year past and will show a greater capability -- and we'll continue to demonstrate that in the year ahead. It is indeed important to have a team and an infrastructure and a business that can take opportunities, but it's equally important that you have a business that is willing to face into challenges and accept them.But this is a year where we've had to accept some challenges that has meant that we've [indiscernible] assets, which, as I said earlier, is never something that you would like to do. But I think importantly, it is about facing into those challenges, making the changes you need to make while taking the opportunities that you've identified, I think we're really well positioned to do that. I thank everybody for their support and look forward to chatting to you again soon. Thank you.

Thank you. That concludes our conference for today. You may now disconnect your lines.