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Edited Transcript of FNP.AX earnings conference call or presentation 29-Aug-19 11:00pm GMT

Full Year 2019 Freedom Foods Group Ltd Earnings Call

Jan 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Freedom Foods Group Ltd earnings conference call or presentation Thursday, August 29, 2019 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Rory J. F. Macleod

Freedom Foods Group Limited - MD, CEO & Executive Director

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Conference Call Participants

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* Belinda Moore

Morgans Financial Limited, Research Division - Senior Analyst

* James Tracey

Veritas Securities Limited, Research Division - Director of Industrial Research

* Josh Charles Kannourakis

UBS Investment Bank, Research Division - Research Analyst

* Michael Peet

Goldman Sachs Group Inc., Research Division - Executive Director

* Sam Teeger

Citigroup Inc, Research Division - Analyst

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Freedom Foods Group Limited 2019 Full Year Results. (Operator Instructions)

I would now like to hand the conference over to Mr. Rory Macleod, Managing Director and CEO. Please go ahead.

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [2]

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Good morning, everyone. Thank you for joining us this morning for the overview of the Freedom Foods Group Full Year 2019 Results. Overall, we're pleased to present what was certainly a positive year for the company's development. An environment of significant capital expenditure, and to some extent, significant disruption to some of our operations, particularly at Shepparton. But having said that, some good results coming out, notwithstanding it, including a significant increase in our net sales of 35% to $476 million, which is an increase of $123 million on the prior year.

Our operating EBITDA increased 40% to $55 million, an increase of $16 million and reflected an increase in our operating EBITDA margins from the lower end of 11% to 11.6%. Our operating net profit after tax increased 40% to $21.9 million. Statutory net profit was slightly down from the prior year, reflecting the difference between operating and statutory risks like the abnormals relating to transaction costs in relation to the Lion Dairy's acquisition process that did not complete, foreign exchange accounting, transaction and a number of other nonrecurring items relating to restructuring of our operations and the change in packaging and formats within our operations at Shepparton and Leeton.

We also recorded a more substantial increase in our employee share option noncash expense relating to changes on assumptions for a number of those options moving into grand phase in FY -- at the end of FY '19. We also increased our dividend, an increase of $0.0075 to $0.0325 per share being the final dividend being unfranked for this year.

Walking through where we are as a total group across sales, we're pleased to say we're one of the -- we were the fastest-growing branded supply in the Australian grocery markets out of the top 100 suppliers. Our sales from our group brands increased to 48.5% or $231 million from 45% the prior year. As you know, the business has been increasingly focused on building its brands, and so this key measure of sales from our own brands is a strong focus for the group.

Growth achieved in key branded categories and channels. Obviously, retail grocery is mentioned, where we certainly saw above-average category growth rates, particularly across both Dairy and Plant.

Strong growth in China, notwithstanding the challenges in supply chain through the year for UHT, with our sales revenues up 37%.

Exceptional growth in Southeast Asia with -- 2 years ago, we virtually had no sales to establishing a business, it is growing beyond $20 million of revenue, up 178%, following the establishment of local teams across a number of key markets. And sales from our transformational Nutritionals capabilities completed in late FY '19, whilst making a small contribution in the FY '19 year, are expected to materially contribute to dairy and nutritional ingredients going forward.

Sales by key segments. At Dairy segment, $249 million; Plant based segment, $105 million; Cereals & Snacks, $88 million; Consumer Nutritionals, $19 million; and Specialty Seafood, $15 million.

Key EBITDA growth drivers were Dairy & Nutritional Ingredients, up 110%; our Plant-Based business, up 46%; and our Consumer Nutritionals, up 46%. The full year earnings result did not fully benefit from the key capital expenditure initiatives undertaken since March 2018, including, obviously, the new Nutritionals capabilities and the significant expansion to 500 million liters of capacity at Shepparton.

The baseline Dairy segment has -- had improved return from operations during FY '19, which is expected to continue in FY '20, particularly with the increased optimization of our capacities at Shepparton and the integration of our Nutritional Ingredients.

Talking through more -- in more detail about each of our specific markets and categories. As I mentioned, our domestic Australian business increased 38% to $103 million in sales for the group. Grocery channel increased 38%, driven by increased ranging, particularly around new products that were released, and increased market share.

Our Out of Home business or our foodservice channel increased 88%, reflecting very strong growth in plant beverages, primarily around the increasing growth and penetration of the MilkLab brand.

Our Industrial segment increased by 100% particularly reflecting the increased cream sales and some initial Nutritional Ingredients.

Our Contract area declined 35%, largely reflecting the decision outlined in the first half results to de-prioritize contract customers in Cereals & Snacks to release capacity for our brands.

And the Pharmacy channel, while small, contributed strong growth and is increasingly a key area of focus for us, particularly around our sports nutrition range into the future.

In relation to our export markets, particularly China, China increased 37%, contributing $18.3 million in sales growth to our total sales that have been under $70 million for the year. China had significant more opportunity for sales in the FY '19 year but was limited by some of the supply constraints relating to the UHT capacity expansion. This will not be an ongoing issue in FY '20, and therefore, we expect continued growth in this market.

Dairy continued to be a key driver of growth in China. But having said that, we continue to focus on driving our Cereal & Snacks range, with the Arnold's Farm brand continuing to remain one of the top 3 cereals on Tmall International and is sold in more than 4,000 external distribution outlets.

As I mentioned, exceptional growth in Southeast Asia, off a small base. We increased 180% and contributing additional $13.8 million in sales growth to a bit under -- bit over $21 million for the year. Three years ago, virtually nonexistent, this market for us. We established a local team across key Southeast Asian countries. We continue to invest in people across these regions, and we're starting to see very strong growth and opportunity across both Dairy, Plant-Based Beverages and Cereal & Snacks. The growth opportunity in that market was also restricted by the supply constraints relating to our UHT expansion in FY '19. But our MilkLab and Australia's Own Dairy both distributed in the region were strong contributors and will continue to be good contributors to growth in the future. And early in the FY '20 year, we also launched the drinking yoghurt format into the Southeast Asian market.

The last 5 years have been a significant period of capital investment for the group. We are creating capacity for growth, and the FY '19 year was an example of the growth that comes from investments in capacity, new products and also acquisitions over the last few years. 2019, however, reflects very much a peak in the 5-year investment cycle. We will continue to invest over the coming years. However, the large-scale investments in creating new factories and doubling of capacities, particularly in UHT, has come to an end. The focus ongoing will be continued expansion of our Nutritionals Ingredients capabilities over the next 2 to 3 years as well as some expansion in filler capabilities at times across both of the sites. However, as we see, the peak of the investment cycle has come in FY '19.

Our focus ongoing is on our global and scalable brands. Six brands representing Australia's Own, MilkLab, Arnold's Farm, Heritage Mill, Messy Monkeys, the last 3 being part of the Freedom Foods Group brand and Vitalstrength contributed more than 62% of our revenue growth in the last financial year. Heritage Mill, Messy Monkeys and MilkLab are brands that were established within the last 3 years and are contributing to strong growth and have significant potential for the future.

The Australia's Own brand is a key focus as one of our core master brands across Dairy and Plant-Based Beverages. They increased growth more than 61% in the FY '19 year. Australia's Own Dairy was launched across a number of key retailers and has already achieved more than 20% share of the branded UHT milk market in Australia.

Australia's Own Kids Milk in China continues to be the #1 selling imported kids milk in China, with 16-plus million packs sold in FY '19, with an expectation of stronger growth into FY '20. And including across Plant-Based Beverages within our organic Australia's Own range, we also launched one of the first pea protein milk to expand the range beyond almond, soy in the key Plant-Based Beverage formats.

MilkLab, significant contributor and one of the most exciting brands in our portfolio. The brand increased its growth more than 168% or more than -- close to $22 million in sales growth. This brand was -- had its very significant velocity in the out of home channel, where we continue to see very strong growth with penetration limited to some extent to about 10,000 outlets at this stage. We see opportunity to expand up to 30,000 to 40,000 outlets across Australia over the next 2 to 3 years.

The expansion of MilkLab in Australia will also see the expansion into a 2-liter format in FY '20, with that capability online at our Ingleburn facility. We see the opportunity for MilkLab to be certainly a leading global plant-based beverage brand. We're already seeing growth emerging and demand for MilkLab in Southeast Asia and into China, with some other regions, such as North America, now inquiring for the product format.

Under Freedom Foods brand, Messy Monkeys sales increased 126%. So #1 selling new brand in the health food section of supermarkets. It's expanded its core range in FY '19 with popcorn and extruded snacks, and more recently, we have expanded into drinking yoghurt and flavored-milk formats.

Heritage Mill, launched only a year ago, achieved a 29% share of the breakfast cluster and muesli category in Coles Supermarkets in the initial period. It certainly performed above expectations. And over FY '19 and into FY '20, we'll start to materially offset some of the reduced contract sales that was -- that declined in FY '19.

The Arnold's Farm range was expanded late in the second half of FY '19 with new cereal and snack formats, and it's distributed to across all those supermarkets.

In our Nutritional branded products, Vitalstrength and Crankt performed well, with sales growth of 20%. Crankt was acquired in July 2018 and has provided a strong contribution to the broad portfolio of product range that we have, including drink formats and snack bars. Both brands provide strong foundations for unique vertical integration to our group's Dairy Nutritional capabilities.

Baseline growth in new ranging and retail supermarket, petrol and convenience chains and pharmacy contributed during the year, with both brands laying a strong focus particularly to build into new channels, as I said, petrol and convenience, and pharmacy ongoing.

During the year, we invested significantly and delivered the first stage of our Nutritionals capability at Shepparton. We see this business delivering material earnings contribution in FY '20. The group commenced sale of liquid Micellar Casein in late FY '19. Native WPI, Whey Protein Isolate, and Lactoferrin will be available for sale from early in the first quarter of FY '20.

Late in FY '19, we signed a long-term supply agreement for Lactoferrin with a major global pharmaceutical company. All ordered requirements have now passed, and we will start commencing supply late in this calendar year.

The group is leveraging up significantly and growing dairy capabilities to build a branded, high-margin product portfolio in specialty nutritional products with a view to taking those ingredients and turning them into the unique consumer applications over the medium term.

Sales growth from new products and a significant investment we've made in this area over the last 3 to 4 years. New products contributed more than 30% of total sales in the year. That ranged across cereals, snacks, dairy and plant-based beverages, including in Australia and across our key markets of Asia and China.

Over the last 4 years, we've invested well over $430 million in creating a leading, state-of-the-art food and beverage manufacturing capability. Particular focus has been the expansion by Nutritionals capability. As I mentioned, stage 1 of that category was completed in FY '19.

Ongoing operational CapEx will commence -- or did commence in FY '19 in the last quarter and will continue through FY '20 as we upgrade to stage 2, including increasing capacity for protein fractionation, accessing new protein streams, additional growing capability and blending and packing facilities. Specialized nutrition platform provides for protein standardization and the ability to manufacture high-grade protein components for use in our branded products, as mentioned before.

The additional capital expenditure during the year included this completion of a significant proportion of the Shepparton upgrade to increase total processing capacity to 500 million liters per annum from an initial -- from a capacity of 250 million liters. It's important to note that 5 years ago, this site started at a -- with an initial capacity of 40 million liters. So it has seen significant growth and investment over that time.

We expect production to be in the vicinity of 350 million liters in FY '20. We completed, as I mentioned, the Nutritionals upgrade and started to also invest in the second stage. We also completed the installation of yoghurt-processing capabilities during the year at Ingleburn facility and invested an additional filler and processing upgrades at Ingleburn as well as automated processing -- packing facilities for our snacking capabilities at Leeton. We also completed the conversion of our own factory facility to a new head office in Taren Point.

During the year, we continue to invest in our people and capability to ensure the group can implement and manage growth. The company has been through substantial growth. Five years ago, sales less than $100 million. FY '19, sales of $476 million. That can only be achieved through having great and talented people, but also managing that process of growth can be extremely challenging. We're proud of the people and the efforts they have made, and we've continued to invest in our people across the board. Our people and talent identification processes have really been, how do we align the growth in demand, particularly around our sales and operational platform. We continue to increase our leadership capabilities across our China team and our Southeast Asian team, and we continue to invest also in our IT and ERP systems to enable us to be at the front of capabilities.

Sustainability. We're proud to say that we're actually investing now, in how do we continue to not only reduce costs but ensure that we're environmentally conscious for the future. Across our Shepparton site, we are installing the largest on-roof solar battery project in Victoria. The carbon office -- offset for this project is in excess of 5,000 tonnes of CO2 or equivalent to 1,700 trees being planted. Once this is completed, we'll move to putting the equivalency of these solar panels and battery project into our Ingleburn facility in FY '20.

We also installed a chemical recovery and a recycling system at Shepparton, which is important to reduce sodium wastage into the watering -- into the water system, and we will install an equivalent system in Ingleburn in FY '20.

In relation to milk supply, we have contracted 400 million liters in FY '20 against our planned production of 350 million liters. Our model over the last 3 years has been to ensure that we have direct farm relationships based on individual contracts, but with a basis that actually provides medium to long-term sustainability in pricing and cash flows over that period. We continue to attract farms that are committed to producing premium quality milk under long-term partnerships. And we're beginning to expand our supply base beyond FY '20 based on this policy.

Increases in milk's sourcing with -- and pricing are -- for FY '20 are within our expectations outlined in May. Whilst there's been some increase in milk price, particularly from our relationships and supply through ACM and some of our new direct suppliers in the last quarter of FY '19, as I mentioned, these are within expectations. And with higher export pricing and increased prices for dairy components, we do not see any material impact from those increased milk prices.

A big part of our future of our milk supply base is our investment through Australian Fresh Milk Holdings. Australian Fresh Milk Holdings, which is majority owned by the Perich family as well as the Moxey family, Freedom Foods Group and New Hope Group of China, is the largest dairy producer in Australia, forecast to have produced more than 150 million liters in FY '20. We're currently completing an expansion project to Moxey Farms that began 2 years ago, increasing capacity from 3,500 cows to 7,000 milking cows.

During the year, we completed the acquisition of Coomboona Dairy in Northern Victoria, which has been an outstanding acquisition and has already started supplying milk to Freedom Foods. We see the Coomboona Dairy operation as being an area of significant growth for dairy milk supply into the medium and long term, and in particular, to supply Freedom Foods for going forward.

In relation to our outlook, the group is increasingly well positioned to build into a major global food and beverage business, with scale in key food and beverage platforms, providing key diversification and sales, together with earnings growth from key markets and channels in Australia, China and Southeast Asia. With our brands, Australia's Own and Freedom Foods, we'll be at the forefront of driving our returns from our increased innovation and manufacturing capabilities in Australia and international markets. Brands such as MilkLab, Messy Monkeys, Heritage Mill, Arnold's Farm will all be significant contributors to growth.

With the completion of stage 1 of our transformational Nutritionals capability, the group will continue to evolve and scale Dairy capabilities into high value-added protein-based ingredients and consumer applications. Revenues and operating profits will increase as we move out of this investment phase. Balancing is, obviously, a requirement to continue to invest in our people, our systems and prices to manage the scale, the diversified business platform.

So I'll now move to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from James Tracey with Veritas Securities.

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James Tracey, Veritas Securities Limited, Research Division - Director of Industrial Research [2]

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It's James Tracey from Veritas Securities. Two questions from me. The first question is around operating leverage. So we have seen the EBITDA margin in the Plant-Based segment increase 300 basis points in '20; and in the Dairy segment, it's increased by 200 basis points in FY '19 -- sorry, on FY '18. And this is in an environment where the input costs for milk had gone up. And looking at the target prices in some of your competitors, it looks as though there's going to be another increase of sort of 15% year-on-year at the annual prices going into '20 versus '19. So I'm just wondering, do we continue to see the EBITDA margins expanding? Or does the increase in that milk price offset that? And to what extent does your product mix, in particular, selling at a higher average sales price into Asia and then filling more -- quite of a portion of the sales into Asia, offset that? And what other things, latest, do you have around that?

Sorry, and -- that's my first question. The second question was just on the Plant-Based segment. I think there seems to be a lot of momentum there, and you mentioned in the commentary around the success you're having with -- and potential demand out of the U.S. So you could talk about that.

And the final question is on the CapEx. So CapEx, including your development spend of $200 million in '19, I think consensus was at $120 million. Does this represent an increase in your overall CapEx guidance? Or is it really a reallocation?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [3]

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Thanks, James. Okay. Well, I think I might just cover firstly, and it's not to avoid at all anything on dairy. We'll come back to that. But -- well, I think on plant-based beverages, that is an area that hasn't been a lot of focus, it's fair to say. Obviously, 2 years ago, we expanded the Ingleburn facility coming out of Taren Point with a focus on growth and how do we increase our margins to get more operational leverage. I think it's fair to say the result is showing that. Probably just to some extent, the market demand and the opportunity, particularly in the out of home channel, has exceeded our expectations, but it's certainly something we're going to continue to go after very fast. Plant-based foods are in a bit of hot area globally. We're seeing increasing demand for plant-based beverages, not only in Australia, but also into markets in Asia, and China is starting to emerge.

So our sort of domestic local retail brand focus has performed very well. Out of home channel, extraordinary growth in demand. We really strongly keep up with the velocity growth during the year, but we've got more capacity going in to cope with that. We see a significant opportunity to really continue to build that market out domestically, but we're seeing really interesting demand emerging in Southeast Asia, for example, for almond milk and for coconut milk and things like that. So I think that'll continue. The more we push for Ingleburn, the more operating leverage we're going to get. And we do see that there's a couple of other markets where there's emerging demand for the new collab concepts. So that's pleasing.

And we're also seeing on some of the key inputs, almond and peas and other things, where the diversification of supply is now allowing us to potentially get some further cost improvements going forward.

In relation to Dairy, I've always -- the thing about our Dairy business is -- and each Dairy business is different. We're different to Synlait, we're different to Fonterra, we're different to Bega. We all got our own different attributes and sales and product formats.

We've always been, obviously, in the UHT game. We have -- in some extent of clear understanding of our cost structure that's relatively fixed outside the milk input. But we know -- and really a direct farmer strategy in early days was really to make sure that we had our cost base set, and we could grow supply. And the key focus for us is growing supply, really high-quality milk inputs, particularly around cream and protein. We've always been at the higher end of the pay scale, and we've locked in prices for a couple of years in our contracts, somewhere between 3 and 5 years. And so that's a way out, particularly in the most recent environment, that's sort of clunky on those price. I'm commenting a little bit on the milk supply piece. It allows a number of farmers that -- to actually get in earlier and hedging water and grain and planning the business so they can actually manage the peaks and troughs, and particularly the troughs over the last 12 months around some of the challenges around water supply and grain pricing.

So a number of our farms have managed through that. I mean it's still been a challenging environment, and particularly in Northern Victoria. But the key focus is that we'll always continue to be more paying at the higher range, paying for quality inputs. A lot of those inputs are very valuable to us, that allow us increasingly to drive higher returns, inputs for cream -- industrial cream, which now can be moved into packaged UHT within cream, for example, with a very high-margin opportunity in markets like Asia. And then increasingly, we're going to get -- we're getting more pricing for our UHT products into export markets. To some extent, the exchange rate has also been a bit of a beneficial area with -- outside of expectations.

So whilst milk has increased proportionately in price over the last few years for us since we built the supply, we've focused on making sure that we've had that high-quality input. And -- but against that, we're actually knowing -- we were putting it. We know what our margin is, and we now are increasingly, if we're getting more cream and protein, we're going to earn more income, and we're going to value-add to that. And that actually will offset any notional increase in milk price, but more importantly, contribute to improved earnings over the medium term.

In relation to the margin through the year, yes, we all saw some improvement in Dairy through the year, which was pleasing, around cream inputs, around a continued SKU that we export. We would have liked to have seen more export, obviously. We had more capacity. And it's fair to say, we probably had about $35 million to $40 million of unfilled demand that we just could not get out of the factory. It was a pretty challenging time. So if you imagine, with now that they have that and also they have the process, that milk equivalent and the cream and the proteins, we would would've probably even had a further -- a better year.

So that's -- with employees, with some of that, but I must say, as we move into FY '20, we're going to have a factory that's not encumbered by having to effectively build another factory on a factory. We should start seeing an improving margin and efficiency. During the year also, we saw a contribution -- small contribution from our Nutritional Ingredients to Dairy. And then, obviously, it'll be an increasing part of the total Dairy Nutritional business. And I think it's fair to say that, that will also contribute to improved margins, given that I would say a number of those components are much higher margins as compared to your standard UHT products.

In relation to CapEx and probably more -- well, obviously, it's the peak of the cycle. We did bring forward a number of parts of CapEx that probably would have fallen into FY '20. That was a plan that we went for in the second half of FY '20. But I think a lot of that is a bit pleasing. We can say that, that peak's been reached. And we really are -- they are just focusing on -- it's more incremental CapEx, a bit of an upgrade to Nutritionals, which will be effectively built out over the next 24 months is the plan.

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James Tracey, Veritas Securities Limited, Research Division - Director of Industrial Research [4]

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Okay. So basically, just to make sure that I understand you correctly on the dairy point, you basically expect the benefit from sales mix and a weaker Aussie dollar to essentially offset the input cost increase and sort of achieve a flattish gross margin, and then given that you've got guidance for a 50% increase in Dairy volumes, we should see operating costs of Dairy decline as a percentage of sales. Is that a fair assessment?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [5]

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Yes. No, I think that's fair. But increasingly, I wouldn't -- there definitely has been some increasing, as I indicated in our commentary around some of the new farmer base coming on in one of our large suppliers supplying through the ACM relationship, there's been an increase in the milk price there, but it was within the expectations and what we discussed when we talked to people in May. But again, now we're seeing some reasonable offsets against that, reflecting, as I say, improved cream pricing and export pricing.

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Operator [6]

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Your next question comes from Josh Kannourakis with UBS.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [7]

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Rory, first question, just on the Lactoferrin side of things. You mentioned in terms of timing, the large supply growth expected to start coming in from end of calendar '19. So it's a little bit ahead of prior expectations. Just trying to work through, if you can talk through the ramp-up in Lactoferrin volumes as you see it today?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [8]

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Yes. Thanks, Josh. Well, I think -- well, that large supply agreement is -- it's actually -- it is a 5-year agreement. So the first year was always going to be a smaller proportion with the increases really largely coming materially through into years 2 and then 3, 4 and 5. So the -- that is still within the expectations probably that I think we indicated, but pleasingly as we've sort of been through our order process. And the site was certainly recognized for its -- yes, for the quality of their operation and the capability. So that was really pleasing.

Overall though, I'd now like to share an update. We've -- we still remain talking about the consistent outputs that we talked about for FY '20, which is around that circle, that 16-tonne of capacity will be sold through FY '20. And then we'll start to ramp that up into FY '21 and '22, will be investments that we outlined when we discussed the capital raising in May this year.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [9]

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Got it. And just to confirm your operating and producing and selling at that [JB spec] required at the moment.

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [10]

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We are absolutely operating, producing at [JB spec] right now.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [11]

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Okay. Great. Sorry to hop on Dairy but just to go back. Second half Dairy margins, obviously, very strong in what was probably a relatively disrupted period. Can we just talk about some of the disruptions that you had in that period? What sort of rolls off into '20 in terms of sort of operating efficiencies or other improvements rather than the operating leverage? And yes, maybe start on that first, please.

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [12]

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Yes. Look, I think -- yes, there were elements of FY '19 that reflected improved pricing and mix, and that was probably more of a contributor than operational leverage proportionally in FY '19. We effectively built a factory on a factory in FY '19, and I think as we move into FY '20, and importantly, not to get too carried away with it. But we've also started to see a factory that can now focus on the day-to-day of operational output without having that encumberment upon us, particularly focused on improved efficiencies in our supply chain and then really getting on -- and our focus on driving an important mix of business, which is our export side. Export demand is strong, and we certainly were not able to meet all that demand, as I outlined before. So I think if we move in FY '20, we basically have a much better operational footprint from the perspective of all the CapEx is done. We'll start to get improved efficiencies. We're focused on getting that sales mix rise, and that should improve and provide further operating leverage in FY '20, to the result. Now, the result in FY '20 for Dairy and Nutritionals, we'll see a much more meaningful contribution from Nutritionals. And I'll be -- obviously, I talked about as one total business growth in terms of our half year and full year commentary.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [13]

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Got it. And within FY '19, how much of the Dairy volumes were exports? And into '20, how much of the incremental volume growth be on the 350 million, the 100 million volume growth will be export? Or what's your expectations on that?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [14]

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Last year, we were probably in that, 35% to 40% was export. And I would say that of the growth this year, we will probably see 80% of that will be export.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [15]

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Okay. Great. And then just one final one. Just noticed in the accounts around some of the employee share option packages and some of the targeted EBITDA levels for those to vest. I know, obviously, not an indication of guidance and if not in April, maybe before some of the dairy stuff, the pricing, got a little bit higher. But just to get a bit of context, is that a reasonable read on expectations and targets for senior management moving forward into '20?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [16]

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Well, yes. So I think, obviously, when you said employee targets, the elimination of a challenge, but you're equally -- yes, I want to align it as much to your internal focus. So I think it's -- it probably gives a good indicator of where the business is trying to focus over the next few years.

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Operator [17]

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Your next question comes from Michael Peet with Goldman Sachs.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [18]

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Rory, just on the Nutritional Ingredients. Wondering if you can give us a rough sense of -- on the Lactoferrin side. How much is contracted versus spot at the moment as we go into this year?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [19]

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Michael, look, we don't have any spot. If we had spot, it would've been us, but everything is contracted for this financial year. Spot markets have been jumping up a little bit, moving up and down a little bit, but still remain very high. But we have no availability of capacity for spot this year.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [20]

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Okay. And you've mentioned you've started with Micellar Casein and Whey Protein Isolate. Can you give us any indication on the capacity there?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [21]

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I don't have -- the sheets aren't right in front of me, but certainly, happy to talk about it another time. But the capacities are broadly -- I think a number of people have sort of talked about and we're talking through May, but I just don't have the tonnages in front of me at this stage.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [22]

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No worries. Just on the NPD. Just wondering what we should expect for that for '20. I mean it ramped up quite a bit in '19. It's obviously new product development's increasing. I'm just wondering where should we see that in '20 and in the medium term.

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [23]

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Yes. Well, I think a lot of the investment in that is, you'll start to see that, that investment is sort of ahead of the curve, and a lot of that will translate into further sales. A new product launches in FY '20. Yes, we're already about to just launch a range of new Arnold's Farm and Messy Monkey formats and Australia's Own format. So I expect that we're probably seeing the peak of that product development investment. It will probably more than half in FY '20. It doesn't mean we're not focused on innovation and product development, but it's probably going to be a bit more targeted in a couple of new areas, particularly around our consumer applications for Nutritional Ingredients.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [24]

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And the unallocated costs. I mean obviously, ESOP is one (inaudible), but any guide on that for '20?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [25]

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Well, ESOP, as well, there's going to be an ESOP charge. I don't expect it to be as high in FY '20 as compared to '19 because a lot of that is a charge related to a number of the key management having their current options effectively come close to being granted or being granted. So that was really the acceleration point there. So -- and then in relation to the others, look, we certainly don't plan for any abnormalities. There's no seat or anything that we see in front of us outside of, you know, as we indicated in the results, there's a noncash FX in our accounting charge. You have those plus or minus each year, and certainly, no expectation for any abnormals beyond that. And certainly, one of the abnormals was a transaction-related pre-acquisition cost. So as I mentioned, around the Lion Dairy's process, so we're not expecting that sort of type of cost this year.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [26]

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And just on the cash flow, I mean obviously, the first half was negative. And you indicated, it probably -- it did go positive in the second half. But just trying to get a sense for the seasonality going forward on the operating cash, and sort of full year cash conversions you can deliver?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [27]

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Yes. Well, I think we're going to see a much higher cash conversion in FY '20. Part of the challenge when you're building factories is you -- if you do maintain much higher levels of safety stock -- and it's fair to say that both are probably true about sites, we maintain high levels of inventory to make sure we manage through periods of instability where factory has to go down or particularly also around uncertainty around new product launches and things like that. So you're going to see a substantial tightening up of that now. We've come out of the major CapEx prices. We're going to see a much improved inventory turns through the business in this financial year. Not saying we're going to get it all perfect in FY '20, but we're going to see a fairly good improvement.

And obviously, on the receipt side, I mean our mix is changing. It's quite a complex mix of our revenues now across many jurisdictions. We're pretty focused on making sure that our revenues out of channels like food service are at a high end. And in Asia and China we're going to focus on collections, strong -- faster there, because if you don't watch that, they can get a bit out of control. So the result of all that is, I believe, we're going to see a much improved operating cash flow in FY '20.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [28]

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Just finally, just on the input costs, commodity prices for -- I mean you've mentioned Dairy, but maybe on the Plant-Based Beverages and Cereals & Snacks. Any sort of headwinds there? And how do you cover that?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [29]

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Yes. Well, I think on Plant-Based Beverage, we are pretty -- we're feeling pretty good actually around -- one of big inputs has been almond. And the reality is now, there's a number of -- notwithstanding most of that number of our almond imports came out of the U.S. and U.S. dollar denominated. We're actually starting to see improved additional sources, and in particular, domestic sources for almond paste, and that's a really good positive. I think we're seeing almond pricing -- I mean there's an expectation that we're hearing of increased crops in California over the next few years. And so the reality is, we're not expecting any upward pressure. In fact, the opportunity to improve our cost base there.

There's been a little bit of supply constraint around some organic almond and soy and a few things like that. But we have a diversified supply base. We can't get all of our organic supply off Australia then we've been able to. So we've had to go to other sources. And some of those other sources, we haven't seen big costing effect. The pricing has been pretty flat.

On the grain side, obviously, there's been some increases in pulp prices. We offset that with some price increases with (inaudible) in play -- put in place. And remember, a major competitors went a little bit earlier than us. So that was good. But we're actually seeing that price come off a bit into the second half. So it's been a bit more water in Southern Victoria and things like that. So we're starting to see some positive indicators there. But we still know to watch in New South Wales for some of the other grains. They're not big influences on us, but we just need to keep a watch on there.

The other one has been salmon. It's not a big contributor to the business, but salmon was a major cost in costs. I mean we saw a very short catch. The prices came at us very fast and then they've -- in some instances, they've really tripled any exchange rate impact. And it took us about 3 months to get price increases and then our competitor eventually came through their price increase now. So that market has stabilized. Prices have been increased. Margin's been restored. And it's actually interesting to see that we're seeing consumers getting back to their purchase habits, even at the higher price point. So that's pleasing.

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Operator [30]

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(Operator Instructions) Your next question comes from Sam Teeger with Citigroup.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [31]

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Congrats on another year of very strong growth. In terms of the first question Cereals' next. When do you expect this division sales growth to turn positive following the termination of those contract manufacturing launch?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [32]

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Yes. Thanks, Sam. Look, definitely, FY '20, I think we'll see a restoration back to that equivalency in FY '18 and back into -- we were showing signs that then -- in FY '20, and going beyond that. I mean as -- I think we -- you know, we took that decision to exit. It was some -- put a bit of a hole on the top line and the bottom line, but it's certainly been the best decision that we've made in the last couple of years in relation to that business because we now control our destiny and our brands are growing. I mean hopefully, people, if they shop in Coles and Woolworths, they see the increasing penetration of brands like Heritage Mill and Arnold's Farm, and they're really starting, particularly to continue to get more shelf space, and the majority of those SKUs are performing very well.

So that is -- that strategy will continue, continue to build out the snacking side. We are also looking to use the capabilities increasingly within our legume side to increase the proportion of protein-based snacks. We have a number of protein bars and other things that we actually use through contract manufacturers. We're going to bring all of that in-house increasingly. So the leap in capability is becoming more of a kids, adult snacking and sort of protein snacking facility into the future. And so it's a bit of a transformation of how we use the assets as much as it's been, how we've moved out of some of the old sales mix.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [33]

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All right. Just to confirm, as you said, for the full year '20, you'll be backing growth. But will we see that in the first half, or we'll have to bide for the second half?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [34]

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I think second half, yes. Yes. I mean it's a retail grocery channel, Sam. It takes a bit of time to port all back through. But I think we're pretty confident you'll see a big improvement in FY '20 as we see.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [35]

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Sure. And I think you're saying that some FY '20 sales to be back in line with FY '18 sales. At that rate, so what's the capacity utilization of the Leeton plant?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [36]

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Well, we have both Leeton and Dandenong. So the principle on the outside is Dandenong, and Dandenong has certainly enough capacity for the next 3 to 5 years of growth. We're not -- no need to invest more there and invest, obviously, capacity for our brands. We did also through FY -- that first half, we also reduced a number of other contract brands that we were manufacturing for. It wasn't just that large one. So yes, we certainly made sure we have enough capacity for growth.

And Leeton -- what Leeton has -- we certainly see enough, a 3-year cycle of capacity within it, particularly as we've changed the mix of business, and we shifted some of the outpaced capability at Leeton down into Dandenong. So I think we're certainly not seeing a need to do any major CapEx as for our sites for capacity in the next 3 years.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [37]

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Right. Okay. And then within that Dairy segment, what was your revenue and EBITDA contribution from the other Nutritional Ingredients in second half of '19?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [38]

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Well, it was pretty small. I think the revenues were probably in the $3 million to $4 million. And there might have been an EBITDA contribution of about $1 million.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [39]

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Sounds good. And then I appreciate you saying CapEx has peaked, but do you have any comment, a rough CapEx guidance range for FY '20, just any ballpark?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [40]

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Yes. I think we indicated in the commentary in the -- with that -- over the next 2 years, about $100 million. But it's $50 million and $50 million over the next -- $50 million through FY '20 and $50 million through FY '21.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [41]

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Got it. And then last question just came here. If you can give us a bit of a steer for depreciation and amortization for '20 after the CapEx programs?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [42]

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Yes. Well, I think obviously, depreciation will increase and -- depreciation and amortization will increase. I mean, we're probably going to see hitting the higher -- the high levels of $20 million -- the highs of $25 million to $30 million of depreciation in FY '20, and then increasing into the low $30 million in FY '21 as a bit of a guide. Obviously, it's a function of when assets are brought out of capital work in progress and the plant equipment, and there'll be a substantial movement of assets in FY -- commencing FY '20, and then there'll be another substantial movement in FY '21.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [43]

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Got it. And sorry, let me just ask one quick last question. Just any update on Ingleburn, CNCA approval planning and just how you're managing there?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [44]

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Look, I would say this. I think an expectation, the moment for any plant to get through those certifications from China is unlikely in the short term. And I say that only from my sense of some of the -- just the current environment. We are not dependent on China certification for Ingleburn vis-à-vis being able to grow and develop that range, particularly around yoghurt. We're in the middle of criteria. The Australian government has submitted all documentation, but we just believe that it will come when it comes. We don't control the ability to do that beyond what we've been able to process within the Australian government. And I must say, the key focus for driving is our yoghurt capability, which is really the primary focus of dairy out of Ingleburn is in the Southeast Asia. And then if we see the CNCA, fantastic. And then we can maybe drive China, but it's actually not built into our growth plans for the next 2 years.

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Operator [45]

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Your next question comes from Belinda Moore with Morgans Financial Limited.

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Belinda Moore, Morgans Financial Limited, Research Division - Senior Analyst [46]

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Rory, I'd like to compliment you on the quality of the presentation and the increased disclosure today. It's been fantastic. Just a few questions. Maybe if we can sort of go maybe one at a time, please. Can I just check the sort of 5-year long-term contract? Is the pricing flat across the whole 5-year period? Or does it move annually?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [47]

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Well, the -- Belinda, thank you. Look, the pricing is a little bit higher in the first couple of years, and then it comes down in the back end of the contract period. But as I've indicated in -- through the process we went through in May, that the pricing is certainly generally are above or in line broadly with the business plan. And so it will as a function of -- as you increase capacity and tonnage, in the short term, there's a little bit more higher pricing. And then as you blend out into the much more substantive volumes in years 3, 4 and 5, then the pricing comes down a bit. But certainly, very pleased with the pricing relative to our business plan.

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Belinda Moore, Morgans Financial Limited, Research Division - Senior Analyst [48]

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No, that's great. And look, just to say, for some reasons the market crashed, and let's make it up approximately to 450, your prices is still locked in at 750 or whatever. Or would your prices have to change?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [49]

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It's fair to say that the contract is a very binding contract on both parties.

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Belinda Moore, Morgans Financial Limited, Research Division - Senior Analyst [50]

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Okay. That's great. And just in terms of AFMH, its contribution has sort of been like, was it $480,000 for a few years? When do we start to see that increase? Obviously, you're expanding very strongly there.

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [51]

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Yes. It's -- well, I -- it's fair to say that, that business has continued to invest probably more aggressively than we would have initially thought in the initial business plan. And it's more what's been created in early opportunities. It's a fascinating area that -- it's not the same like we talked about, like the challenges in the dairy industry, but there are certainly opportunities through these challenges to increase capacity and capability. And so AFMH has really just sort of got on and taking that opportunity to move, quite aggressively expand capacity, look to the new farming tracks and particularly that expansion of Victoria.

So it has been at a cost. We have put in a fair bit of expansion into the ability to manage 2 or 3 large-scale farms. But I'm reasonably confident for them that over the next couple of years, we're going to start to see quite an expansion of their earnings as we start to get the synergies of scale. And they're also going to benefit from increased milk pricing, and particularly in -- particularly the areas of New South Wales, we're going to see quite a good contribution from that.

So we're pretty confident that -- actually, I really think from FY '21, you should see no material contribution to our earnings level from that business.

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Belinda Moore, Morgans Financial Limited, Research Division - Senior Analyst [52]

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And just to turn to Cereals & Snacks, I know you talked about in '20 getting back to the FY '18 sales, where I think it was about $103 million. But can you get back to that EBITDA of '14? Or is that a slow build?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [53]

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Yes. Well, I think FY -- it'll be within that -- within a range of sort of FY -- the back end of FY '20, early FY '21. And then I would say, it was '14 and '18. Now it could be -- it might be like in a '13 to '14, or it might be in the following year, so that then start to accelerate more strongly. I mean it just depends on how the mix of business comes through. But the key for us is making sure that we get to that -- get those top lines restored at higher margin, get some of that capacity utilization moving across both sides. So I'm confident. I'll take a medium-term outlook. It's going to be a good contributor and get a good return on funds employed. But we just got to be a bit patient in FY '20.

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Belinda Moore, Morgans Financial Limited, Research Division - Senior Analyst [54]

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Okay. And in FY '20, can seafood -- how are you thinking about each of these, sort of like a $2 million? I know so many times you said -- can we get back to those sort of levels or are gains at a slow build?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [55]

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Look, we won't get fully back to that prior year just because of the mix shift. And the reality is we're seeing in a number of areas a restoration of people's purchase habit. But we have taken the view that when you're buying a tuna, red salmon or tuna box, you're going to probably not purchase as much. So we think there's going to be a little -- it's going to probably take another 18 months to get back to where we were on the FY '18 contribution. We are introducing a little bit -- we don't talk a little bit about seafood, but we've been innovating. We've been putting a little bit more into sardines. And it's pleasing to see that we really have cemented paramount position in salmon across the major retailers. We went back into Coles this financial year. So I think you're going to see this -- those earnings rebound over the next year or 2, and a much more sustainable business going forward.

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Belinda Moore, Morgans Financial Limited, Research Division - Senior Analyst [56]

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Okay, great. And then I think you've sort of guided to about a 30% underlying tax rate. Is that correct going forward?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [57]

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Well, we're roundabout a 28%. Once you allow for a couple of R&D and a few other bits and pieces. So I think we were at 27.5% on our operating, net. So yes, I think a little bit above 28% is probably better off going forward.

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Belinda Moore, Morgans Financial Limited, Research Division - Senior Analyst [58]

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Sure. And in that net interest expense, do we -- is it sort of some capitalized unwinding coming through until 2021 with the projects?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [59]

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Yes. There'll be a bit of that over '20 and '21. But then, to some extent, offset as we drive more operational cash flows. We're going to not be growing the level of debt through that period. So I think it'll probably buy for '21. It's still balancing out roundabout what you're seeing this year in '19.

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Operator [60]

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Your next question comes from [Chi Kim], a private investor.

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Unidentified Participant, [61]

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Rory, any reasons why there's no more forward guidance with regards to the top line?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [62]

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A very good question. We've reflected on our last 12 months, and we produced very strong sales growth, $123 million over the year. We had expectations for being able to improve that, obviously. And I think with the few challenges around factories and capabilities, we were a bit short but still an outstanding result. I think as we go forward, clearly, there is strong velocity in the business and we pointed to good demand. The challenge in high-growth businesses is that level of velocity is hard to pinpoint. And so -- yes, we just prefer to more talk to a level of detail of underlying demand and performance on our business and then let people establish what they believe will be the levels of growth into this year because it's been properly hard to manage the level of expectation to a precise range in the last 12 months. So we still expect strong sales growth, underlying earnings improvements. But to actually come to a range, it's just a bit challenging when you're in a high-velocity environment. And the market, obviously, demands a little bit more precision from what we've seen.

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Unidentified Participant, [63]

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Yes. I think I'll appreciate that, because you're really running your business at such a velocity, it is really getting very, very tough. But having said that, when do you expect this velocity to kind of like stabilize in terms of the calendar time line?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [64]

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Well, in terms of what, the growth?

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Unidentified Participant, [65]

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Yes. Yes. Yes. In terms of velocity, you know, maturing, stabilizing...

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [66]

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Well, I still think -- one would -- yes, compared to looking at the levels of growth. But I certainly think we've invested in the capacities to allow us to have a period of good growth over the next 5 years. I mean those capacities are built out for that period. I do think the rising demand for dairy proteins, cereal grains, those things into the Asian market. So I don't say that's going to stop. And increasingly, we have an increasing focus in Australia to more healthier foods and across a range of different areas, which Freedom is well positioned for. So I would hope that we'll continue to have good growth in the next -- over that 3- to 5-year period. But I wouldn't definitely guide to a level of percentages through that period.

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Unidentified Participant, [67]

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Okay, yes. Can you elaborate a little more on China? Because I think -- interesting that you said that in terms of accreditation, forget the user plant. We did talk about it, but obviously, under this current chaotic global environment here and there and anything is so volatile. I think it's very realistic not to expect any accreditation coming through. So what's the focus on China? I mean I'm still seeing you guys really growing out quite strongly in China. So what is actually the tool, in which area is the growth coming out of China?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [68]

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Well, it's quite -- our strategy in China is sort of quite multifaceted. I mean we, obviously, started it on a UHT dairy perspective. It continues to be an area of strong growth and opportunity. The customer mix has changed over the years, but we have a mix now of retailers, major brand owners, and then we have our partnerships, such as with JiaLiLe for Kid's Milk. So I think, increasingly, we see demand there. In fact, one of our customers is a major player in the foodservice segment, they're into coffee. So I think that will continue. The cereal and snacking side, that's going to -- that's an area of growth. We're trying to leverage more partnerships in the online piece. And then Plant-Based Beverages, I think that's a little nugget that's starting to emerge in China. And I'm not seeing it big in FY '20, but certainly, I think that's another area for us.

So I think our portfolio, our mix of customers, our partnership arrangements give us good diversification into China. And the 2 accreditations we have for our sites are all we need at the moment. I'm going to be nice to have the yoghurt piece, but we've got enough to focus on in the short term.

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Unidentified Participant, [69]

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No. I think that's a very good thought with -- to have. I mean -- okay, just for my benefit because I'm not really a security analyst. In terms of what effect which have actually peaked? When you guys are actually, you know, this last year, CapEx expansion. What's our view of the terms are you guys actually working on when you actually roll out all of these -- the expansion through the various different divisions?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [70]

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Well, everything is different depending on the stage of the capacity, if it's new or if it's incremental, there's different levels of returns. Some aspects of Nutritionals will have higher return on capital because a lot of the core infrastructure's there and the key import is already paid for. And we have outlined a little bit of that in detail in our May -- within our May sort of presentation. But well, broadly, the group has a very clear target, 15% return on funds employed. We've been a bit delayed as we've added more funds and built that in, in terms of delivering on that, but I think in the next -- as we move into FY '21, I believe the growth will start moving within and above that range.

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Operator [71]

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Your next question is a follow-up question from Michael Peet with Goldman Sachs.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [72]

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Just a follow-up. Just from Sam Teeger's question there on the D&A. I'm assuming that high 20s is just depreciation. And maybe, if that's correct, what's the amortization life it should be?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [73]

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No. I think we're seeing D&A in the high 20s, internally.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [74]

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Okay. I thought it was sort of being higher. D&A ramped up quite a lot given you're amortizing that NPD over 3 years?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [75]

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Yes. But it's not all. The depreciation will certainly step up, but it's just a function of when a number of those assets come out of sea we are to say. So there's probably -- there's a reasonable amount to about $100 million that will come out in FY '20, and then there'll be a much bigger step-up in D&A in FY '21.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [76]

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Okay. And then just on Belinda's point with the capitalized versus expensed interest. Sorry, I didn't catch the -- should we therefore assume there's still quite a bit of capitalized interest to come through in '20?

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [77]

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No. That'll reduce. I mean we've obviously had a change in our -- capitalized interest relates to full FY '20 -- '19 period. So we've had a significant shift in our debt-equity mix through the year. So I'd expect that the -- your net interest, the next few years, to be broadly in line with what you've seen for FY '19. That is absorbing a large element of capitalized interest from prior period.

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Operator [78]

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Your next question comes from [Fam Xu], a private investor.

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Unidentified Participant, [79]

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Team, I just wanted to ask about your insights into A2 milk and the milk supply, and how your sales are going.

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Rory J. F. Macleod, Freedom Foods Group Limited - MD, CEO & Executive Director [80]

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Yes. So well with A2, we have launched a number of A2 UHT products under [One Weight Evolution] under Australia's Own and we've launched a couple of Kids formats. We've also launched a version into China under Australia's Own. The One Weight Evolution is actually starting to -- in the last couple of months is actually starting to see increased velocity. It's still a relatively niche product, but we're starting to see much better performance, and it certainly continues to sell at a good premium. That A2 supply comes off a number of our direct farmers who are accredited A2 milk suppliers. So yes, that's pleasing. And then our Kids Milk formats, we continue -- a lot of the products we're launching under Messy Monkeys are all based on A2 protein milk. And that's a position or a stance we've taken around that dairy -- on that milk brand. But overall, look, I still think it's still going to be like, in some extent, a higher-value dollar product but still proportionate to total dairy consumption. It's still more of a niche area. And so I think in our portfolio, we continue to be -- what I see is that it's the top of the brand pyramid in terms of the products that we sell, but I don't expect it to be a substantial volume going forward.

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Operator [81]

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Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.