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David Bortolussi: Good morning, everyone, and thank you for joining us today. My name is David Bortolussi. I'm the Managing Director and CEO of the a2 Milk Company. Today, I'm joined on our call by our CFO, Dave Muscat; and our business unit leaders, Li Xiao, Yohan Senaratne and Eleanor Khor. The team and I will present the results and outlook. And as always, there will be time at the end for questions. During the presentation, we will focus on continuing operations, which excludes MVM that we divested during the half and occasionally refer to underlying results, which exclude a2 Pokeno. We've excluded a2 Pokeno from underlying earnings given that the site is currently underutilized and incurring manufacturing losses and transformation costs, which are short term in nature. Starting on Slide 4, we've had a very positive first half of the year, reporting significant revenue and EBITDA growth and underlying EBITDA margin improvement. In our IMF business, we achieved revenue growth of 13.6%, which was well ahead of category growth. We grew English label IMF by 21%, with strong performance in the CBEC and O2O channels, supported by growth in our new a2 Genesis product and from Vietnam. In China label, we delivered 6.5% revenue growth and achieved record market share in both the MBS and DOL channels. Our Other Nutritionals revenue growth accelerated to 43% on a like-for-like basis, driven by our recent kids and seniors innovation, and we recently entered the pediatric supplements category and launched a new kid UHT product. Yohan and Xiao will speak to these new product innovations in more detail later. Our Liquid Milk business continues to perform strongly with growth of 18.5%, driven by our core product range with much higher growth in our lactose free and grassfed product innovations. We significantly advanced our supply chain transformation with the a2 Pokeno acquisition, MVM divestment and long-term milk supply agreement with Fonterra, which were all announced and completed during the half. And we've made a significant progress against key a2 Pokeno transformation streams, including advancing our China label registration amendment process, upgrading the facility and expanding our team. Our strong first half performance has enabled us to upgrade our full year guidance and declare an interim dividend at the high end of our policy range. Moving to Slide 5, which summarizes our financial results. We delivered double-digit revenue and EBITDA growth of 18.8% and 18.4%, respectively, with our EBITDA margin consistent with prior year on a continuing basis. On an underlying basis, excluding a2 Pokeno, our EBITDA was up nearly 26% and our EBITDA margin was up 0.9 percentage points to 16.6%. Net profit after tax and EPS were both up just over 19% on an underlying basis, and we are pleased to declare a dividend of NZD 0.115 per share. Turning now to Slide 6. At a group level, our sales growth was driven by core products and recent innovation with some benefit from FX and the inclusion of a2 Pokeno sales, which are first half weighted. Our growth continues to be driven by our China and Other Asia segment, led by English label IMF and Other Nutritionals supported by China label IMF growth. Our ANZ segment sales were up, primarily driven by growth in Australian Liquid Milk with stabilization of IMF sales in the Daigou channel. Our U.S. business continued its strong performance, driven by growth in our core products and grassfed s. I've already covered our product performance upfront, so I'll move to the next page. So turning to Slide 7. The China IMF market returned to growth in the half, up 3.6%, supported by a higher number of newborns during 2024, which was the Year of the Dragon. While the number of newborns in 2025 are lower than the Dragon year, there are positive indicators in 2026 with last year's marriage registrations up 11% and the China Central Government recently stating that birth rate stabilization is a national priority. From a product perspective, the China label market has stabilized, supported by price recovery and stable volumes. English label growth continues to outperform China label, supported by product innovation and premiumization. And finally, the A2 protein and ultra-premium segments continue to outperform the category to our advantage. Turning to market share on Slide 8. We remain a top 4 brand in the China IMF market and continue to gain market share to 8.2%. Within this, we achieved record high China label market share of 5.6%, and we remain well positioned in English label as the second largest player in the market with just under 20% market share. Turning now to FY '26 and the company's outlook on Slide 9. I'm pleased to say that we've had a very good start to the financial year with revenue trending ahead of our previous expectations across all product categories and markets. As a result, we have increased our FY '26 guidance for revenue growth from low double-digit percent to mid-double-digit percentage growth versus FY '25 continuing operations. We've also tightened our EBITDA margin range to approximately 15.5% to 16%, which is at the higher end of our previous guidance and expect our net profit after tax to be up on FY '25 reported. As previously announced, the Board intends to declare a NZD 300 million special dividend, subject to regulatory approvals being received in connection with amendments to the 2 existing a2 Pokeno China label registrations for use under the a2 brand. The amendment process is currently underway and is progressing well. Moving to Slide 10. We continue to execute against our growth strategy, which was recently updated after completing our supply chain transformation transactions. We adjusted our transform supply chain priority to focus on execution of our important transformation program at a2 Pokeno and on building capabilities to support future innovation and growth. And we've placed more emphasis on entering new markets, which is now called out as one of our key priorities. We are tracking well towards our medium-term financial and non-financial goals and remain on track to achieve the majority of our targets, which are outlined on Slide 11. Turning to Slide 12. Our strong first half result and upgraded FY '26 revenue guidance means that we now expect to achieve our medium-term revenue ambition of NZD 2 billion in FY '26. This is a year ahead of our amended plan and in line with our original 2021 Investor Day timing expectations. Market and category growth drivers remain on track, and our emerging market strategy continues to advance with encouraging early performance in Vietnam as we continue to assess broader opportunities across Southeast Asia and the Middle East. And from an EBITDA margin perspective, the a2 Pokeno acquisition is expected to support margin improvement going forward as we discussed at our full year results last year when we announced the transactions. Moving now to Slide 13 and covering our supply chain transformation in a bit more detail. To recap, during the half, we successfully announced and completed the acquisition of a2 Pokeno facility and the sale of MVM as well as a long-term A1 protein-free milk supply agreement with Fonterra. These transactions mark a key milestone in our supply chain transformation, which has been years in the making. Essentially, these transactions enable us to secure greater market access to the China label IMF market with strategic control over our registrations, growth in our core IMF business through portfolio expansion and innovation, accelerate the development of nutritional manufacturing capability and capture vertical margin and generate attractive overall financial returns. Turning to the next slide, which provides a transformation program update. A dedicated transformation office led by our transformation expert was established prior to the a2 Pokeno acquisition to provide governance, planning and execution support to our Pokeno supply chain and wider a2 team. Key transformation initiatives at a2 Pokeno are progressing as planned, including the China regulatory approval process, blending and canning trials, capital investment activities, ERP implementation and product development. And recruitment and manufacturing leadership and operations is well progressed to support execution of the plan. Overall, the program is tracking well with some areas ahead of expectation. So that's the end of my introductory comments. And before I hand over to Dave to take you through the financials in more detail, I wanted to publicly thank our global a2 team for their outstanding contribution in delivering the results we've shared with the market today as well as for their exceptional work in our supply chain transformation. We're only a small team, but we've achieved a lot so far this year. Over to you, Dave.
David Muscat: Thanks, David, and good morning, everyone. I'll start on Slide 16 with a summary of our group P&L. We delivered net sales revenue of NZD 992.6 million, up 18.8% on prior year. Our gross margin of 48.9% was down 1.1 percentage points due to manufacturing losses at a2 Pokeno, which is currently underutilized ahead of our planned a2 Platinum transition from Synlait in the first half of '27, which will significantly increase production levels and improve a2 Pokeno's financial results. Excluding these temporary a2 Pokeno losses, our gross margin percentage was slightly up, reflecting lower IMF ingredients costs and a net FX benefit. Distribution costs were up due to higher freight rates and volumes related to Liquid Milk. Marketing investment increased in support of our China growth strategy, including awareness building campaigns to support our recently launched products, including a2 Genesis and kids and seniors fortified powders. Given the second half weighting of marketing expenses, our reinvestment rate was slightly down. SG&A was higher due to investment in capability in support of growth in China and supply chain, including a2 Pokeno transformation costs. Our effective tax rate improved due to reduced losses in our U.S. business and utilization of a2 Pokeno losses. Reported NPAT was NZD 8.4 million, including a loss from discontinued operations of NZD 103.7 million that was almost solely due to the MVM non-cash divestment loss of NZD 103 million. As David mentioned earlier, we have declared an interim dividend of NZD 0.115 per share, totaling approximately NZD 83.4 million. This equates to a payout ratio of approximately 74% of NPAT and is towards the higher end of our policy range. The dividend will be fully franked and unimputed and will be paid on the 2nd of April. Slides 17 and 18 summarize our segment and product performances with the key drivers covered throughout the presentation. It should be noted that a2 Pokeno is included in the China and Other Asia segment. Moving on to Slide 19. Our closing cash balance at the end of the period was NZD 896.9 million, down NZD 164.3 million versus June '25, mainly due to the supply chain transaction net outflows of NZD 168.7 million associated with the a2 Pokeno acquisition and MVM divestment. Operating cash inflows, excluding interest and tax, were NZD 140.7 million, representing operating cash conversion of 91%, which was in line with expectations and reflecting our inventory rebuild following Synlait manufacturing challenges late in FY '25, which temporarily reduced IMF inventory at June '25 and into the first half of FY '26. Investing activity outflows included the previously mentioned supply chain transaction net outflows, capital expenditure and a reduction in term deposits. Cash flows from financing activities included the repayment of MVM's external banking facility prior to divestment. Turning to Slide 20. Our balance sheet remains strong as we invest in our supply chain transformation and continue to execute against our growth strategy. Inventory was up approximately NZD 34 million, reflecting the inventory rebuild previously referenced with trade payables also increasing accordingly as we continue to progress towards target levels. Intangible assets were NZD 105 million, primarily due -- were up NZD 105 million, primarily due to the goodwill associated with the a2 Pokeno acquisition. And the reduction in other liabilities primarily relates to the reduction in external MVM loans associated with the divestment that completed during the half. That concludes the first half '26 financial overview. I'll now hand over to Xiao to take you through the performance of our China label business.
Li Xiao: Thank you, Dave. Starting on Slide 22, we delivered China label MF revenue growth of 6.5%. This was supported by strong execution, China MF market stabilization and a favorable foreign exchange. This is a pleasing result given growth during the period was partially constrained by market shifts towards English label and the supply. We achieved record China label MF market share, reflecting strong execution across both online and offline channels and supported by strong new user recruitment in FY '25, which is now graduating into later stages. Outside MF, Other Nutritionals also delivered growth, driven by recent senior and kids innovation that's resonating well with consumers. Turning to the next slide. Overall, we continue to gain share in China label with total market share reaching a new high of 5.6% as well as brand health. Performance was strong across both our MBS and the DOL channels with each reaching record shares as we continue to execute well in our key channels. Moving to Slide 24. New user recruitment remains a key focus. In mid-December, we launched a targeted marketing campaign in China, partnering with the well-known My Little Pony franchise. The campaign was designed to attract new users for the year of the whole. We designed maternity gift pack and a fully integrated campaign across online and offline channels, including social media, which has generated strong consumer engagement and user-generated content. Since launch, our brand has moved from ninth to first in search share on Little Red Book and Stage 1 new user recruitment has increased versus pre-campaign levels. Turning to Slide 25 and taking a closer look at our kids and senior nutritional products, which are performing well. Our kids milk powder product has supported a turnaround in China label Stage 4 performance with the product now leading international brands in key channels. This reflects strong consumer acceptance, supported by a competitive formulation, good taste and appealing package. In senior nutrition, we are building share in the ultra-premium segment with a steady online growth, supported by targeted seasonal campaigns and new user recruitment through family gifting. Across both categories, we continue to leverage the strength of the a2 brand in MF to attract new users and expand our offering to other life stages. Slide 26 provides an overview of our new kids fortified UHT product, which we have recently soft launched into Costco and select online platforms. This is our first locally sourced UHT product in China, which enable improved freshness and high support formulation addresses an area of strong consumer interest. Moving to Slide 27. Our focus on innovation has seen us expand our Other Nutritional portfolio through entry into a new category. The pediatric supplement category is a rapidly growing market with approximately NZD 8 billion in retail sales value and is an attractive adjacency to our core infant formula business. It is a fragmented category where we believe the a2 brand can be successful. Continuing to the next slide. Slide 28 provides an overview of our new China label pediatric supplements range known as a2 Zhi Yi, which will be progressively rolled out during the second half of the financial year. We have 4 products in the range, which are focused on high-growth areas and formulated to provide functional benefits aligned to what the a2 brand is known for by consumers. The locally manufactured products have a new and innovative packaging to maximize consumer and trade appeal. Near-term sales are not expected to be material. However, the long-term potential of the category could be significant. I will now hand over to Yohan to take you through the English label.
Yohan Senaratne: Thanks, Xiao, and good morning, everyone. Looking at Slide 29, English label IMF continues to grow with sales up nearly 21%. Growth was supported by overall market expansion, growth in our combined CBEC and O2O channels and growing contributions from our a2 Genesis product. It is also pleasing to see our ANZ IMF sales in growth with the Daigou channel stabilizing and continued share and sales growth in retail. We continue to deliver solid momentum in Other Nutritionals across all channels, led by strong growth in our milk powders portfolio with additional support from a2 Smart Nutrition and a2 Nutrition for Mothers. We also saw increased UHT volumes, particularly in Vietnam. Turning to Slide 30. Momentum in the English label market has continued with English label now accounting for 20% of the total IMF market. A2 remains well positioned to benefit from the growth in this segment as the second largest brand in the English label market with our market share just shy of 20% and our online channels continuing to grow. A2 continues to perform well in the CBEC and O2O channels with significant sales growth. On an MAT basis, a2 was a leading share gainer on CBEC from June to December last year. Continuing on to the next slide, the rapid growth of HMO and specialty product segments continues to be a growth driver of the English label market. Our a2 Genesis HMO formulation has now been in market for a year and is performing well. We have invested heavily to build awareness, consideration and trial with our sales building month-on-month. In the first half, a2 Genesis represented 6% of all our CBEC channel consumer sales with more than 50% of sales being for early stages, which supports future potential. Turning now to Slide 32. We continue to develop our Vietnam business with our distribution expanding significantly during the half. A2 IMF and Other Nutritionals products are now ranging over 1,000 MBS stores and initial listings have commenced across national key accounts and e-commerce platforms. As we execute in Vietnam, we remain focused on our broader emerging market strategy, assessing opportunities to further expand into other markets with a particular focus on Southeast Asia and the Middle East. I'll now hand over to Eleanor, who will take you through ANZ.
Eleanor Khor: Thank you, Yohan. Turning to Slide 33. Our ANZ Liquid Milk business has continued to perform well. We delivered double-digit revenue growth driven by growth in both our core and lactose-free ranges. In terms of market share, we outperformed the category with overall share increasing to 11.5% and lactose-free achieving a record high MAT share of 20.6%. During the period, we were also pleased to complete the final stages of upgrades at our Kyabram processing facility to strengthen our operational capability and capacity. Moving to Slide 34. In 2026, a2 proudly became the Australian Open first-ever dairy milk partner in the tournament's 120-year history. We activated across our priority markets in Australia and China with the partnership delivering positive results. During the tournament, a2 Milk was the only dairy milk to be served on site, reaching more than 1 million attendees and our bespoke co-branded frappes became a viral sensation on social media, driving exceptional visibility and brand engagement. And with that, I'll hand back to David.
David Bortolussi: Thanks, Eleanor. And before I move on, I wanted to acknowledge that this will be your last investor call with a2, and thank you publicly for your outstanding contribution to the company over the past 7 years and leading our strategy function and ANZ business, which you've done exceptionally well. So thank you very much. I'll now cover our U.S. business on behalf of Kevin Bush, who is unable to join us today. Our U.S. business has had a very good start to the year with revenue growth of 29%, driven by our core range and grassfed innovation across all channels. Our revenue growth was supported by positive market trends during the half with premium and specialty Liquid Milk market value growth of 11%, which was higher than total category growth of around 4%. Our market share continues to increase with growth in household penetration and consumption and our profitability improved with an EBITDA loss of NZD 3.4 million. And finally, from an IMF perspective, our FDA submission remains under review and is progressing. That concludes today's formal presentation. I'll now hand over to the operator for Q&A. Thank you.
Operator: [Operator Instructions] Your first question today comes from Thomas Kierath with Barrenjoey.
Thomas Kierath: Obviously, a lot of focus on the birth rate and the weakness of it that's been reported more recently. Just be interested in your comments around how Stage 1, I guess, is growing versus Stage 2 and Stage 3 and whether you're seeing any initial signs of that weakening birth rate in your numbers? And then I've just got one on Genesis as well.
David Bortolussi: Thanks, Tom. I might ask Xiao to comment on the stage performance at the moment and outlook around that.
Li Xiao: Yes. So in the first half of fiscal year '26, we see Stage 2 have a very strong growth. Stage 3 improved and Stage 4 dropping, but we were helped by the newly launched kids fortified powder, we have a very strong, I mean, growth combined Stage 4 and kids fortified powder. For the Stage 1, due to the supply constraint, we did see Stage 1 is dropping as well losing share. But I mean, we have started, I mean, the -- what we call early-stage campaign. And as we show in the slides My Little Pony, since December, I mean, to boost back the early new user recruitment after the improved supply. So now we see a pretty encouraging early signal of, I mean, improved new user recruitment comparing with the previous month. And also, I mean, if you look at China label track record in the history, like in the fiscal year '25, our -- I mean, Stage 1 share improved from 3.1% in the previous year, I mean, to the first half, 3.9% and the second half of more than 4.2%. So we are pretty confident that we are going to turn around the Stage 1 performance, I mean, with all the, I mean, focused efforts on the early new user recruitment.
Thomas Kierath: That's great. And just secondly on Genesis. I know initially, you were investing pretty heavily in that brand. So the sales that you were generating, you weren't actually necessarily making much profit as you were reinvesting. But where about that is that at the moment? And when do you start to see, I guess, a profit contribution coming through from Genesis?
David Bortolussi: Yohan, would you like to talk to Genesis?
Yohan Senaratne: Yes. Look, I think you're right. In terms of the focus for the Genesis product, we're definitely looking to invest in driving awareness through to trial. But the product itself makes quite a strong gross margin, just slightly below our Platinum gross margin. And then over time, we expect, obviously, the net contribution post the marketing spend to improve. At the moment, yes, absolutely, we're investing behind the brand, but I expect the net contribution to improve over time.
David Bortolussi: So our percentage margins were lower, the dollar margins were similar.
Operator: Your next question comes from Josephine Forde with Bank of America.
Josephine Forde: Congratulations, David and team on the result. My question is also in a similar vein on the China label market. Can you talk through your expectations on the continued brand consolidation, just given it was stable in the half? And then also just a bit more color on the market returning to growth and pricing in closing too?
David Bortolussi: Josephine, I think the -- even though there was a sort of a temporary pause in the level of consolidation, the top 5 is 58%, top 10 is around 78%. There were some kind of winners and losers within that -- within the sort of top 5 and top 10 during the period. But we fundamentally believe that the brand concentration trend will continue in the market. And certainly, the top 5 will gain a disproportionate amount of share over time. And maybe in time, there might even be corporate consolidation as well, which we've seen some evidence of over the last 5 years or so. In terms of the growth going forward, it's pleasing to see, like I've been here 5 years and in effect 10 half year -- full year and half year reports. And the first time we've seen the category in growth for the half at 3 and a bit percent. That's based on Kantar numbers, and I do sort of caveat that Kantar is reviewing their growth numbers in March. So just important to look out for that. But definitely, the English label category is in growth and China label is flat to up. The outlook, we continue to believe there will be ups and downs in the newborns numbers. The Year of the Dragon was probably higher than market expectations, and last year, clearly lower than expectations. But there's good reason to believe that the newborns will be up next year or this calendar year. We're seeing marriage rates are up 11%. The last 3 quarters are up 20%, as you would have seen. And we've also got insight in terms of maternal registrations as well, and we're seeing those being up high-single digit at the moment as well for the first calendar quarter -- for the March quarter of this year as well. So I think the newborns will be up this year. It's difficult to predict how much, but probably in the low- to mid-8s. But there is long-term socio demographic pressure on the newborns rate over time. So we're still expecting that to decline by low-single digits, but a degree of premiumization in the market to support the category, hopefully around flat. So as we've always said, this is a share gain for us. We've been very successful with the strong brand and our execution behind that and innovation fueling growth now, where we've managed to more than our double our share from just over 4% back in 2021 to over 8% now in the market, and we think we've still got significant market share growth opportunity, both in China label and English label. English label is doing really well at the moment, and China label has been growing for many years, and we'll have the benefit of the 2 additional registrations that we obtained through the Pokeno acquisition shortly as well. So I think in essence, I think the market should be relatively flat, and we still have a significant share opportunity gain in infant and other category expansion opportunities. I think the pediatrics supplements market entry is a pretty significant milestone today. So plenty of growth opportunities for us in and outside the infant category in China and new markets.
Josephine Forde: Okay. And then just on the guidance upgrade, since November, what's driving such an improved outlook? Like is this driven by English label? Or is it a more positive backdrop for the China label's improvement? Or are you seeing early read-throughs on these new marketing campaigns in the China label?
David Bortolussi: All of the above and probably the only thing you're missing there, so -- I mean the infant category has been pretty robust for us, and the growth has been slightly higher than we expected. But certainly, the Liquid Milk and Other Nutritionals growth at the beginning of the year and even at the AGM, we didn't expect such high growth in those categories, which is really pleasing. That will probably come off a bit in the second half, but you can tell from our guidance, we're still expecting pretty robust growth for the full year with mid double-digit sales growth. So I mean all of those are contributing and it's kind of very pleasing for us as a team to see that really all categories and all markets are performing really well at the moment. It's terrific to see. It's a real credit to the team and also the health of the a2 brand.
Operator: Your next question comes from Matt Montgomerie with Forsyth Barr.
Matt Montgomerie: I might just come to Pokeno to start. Clearly, things are tracking quite well there. Just within the EBITDA losses for the first half of NZD 9.8 million, I think, of that, what was related to the transformation costs? And then secondly, I suppose your guidance for the second half implies quite a meaningful step up in losses. I appreciate it was a full 6-month period. But yes, just be interesting to understand that. And then with Pokeno tracking ahead of expectations for this year, you haven't changed your FY '27 outlook for Pokeno. Yes, maybe if you could just sort of step through that as well and why sort of that couldn't be improved over time as well.
David Bortolussi: Dave, do you want to...
David Muscat: Yes, I'll take that Matt. In terms of the transformation, I assume it's about 5 in terms of the transformation. So that's going through SG&A and the residuals going through gross margin. In terms of the step-up in losses, I think the way you've got to think about it is that, we are significantly ramping up the capacity of that site over the course of this financial year in advance of the transition at the start of the next financial year. So our under-recoveries are going to get worse before they get better. So that's why we have the ramp in terms of the second half. And in terms of FY -- in terms of why it's better, overall, in terms of our sort of estimates around Pokeno is that, we set our expectations for this year at the time of the full year announcement where we were outside the company. We hadn't bought it yet. We haven't guided. And it was all based on our estimations from due diligence, et cetera, et cetera. So now we're getting closer to the numbers, and we can give more refined sort of outcomes. And then also what helped us slightly is that we have been doing some of our Platinum canning, as we alluded to at the AGM, during the course of this year, which helps us a little bit as well. But none of that changes our expectations for next year.
Matt Montgomerie: Yes. Perfect. And then secondly, just on guidance on China label. I know you haven't given breakdowns by the pieces, but would it be fair to assume similar levels of growth in the second half year-on-year as experienced in the first half? I know, Xiao, you mentioned earlier sort of there were some supply issues impacting the half you've reported now, and there's been some sort of numerous moving parts over the last couple of halves with supply shortages, but just expectations for China label growth in the second half.
David Bortolussi: Matt, we're not providing sort of individual business unit or label-related growth guidance for the second half. As you'd appreciate, it's still uncertain. There's a long way to go through the half. What I can say is that, in terms of the infant category, as you would expect, we're expecting double-digit growth in infant in the second half. And for Liquid Milk and Other Nutritionals, we're expecting that -- the rate of growth to come off a bit, which you sort of have to conclude based on the guidance. We're confident in China label and English label growth in the second half. But as to the specifics around it, I'm reluctant to sort of provide guidance on the components. Xiao mentioned the supply challenges in this half. It's more -- probably less of a sales impact in the half. It's more -- I think Xiao was referring to the impact on user recruitment, which we had to reduce our level of activity during that first quarter, but we certainly ramped that out subsequently. And that's the experience we had actually going back a year in FY '25 and the first quarter of '25, we had a similar experience. So that's where that comment comes from. And definitely with the lower newborns and the -- some of the pressure from the supply chain constraints we have, we're very focused on increasing our new user recruitment and our early-stage share.
Operator: Your next question comes from Julia de Sterke with Morgan Stanley.
Julia de Sterke: I just wanted to ask first, back to the -- some color on the industry numbers. Just in terms of the English label category, I know now you're kind of cycling some stronger industry numbers in that category. Where do you expect that penetration number to get to over the next couple of years? Are you sort of expecting that strong cadence of growth until you get back to kind of that 28% peak penetration? Or is this kind of industry growth starting to tail off in your view?
David Bortolussi: We're not seeing it tail off at the moment. The category is for the label cross-border business is growing quite healthy. I mean, double-digit growth over the last 4 halves, which is terrific. But as you know, like we're only at 20% of the total category, and it was a peak of 2018. Well, actually, it was even higher prior to that, but 28% in FY 2019 just prior to COVID. So we think it's still got some way to go. But I don't think anyone can be conclusive in terms of where it will get to, but we still think it's got some more category growth ahead of it because there is some advantage that English label has over China label at the moment, particularly on formulation. And then from our point of view, from a share point of view, at just under 20% share, we had a sort of peak share in the category in the mid-20s. And we're definitely focused on over time, getting back to sort of the mid-20 share in the category as well. So that's probably all the color I can give on that at the moment, Julie.
Julia de Sterke: Got it. And then just wanted to ask on global competitor recalls that have been going around over the last couple of months. Acknowledge that it's probably still pretty early on, so you might not have too much color around what the ultimate impact will be. But has this factored at all into your guidance changes or how you're thinking about the market over the next couple of years and your market share opportunities?
David Bortolussi: No, it hasn't, Julie. I mean it's a very unfortunate set of circumstances for consumers, trade and the brands that are involved. So -- and we're not -- we're definitely not sort of tactically trying to be opportunistic about this. And we wish all those involved the best, because it is -- I mean, the infant formula category is -- this happens from time to time, and it's a very difficult circumstances. But that's not factoring into our guidance. We're not banking on a major shifts towards our brand, English label or China label in that regard. I mean if there was any shift, it would probably be more like English label because most of the recall activity has been in that space, but that's probably all I'd like to say on that at the moment.
Operator: Your next question comes from Sam Teeger with Citi.
Sam Teeger: David, earlier on, you made a comment about potential for corporate consolidation. I was keen to understand just the thinking behind that and how you see things playing out?
David Bortolussi: Sam, I think most important -- like in consumer goods, the most important thing is brand concentration, no matter what the corporate ownership structures are in the marketplace. So that's what we're primarily focused on, and that's sort of the category dynamics lead to that. I was just mentioned in passing that there has been some corporate consolidation by Nestle and Yili over time in particular. I mean there is a possibility of that, but we're more focused on and how we present that market share information is by brand, which is the most relevant no matter who owns what brands in the marketplace. So it's just an in-passing comment. So I don't think any corporate consolidation is imminent in the market at the moment. I think most of the players in the industry are really focused on their own portfolios.
Sam Teeger: Okay. And just wondering, when you saw the birth rate for 2025 come out last month, how did you balance up whether you should upgrade your FY '26 guidance now or potentially hold off for a few more months to ensure that the strong momentum continues?
David Bortolussi: Well, we sort of undertake a regular forecasting rhythm to our business. And based on our year-to-date performance and outlook for the end of the -- for the year to go, it's pretty clear at the moment that we should be in a position to achieve mid double-digit growth. And I don't think that's particularly influenced by the newborns number at the moment, because the impact on Stage 1 in the market is sort of -- it's not as severe as what the decline in the newborns is, because you've got -- what's going on in the market is you've got sort of breast-feeding rates have declined. That's not something that we would promote because breast feeding is obviously best. But that has declined in the market based on the evidence that we've seen by different reporting on that. And also the extent and use of early-stage product has increased as well. And it has a -- so there's a prolonged use of early-stage product as well. So I don't think you should expect the impact to be as significant. And it's also -- it's less than 20% of the market and of our business as well. So I think it's not a huge driver of this year's outlook. And as Xiao said, we're very focused on ensuring that our early-stage recruitment is optimized, and we set ourselves up well for the future. So not a big factor at the moment, Sam.
Sam Teeger: And then on the decline in breastfeeding rates, what do you attribute that to?
David Bortolussi: I think some of it may well be economic from what we've heard. A lot of mothers for economic reasons are feeling that they need to get back to the workplace pretty quickly. So I think there's probably some of that going on, and there's some social sort of demographic trends around that as well, which I not to comment on the call. So I think it's -- yes, I think there's some underlying drivers there. It's actually stepped down quite a bit -- several points over the last year or 2. So it's quite significant.
Operator: Your next question comes from Adrian Allbon with Jarden.
Adrian Allbon: Maybe this is one for David, first of all. Just looking on Slide 18 and just trying to just understand like the Other Nutritionals growth, like it sort of like when you back out the Pokeno contribution, like it's just sort of NZD 30 million in terms of the China and Other Asia category. Are you able to kind of give us a steer of how much of that is these new products?
David Bortolussi: I guess -- yes, it's pretty significant the growth in kids and seniors. And then outside of that category, you got Genesis contributing quite a lot of the growth. I'll come back to you a little bit later. But probably overall, when you look at our growth, I mean the investment we've made in innovation over recent years, it's really pleasing to see that come through. So if you look at our total growth for the half of just under 19%, if you adjust for the sort of FX impact and sort of Pokeno in the period, you've got sort of 15-ish percent growth underlying. And over 1/3 of that in the period was driven by innovation, specifically Genesis, the kids advanced product in China label and the seniors range that we've introduced. Now those products weren't there in the comparative period. So that's really just 6 to 12 months of growth coming through, which is pretty outstanding. So it is making a meaningful difference is the answer.
Adrian Allbon: So of the total growth which was 19%, you sort of said underlying 15% and the innovation was...
David Bortolussi: Yes, if you take out currency and the a2 Pokeno impact, the sales associated with those, they're about 2 percentage points each. So call it around 15%, yes. And I'm saying that over 1/3 of that underlying core growth is due to innovation with the rest being the core portfolio.
Adrian Allbon: Okay. And within that, obviously, the fortified products and Genesis are the main lifters in that 1/3 of the 15%?
David Bortolussi: Yes, it's around -- probably 30%, let's say, 30% for the half.
Adrian Allbon: Okay. That's cool. And just like staying on the revenue side, just in terms of the pediatric entry, is the sort of -- is the unit economics quite similar to infant? It's probably an outsourced manufacturer, but like it is quite high gross margin...
David Bortolussi: Yes, it's quite a high margin category, similar to infant, yes, which is great. And it allows us obviously to reinvest to establish our awareness and consideration and trial in the category. So yes, we're attracted to the margin structure associated with it relative to our Other Nutritionals, the rest of that category, which is lower margin, but improving with the new innovation we're bringing to market.
Adrian Allbon: Okay. Just in terms of the guidance, I'm presuming -- does the upgrade to 15% or midpoint -- mid-double digits, does that assume returning to target inventory levels? Or is that a risk buffer within your upgrade?
David Bortolussi: It assumes -- I won't be specific about it. But it does assume that we receive adequate supply during the period from Synlait -- and there's no major issues or disruption associated with our a2 Pokeno facility and transition and all that, yes.
Adrian Allbon: Okay. And then just on the marketing side, the marketing intensity for the half, like it seemed to sort of be at the low end of sort of 17% on a continuing basis because I think when we were talking about that reset at the last result, on a continuing basis, it was -- I guess, the track record have been more like 18% of late. Are we expecting quite a step-up in the second half to support these new programs?
David Bortolussi: Yes. So in the first half, we pulled back a little bit on our investment, principally related to what I highlighted in terms of the supply constraints. So we pulled back a little bit on our new user recruitment activity, and that's why it's lower in the first half. But we did invest behind our new innovation that we brought to market. So that's why it's at 17% in the first half. So the second half will step up as we invest more in new user recruitment and our innovation in the marketplace. So that will step up. So overall, our reinvestment rate will be around the 18% mark. It's similar to actually in a way, Adrian, to what happened in FY '25 because we had supply constraints in the first quarter, then we pulled back a bit on marketing. So if you have to look at the marketing reinvestment rate in '25, that was 17.5% in the first half and 18.8% in the second half and overall 18.1%. So I'm not saying specifically what it's going to be in the second half, but it's kind of a similar profile for similar reasons in a way.
Adrian Allbon: Okay. That's helpful. And just a clarification on those Pokeno losses, did you say that they were NZD 5 million? And I think originally, at the last result, you were expecting NZD 10 million. Is that correct? I just didn't quite hear the end of...
David Muscat: No, no. No, I was referring to the half numbers, so NZD 9.8 million EBITDA loss and NZD 5 million of that's in SG&A. So it's only to the end of December. So there will be more transformation costs in the second half.
Adrian Allbon: Transformation costs in the first half?
David Muscat: Sorry, that was NZD 5 million for the first half for transformation costs in SG&A and we've guided to about NZD 10 million for the full year.
Operator: Your next question comes from Craig Woolford with MST Marquee.
Craig Woolford: Can I just ask a question around the market share performance -- your English label market share performance, which was steady. Just trying to get a sense on when you -- what triggers you see for an improvement in that market share? The reason for the question is the commentary on Genesis looks very strong and some of the other products look stronger. So is there an inference that something else is losing share?
David Bortolussi: Good question. I might let Yohan answer that.
Yohan Senaratne: Yes. So yes, if you look on Slide 8, it shows our market share, particularly, if we look at the CBEC market share, we're slightly up on an MAT basis. If you look at the December monthly number, we're up a bit more. So that's about 20.1%. And part of the growth is, obviously, there's the Platinum, which has been the base product for many years. But what we're seeing is incremental market share upside from a2 Genesis. And the primary channel of sales for that product is CBEC. So that's why you can see the CBEC market share trending upwards. The other parts of the business are there or thereabouts. But as we roll out Genesis, we'll also roll it out into more O2O channel store networks as well. And so if we look at the English label market share trajectory, we're hoping to get to 25%. But currently, overall less than 20%. So there's about 5% market share that we're looking to gain. Part of that will come from Platinum continuing to improve, but then products like a2 Genesis, of course, offer some upside opportunity incremental as well to get us to 25%.
David Bortolussi: Share growth in that channel has been fantastic.
Yohan Senaratne: Yes. So we're the #1 on an MAT basis for the last 6 months. So -- and that's primarily driven by the success of a2 Genesis.
David Bortolussi: And in the half, the #1 as well.
Yohan Senaratne: Yes.
Craig Woolford: So what would drive Platinum share gains? Like, it's been a relatively steady a2 share of EL for a few half year periods now. What do you see as a step change in that Platinum products' share of the market?
Yohan Senaratne: Yes, you're right. It's been the workhorse for English label for many years and still is the biggest contributor to English label. Of course, as we go forward, we'll also look to upgrade our Platinum proposition. The last time we upgraded the proposition was back in 2022. And so as we move forward, we'll also look to upgrade the proposition and the packaging as well.
David Bortolussi: And Craig, as we transition from Synlait to our new facility, our Pokeno facility. So as you would expect, we're taking the opportunity to upgrade the formula on the packaging.
Craig Woolford: Great. That's clear. And just a quick one, just on the guidance, anything that sort of moved in the other direction was just the cash conversion. Apologies if I've misheard something, but I just wanted to -- it was 80% to 90%, now it's 80%. What's the reason for that shift in cash conversion?
David Muscat: Yes, Craig, probably the biggest change is the timing of the working capital build at Pokeno. So as we -- the transition that Johan is just talking about in terms of the platinum moving in, we're going to have to start to produce base powder towards the end of the year and the start of the next financial year. So we just got better line of sight over the timing of that. So it's not worse than what it was. It's the same working capital build that we called out previously. It's just the timing of that working capital build.
Operator: Your next question comes from Richard Barwick with CLSA.
Richard Barwick: I've also got a question on English label because there's a couple of things here that don't quite add up, I don't think because if you look at the English label market, you're saying it was up 12% or I guess the Kantar numbers saying it was up 12% for the half, and you were growing your English label IMF revenue by 21%, but your share is holding about flat. Do we put down all that difference or the difference between the 21% growth in the market up 12%, is that Vietnam and other markets that sort of make up the difference? Or am I missing something here?
Yohan Senaratne: Yes. So part of it is Vietnam, and Vietnam has accelerated quite a bit. I think the key thing is that we've seen Genesis as well growing. So if you look at our PCP, we didn't have Genesis in it. And so that's a large contributor of our sales. But that's concentrating the CBEC channel. And then the last thing is we've been working on O2O channels. So you'll see our O2O share with Daigou is a little bit lower, and we've been making some operational upgrades to improve our consumer experience there. So yes, there's a few things going on there. I understand where you're coming from. But some of it is the Other Asia, if you like, outside of China. Some of it is a2 Genesis and some of it is some of the work we're doing in the O2O space.
David Bortolussi: I think, Richard, I'd also just Kantar data is helpful and looking at the longer-term trends, there's always anomalies in that. So if you look at the Kantar from a growth point of view rather than share. So Smart Path, the data for the total English category is up quite a lot, so over 20%.
Richard Barwick: Well, that's exactly what I was going to question. Do we -- I mean, you put the caveat at the bottom of that -- of the Kantar data. So do we take those share numbers with a grain of salt because that is a big difference. 21% plays the market at 12%.
David Bortolussi: Yes. I think Kantar is more relevant, the more aggregated you look at it. So total market, China label, English label. But when you get down into the below that, it becomes more challenging. They review their methodology from time to time. It's obviously a panel-based survey. It's the only full market survey that is available. So I wouldn't say take it with a grain of salt pinch of salt. It's really -- I mean, it is relevant, but I'd just look at it over time in terms of trends. I mean if we take -- if we excluded it, then we'd probably be criticized for excluding it. So we're just including it to be honest.
Richard Barwick: No, no, I get that.
David Bortolussi: I know many analysts don't have access to it. Yes.
Richard Barwick: No, no, I get that. But I was just surprised that the difference between the 21% that you're growing, so that's a very clear number. And just really wanted to clarify, do we put the rest of it down to Vietnam and Co, it sounds like that's the biggest differential.
David Bortolussi: It helps, but we're still growing quite significantly in the core business in English label Genesis. Yes.
Operator: Your next question comes from Marcus Curley with UBS.
Marcus Curley: I just wondered if we could start with the slide that you're talking about the new pediatric supplements for the existing China label range. And maybe it's for Xiao, but just interested to know whether this is resulting in a substantial change in stocking by the mother and baby stores. Do they see this as now 4 products rather than one? Or is it a relatively small component of what's likely to roll out in the stores themselves?
Yohan Senaratne: Marcus, it's Yohan here. I can help to answer some of those questions. So firstly, the supplements market is quite fragmented. There's many different products looking at many different functional benefits. And often when consumers are looking to buy in the supplements category, they're buying for a specific functional benefit. So firstly, it's helpful to have a range of products because each product is targeted at a specific proposition and a specific consumer need. When sold into -- so these products are sold into both MBS stores and also online on DOL. And so when we look at MBS stores, if you think of the way the key categories of sale, it's infant formula supplements and diapers. And supplements is a big driver of their business. And so having another set of supplements products in the market in their store that they can -- that is effectively companion to some of their a2 products in the early life nutrition space is obviously helpful for them as an additional sale. And so it's probably best to think of each product as an individual product suited to a specific need. So you can see even the ones that we have on the page on Slide 28, they're very -- you can see they're focused on either immunity, allergy gut health or brain and eye health, areas that a2 are known for in the early life nutrition space. And so over time, we'd look to build on those depending on the success of these.
Marcus Curley: It's hard to say from the pictures. But in terms of -- are these individual infant formula products or just a container with supplements in them?
Yohan Senaratne: No, these are a container with supplements in them. So they're not infant formula, they're supplement products. And so you can see on the picture, it's a container with a set of supplements inside the sachets within each, with the exception of the Brain & Eye Health, which is a soft gel in blister.
Marcus Curley: And could you give us any perspective on how big the supplement market is as the share of infant formula in China label?
Yohan Senaratne: Got you. So if we look at the total supplements market, it's an NZD 8 billion market for pediatric supplements, represents 15% to 20% of the total supplements market in China, which is far bigger, of course. But...
David Bortolussi: I mean the last time we quantified that NZD 28 billion in our Annual Report. So NZD 8 billion versus NZD 28 billion. So it's quite significant. When we look at all the adjacencies that we're expanding into, this is the single biggest category. And most of it is addressable.
Marcus Curley: And the competitors there are sort of aligned with the infant formula brand. So like, for example, Danone would have the largest share? Or is it a different dynamic?
Yohan Senaratne: No, it's a different dynamic. On Slide 27, you can see the market shares by competitors in the online space. There's a lot of new brands entering the market. It's highly fragmented. And so there's an opportunity for a trusted brand to enter the market such as a2.
Marcus Curley: Okay. And then quickly, just on gross margin, David, you called out an improvement in the half. What are you seeing in terms of those trends? Are you seeing increasing benefits from lower ingredients costs? Or what should we be assuming?
David Muscat: I think for the second -- yes, we saw some of the lower milk and lactose costs coming through in the first half. But we're now seeing that reverse and some pressures coming through whey proteins. But then we've got some counters to that in terms of mix of business, should be more IMF weighted in the second half. So I wouldn't say overly too much change coming through in the near term.
Operator: The next question comes from Phil Kimber with E&P Capital.
Phillip Kimber: Early stage, Stage 1 and Stage 2, I mean, previously, you've shown some market charts in prior reports of what Stage 1 and Stage 2 have been doing. And after the Year of the Dragon Stage 1 had grown rapidly and it started to come off. I couldn't see anything in this presentation. Is that -- has that now sort of moved to Stage 2 products at the market level? I know you guys are winning market share and got good growth, but I'm just trying to understand the market. And then to put some context around that, I think you've said your China label sales are roughly half Stage 1, Stage 2 and the remainder is Stage 3, Stage 4. Is that the same across English label as well? So as a total infant formula business, are you roughly skewed half to early stage and half to Stage 3?
David Bortolussi: I'll hand to Xiao just on the Stage 1 trajectory in the market and our share. But so on the mix of stage share in the business, so we're roughly -- it's roughly sort of -- it's just under 50% across the total group, early-stage products, Stage 1 and 2 with China label being slightly higher and English label being slightly lower, if that helps, Phil. Xiao can you comment on stage -- I think Phil's question was around Stage 1 growth in the market and our share around that.
Phillip Kimber: And Stage 3. Sorry.
David Bortolussi: Yes. And Stage 2.
Li Xiao: So Stage 2 China label in the first half is strong growth. I mean the benefit from FY '25, we have a lot of Stage 1 new user recruitment, I mean, cycling into the Stage 2. But if you look forward it's going to be either flat or down due to -- now they are moving to the Stage 3. Stage 3 in the first half is improving, but you are going to see a stronger growth in the second half when they are Stage 2 consumer moving to the Stage 3. Stage 1, as you can imagine, the whole segment is going on a downtrend, because of combination of less newborn baby. But hopefully, it can quickly bounce back into the new year, but also kind of help by this -- David mentioned the prolong usage and increased penetration. Those are all tailwinds for the Stage 1. But I think, for us it's more of a share gain in the new user recruitment because we have done extremely well in the past. I mean demonstrate that we can almost grow the new user recruitment by 30%. [ Pity ] that we are constrained a little bit in this first half by the supply constraint. But now we have put all the focus, energy and money back, I mean, try to turn around and we are confident we are going to see an improving trend on Stage 1, no matter the market are going down or worse.
David Bortolussi: So Phil, just on the stage trend, I know most of you don't have access to Kantar, but -- so if you look at the stage, so in the half, the -- for China label, so the 2% growth is Stage 1 was still in growth, so high-single digit -- mid- to high-single digits. Stage 2 was low double digit. Stage 3 was down single digit, but the second quarter was flat as that sort of graduation comes through. And Stage 4 was down sort of high double-digit, if that helps in terms of the stage relative growth in the market at the moment.
Operator: There are no further questions at this time. I'll now hand back the conference to Mr. Bortolussi for closing remarks.
David Bortolussi: Thanks, everybody, for joining the call. I guess in closing, we continue to execute our growth strategy, focusing on maximizing our opportunities in China IMF, adjacent categories and new markets, which you've hopefully seen a lot of today. And we're pleased with our supply chain transformation progress following the acquisition of a2 Pokeno. So I look forward to catching up with most of you during the course of the next couple of weeks, and thanks very much for joining the call. Cheers.