Good day. Welcome to the Skellerup Holdings Half Year Fiscal 2021 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to CEO, David Mair. Please go ahead, sir. Thanks, Karina. First of all, welcome everyone. I look out the window and it's a stunning blue sky in Auckland, and we're at level two. Good news for us in Auckland. I'll go through the slides carefully. If you could turn to slide number one, which is the Skellerup key points for the half year 21. I'm really pleased. It's a fantastic result due to the efforts of our team worldwide in a challenging environment. Net profit after tax, NZD 19.5 million, up 61% on the prior corresponding period. You can read the bullet points. The second and third bullet points are just about the two divisions. A record Agri division EBITDA of NZD 15.3 million, up 56% on the prior corresponding period. A record Industrial division EBITDA NZD 15.5 million, up 52% on prior corresponding period. I'm really pleased that this is a broad-based improvement in the business. Almost all parts of the business are contributing. Where it's slower, there is still great opportunities. Overall, it's been a fantastic effort on behalf of all the teams. We've had a record operating cash flow of NZD 35.1 million, up 33% on the prior corresponding period, which funded dividends, CapEx, and a significant reduction in debt. It's a reflection of the strength of our OEM customer base that can pay us, and the essential consumable nature of many of our products, which means repeat business. The directors have determined that there'll be an increased interim dividend up NZD 0.01- NZD 0.065 per share, paid on the 18th of March 2021, and imputed as previously to 50%. I'm sure there'll be an opportunity to discuss the guidance. Guidance previously was NZD 30 million -NZD 35 million. We've increased that to a range of NZD 33 million- NZD 37 million. Just a note on COVID, remains a significant issue for many of our people in Europe and the U.S. in particular, and until recently, Victoria. Now, of course, we've had a little blip in New Zealand again, that will continue to cause disruption through this year. Overall, our leaders and teams are managing the impact that COVID can have on logistics and operations very well. We'll come back to some of the issues that we see going forward. I'm very confident that we have the team to deal with those issues. We move to the next slide two. This is the financial highlights for half year 2021. You know the revenue, EBIT and NPAT, as I said, that just reflects the broad-based gains we've been making. I talked about the dividend. A little bit more on the operating cash flow. You remember last year, the full year operating cash flow was NZD 48 million. For the half year this year, it's NZD 35.1. CapEx, net of disposals of NZD 2.3, dividends of NZD 14.6. Right of use asset lease liability payments of NZD 2.2 million and debt reduction of NZD 15.5 million. I think the cash flow helps emphasize, again, the value of our low CapEx model, where in many cases, customers contribute to the development of our new products. We've been doing some work on, we talked about new products and some of the feedback has been, what does that actually mean? For the first half result in 2021, FY 2021, it's 21% of our revenue comes from new products. It's important we define new products in a way that says, for example, if we have a product that has a new compound that meets new standards, that's considered a new product, and product enhancements are considered new products. If we include recent acquisitions, for example, Silclear, that means that the percentage of revenue from new products over a three-year period, and that's the revenue in the half year 2021, will be 25%. That gives you a feeling about the rate of innovation of products, which I know has been of particular interest. Moving on, we have the bridge, which explains the change between, obviously, half year 2020 and half year 2021. If we go left to right, the first two are really growth in contribution from sales and, of course, Silclear. That's a large part of the Agri growth. Silclear is going well. It's contributing in line with our expectations. We've had gains in potable water market share in the U.S., Asia, and Australia. I'll just pick out, you might wonder why did we mention Asia? Previously, we talked about the growth with Nolato in the U.S. We have good growth opportunities, not only with Nolato, but particularly with Nolato into China. That's where the comment around Asia comes from. We've made good gains in Australia. We have a very good leader in Australia driving through potable water applications for, effectively, infrastructure pipelines in Australia. That's going very well. Another highlight has been, we talked about the foam business at the annual meeting, so some good examples of some of the U-DEK product in particular. We've had high growth for U-DEK materials globally. That's a fantastic product, and we're seeking to maximize the revenue and earnings from that particular product. There's been sustained demand for footwear in New Zealand. I think in New Zealand, one of the areas of interest has been our competitors have struggled to get supply. We have struggled to keep up because, of course, I believe we've been gaining market share, and just the logistics challenges have made it difficult. Having said that, we're in very good shape. I look out the window and hope that we won't have any kind of weather incident later in the year. We're on a very good path for having a good year in footwear. This includes government grants and government grants includes the forgiveness of the PPP loans in the U.S. and Australian JobKeeper payments. In some ways, that gain has been, one way of thinking about it is, it's been offset by the corporate costs. They're not related, but increase in provision for defending a claim against the divestiture of the Luca Bond business, and there's a particular comment around that in the release. This goes back to 2008, a business we divested in 2008. To be honest, we don't know the full details, so we provision really our expected legal costs. Over time, as we get a clearer understanding of the position, of course, we'll make that clear to everyone. If we go into the two divisions, we'll start with the agri division, so that's slide four. You can see rubberware sales are up in all of the markets, notably Europe, and Silclear's performance is very good. Remember, the prior corresponding period was only two months, and we've had good gains operationally. The gains in operations have really come mainly at Wigram. Not only Wigram, but mainly at Wigram, and it's a combination of focusing on cycle time improvements. We've reorganized the shifts. Some of that was caused by COVID, but we've also reviewed the allocation of people to particular areas of the business. Consequence of that is we have far better inventory management, sorry, and an improved lead time. What that's doing is, in effect, lowering our cost of production, but giving us capacity for free, which is helpful as our volume goes up. In other words, we believe the operational gains are keeping up with the need for capital investment. In other words, the capital investment will be very low. The footwear sales growth, you can see it's up 16% in New Zealand, both rural and hardware channels. International was interesting. It's up in the U.S. due to the dielectric boots and down in Europe, partly, I think because it's just a very confusing time with Brexit and a number of other issues. The operational performance of the footwear, of course, predominantly it's made in China, has been very good. I previously have referred to Martin Li and his team, they've done a fantastic job. The next slide is just a reminder of some of the products that we have focused on. What we do in agri, there's no I apologize, there's no page number on that slide. The addition of the silicone tubing. Silicon tubing, it's interesting. When we acquired Silclear, our target was our key customer, GEA, in the U.S. We still haven't won that business, but what's interesting is Ian Bradbury from Silclear has actually grown the business well. It's not that we don't have the opportunity with GEA USA and we went on farm testing and everything like that, it's just that they've become very preoccupied with what's happening in the U.S. related to COVID. Of course, there's a point where that will flow through. We're very confident that the quality of Silclear tubing will give us further opportunities in the future. Just picking on one path, for example. Okay, onto the industrial division. You can see that revenue's up 7% and EBIT's up 52% against prior corresponding period. We've had good growth from potable water and wastewater applications and good market share gains, we believe, in Australia and the U.S. I mentioned the U-DEK foam product in particular. It's significantly up in all markets. We've had very good growth from our DEKS roof and sealing products in Australia and the U.S. and Europe. Overall, our margin and cost improvements, it's been interesting, in particular in Melbourne, where the team, a large part of our DEKS roof products in Australia, we've had our team in lockdown for up to six months. In that time, they focused on logistics improvements, just a series of small improvements that are sustainable and showing a better way of running the business. That's been a fantastic effort. The pipeline of new products is good, we have good depth and good breadth. We're confident of continuing to grow our business. I mentioned the PPP loans and the JobKeeper subsidies. Really, the next slide is what we do industrial. You can see the U-DEK product on the left. I'm sure many of you have seen that. Potable water needs are going to keep increasing. We see the back trends for both the industrial products, potable water in particular, but also going back to dairy. You've all seen the milk price and everything. The demand for protein remains strong. To dwell on a couple of things, then we would welcome questions. I should have mentioned I have Graham Leaming with me, of course. You can see if I'll Skellerup and he'll, I'm sure, provide more detail as and when needed. If we look at what opportunities have come up, the first thing I think is that, as I said, the strong backwinds for protein mean that the agribusiness, the dairy business, which is really about milk and protein still has a long way to go. It's not that we don't see issues in the future, it's just that that demand for protein means if you took a three to five-year view, it looks very strong. Opportunities are arising, I've mentioned this before from the Viva Dale acquisition of Avon Milk, right? Of course, we've been developing the business with Silclear. That has thrown up opportunities with key customers. It's in our hands to drive that through, but we still see growth opportunities through that as well as just the back winds of natural growth. That's some particular examples from Agri, not all of the examples. Then on the industrial side, as I said, the potable water opportunities are there. The infrastructure scheme that we've been waiting on for a long period of time, we're still not necessarily seeing a lot of that. You can see it in New Zealand and in other markets. The infrastructure is breaking down. It will happen, and we will benefit from that. In particular, we have specific projects we've been working on that will turn into revenue in the latter part of this year and early next year. The obvious question is, why have we changed guidance? Well, we expect a better result. I wrote a note before just to emphasize, we're not aiming for the midpoint. The range reflects the uncertainty we face. Just the key issues that we face, first of all, there's increasing disruption to logistics. In some cases, we sell on a delivered basis. In the last month of the year, that can have a big impact on revenue. At this stage, we don't think so, and we think we're managing these risks well. The point is, which we're trying to give guidance for the 30th of June now. In some areas, the uncertainty has increased, certainly around the logistics side. A couple of examples of things we've done. We've broken down large shipments into more frequent small shipments. We've air freighted in some cases where customers got in trouble, and usually that's at the customer's cost. Of course, going forward, we need to be thinking better ways of doing that. There's been increasing costs both related to freight, that's congestion charges, but also we're seeing the increase in key raw materials. Recently, we started to see availability of raw materials as an issue. For example, Dow, the large chemical company, has limited sales of certain products to the U.S. market to support U.S. customers. None of these are unusual. I just emphasize we focus on these because these are things that can inhibit our business. Actually, we've been managing these things even before COVID. I think we've shown over a number of years, we actually manage these processes well. Again, that comes down to the strength of the team that we have, and we have the skill set and the people that can actually solve these issues. Overall, I'm quite confident about that. Something I don't talk about a lot is the New Zealand dollar. Obviously, that can have an impact. The volatility of the New Zealand dollar, Graham does a great job of our hedging programs. Beyond that, we're really focused on our key customer growth. The only concern I have in any way is simply the inability for me to travel, which can limit the opportunity for acquisitions. Overall, we have a very strong balance sheet. We've increased the dividend, so hopefully shareholders see some benefit from that, and the outlook is bright. It's as bright as looking out the window at the moment. I'll stop there and welcome questions. Thank you. Thank you. If you'd like to ask a question on today's call, please press star one on your telephone keypad. If you're listening today using a speakerphone, please pick up your handset before pressing the corresponding digits. Once again, please press star one at this time to ask a question. We'll pause for just a moment. We'll go ahead and take our first question. Caller, please go ahead. Yeah. Good morning, David and Graham. It's Guy here from Forsyth Barr. Congratulations on a strong half result. First question from me, significant margin expansion across both divisions. Can you give us a bit of a sense of how much of that is driven by the operational gains you talked to versus changes in the product mix? Particularly, I guess in industrial, where you're seeing growth in construction and mines. Yeah. You want to focus on industrial. It is a combination of factors, Guy, and we talked about this yesterday with the board, as a matter of fact. As you know, our industrial business is a collection of different businesses. In some instances, we've successfully deployed resources, deployed people to take cost out of the supply chain, so reduced freight costs. In some instances, we've continued to improve the product mix, so we've seen some gains there. We've made some improvements in our manufacturing in the areas where we manufacture our own products as well. It really is a combination of factors. It's no one single factor, as David's already touched on. Similarly, in the agri division, I guess the improved margin splits, in my view, relatively close to 50/50 between greater volume and operational improvements. Yeah, thanks. I guess, part of the question is trying to understand what is an appropriate or how much of this margin expansion is enduring going forward. I know you've previously talked for targeting a 17% EBIT margin in the industrial business. 18% in this period, obviously boosted by a couple of one-offs in the government grants and the like. Have you revised those kind of EBIT targets or longer-term EBIT margin targets? I think the first thing is, Guy, David always targeted 20% of the industrial business. We've had a bit of a debate about that over the years. Those targets are still in place. Of course, it depends on what the mix of business is at any point in time. David commented on the potential headwinds that we have in terms of freight costs and raw material costs. We start to see those towards the end of the first half, and we see them in the second half. We're not without the capability to find ways to deal with those as well. We're not planning on shrinking our margins, perhaps, is the best way to put it. Yeah, that's fair. I think if we can grow, Sorry. If I can split it into the two different businesses, they have slightly different dynamics. As you know, our main growth area is the U.S. market. We're very focused on the U.S. and thinking carefully about how we produce more in market to reduce geopolitical risk. I think that's really important. Of course, that takes away some of the logistics issues that we're having. We're giving that a lot of thought at the moment and we're developing our plans for taking advantage of that, if that makes sense. The thing I'd say is that the agri division, in my view, has always had the potential through the We talked about the investment in Wigram. It was a large investment, over NZD 68 million, including the land, and we're starting to realize some of those improvements. Those are sustainable going forward. The margin at the front end, where if we are in a super commodity cycle, and this affects industrial in the same way, it simply comes down to the ability to pass on raw material costs, and that's an individual customer by customer question. At the same time, of course, they resist that at the start. In between, you have a lag on raw materials. The way I'd sort of summarize that is, given our stock of raw materials, the impact of raw material price increases is not something I'm worried about for the end-of-year result. I'm thinking hard about it for the second and third year, sort of outlying years. We do have a choice. In many cases, of course, there are many new raw materials that come on board, and if you get them fully tested, you can often engineer out the cost of raw materials to some degree. That's what we've shown we're very good at, whereas some of our competitors have outsourced to suppliers, that kind of thing. Just talking generally. From an agri division point of view, there are more gains to be had in terms of structuring our business to give shorter lead times to take away the tyranny of distance with our key customers, particularly in the U.S. I think on the industrial side, we have similar opportunities. We've been working very hard operationally for three years, and it's pleasing for me. We started to see it last year. You can see it in the operating cash flow quite quickly. We think that will continue. I'll stop there so other people have a chance. Thank you. They're good questions. Great. Thanks, guys. That's all the questions from me for now. We'll go ahead and take our next question. Caller, please go ahead. Hi, guys. David and Graham. It's Christian Bell from Jarden. Congratulations on the really good result. I've got a few questions here, so you'll have to bear with me. How much was the pull forward from Brexit that you mentioned in the commentary at an EBIT level? Yeah, relatively small. I think we made comment in the commentary of, we believe the first half was boosted at the impact level by half a million dollar. That's an aggregation of some deferral from the previous year, which we talked about at last year's year-end, and a little bit of pull forward from Brexit. It's always hard to really accurately assess what might have been brought forward until you actually have two or three months down the track to see how your numbers have changed. That portion primarily relates to the agri business, and that is where we noticed it, both from a deferral from last year into the first half and a bring forward from the second half into the first half. That said, obviously what are we? Six, seven weeks into the new year now, our results continue to trade well in that first part of the period. Nothing particularly notable from Brexit, there is still a lot of uncertainty there. When we talk to our leaders, what works with one customer or one market is a little bit different somewhere else. They are, I guess, daily issues that they're dealing with in terms of just trying to navigate this new era. Yeah, cool. Sorry, I didn't mention either half a million dollar I think for giving me that. At an EBIT level, [inaudible], give or take. Cool. I guess, looking forward to the medium term, where can you get to in five years' time? Like, say in FY 2026, would NZD 55 million in EBIT sound crazy? Graham's passing the ball to me. I'm just thinking. Funnily enough, I don't think that's out of the question. Of course, the big question is acquisitions. Can we find aligned businesses? We're spending quite a bit of time on that now because I think the very small bolt-on acquisitions we've done, it shows the power of getting those kind of acquisitions right. Silclear is one example, but Nexus Performance Foams performing in line, and even Silclear. Silclear is a capability that probably gives us our expansion opportunity in the U.S. quite quickly. We've been considering, for example, instead of making silicon tubing in the U.K., maybe we should set up and manufacture or acquire a business that would have a customer base that's attractive in the U.S. Those are the kind of things we think about. If your question is around organic growth over that five-yea r period, we have no shortage of key customer and key product opportunities to get to that kind of number. Five years is a long way out, given a number of things happening in the world. We focus very hard on three years out, just to give you an idea. As I said, Graham and I are very focused on the next year. In some cases, this year, we have orders through till June already. In other words, we have a little bit more certainty about that. Now, that's not taking into account the disruption in logistics I talked about. We could have, in one case, we have orders out till the end of June, but we could lose a month's sale simply by not being able to get the product to customers. Putting all that together, we've given guidance for the end of the FY 2021 full result, NZD 33 million-NZD 37 million. Looking forward, we do have strong growth plans for the following two years, and that's why we'll keep reporting the percentage of new products as a percentage of our revenue. This is something relatively new for us, and we'll make our definition clear, because it's all on the definitions, I'm sure you know. Really, Graham and I have been focused on the second year, so FY 2022. That is where we need to demonstrate our ability to continue to grow the business. Acquisitions would be on top of that, just so you're clear. Yeah. Okay. Putting it another way, in three years' time, FY 2024, just through organic growth, you could get at least NZD 45 million for the year's revenue? By years. The short answer is yes. We will do it. The short answer is yes. Okay, cool. Great. What will that look like? Where is that growth going to come from? Is the revenue split going to be 50/50 agri, industrial? Are you able to talk to that a little bit? The obvious place we are looking very hard, we're not ignoring New Zealand, because obviously we have a New Zealand shareholder base, and by definition, we have more control in New Zealand than other markets. The obvious market we're looking at is the U.S. The U.S. has the largest scale-up opportunity. Previously, just one reason we're confident about growth in the U.S. is, I've mentioned in the past, a large private company we're doing a lot of work on, that would be a step change. It's about executing. We have won the business in that sense. We just now need to start making the product and delivering it. That was in the hand sanitizer area, so I don't think even if COVID goes away, I think we've seen that in New Zealand, the change in the nature of how we work means that hygiene, personal hygiene, is going to be at a high level going forward, without a doubt, just having read Bill Gates talk about this stuff. Anyway, the important thing there is that that's one example. Even with our existing customers, so for example, we are now putting in place more tooling for Moen, both for the U.S. and for China, as I mentioned earlier. It's a combination of both new products and new customers. Even with our existing customers, we're gaining market share in the markets. Our target is really the U.S. That doesn't mean we're not looking in Europe and Australia and places like that. Clearly, and I've said this before, if we acquired a business or if we got a new customer, the scale of the U.S., loosely, you can add a zero to the numbers. That is obviously our key focus. Remember, a lot of the development is done in New Zealand, particularly for the industrial products. Well, actually for agri as well. What am I saying? Our focus on product development is really in New Zealand, and that's why I'm positive about our ability to continue to innovate, because we have our hands around that in that sense. I hope that gives you a sense of our confidence in that. Like, does that mean you expect pretty much strong growth across every single division? Necessarily, the split might not change apart from some particular divisions like hygiene, for instance? Is that correct? Well, the industrial division, by definition, is roughly double the revenue. There are more opportunities there. If you think of the product base, dairy is relatively narrow into liners and tubing and filters and things like that. Whereas on the industrial side, you can take the same silicone tubing, and it has more applications. I think inevitably, there'll be a stronger shift towards the industrial division. Hey, I don't mind which way it goes. The opportunities, I think, are going to be more strongly on the industrial side for growth in the U.S. market. Okay, cool. I know that you guys have indicated that you're confident in those growth stories, but are there any particular projects or clients other than that hygiene one that you can provide an example of? I just gave one with Moen as an example, but of course, there are others. I don't usually go through project by project. I know that would help everyone understand what's happening, but remember, it's a capability thing that we do. For example, the Silclear Technic acquisition has a number of mask opportunities, and people could see those as flighty, I guess, is the way to say it. We have meaty opportunities with Kohler, with Moen. We're looking hard at the pipe ring opportunities. We've announced one several years ago that didn't really work in that sense, but it's not like we're not looking. I guess what I'm trying to emphasize, we're not relying on one big opportunity to change the game. We have a series of opportunities, and they vary from more of the same that we control to completely new. Completely new products for completely new customers is the highest risk area in terms of delays. It'd be the delays as opposed to losing the business. Again, in the areas that we focused on, we very rarely lose business. We tend to gain market share. When we started with Moen, I can remember it was $1.5 million, and it's grown considerably. Our initial target was NZD 3 million, and we're well beyond that now, and yet we're still seeing new opportunities. The Silclear opportunity was a material opportunity with liquid silicone, and I still think there's opportunities there. Instead of being focused just on a particular growth market like potable water or agri, underneath that, there's this materials thing. We believe we have some of the best rubber chemists for black rubber. We believe we've shown we have capability in silicone, and we believe liquid silicone is part of that future. You can kind of see a theme there as we evolve our understanding of what is really our strategy. If we come back to our strategy, it's identifying customers with a problem that they cannot solve with their existing suppliers, and they turn to us, and that's where we get that first chance to look at. That's through a combination of our compounds. That's through the ability to create new compounds to meet increasingly strict standards, and it's the combination of the tooling, and it's putting all that together into a package. Also remember getting the customers to contribute to that development. Often that's significant, if that makes sense, which leads back to the low-cap model. I believe it's not only just that we can achieve this growth, we can do it in a capital-effective way. You'll note, one thing Graham and I focus very hard on is to make sure that capital allocation, which for me is people and dollars. It's not just dollars, it's people and dollars through the big opportunities. We would be spending more than half our development time on the industrial side, on the U.S. market. Yep. Okay, cool. Just honestly monitoring the fact that you're experiencing efficiency gains and you are capital light, how much extra capacity do you have left within your current operations to fulfill the growth aspirations in the future years? I'll split it into two parts. One is, if we take Silclear, we put on a second shift, round figures, we probably have another 40%. Again, with relatively little capital, we could increase the capacity at Silclear. This is tubing, really. We could also use that capital to set up in the U.S., that's minor. When we take Wigram, round figures, we're running at about 75% of what I believe is capacity, we can ramp up quite quickly. In fact, our improvements effectively are giving us capacity for free. As volumes go up, I think I made the comment earlier that I believe we can, through efficiencies, not need to spend more capital. There's a minor amount in terms of changing the tooling and things like that, not much. We could probably grow volumes 30%-40% for liners. We had two machines that made black rubber tubing. I still believe that there's at least 50%-80% more capacity on tubing and some of those critical other parts. To give you a sense of that, if the growth were, I don't know, 15% a year compound on volume, we could probably keep up with that. The bigger question is going to be, are markets going to allow us to manufacture in New Zealand and ship? For example, is the U.S. going to review where products come from? That's probably the bigger issue. We're very focused on thinking about a market supply, manufacturing supply. Sorry, Graham. I'm just going to say, and to add that on the industrial side, as you know, predominantly we design, and then we have our partners manufacture. That's very scalable in terms of on occasions, it requires us to make some capital investment of a specific equipment. If it's more general equipment, then the capital investment's made by our partners, and our commitment is the tooling, which in some cases, customers are contributing to. It's pretty scalable on the industrial side. Awesome. No, that's super helpful. Thank you, guys. If you were to have, in your bolt holes, is there any particular areas that you are focused on, or is it anything that comes up possible? When we find something, we'll let you know with everyone else. I'll give you an example. When we realized there was probably a trend towards silicone, we scoured the world reviewing the producers of silicone tubing. When I say silicone, mainly tubing, because we didn't have an offering there. A small one in New Zealand from a local manufacturer. In general, we weren't in the game. We did our analysis. We found around 13 companies worldwide that produced, in reasonable volumes, silicone tubing. We had our rubber chemist do a full analysis of the quality. Out of that, we came up with three top companies to target. The best one was Silclear, and we've acquired it. We haven't forgotten the other companies. There's potential in that area, but don't just focus on silicone. That's one example. If you take some of the things we do on the industrial division in the U.S., there's not only silicone opportunities there are also liquid silicone opportunities there, if that makes sense. We're not afraid of a large acquisition. The fact that they've been small bolt-ons, I think that's more because the nature of our competitors, just like us, we tend to be a small part of a larger system. Our competitors are relatively small. They're of the order of, even a big one would be NZD 30 million-NZD 50 million, the acquisition cost. It's not for lack of wanting or trying, Christian, if you've got any suggestions, feel free. Again, without overlooking New Zealand, it helps if we acquire in New Zealand because we pay tax here, and it helps our imputation credits and our shareholders. I know that sounds very general, but as you can see, we're targeting the area. One obvious area we focused on was silicone, but there's also key suppliers. I'm using that as an analogy of how we think about this. There are other key suppliers of silicone. We thought we'd bought the best one, and we did a good job on that, objectively. Yeah, there's still opportunities. There are still other suppliers to GEA U.S.A., as an example. Who are they? We know who they are. Of course, you need a willing seller. We've identified companies we might want to buy, but until you know that there's a willing seller, then you can't take it further, no matter how much you want to do that. That's why, coming back to it, we're thinking about our expansion ourselves. Of course, that's slower. Acquisitions are faster if you get them right. I hope that helps. If that's our philosophy about acquisitions. No, that definitely gives me a sense. Sorry, obviously, I'm a little bit new to the company, so I'm just trying to get an understanding. No, that's super helpful. Thanks for answering my question on someone else's call. Good. Thanks, Christian. That's good. Cheers. Thank you very much. Great. We'll go ahead and take our next question, and once again, that is star one if you'd like to ask a question. Caller, please go ahead with your question. Morning, Graham and David. It's Chris Bennie from Craigs. How are you? Hi, Chris. Good day. Yeah. Just a question on the dividend lift. Is there any reason why the dividend's only up sort of 18% when NPAT was up sort of 60%? Is that highlighting, you think, those margins that feature an indication around sustainability of those into the next few years? Chris, I think, if you look at our guidance, if you compare our full year guidance NPAT for this year compared to what we achieved last year, obviously, the uplift for the full year is forecast, whether you're on the range to be more modest than what we achieved in the half year. Typically, we pay a proportion of our dividend as an interim and a portion as a full. To answer your question, our guidance in itself, provides a perspective that we do not expect the second half to be as strong as the first half. It's also worth remembering the first half last year was down on what we'd achieved in half year 2019 at an NPAT level. When we reported that result last year, we highlighted how the January month had been very strong, which means on a year-to-date basis, we were back on track. I think that's worthwhile noting as well as the half year last year was a little weaker from a timing point of view and a little weaker than it was in HY 2019. Okay. Sorry, [inaudible]. Sorry, Chris. Just to maybe answer it a different way. The directors, and we had a good discussion yesterday at the board meeting, are always considering how we can return cash tax effectively to shareholders. At this stage, clearly the directors approved a 1c increase in the dividend. We are considering other ways that we could do that, but it's not a lack of certainty of the cash flows. It's just really important. Of course, we will consider the dividend for the full year later in the year when we understand how the business has gone. At this stage, we're confident that the cash flows will continue to improve. Having said that, we have this inventory thing at the moment. When I say inventory, our inventory is probably lower, in particular with footwear, for example, than I would like it to be. Net-net, we're improving the business faster, and if we continue to get the growth, clearly there'll be more cash coming through. Where did you land on the most tax-efficient way to return capital? [inaudible] Without ASX, there are certain things we can't easily do tax effectively. I guess the obvious thing is there would be an on-market share purchase, but we haven't announced anything like that. Of course, the share price at the moment, it would have been great in March or something to consider it. We did, to be fair, we did have a high-level chat about how do we do this. The reality is our options are quite narrow. The pressure is on Graham and me to do an acquisition and use cash in that form, I guess. At the same time, we think hard about shareholders, and if we were to increase the dividend now, that could cause issues with imputation. There's a number of factors that we have to consider. I guess what I'd say is this is of very deep interest to the directors and representing all shareholders, and we take that seriously. Okay. Then into the first half, so to hark back to the margins, it's obviously a substantial uplift. In terms of what's sustainable, are you confident you come through the first half of next year and you hit these margins again? Because of subsidies and pull forward, we should be looking at sort of somewhere in the middle, especially with Agri, going up to sort of the 30% margin is a more sustainable potential given efficiency gains, et cetera, and maybe mid-teens. Will there be a few points looking forward into the next first half? Where we have growth, I tried to answer that. Let me go through it carefully. If we have further volume growth, the overhead stays near enough the same, so the margin drops through. It's about 40%, I guess, on Agri, if that makes sense. That's one way of thinking about that. Subsidies are almost irrelevant in terms of our thinking. Yeah. I think may I add that the benefit of those subsidies, and it's a PPP loan, if people don't know what it is, it was the Paycheck Protection Program in the U.K.-- oh, sorry, in the U.S. Obviously, that benefited the industrial business, and you would not expect a repeat of that. Of course, the whole reason that that subsidy existed was because businesses were suffering somewhat as a result of COVID. What happened was that that money was funded back in FY 2020. The commission process, if you like, which was where the impact of COVID was born, and the results of the industrial division last year recall. The opportunity to have those monies forgiven obviously fell into a new financial period. Perhaps the way of looking at the subsidies there is as they relate to the second half of last year rather than the first half of this year, when you're looking at the earnings impact for the industrial division. Okay. All right. We can take it that the traditional 23% margin and 30% is the new norm. I don't know about the norm, but certainly we are working very hard to deliver that on a full year basis. You're right. If you go back over the last five half years, it's 22-23 or 23-22, whichever way you look at it. 30% is a significant change. As I said, about half of that is sustainable through operational improvements. They're not dead. We're working very hard on operational improvements now. What happens is if you get the growth and volume, so you get your top-line margin improvement, and you're improving your operational side, you get that double whammy gain given away a little bit with logistics and most of our growth is overseas, as we pointed out, a lot in Europe. Those opportunities through the DeLaval acquisition of milkrite will continue to provide back winds, certainly through this calendar year. If we lock that in place, I don't think these people are switching just on price or anything like that. They're switching because they, for various reasons, don't want to deal with milkrite. They don't want to deal with BouMatic, but they were comfortable with milkrite. Some of those switches are permanent. It's related to not just the liners, but the equipment that's used and things like that. I think we're in a good position. It's not a given that it'll be 30% in Agri or 18% in industrial, but our targets are higher than that. Chris, I've just one other thing perhaps to add on the Agri division. It's typically had, as you'll appreciate, a stronger weighting in the second half. If you look at the full year, EBIT percentage for the Agri division last year, it was 27%, versus the first half of just under 23%. There's a couple of factors there. Obviously, we've made the acquisition of the Silclear business, which is a high margin business. That benefits, and we'll continue to realize that benefit. When you lay that alongside some of the gains that we've made from an operational point of view, I think it's certainly fair to say that we would expect the EBIT percentage to continue to be higher than what it was in the preceding period. We highlighted there's a little bit of extra pull into the first half of this year's result for Agri. I think the important point to say is we believe we've moved it to a sustainably higher level. Yeah. Okay. How much increase in EBIT did Silclear provide this year with the extra four months? Can you sort of disclose that? Yeah. This year it's around about NZD 800,000 compared to the contribution it made in the first half of last year. Just under NZD 1 million. That EBIT. If you get your ruler out in my bridge, you should be able to see it. That's the impact as well. That's the impact, right? That's the EBIT, yeah. Yeah. Have you got sort of an impact? Yeah. I just grossed that up, because the U.K. tax rate is a bit below 20%, so. Okay. Cool. That's great. Very good result, guys. It's nice to be questioning whether things are sustainable after such a good result rather than the other way around. Well done. Okay. Yeah, thanks, Chris. Very nice. Thanks. Thank you. It appears we have no further questions. At this time, I'd like to turn the call back over to today's presenters for any additional or closing remarks. Well, from my point of view, as always, I appreciate the efforts of all our team. I'd like to thank the directors through tough times. We had a number of Teams meetings. That's an interesting process, but I think we've had good support from the directors of the board and just a fantastic result, which I'm delighted, as I said, for the teams, who worked incredibly hard in difficult circumstances, and I appreciate the interest in the company. Thank you very much, and on behalf of Graham and me, thanks for the opportunity. If you would like to have a one-on-one or something, please reach out. Thanks very much. Thanks, Karina. Thank you once again. That does conclude today's conference. We do appreciate your participation. You may now disconnect your phone lines.