Synlait presentation at the Select Equities Conference

DOING
BUSINESS IN
CHINA
27 OCTOBER 2017

Synlait Milk Limited 2017
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STRATEGIC UPDATE
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-This presentation is intended to constitute a summary of certain
information about Synlait Milk Limited (Synlait). It should be read
in conjunction with, and subject to, the explanations and views in
the documents released to the market by Synlait on 19 September
2017, including Synlait’s financial statements for the year ended
31 July 2017.
-This presentation is provided for information purposes only. The
information contained in this presentation is not intended to be
relied upon as advice to investors and does not take into account
the investment objectives, financial situation or needs of any
particular investor. Investors should assess their own individual
financial circumstances and should consult with their own legal,
tax, business and/or financial advisers or consultants before making
any investment decision.
-
Certain statements in this presentation constitute forward looking
statements and projections as they relate to matters other than
statements of historical fact. Such forward looking statements
and projections are provided as a general guide only based
on management’s current expectations and assumptions and
should not be relied upon as an indication or guarantee of future
performance
. Forward looking statements and projections involve
known and unknown risks, uncertainties, assumptions and other
important factors, many of which are beyond the control of Synlait
and which are subject to change without notice. Actual results,
performance or achievements may differ materially from those
expressed or implied in this presentation. No person is under any
obligation to update this presentation at any time after its release
except as required by law and the NZX Main Board Listing Rules.
-
Past performance information is given for illustration purposes only
and is not indicative of future performance and no guarantee of
future returns is implied or given.
-
While all reasonable care has been taken in relation to the
preparation of this presentation, to the maximum extent permitted
by law, no representation or warranty, expressed or implied, is
made as to the accuracy, adequacy, reliability, completeness or
reasonableness of any statements, estimates or opinions or other
information contained in this presentation, any of which may
change without notice. To the maximum extent permitted by law,
Synlait, its subsidiaries, and their respective directors, officers,
employees, contractors, agents, advisors and affiliates disclaim
and will have no liability and responsibility (including, without
limitation, liability for negligence) for any direct or indirect loss
or damage which may be suffered by any person through use
of or reliance on anything contained in, or omitted from, this
presentation.
-
Forward looking statements in this presentation are unaudited and
may include non-GAAP financial measures and information. Not all
of the financial information (including any non-GAAP information)
will have been prepared in accordance with, nor is it intended to
comply with: (i) the financial or other reporting requirements of any
regulatory body; or (ii) the accounting principles generally accepted
in New Zealand or any other jurisdiction with IFRS. Some figures
may be rounded and so actual calculation of the figures may differ
from the figures in this presentation. Some of the information in this
presentation is based on non-GAAP financial information, which
does not have a standardised meaning prescribed by GAAP and
therefore may not be comparable to similar financial information
presented by other entities. Non-GAAP financial information in this
presentation has not been audited or reviewed.
-
All values are expressed in New Zealand currency unless
otherwise stated.
-All intellectual property
, proprietary and other rights and interests in
this presentation are owned by Synlait.
-This presentation is not an offer or an invitation to acquire Synlait’s
shares or any other financial products and is not a product
disclosure statement,
prospectus or other offering document, under
New Zealand law or any other law.
DISCLAIMER

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STRATEGIC UPDATE
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SIGNIFICANT
APPOINTMENTS
TO THE SENIOR
LEADERSHIP TEAM
APPROVAL TO EXPORT
LACTOFERRIN TO THE U.S.
ASX DUAL LISTING COMPLETED
$214m
DEBT DOWN
NET DEBT FY16
N PAT F Y 16
$34.4m
N PAT F Y 17
$38.2m
NET DEBT FY17
$83m
ADDITIONAL
CAPITAL RAISED
$ 97. 6m
SYNLAIT
ADDED TO
S&P/NZX
50 INDEX
5
NEW HOPE NUTRITIONALS
INFANT FORMULA SUPPLY
AGREEMENT IN PLACE
5 YEAR
$8.9m
IN PREMIUMS PAID
TO MILK SUPPLIERS
FY17 HIGHLIGHTS
PROFIT UP
NZDC ACQUIRED TO
DOUBLE CANNING CAPACITY

STRATEGIC
UPDATE
2017
Synlait Milk Limited 2017
STRATEGIC UPDATE

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Synlait Milk Limited 2017
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STRATEGIC UPDATE
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GROWTH
COMPANY
WE ARE A
OVER THE PAST 11 YEARS
WE HAVE GROWN FROM
START-UP TO ANNUAL
P
RODUCTION VOLUMES OF
140,000 METRIC TONNES (MT)
SYNLAIT IS A B2B
MANUFACTURING
COMPANY FOCUSSED
ON MAKING THE MOST
FROM MILK.
20172006

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STRATEGIC UPDATE
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SYNLAIT ADDS VALUE FROM FARM TO CONSUMER
DIFFERENTIATED
MILK SUPPLY
- Contract supply of milk, and other high
quality ingredients
- Facilitate and monitor differentiated milk
supply behind the farm gate (a2 Milk
TM
,
Grass Fed
TM
, Lead With Pride
TM
)
RESEARCH + CATEGORY
DEVELOPMENT
- S elect categories and markets
-Design products
- Innovate production and processes
QUALITY TESTING
LABORATORY
- Zero defects target
- Testing raw materials, finished
products and facilities
- Full quality assurance and
traceability
CUSTOMERS
- Our brand partners
market, promote, and
distribute their products
MANUFACTURING
EXCELLENCE
- Large multi-purpose plant
- Control all aspects of product quality
- Optimise plant utilisation
REGULATORY
CAPABILITY
- Provide market access for our customers
- Secure regulatory approval for products
CONSUMER
CONSUMER PACKAGING
- S econd state-of-the-art canning line being built
- High-specification sachet lines

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INFANT FORMULA IS THE MOST REGULATED FOOD PRODUCT IN THE WORLD - IT IS
THE ONLY FOOD PROVIDED TO SOME INFANTS IN THEIR FIRST MONTHS OF LIFE.
-CFDA registration of The a2 Milk Company’s infant formula was granted in September 2017.
- Because the manufacturer controls quality, the manufacturer is registered alongside the
product in most markets. Synlait registers the brands its B2B customers sell.
- The Chinese Food and Drug Administration (CFDA) will grant selected factories licences to
manufacture up to three brands for the Chinese market.
-We recruited Ying Jin as our Regulatory and Science Affairs Director,
China, to support
market access and business development. Experienced in managing regulatory affairs for
multi-national infant formula companies, Ying has a PhD in food safety and a medical degree.
- The expanded New Hope Nutritionals supply agreement will underpin applications to
register New Hope Nutritionals infant formula brands.
-In October 2017 we submitted an application to register New Hope Nutritionals Akara brand
with the CFDA.
REGISTERING BRANDS IN CHINA

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STRATEGIC UPDATE
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INCREASING OUR CAPACITY AND REDUCING RISK
GIVEN STRONG CURRENT AND EXPECTED CUSTOMER DEMAND, WE CHOSE TO
ACQUIRE 100% OF THE SHARES IN THE NEW ZEALAND DAIRY COMPANY LIMITED
(NZDC). NZDC WAS CONSTRUCTING AN INFANT FORMULA-CAPABLE BLENDING
AND CONSUMER PACKAGING OPERATION IN AUCKLAND.
-The acquisition will enable us to supply more consumer packaged products to customers
faster than a new development would have done.
-Having a second blending and consumer packaging site mitigates single site risk.
-With an additional manufacturing site in Auckland, Synlait’s potential number of brands
in China has expanded.
-We will be seeking both Ministry for Primary Industries and CNCA (Certification and
Accreditation
Administration of the People’s Republic of China) registration for the new facility.
-
In total,
including acquisition, Synlait expects to spend $52m in Auckland by the time the
plant is commissioned early in FY18.

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STRATEGIC UPDATE
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UNLOCKING INFANT FORMULA DRYER CAPACITY
MILK SOLIDS
65.0m kgMS (FY17)
19.8m
6.9m
1.7m Other Suppliers
23 GRASS FED™
FARMS
8.8m
26 LEAD WITH
PRIDE
TM
FARMS*
CONTRACTED FARMS
APPROX 200 (FY17)
60 a2 MILK
TM

FARMS
THREE HIGH SPECIFICATION
SPRAY DRYERS
80,000 MT
MAX. CAPACITY
D3 (INFANT
FORMULA
CAPABLE)
40,000 MT
D2 (INFANT
FORMULA
CAPABLE)
40,000 MT
D1 (INFANT-GRADE
WMP + SMP)
40,000 MT
20,000 MT
AMF
(1)
PLANT
2 7. 6m
89
REGULAR
FARMS
WETMIX
KITCHENS
80,000 MT
MAX. CAPACITY
40,000MT - November 2017
40,000 MT
40,000 MT
NOV 2017
New Wetmix kitchen will enable both
of our large-scale infant formula spray
dryers to simultaneously manufacture
infant formula base powder.
CONSUMER PACKAGING
87,000 MT TOTAL CAPACITY
32,000 MT
(CANNING)
DUNSANDEL
23,000 MT
SACHET LINES
PLANNED
Synlait Auckland’s new blending and
canning line will double our canned
infant formula capacity.
32,000 MT
(CANNING)
AUCKLAND
EARLY FY18
BASE POWDER
CUSTOMERS
Note:
(1)
AMF = Anhydrous Milk Fat*Some Lead With Pride
TM
farms also supply a2 Milk
TM
and Grass Fed
TM
, total Lead With Pride
TM
farms is 50.

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STRATEGIC UPDATE
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-Our team has grown from 436 to 500 in FY17
-Two additional shifts in the consumer packaging facility
-T
echnical roles for the quality testing laboratory
-New roles to support Integrated Business Planning (IBP)
-Lifting the experience profile of our people in Projects,
Technology and Finance
IMPROVING A WORLD CLASS TEAM

OUR
FINANCIAL
RESULTS
FY17
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STRATEGIC UPDATE

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STRATEGIC UPDATE
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FINANCIAL SUCCESS
Notes: (1) Leverage = net debt / EBITDA;
(2) Return on capital employed (ROCE) is calculated by dividing earnings before interest and tax (EBIT) by the average capital employed (equity + net debt);
(3) Gearing = net debt / (net debt + equity), excluding derivatives. See our 2017 Annual Report for further details, available at: http://www.synlait.com/investors/
$38.2m
11%
TOTAL SHAREHOLDER RETURNS
34.1%
N PAT U P
LEVERAGE FROM
2.6X DOWN TO 0.9X
(1)
ROCE OF 13.9% (FY16: 13.5%)
(2)
$65.8m
NET DEBT DECREASED FROM
TO
$214m
$83m
GEARING DOWN FROM
TO
46.8%
18.0%
(3)
EBIT INCREASED TO
(FY16: $61.1m)

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STRATEGIC UPDATE
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-Revenue at $759.0m was up 39% on last year’s
$546.9m, driven by increased sales volumes and improved
dairy commodity prices.
-Total sales volume at 141,393 MT was 21% above
last year’s 116,402 MT, due to increased milk supply
and carry over stock from FY16 sold through.
-Canned infant formula volumes increased
17% to 18,776 MT.
-
11 MT of lactoferrin sold in FY17
(FY16: 10 MT)
. We also used 1.7 MT
of lactoferrin internally in producing
infant formula.
FY13FY14FY15FY16FY17
18,776
15,999
4,305
2,955
1,368
MT
85,31490,59993,454100,387122,588
CANNED PRODUCT
SALES INCREASED
17%
SALES VOLUME BY PRODUCT CATEGORY
Consumer PackagedPowders and Cream
HIGHER VOLUMES DRIVE REVENUE GROWTH

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STRATEGIC UPDATE
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$MILLIONS
PROFIT GROWTH
-Net profit after tax was $38.2m,
up from $34.4m in FY16.
-Increased infant sales volumes
drove gross profit growth of $10.0m
(before tax).
-$6.0m was reinvested into
business development and planning
capabilities for future growth.
NET PROFIT AFTER TAX
$38.2m
FY13FY14FY15FY16FY17
34.4
19.6
11.5
38.2
10.6
(0.2)
(6.0)10.0

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STRATEGIC UPDATE
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FY13FY14FY15FY16FY17
781
567
687
588
110.4
100.4
55.5
64.2
51.0
GROSS PROFIT PER MT MARGINALLY LOWER
-Continued growth in earnings driven by
improved volumes. Gross profit was up
10% to $110.4m.
-Our overall gross profit per MT at $781
was $82 per MT down on last year.
This was due to higher growth in ingredient
sales, which is dilutive to margin.
-In addition, 3,939 MT of carry over
inventory was sold at net realisable
value (no margin).
-Consumer packaged gross profit per MT
improved
, with higher utilisation at our
Dunsandel blending and canning facility.
GROSS PROFIT
$110.4m
863
$MILLIONS
NZD / MT
GROSS PROFIT
GROSS PROFIT PER METRIC TONNE

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STRATEGIC UPDATE
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REINVESTING MARGIN INTO BUSINESS DEVELOPMENT
-In total our overhead expenses
for FY17 at $44.8m were up $6.0m
on FY16 ($38.8m).
-Our strong focus on quality,
strategic initiatives and Research
and Category Development
comprised half
of our increase in overheads.
Our investments in employees was
planned, as we noted in our FY16 full
year and interim presentations.
-
Partly due to
increased infant volumes,
Synlait has carried higher average
inventory through FY17 compared
with FY16. This has required
additional warehousing space.
$MILLIONS
FY13FY14FY15FY16FY17
OVERHEADS
29.2
31.9
24.3
38.8
44.8
(0.8)
(1.9)
(0.3)
(3.0)
Quality, Business
Development, R+D
RentDepreciation Other

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STRATEGIC UPDATE
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CONTINUED CASH FLOW GROWTH
-Operating cash flow increased by
$10.8m from FY16, to $115.2m in FY17.
-Operating cash flow was greater than
EBITDA given rising milk prices,
relative to the advance rates paid.
-An offsetting factor was an increase
in receivables (up $41.2m on FY16).
This was driven equally by increased dairy
commodity prices and increased sales
volumes in the last two months of the
financial year (phasing).
FY13FY14FY15FY16FY17
16.4
104.4
58.7
115.2
( 4 7.1 )
OPERATING CASH FLOW
$115.2m
$MILLIONS
(41.2)
68.9
88.8
(1.3)
115.2
$MILLIONS
OPERATING CASH FLOW
FY17 OPERATING CASH FLOW
FY17 EBITDAAdvance ratesReceivables OtherFY17 operating
cash flow

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STRATEGIC UPDATE
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DEBT REDUCTION
-Net debt has decreased from $213.9m in FY16 to $82.6m.
-The capital raise of $97.6m completed in October 2016 and
strong operating cash flows of $115.2m were the main drivers.
-These factors vastly outweighed the investment in our Wetmix
kitchen ($33.1m), the acquisition of NZDC ($33.9m) and
other capital expenditure of $12.1m.
-Synlait continued generating free cash flow in FY17, producing
$55.0m (being operating cash flow less investing cash flow).
Our leverage ratio improved substantially, from 2.6x to 0.9x.
82.6
(213.9)
$MILLIONS
NET DEBT
FY16 Net DebtCash flow
from Operating
Activites
Growth
Capex
NZDC
Investment
Net Interest
Paid
Equity raise
(net)
OtherFY17 Net Debt
105.6
FY13FY14FY15FY16FY17
213.9
152.1
82.6
262.0
$MILLIONSLEVERAGE
7. 0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
NET DEBT
115.2
(33.1)
(33.9)
(12.1)
96.1
(0.9)
Leverage

OUR
EXPECTATIONS
AND FUTURE
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STRATEGIC UPDATE
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WE MAY ESTABLISH
FURTHER
MANUFACTURING
SITES OVER TIME
GOING FORWARD
-We see considerable opportunities to solidify our current ingredient
and infant formula positions and to enter new categories.
-To date our strategy has been exclusively business to business. In future,
we may consider the establishment of branded positions, where
-there is no conflict with our existing partner relationships; and
-we feel we have significant consumer benefits.
-
It is likely that to achieve this strategy we will also establish further
manufacturing sites over time. Our current balance sheet and projected
earnings are sufficient to fund our strategy.
-In summary our strategy is to continue to grow both top and bottom
lines at pace.
-A more profitable
, more diversified and lower risk business is the goal.
WE MAY
CONSIDER THE
ESTABLISHMENT
OF BRANDED
POSITIONS

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STRATEGIC UPDATE
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EXPECTATIONS OF GROWTH
-W
e expect Chinese infant formula demand to continue to
grow, particularly with the relaxing of the one child policy.
- The regulatory change targeting rationalisation of brands may boost
demand in the second half of FY18, post registration.
- Registration of The a2 Milk Company’s and New Hope Nutritional’s
infant formulas in China are expected to support demand growth.
- Investment in customer and market development (e.g. Munchkin
Inc.) is also expected to support our sales growth.
- As a result, we expect demand to increase significantly for Synlait
consumer packaged products.
-Increased infant formula sales drives margin growth.
-Increased volume from 18,776 MT to approximately 30,000
to 35,000 MT.
-16,000 MT forecast for H1 FY18.
-We will continue to grow our investment in business development
and technical capability.
FY13FY14FY15FY16FY17FY18 (FCT)
30,000-35,000
15,999
18,776
4,305
2,955
1,368
ACTUALFORECAST
MT
SALES - CANNED INFANT FORMULA

MEDIA
Dan Walraven, Communications Manager
+64 373 3069
Daniel.Walraven@synlait.com
INVESTORS
Casey Blatch, Strategic Finance Manager
+64 3 373 3091
Casey.Blatch@synlait.com