Synlait Milk – Annual Meeting of Shareholders

Annual Meeting of Shareholders 28 November 2018
DELIVERING ON 2018

AGENDA
- WELCOME AND INTRODUCTIONS
- CHAIRMAN’S ADDRESS
- CHIEF EXECUTIVE OFFICER’S ADDRESS
- CHIEF FINANCIAL OFFICER’S ADDRESS
- OUR FUTURE
- OUR PURPOSE AND IDENTITY
- QUESTIONS
- FORMAL RESOLUTIONS
- ANY OTHER BUSINESS
- ANNUAL MEETING CONCLUDES
PG 2
I

CHAIRMAN’S ADDRESS
Graeme Milne
CHAIRMAN

Graeme Milne
CHAIR (INDEPENDENT)
John Penno
MANAGING DIRECTOR
Hon. Ruth Richardson
NON-EXECUTIVE, BRIGHT DAIRY
APPOINTED DIRECTOR,
CHAIR OF REMUNERATION AND
GOVERNANCE COMMITTEE
Bill Roest
NON-EXECUTIVE DIRECTOR
(INDEPENDENT), CHAIR OF THE
AUDIT AND RISK COMMITTEE.
Sam Knowles
NON-EXECUTIVE DIRECTOR
(INDEPENDENT)
Sihang Yang
BRIGHT DAIRY APPOINTED DIRECTOR
Qikai (Albert) Lu
BRIGHT DAIRY APPOINTED DIRECTOR
Min Ben
BRIGHT DAIRY APPOINTED DIRECTOR
BOARD OF DIRECTORS
PG 4
I

FY18 HIGHLIGHTS
- Celebrated Synlait’s first decade at our staff and supplier conferences
- Sales increased from $759.0 million to $879.0 million
- Profit increased from $39.5 million to $74.6 million
- Infant Nutrition sales almost doubled, to 35,580 MT
- Announced appointment of Leon Clement as CEO
- Joined the MSCI Global Small Cap and FTSE Asia ex-Japan
Small Cap Indexes
- Strong share price return of 148% in FY18 but has weakened in FY19
$15
$13
$11
$9
$7
$5
$3
FY17 ANNUAL RESULTS
FOODSTUFFS SOUTH
ISLAND PARTNERSHIP
ANNOUNCED
ANNOUNCEMENT
OF POKENO
MANUFACTURING SITE
INTERIM RESULTS
RELEASED
A2 SUPPLY EXTENSION
ANNOUNCED
FY18 ANNUAL RESULTS
FTSE ASIA EX-JAPAN SMALL
CAP INDEX INCLUSION
ANNOUNCED
AUGSEPOCTNOVDECJANFEBMARAPRMAYJUNJULAUGSEPOCTNOV
SML.NZ SHARE PRICE PERFORMANCE
PG 5
I

STRATEGIC UPDATE
- Strengthened relationship with The a2 Milk Company™ with extended
supply agreement
- Infant Nutrition strategy has created concentration risk, hence investment
in Everyday Dairy
- Manufacturing diversification begun with ground breaking on Synlait Pokeno
- Future focus around new Infant Nutrition and Everyday Dairy customers
- Bold sustainability targets announced
PG 6
I

REGULATORY UPDATE
- The ASCIQ, CNCA, and CFDA have now been integrated into the
China State Administered Market Authority (SAMR)
- Dunsandel site inspected in September and expecting approval soon
- SAMR is focused on renewal of existing sites, hence delay on
Auckland site approval
- Brand approvals for Akara and Pure Canterbury hopeful of being
received in FY19
- Munchkin currently selling Stage 2 Grass Fed™ formula in United
States and resubmitting USFDA application for Stage 1 to include
additional supporting evidence
PG 7
I

CAPITAL PROJECTS
- $450 million of growth capital expenditure under construction to be funded
through cash flow and existing debt facilities:
- Pokeno site to be commissioned for 2019/2020 milk season
- Advanced Liquid Dairy Facility on track for March 2019 commissioning
- Lactoferrin expansion commissioned in November 2018
- Talbot Forest Cheese conditional acquisition to be completed August 2019
- No need to raise capital, but no dividend while on strong growth trajectory
- Guidance for FY19 remains an increase in profit but not as substantial as
this year’s increase
PG 8
I

Leon Clement
CHIEF EXECUTIVE OFFICER
CEO’S ADDRESS

INGREDIENTS
INFANT NUTRITIONEVERYDAY DAIRY
ADULT NUTRITION
WE WILL LEVERAGE OUR UNIQUE SUSTAINABLE VALUE CHAIN
IN EACH CATEGORY TO BUILD SUCCESSFUL BUSINESSES
THAT CONTRIBUTE TO OUR LONG-TERM SUCCESS
TO SUCCEED
OUR CATEGORIES
SUSTAINABLE VALUE CHAIN
ENVIRONMENTPEOPLEENTERPRISE
PG 10
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ENVIRONMENT
Our Ambition: Synlait’s net business impact is positive for the planet.
Restorative and regenerative agriculture, manufacturing and supply chain
- Sustainability commitments established, including:
- On-farm GHG emissions down 35% per kgMS by 2028
- Off-farm GHG emissions down 50% per kgMS by 2028
- Water use down 20% per kgMS by 2028
- Nitrogen loss down 45% per kgMS by 2028
- Joined as a Founding Partner of the Aotearoa Circle
- New Lead With Pride™ incentive programme is in place, which includes a
PKE-free incentive
- 38 new farms currently undergoing Lead With Pride™ certification
- Methane inhibitor programme is underway with encouraging early results
- New Zealand’s first electrode boiler is in place, due for
commissioning ahead of schedule in January 2019
PG 11
I

PEOPLE
Our Ambition: To build a better Synlait – a world class organisation aligned
around a common purpose, executing with excellence, driven by innovation
and creative thinking
CULTURE AND ENGAGEMENT
- Gallup Q12 Engagement Score continues to improve, from 31st to 60th
percentile of peer group in the previous twelve months
SYSTEMS AND PROCESSES
- Enterprise resource planning system partner selected
HEALTH, SAFETY AND WELLNESS
- Total Recordable Injury Frequency Rate (TRIFR) decreased by 44%,
reporting is increasing, and severity is reducing
- Critical risks project is progressing
DIVERSITY AND INCLUSION
- Action Plan launched to attract, equip, and empower talented leaders
PG 12
I

ENTERPRISE
Our Ambition: To establish a world class value chain. With our heart in
New Zealand and our head in the world, we’re returning an economic glow
for New Zealand
- Lactoferrin expansion completed on schedule in November
- Advanced Liquid Dairy Facility structure is near completion as we begin
installing manufacturing lines
- Pokeno site is on schedule, with milk supplier recruitment progressing
well and key operations staff appointed
- Integrated Work System (IWS) Programme has been in place for a year and
is enabling considerable improvements in asset utilisation and efficiency
- Dunsandel quality team is midway through FSSC22000 accreditation
PG 13
I

Nigel Greenwood
CHIEF FINANCIAL OFFICER
CFO’S ADDRESS

OVERVIEW
- Full-year profit up 89% year-on-year to $74.6 million,
ahead of all previous results
- Profit growth primarily driven by 89% increase in
consumer packaged infant formula sales volumes
- Earnings before interest, tax, depreciation and
amortization (EBITDA) increased 56% to $138.6 million
FY16FY17FY18
FY16FY17FY18
IFC VOLUME DRIVES NPAT
NET PROFIT AFTER TAX
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0
40,000
35,000
30,000
20,000
25,000
15,000
10,000
5,000
0
$ MILLIONS
$ MILLIONS
MT
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0
IFC VolumeNPAT
$138.6m
CONSUMER PACKAGED
INFANT FORMULA
35,580 MT
EBITDA INCREASED TO
(FY17: $88.8m)
35.7
39.5
74.6
15,999
18,776
SALES OF
35,580
PG 15
I

FY16FY17FY18
FY16FY17FY18
SALES VOLUME
- Revenue increase of $120.0 million to $879.0 in FY18 is due to a
combination of higher value consumer packaged infant formula
sales and an uplift in dairy commodity prices
- Total sales volumes down 9.0% over FY17 to 128,637 MT, due
to shift toward consumer packaged products that restricts the
amount of milk we can process in peak production months
- Powders and Cream sales down 24% to 93,042 MT, in line
with H1 FY18 guidance
- Finished goods inventory increased by $55.1 million to $122.6
million, the majority of which is due to a buildup of bulk infant
formula manufactured to meet forecast FY19 consumer packaged
infant formula sales
Sales volumes for specialty ingredients are not shown on the graph.
FINISHED GOODS INVENTORY
SALES VOLUME
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
30,000
20,000
10,000
0
MT
MT
Powders and CreamsConsumer Packaged
15,999
18,776
122,606
35,580
93,042
21,044
15,056
26,726
100,393
PG 16
I

PRODUCTION VOLUME
Sales volumes for specialty ingredients are not shown on the graph.
Powders and CreamsConsumer PackagedMilk Processed
MILLIONS KGMS
19,403
36,651
102,833
16,043
115,991
PRODUCTION VOLUME
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
FY16FY17FY18
70.0
60.0
50.0
40.0
20.0
10.0
0
MT
104,703
- Milk purchases remain our most significant cost when
determining gross profit, with a final milk price paid in
FY18 of $6.65 per kgMS, compared to $6.16 per kgMS
in FY17
- Shift toward consumer packaged products led total
milk processed to fall from 65.0 million kgMS in FY17
to 60.8 million kgMS
PG 17
I

NET DEBT
- Total net debt increased by $32.3 million to $114.9 at year
end from $82.6 million last year
- $103.8 million was deployed into five growth initiative
projects financed through a combination of operating cash
flow and debt facilities
- Despite these significant expenditures Synlait has
maintained a low ratio of net debt to EBITDA of 0.8x (0.9x
in FY17), leaving the balance sheet well equipped to fund
further growth
NET DEBT
250.0
200.0
150.0
100.0
50.0
0
FY17
CapexOperating Cash FlowInterest
FY18
1
Based on trailing 12 month EBITDA
FY16FY17FY18
NET DEBT
22.0.0
165.0
110.0
55.0
0
4.0
3.0
2.0
1.0
0
$ MILLIONS
$ MILLIONSNET DEBT / EBITDA
114.9
11.2
82.6
213.4
82.6
114.9
NET DEBT / EBITDA
1
3.4X0.8X
(98.4)
119.4
PG 18
I

PROFITABILITY
- Total gross profit per MT up $502 to $1,294, primarily due to
consumer packaged infant formula volumes as a percentage of
total product sales growing from 13% in FY17 to 28% in FY18
- We also achieved an improved gross margin performance on our
ingredients products
- Consumer packaged gross profit per MT improved by $44 million,
on a combination of higher utilisation of the Dunsandel canning
facility that was largely offset by the costs of commissioning
the Auckland canning facility
- Lactoferrin sales increased by 44% over FY17 to 16 MT, while
margin per MT increased to $285,757, contributing $4.4 million
to gross profit
FY17FY18
166.5
102.1
112.1
GROSS PROFIT
180.0
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0
$ MILLIONS
FY17FY18
1,294
792
877
GROSS PROFIT PER MT
1,400
1,200
1,000
800
600
400
200
0
$
FY16
FY16
Includes product internally transferred to blending and consumer packaging
PG 19
I

OUR FUTURE

TO DAY
INITIAL OBSERVATIONS
SYNLAIT IS FAST
SYNLAIT IS STRONG
SYNLAIT IS STRATEGIC

TO DO
WHAT ARE WE TRYING
TO ACHIEVE
WHAT:
- Maintain growth and rapidly diversify
HOW:
- Shore up our existing profit engine whilst
we broaden into new profit pools

TO MORROW
WHAT ARE OUR
CHALLENGES
- Concentration risk
- Focus and implementation risk
- Need for inorganic growth
- Unpredictable environment and
regulatory climate
PG 21
I

CURRENT
CURRENT
NEW
NEW
CUSTOMERS
CATEGORIES
1
2
3
4
Core Profit Engine
Adjacent Growth Engine
Expansion Engine
OUTLOOK
1
2
3
4
GROWTH: DEEPER AND BROADER = CHASE PROFIT POOLS
Deepen relationships with existing customers and build
into new categories
Broaden customer base in core categories
Accelerate development of new profit pools with new customers
and categories

CAPABILITIES: LEAPFROG = CREATE LONG TERM VALUE
- Research and development + innovation
- Sustainability as a purpose-led differentiator
- World class quality
- Low-cost manufacture (IWS)
- Continue to differentiate milk supply
- Great place to grow - engagement, talent, strategic capabilities
PG 22
I

- Continued growth in a2MC volumes
- Brand approvals for Akara and Pure Canterbury hopeful of
being received in FY19
- Expect future growth in Munchkin’s Grass Fed
TM
ANZ sales
through both domestic and cross-border channels
FY19 OUTLOOK
ACTUALFORECAST
FY16FY17FY18FY19
41,000 - 45,000
18,776
35,580
15,999
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
CONSUMER PACKAGED INFANT FORMULA SALES
MT
PG 23
I

OUR PURPOSE
AND IDENTITY

QUESTIONS?

FORMAL RESOLUTIONS
Graeme Milne
CHAIRMAN

FORMAL RESOLUTIONS
RESOLUTION 1
AUDITOR’S
REMUNERATION

To consider and, if thought fit, pass the following as an ordinary resolution:
“That the Board be authorised to determine the auditor’s fees and expenses
for the 2019 financial year.”
PG 44
I

FORMAL RESOLUTIONS
RESOLUTION 2
RE-ELECTION OF
DIRECTOR

To consider and, if thought fit, pass the following as an ordinary resolution:
“That Graeme Milne be re-elected as a Director.”
PG 45
I

FORMAL RESOLUTIONS
RESOLUTION 3
DIRECTORS’
REMUNERATION

To consider and, if thought fit, pass the following as an ordinary resolution:
“That the annual fee for each Director be $85,000, except for the annual
fees of each of the two Committee Chairs, which will be $97,000 and the
Chairman of the Board, which will be $169,000. All these increases apply
from 1 April 2019.”
PG 46
I

FORMAL RESOLUTIONS
RESOLUTION 4
CONSTITUTION
AMENDMENT

To consider and, if thought fit, pass the following as an ordinary resolution:
“That Synlait Milk Limited’s Constitution be amended, with effect from the
close of the Annual Meeting, as set out in Appendix 1 to the Notice of the
Annual Meeting.”
PG 47
I

FORMAL RESOLUTIONS
RESOLUTION 5
JOHN PENNO’S
BOARD
APPOINTMENT

To consider and, if thought fit, pass the following as an ordinary resolution:
“That John Penno be re-elected as a Director, and, if Resolution 4 is passed,
that John Penno is elected as the Board Appointed Director.”
PG 48
I

ANY OTHER BUSINESS

INVESTORS
Clayton Cleek, CFA, Investor Relations Officer
+64 21 916 070
Clayton.Cleek@synlait.com
MEDIA
Jessica Thorn, Communications Advisor
+64 3 373 3353
Jessica.Thorn@synlait.com