Synlait increases forecast milk price to $9.50/kgMS

Synlait Milk Limited · 1028 Heslerton Road, RD13 Rakaia, Canterbury, New Zealand · +643 373 3000 · www.synlait.com






NZX: SML
ASX: SM1


6 July 2022

Synlait increases forecast milk price to $9.50/kgMS for 2022 / 2023 season

Synlait Milk Limited (Synlait) has increased its forecast base milk price forecast for the 2022 / 2023
season to $9.50/kgMS from $9.00/kgMS.

There is no change to the forecast base milk price for the 2021 / 2022 season, which remains at
$9.30/kgMS.

Synlait CEO Grant Watson commented: “Based on the current dairy commodity prices we believe that
$9.50/kgMS is a balanced forecast for the 2022/23 season. The forecasted lift in milk price reflects an
improved outlook for 2022/23 dairy commodity prices, following the recent recovery in pricing, and
the current strength of the US dollar.”

“Over the next two days we’ll be meeting with our farmers at annual events in the Waikato and
Canterbury and it will be great to share this news with them.”

Forecasts are based on the best information available to Synlait at the time. Synlait will continue to
monitor movements and keep its farmer suppliers up to date.

For more information contact:
Hannah Lynch
Head of Corporate Affairs
P: +64 21 252 8990
E: hannah.lynch@synlait.com

=== IR PAGE TRANSCRIPT: Synlait FY22 Conference Call Transcript 28 September 2022 ===

TRANSCRIPTION
Company: Synlait
Date: 26 September 2022
Duration: 1h 16m 41s
Reservation Number: 10023912

[START OF TRANSCRIPT]
Operator: Thank you for standing by and welcome to the Synlait FY '22 full year Results
briefing. All participants are in a listen only mode. There will be a presentation
followed by a question and answer session. If you wish to ask a question, you will
need to press the star key followed by the number one on your telephone keypad. I
would now like to hand the conference over to Hannah Lynch, Head of Corporate
Affairs and Brand. Please go ahead.
Hannah Lynch: Good morning everyone and welcome to Synlait's full year results conference call.
Our CEO, Grant Watson, and our CFO, Rob Stowell, will shortly take you through the
presentation, which includes the summary on our financial performance and refresh
strategy. We'll then open for Q&A at the end of the presentation and ask if you could
please limit your questions to two per person. The presentation will take around 40
minutes. If you have any additional follow ups not answered on the call today, please
feel free to reach out to me directly. Otherwise, we look forward to connecting with
many of you over the coming weeks in person. Over to your, Grant.
Grant Watson: Kia ora koutou. It is my pleasure to take you through our FY '22 results. We've
certainly made significant progress in the last 12 months, acknowledging that we are
one year into a two year recovery programme. The key takeaways from today are our
return to robust profitability is on track. EBITDA is up $91.8 million to $129.1 million.
Our balance sheet returned to normal metrics, net debt to EBITDA ratio of 2.6,
enabled by strong operating cash flows and inventory reduction. We're reviewed our
Synlait strategy and executive leadership team structure. On the 1st of August we
successfully implemented SAP. Commercial production is on track to start in early
2023 for our Synlait Pokeno multinational customer, and last week we launched our
food service cream up into China under the Joyhana brand and partnership with the
Savencia Group.
All of this and more was delivered whilst navigating omicron. Our fierce commitment
to keeping our people safe, keeping their families safe and keeping our facilities
running was nothing less than inspiring. Our response resulted in no more than 5.8%
of our team being out of action with covid at any one time. I'd like to take this
opportunity to pay thanks to our staff throughout New Zealand and up in China for
their significant contribution in very challenging times. I'd also like to thank the
commitment and loyalty of our farmers and the support and understanding of our

customers, again, during this very challenging period. I'd now like to hand over to our
CFO, Rob Stowell, to take you through our financial performance.
Rob Stowell: Thank you, Grant. Good morning to all those online. It's fantastic to see our if FY '22
results showing a strong bounce back. Last year when we set the turnaround plan up
and included several key actions to ensure we would return to robust profitability as
follows, hyper management of our ingredients business, improved infant based
powder volumes, growing contribution from our beverages and cream, Dairyworks
and lactoferrin businesses, targeted cost savings from throughout the group,
reductions in inventory, capital expenditure and the sale and lease back of our
Auckland premises, which would drive debt down to more comfortable levels. As we
move through the next few slides, you'll be able to see we have delivered on all of
these actions.
Just turning to slide four, key financial metrics. Revenue was up 21% to 1.66 billion.
That's a new record for us at Synlait. EBITDA was up 91.8 million to 129.1 million.
Not a record but fantastic progress on where we were last year. Impact is up 67
million to 38.5 million, so a very solid bounce back from the group. Note the adjusted
NPAT was 34 million. This was due to two significant one off offsetting impacts. The
first was the sale and lease back of our Auckland premises for which contributed a
positive 13.4 NPAT. The second is the offsetting impairment of the groups to move
the cheese plant for 8.8 million NPAT. I'll expand on this in the coming slides. Total
average milk price settled at $9.59 kgMS solids. This was a record for Synlait and
one that we hope makes our milk suppliers very happy. Now this includes the base
milk price of $9.30 plus premiums of 29 cents.
Operating cash was up from only 18.4 million last year to 232.9 million. Again,
another record and a real highlight to results. CapEx tracked down 33% to $96.3
million. Pleasing to see the further step down, as we had planned. Net debt is down
29% to 341.9 million. Again, great inroads into our debt and probably for me the
highlight of the results. Seeing this come down so much in only 12 months. It our
debt ratios into a much more comfortable range, and you can see them listed on the
slide. We move to the next slide, five. The improved FY '22 financial performance.
This slide really demonstrates both the size of the turnaround and where it came
from. If you cast your eyes to the right of the slide, you can see the increase in
EBITDA. Below that is an NPAT bridge showing that how we got from our loss of
28.5 million last year to a profit of 38.5 million this year. I'll quickly summarise the key
factors.
Firstly, ingredients delivered a $43 million margin growth due to better premium
payments, sales phasing, and a product mix weighted towards skim milk powder
versus whole milk powder. Higher sales volumes from our FY '21 inventory sell
down. Lower cost structures, strong FX management. The next bar is nutritionals and
that's delivered 27.2 million margin growth due to higher production of base powders.
We also had positive impacts from similar factors as the ingredients business unit
with cost reductions and strong FX performance. Our lactoferrin business continued
to perform with a record sales of 37 metric tonnes, up four tonnes from last year. This

included very firm pricing as we see continued strong demand from international
infant formula brand owners. Next bar is beverages and cream which delivered 3.4
million margin growth. While we had some delay in our UHT cream business launch,
which only just launched this month, we had some positive impacts due to the cost
reductions and pricing model changes within our liquid milk contracts.
Consumer foods, otherwise known as Dairyworks delivered 7.4 million margin growth
due to very good cheese procurement practises, slightly higher sales volumes and
again improved cost structures including the idling of the Temuka cheese plant. The
next bar there, offset, so we had some other income and costs which came through.
They offset to about a hundred K. The key point here is those costs and income were
mainly one off items unique to FY '22. It included such things as some reversals of
inventory provisioning and write backs, legal claims, SAP costs that could not be
capitalised, and higher freight costs. I'll expand on those later. The two large bars at
the right of the graph, firstly the sale and lease back of the Auckland premises as
mentioned, this contributed 11.9 million gain. It was canvased at our half year results,
and the sale was completed to take advantage of the hot Auckland property market
while maintaining operations and releasing capital for debt repayment.
The second is the impairment of the group's Temuka cheese plant of 12.2 million to
reflect the decision taken by management and board to idle the plant for another 12
months. Management's going to continue to evaluate when the plant should resume
operations. It was planned to continue in FY '23 but it was delayed due to other
strategic priorities. Note while this impairment is disappointing, there's a non cash
technical accounting treatment under IAS 36 where impairment needs to be taken
when plans for resuming operations are considered uncertain. It does not take away
from Synlait continuing to find a solution over the next 12 months. Moving to slide six,
revenues and sales volumes. Overall reported revenue was up 21% to 293 million,
which is a great result. This slide gives visibility by business units. The increase was
mainly driven by ingredients, business being up 30% with higher dairy commodity
prices being the main driver and also 5% higher sales volumes.
There was a record volume for us to shift in a challenging supply chain environment.
Nutritionals business up just 2% and this was due mainly to higher input prices. Milk,
raw materials offset by 850 metric tonnes lower volume. Lactoferrin volumes were up
four metric tonnes. While not material on a revenue basis, it was material on a
margin basis. I should note here that the second half volume for nutritionals were
building nicely compared to our first half. Beverages and creams was up 22% due to
a relatively small volume increase but a lot higher during commodity prices. Revenue
would've been higher had we launched our new UHT product earlier in the year, but
this was delayed to the start of FY '23. Consumer foods with Dairyworks was up 15%
due to high commodity prices and 3% increase in volume, as the growth focus starts
to shift to new products and other geographies such as Australia and Southeast Asia
Moving into production and inventory volumes. Overall production reduced 4% or
8,800 metric tonnes. This was mainly seen [inaudible] was mainly driven by higher
production of infant based powder displacing ingredients products. Our milk supply

was also adversely impacted by weather, some 4% lower milk volumes. We also sold
significant cream volumes for good returns as we maximised the skim milk powder
max due to price differentials between whole milk powder and [inaudible]. The AMF
plant was fully utilised for part of the year, and nutritionals, there was a healthy
increase of 48% in volumes for both consumer packaged and infant based powder
production as we build for increased demand and second half of FY '22 and early FY
'23. In beverages and cream, we saw stable volumes of production as UHT cream
product launch was delayed until early FY '23. The decrease in production in
consumer foods was due primarily to the temporary idling of the Temuka cheese
plant.
Our closing finished goods inventory saw a massive reduction of 40%. This was
down to the sell down of the ingredients products compared to the high level we had
at the start of the financial year. Good reductions in our infant based powder holdings
where it made sense compared to the FY '21 financial year, reduction of cheese
inventories mainly due to the idling of the Temuka cheese plant. Just move to page
eight to the gross margin performance. Look, this slide unpacks the business by
business unit where gross margin was made. In total our gross margin was up
roughly $80 million on last year. Now sitting at 146.8 million. This slide really repeats
a lot of the summary information that is on pages five to seven, however gives them
more detail, and shows progress we have made in each business unit, both in dollar
terms and on a per metric tonne basis. I won't go through the detail of the slide on
this call, but the information is there.
Moving forward to slide nine, operating cost performance. As mentioned earlier,
we've made good progress on cost reductions across the group despite the
challenging trading environment. Firstly, our organisational reset that we conducted
in November last year made savings that were anticipated of roughly $7 million.
However, this was partially offset by roughly $3 million as we brought on two extra
premium and canning shifts earlier then anticipated, as demand rose and we also
provided an out cycle wage increase to staff in May this year. Most of these savings
at above the gross margin line, so not seen in the SG&A bridge opposite but
improved our gross margin performance.
We did see 3.5 million on net cost increase in SG&A overall despite a 3.7 million of
savings made. I won't go into the detail of these but they're outlined on the slide and
relate to areas such as the Talbot Forest Cheese brand relaunch, COVID 19 cost to
protect our sites, SAP costs which are non capitalizable, temporary employee costs
and higher distribution costs. Costs will continue to be a focus in FY '23 if the
company bids and SAP manages inflation pressure and the trading environment
continues to be challenging. We just move to slide 10, cash flows net debt. We've
made fantastic progress in this space. This has meant we continue to stay well within
our extended banking arrangement set up last July. Key points on this slide,
operating cash flows were up to 233 million, up 215 compared to last year. This was
due to much better profitability performance as noted on previous slides and careful
management of our working capital. We continue to reduce capital expenditure.

Currently we only have two major projects in flight. That's our SAP project which is
winding down at the moment and our Synlait Pokeno project which winds down in
December. We saw a reduction of 47 million on last year's spend and we see our
capital expenditure tracking down to around $70 million for next year and we believe
our operational kind of CapEx envelope is around 20 to 25 million per year, so we
continue to track that down. We executed the sale and lease back of Auckland land
and buildings in October, which gave us a gain of 17.1 million and brought debt down
by 30.1 million. Net debt is down a massive number of 137.5 million since last July.
This exceeded our expectations as we made faster progress on improving working
capital and had less headwinds than we expected from supply chain disruptions
towards the second half. You'll also see our guidance note that we are now targeting
a lower debt ratio of between two times and 2.5 times for FY '23.
We move to our last slide. I just wanted to make a couple of points on our debt
facilities and banking governance. Our banking syndicate, which is made up of the
ANZ and BNZ have been usually supportive, and obviously pleased with the
progress that was made this year and the headroom that's been created within our
banking ratios. I'd like to thank the banks for their ongoing support. With the progress
in our debt reduction and our bank debt up for renewal next year and our retail bonds
the year after, we'll be reviewing our capital structure requirements over the next 12
months in detail. Finally, I'd like to thank our longstanding shareholders who have
also been very supportive and patient over the last 12 months. That's a wrap on the
financials. Back over to you, Grant, to take us through business performance and
strategy.
Grant Watson: Thank you for that, Rob. Now what I'd like to do is give you a high level overview of
our business performance, our refresh strategy, and give you an update on our
outlook. In terms of our business review across the last 12 months, based on
business functions and critical projects using the traffic light system we used at
midyear. Firstly, cost structure review, that has been completed, taking some
significant cost out of the business and reviewing the organisational structure.
Working capital, debt, and treasury management are green also. Cash flow initiatives
completed as explained by Rob. Improved sales phasing and inventory reductions
and again, the sale and lease back of the Richard Pearse Drive property in Auckland.
The ingredients business had strong financial result. We appointed a new executive
into that business and again, looked at the structure of that business unit. In the
nutritionals business, recovery of the infant formula business, the lactoferrin business
remains strong and all key growth projects are tracking on plan. Dairyworks delivered
a very strong financial result and did a great job of improving their working capital
position. Some very, very good progress across each of those five years. Where we
have ambers, there's two key areas, beverages and cream. We did launch that food
service product up in China last week. However, the delivery of that project was
delayed.
We made significant progress in the last 12 months developing pipeline of globally
recognised customers against UHT consumer product. Capital projects management,

CapEx was down in FY ... Against FY '21 I should say, as explained by Rob. We
implemented SAP, albeit delayed in time and an increase in CapEx off the back of
that. Synlait Pokeno's new customer is on track. And then in terms of red traffic
lights, operations performance, a very, very challenging year. We're in the process of
rebuilding operational capability, both manufacturing and dealing with a very
challenging supply chain environment and we are working with the integrated work
system continuous improvement methodologies to strengthen our position
operationally. We are adapting to post pandemic ways of working, ranging from
making sense of labour shortages, high inflation, geopolitical dynamics and other
challenges that I've mentioned.
Temuka cheese plant we've also classified as red, as mentioned by Rob. We've
made an intentional decision to continue to idle that plant and as a result we've made
that impairment. A brief overview of the business units. The ingredients business has
made a very, very strong recovery delivering record revenues and record margin. A
real focus there on disciplines as they relate to premiums, the phasing of our sales,
optimising product mix and chasing the lead bucket which has been in favour of skim
in this avenue. Delighted to appoint Adam Maxwell into the role of Director of
Ingredients and you'll continue to see a similar level of focus across the business for
the year ahead. In terms of our nutritionals business, we were very pleased to get the
same registration for the old GB standard, which takes us through until the 21st of
February in 2023. We're working hard with the A2 Milk Company, with SAMR and
NPI to ensure that we get registration for the new GB standard, which we expect to
get at some point next year.
Also working very, very closely with the A2 Milk Company around inventory cover as
we look to phase out of one product and phase into the new product. And it goes
without saying that the SAMR registration process is a very, very top priority across
the business. In terms of nutritional base powers, we've built up a very good pipeline
of potential future demand, acknowledging that there has been a slowdown in this
space off the back of birth rates slowing down, particularly up in China. Lactoferrin,
as already mentioned, demand is strong and prices are firm and then in terms of our
multinational customer up at Pokeno, product trials are progressing. We're in the final
stages of commissioning CapEx spending. Volume expectations remain on track
relative to the contract and the tenure of that contract. Commercial production is
planned to start in early 2023. In addition, we are working through trials later this year
for new product opportunities that relate to the clinical nutrition category.
Also worth noticing that we are planning to have investor day up in Pokeno, in May,
2023. In terms of the beverages and cream business unit, clearly the launch of our
food service cream just last week, we're also in the process of commercialising a
UHT coffee beverage for an existing multinational customer. As mentioned, we've
developed a very, very strong pipeline for consumer products through the UHT line
and in terms of swap a bottle, we're working through the business case at the
moment to understand whether we should scale up that opportunity or not. Does it
make really strong financial sense? We've certainly had fantastic consumer feedback
off the back of that great piece of innovation. In terms of our consumer business, so

we're talking about Dairyworks there, a really, really strong year for Dairyworks.
Record profit result, $18 million of EBITDA and that number is exactly on track with
the forecast that we used when the business was purchased some two years ago.
That result was driven by strong procurement disciplines and improvement in the
cost structure and increased volumes throughout the business. The business also
consolidated their supply chain and went into one distribution centre, capturing bulk
product and finished goods. During the year there was a refresh of the Talbot Forest
Cheese brand and in fact this month we are now exporting that product over to
Australia and have an exclusive arrangement in place with Woolworths in Australia.
We launched spreadable butter in June and the Dairyworks branded milk and cream
range was launched late last year and it's focused primarily on the food service
channel. As it relates to sustainability, in terms of our off farm decarbonization
roadmap, phase one is now completed with two significant investments there, one
relating to an upgrade of a boiler to biomass and the other one was upgrading our EV
max electric boiler. The benefit of that this year is reducing our greenhouse gas
emissions by 38,000 tonnes and once these two assets are at peak, we expect to
reduce 58,000 tonnes of greenhouse gas from the atmosphere, and that's expected
in FY '26.
In terms of on farm, we've worked closely with our farmers and have incentivized
them to reduce greenhouse gases on farm and provided a tool to help enable that. In
2023, we go through our re-certification of B Corp and for the first time that will
include Dairyworks. Made With Better Milk as a brand, that really does capture our
sustainability positions right through our value chain was recently launched as well
and certainly very, very strong interest off the back of that with a number of
customers. If we switch gears now, I'd like to take the opportunity to give you a very,
very high level overview of our refreshed strategy and we will spend quality time with
you at the AGM taking you through more of the detail. 2nd March we kicked off the
process of reviewing our strategies by the four business units.
This was then signed off by the board in June, so between March and June there
was an iterative process with business units and the board and in July we focused on
the executional enablers that would drive that strategy, so that work has now been
completed. Our next strat refresh will take place between May and July next year. In
really, really simple terms, our purpose remains the same, doing milk differently for a
healthier world. Our ambitions have changed and I'll take you through those. The
core pillars of the strategy have also changed and you'll see as I take you through
those that there is more focus attached to our four business unit strategies. Going
into that process, some really, really simple underlying assumptions. We know that
innovation disruption and sustainability is absolutely at the heart of Synlait, however,
we acknowledge the need to be more focused to improve execution and improve
accountability. We also appreciate we've been operating in an unprecedented crisis
environment. Our competitors are improving their performance.
We acknowledge the need to deliver diversified growth across channels, customers,
categories and geographies, but it's important we do that where we have a clear right

to win or a clear competitive advantage, and we recognise that sustainability
propositions are no longer a nice to have. In terms of the time horizons that we are
working to, as I mentioned, we are one year into a two year recovery programme, so
this next 12 months is very much around stabilising our business. Horizon one being
year one, horizon two being year two. We then look to accelerate the business and
then horizon three being years three to five is then looking at opportunities where we
might extend into new territories.
Very briefly taking you through this strategy on a page, it's important to note that this
is a consolidation of four business unit strategies on a page and the best way to think
about this format is in box number one we have our ambitions, in box number two,
it's being really clear on the strong foundations that we have and need to continue to
invest behind. Boxes three, four and five being channels, categories and geographies
really are the core pillars that relate to strategy. Box six, being right to win speaks to
the competitive advantage model that we've developed and will continue to develop
to ensure with our farmer suppliers we are their best choice as a processor and
exactly the same thinking applies with the customer competitive advantage in terms
of being their preferred supply partner. Box number seven, arguably the most
important box on the page deals with the areas that will drive the greatest level of
execution across our strategy in order for us to deliver against our ambition.
Let me just touch on a few areas. From an ambition perspective, it's about taking the
already high standards that we deliver against under the B Corp framework and lifting
those up even higher. It's ensuring that we have high staff engagement, that from a
farmer perspective and from a customer perspective that we have very high levels of
satisfaction and that from a return on capital perspective we deliver a minimum of
15%. In terms of channels, broadly speaking, operating across consumer food
service and manufacturing and again that detail of channels sits within the individual
business unit strategies.
From a category perspective, base milk powder, beverages and cream, AMF and
butter, cheese, infant and adult nutrition and of course lactoferrin. Geographical
areas of focus for us are very much China, selectively Southeast Asia, Australia and
New Zealand. And just to be clear, it doesn't mean to say that we won't technically
trade in other markets but in terms of where we put our resource, those are the key
markets that we are focused on. We'll spend more time together at the AGM going
through those competitive advantage models for our farmer suppliers and customers
and when it comes to delivering fantastic execution, on-farm excellence is critical.
Clearly customer engagement and staff engagement are both critical.
Systems, tools and processes speak to the need for us. As [inaudible] as an
organisation. Our NTD, which is new technology developments, are completed in a
very, very disciplined fashion and that we continue our journey of improving
manufacturing and supply chain performance. It was communicated back in July
we've adjusted our organisational structure to meet the refreshed strategy. You'll see
that we have several vacant roles. We're currently working our way through the
recruitment for those vacant roles and we will have a full leadership team in place for

the first quarter of 2023. Looking forward, our priorities as a business are no surprise,
embedding our new executive leadership team, ensuring that we enable the growth
agenda of the A2 Milk Company, that we commercialise our multinational customer
at Pokeno, the SAMR licence as mentioned, is a critical and top priority across the
business, but we continue to grow our food service cream and consumer beverages
business, that we stabilise SAP and we continue to adapt to the post pandemic world
that we now live in. I'd now like to hand back to Rob Stowell to briefly take you
through our guidance statement.
Rob Stowell: Thank you, Grant. Look, we've chosen this year to not disclose EBITDA impact
guidance at this stage and that's just due to the level of market volatility and the risks
that we see across the next financial year. It's fully our intention to get back to doing
that as soon as possible. To summarise, what we see occurring next year, tighter
management of our ingredients business, that'll continue. We probably won't have
the one off foreign exchange gain that we experienced this year within that business
unit and we'll continue to divert milk to higher margin products in the advanced
nutritional business unit and food service business unit, as we see that coming
through during the year.
We expect the performance of our advanced nutritional business to continue to build
nicely throughout FY '23. Our new multinational customers will start to lift margins
and improve FT utilisation both at Pokeno but also our Dunsandel liquids facility, and
we've seen some good pipeline opportunities evolve on that plant which is
encouraging. The consumer food business will deliver steady contributions as it
maintains growth but also navigates the high cheese commodity prices that are
prevalent at the moment, and it will continue to expand overseas, as mentioned
through throughout into markets like Australia and Southeast Asia.
Just sticking to some P&L factors, costs will increase modestly, we expect that and
that's due to our increasing volumes but also the fact that we need to stabilise our
SAP system over the next few months. There's still high inflation, there's still supply
chain pressures and that's on both sides. That's on the input side, raw materials and
also export. As Grant mentioned, within our strategy we will be investing in certain
areas of business development and also enabler activities within our operations and
systems space. Operating cash flows, they'll continue to be robust, will continue to
work hard on them.
They won't be at FY '22 levels. They were helped by tailwinds of their high inventory
in FY '21, however, I expect them still be pretty robust in FY '23. Our debt to EBITDA
ratio, we've placed that guidance between two times and 2.5 times that we're
targeting. Still relatively conservative but we think it's the right range to guide on
considering on a normalised basis our ratio is at 2.9 times at the end of FY '22. At the
end of FY '23 that'll be the end of our two year recovery. As previously indicated, we
intend on exiting FY '23 to FY '24 at similar levels of profitability experienced before
FY '21. In layman's terms, we expect to be at similar levels of profitability that we
were prior to the downgrade in FY '21. We're managing several risks. They include
the SAMR reregistration timeline and the stock build that we need to do there. Tight

labour market, inflation, supply chain pressures, they're all still very much there and
could impact our result in FY '23. I will leave it there and hand back over to Grant.
Grant Watson: Thank you, Rob, and in terms of next steps before we go to Q&A, our annual meeting
will be held on the 2nd of December at 1:00. You can either attend in person or
online and we'll certainly through the presentations make sure that you are fully up to
speed with the strategies and give you a sense for some of the execution elements
that we are working on as it relates to advanced nutrition, ingredients, consumer, and
food service. And as mentioned we will have an investor day up at Pokeno on the 8th
of May including a site tour and again, you can expect a presence there from a
number of our executive leadership team, giving presentations and of course plenty
of time for Q&A. On that note, we'll now open the call up to questions.
Operator: Thank you. If you wish to ask a question, please press star one on your telephone
and wait for your name to be announced. If you wish to cancel your request, please
press star two. If you're on a speaker phone, please pick up the headset to ask your
question. Your first question comes from Matt Montgomerie with Forsyth Barr. Please
go ahead.
Matt Montgomeri...: Hi Grant and Rob. Just checking you can hear me okay?
Grant Watson: We can, Matt. Yep.
Matt Montgomeri...: Perfect, thank you. Maybe firstly if I start on debt, so firstly well done on another good
half of debt reduction but I guess looking forward, just interested in comments you
can make around debt movements for '23 in light of your guidance for the ratio.
Appreciate you don't really want to provide a number but I guess it'd be helpful if you
could provide some more colour around that and potentially comment on the working
capital balance today if you see that as a reasonable level going forward, particularly
on the inventory front. Then secondly, somewhat related as I guess the extent of the
operating cash flow decline that you are referencing in FY '23.
Grant Watson: Yeah, sure thing, Matt. Look, yeah, it's tricky. We were a wee bit conservative in FY
'22. I think moving forward into FY '23 there's still uncertainty there but what I would
say is, so if you back calculate the stock that we had on hand on FY '21, that'll take a
bit of the ... Probably push us right down probably be above 150 million operating
cash flows but it'll be below 200. We are expecting to, as mentioned, target around
70 million of capital expenditures so that will continue to track down as well.
Look, we do expect to have a large chunk back off debt at the end of FY '23, which
will be good, and I'd like to see us targeting the bottom end of that range. From an
inventory point of view, how sustainable is it? Yeah, there's still work to do there, to
be honest. We have increased our stocks of raw materials because just a bit of
insulation around our supply chain pressures. I'd like to see us moderate that back
over the course of the year if we can and continue to work on even reducing some of
our ingredients of inventory. There's plenty of opportunity there as well, I think makes
that sustainable. Does that answer the question?

Matt Montgomeri...: Yeah, no that's useful colour, thank you. Then maybe if we stick on your guidance
commentary, it's slightly changed wording from previously for '23. What does that
actually mean in the sense in terms of the exit run rate? Are you essentially stating
that you might start F '23 at a similar run rate to the second half in terms of
profitability? And then come say the last quarter you might run it six mill a month
NPAT or similar like you did in in F '20? Like we're starting at this base today and
then ramping through the year, rather than saying 23 as a whole will be in line with
that pre COVID or F '20 level? It's just rather opaque, I guess.
Grant Watson: Yeah, look, the major driver of our profitability is our nutritionals business and ...
Sorry, we just have some technical issues here. The major driver is our nutritional
business and what I will say is we expect in the second half of FY '23, that nutritional
volumes start to ramp up to a higher level than what they were in the first half of '23.
And we expect that to continue through into FY '24. That's really what's driving the
profitability there, Matt.
Operator: Thank you. Your next question comes from Nick Mar with Macquarie. Please go
ahead.
Nick Mar: Hey guys, just a couple. The FX benefits, can you quantify roughly how much that
was on a full year basis for improvements?
Grant Watson: Yeah. Look, you'll see in our accounts, Nick, and the balance of the accounts you
see that our foreign exchange rate was very good compared to the industry. The
EBITDA amount within ingredients probably sits in the range of around $12 to 15
million, so reasonably significant in the FY '22. What I will say, and I'll just add to that,
we actually feel there's a lot of opportunity within the ingredient space to continue to
offset there because while we did pretty well with our phasing and also our product
mix differentials, we could have done a lot better and that came through in the
second half, that kind of will offset some of that one off FX position.
Nick Mar: Okay, great. Then on the new UHT cream product, can you just talk through which
part of the sort of supply chain and sales you are participating in? Is it purely sort of
contract manufacturing for the other party or are you participating further than that?
Grant Watson: Yeah, thanks, Nick. We're effectively manufacturing the product. We jointly own the
brand and Savencia basically have the front end in terms of sales and distribution.
Nick Mar: Okay, great. And can you provide any colours around targets you're looking for for
this brand and how big it could grow? It's obviously quite a competitive space, UHT
cream.
Grant Watson: Yeah. Look, we're really cautious at this stage and the reason that we ... I mean, it's
a massive market, right? And there are some very, very strong players in the market.
We just launched the product. We think that from taste, texture, functionality we are
really, really well positioned to gain some good market share but look, until we get
the product into kitchens, working with chefs and we see repeat orders come

through, we are just very, very cautious to assume what that growth could look like.
But we believe we have a very, very competitive product.
Nick Mar: Great. Then lastly, just on the raw targets, just talk through the sort of 15% number
versus north of 20%, which the previous management were targeting, and is it to get
there by '27 or could you do that sooner? What's the sort of trajectory of that?
Grant Watson: Yeah. Thanks, Nick. It's really to get there by FY '27 and I think there's a possibility
we could there sooner, definitely, but I just think we need to be conservative on that
front, it just depends on how volumes ramp up over time.
Nick Mar: Sorry, and just the first part of the question, how it compares to the north of 20% the
previous management were targeting?
Grant Watson: Yeah, look, we have pulled that level down, Nick. We've just looked at looking at our
10 year plans and we have reduced that outlook.
Nick Mar: Yeah, so what are the sort of drivers behind that? Is that the margins run realistic, the
cost to run the plants? Is there any specific factors?
Grant Watson: I think the key factor is we're still targeting the same strategy, the same sort of
business. We just don't expect it to ramp up quite as quickly as we did previously.
Nick Mar: Okay, great. Thanks a lot.
Operator: Thank you. Your next question comes from Stephan Ridgewell with Craigs
Investment Partners. Please go ahead.
Stephan Ridgewe...: Yeah, good morning guys and well done on the improved result and particularly the
improved cash flows. Just wanted to talk about your ... Well, ask a couple questions
on A2 and the backup options for the company. I mean, you would've stay in the
result from A2 last month where it's reminded the market that it's planning to insource
manufacturing margins at Tora Valley over the medium term. Can you perhaps just
talk a little bit to the degree to which that's already happened? What are your
assumptions on the degree to which that happens in FY '23 and perhaps over the
next few years and the guidance you've provided for that? So EBITDA run rate, exit
run rate.
Grant Watson: Yeah, look, clearly I won't get into too much detail around the commercial
arrangements we have with the A2 Milk Company. We've got a very, very good
relationship. Our contract that we have in place certainly allows for A2 to produce
their own stage four ANZ. The A2 Milk Company has got a very strong plan in place
to grow their business and we are lined up right behind them to enable that growth.
Stephan Ridgewe...: I guess if you think medium term, if A2 does continue to insource to the extent they
seem to be telling their investors they will, is that exit EBITDA run rate guidance that
you've guided to this year sustainable was kind of the key question?

Grant Watson: Yeah, look, the guidance is very sustainable. We've got very, very clear demand
signals from the A2 Milk Company for the year ahead, so we stand behind our
expectation.
Stephan Ridgewe...: Okay. Then just maybe second question, you've talked to strong progress, trying to
find new base power to customers including China, but no new contracts at this point.
When would you be hopeful that you might be able to come to the market and
perhaps with some new customer wins?
Grant Watson: Yeah, look, we've got a really healthy pipeline and certainly when we have material
information to update the market on, we will. The key driver there, Stephan, is a slow
down in birth rates off the back of COVID. It literally for us just means a slow down
around that expectation that we had say a year ago.
Stephan Ridgewe...: Okay, thanks. Can I sneak in one more? Just a capital structure review. When you
sort of allude to that, is that going to include consideration of equity side, potentially a
dividend policy or is that review more focused on debt structure?
Rob Stowell: Hi Stephan. It's Rob here. Look, it is going to include equity or dividend policy, so
both [inaudible] and dividends will include that within that review. It's quite a detailed
review. I think it's just time to do it as we see our debt coming down quite quickly and
we look at what we need over the next three or four years.
Stephan Ridgewe...: That's very helpful, thank you.
Operator: Thank you. Your next question comes from Richard Barwick with CSLA. Please go
ahead.
Richard Barwick: Thank you. Hi Grant. Hi Rob. Can I just understand or just talk a little bit more about
this timing for the new GB recipe approval and what it means for the risks around
inventory for Synlait and how that sort of balance of risk sits within Synlait versus A2?
Obviously the later the approval coming through, the greater difficulty in transitioning
from the old recipe inventory to the new recipe inventory. I'd just be curious to
understand or to hear your explanation as to when you're transitioning and you're
making the product, at what point is A2 on the hook for that inventory versus Synlait?
Because you could easily get a situation if this approval comes through very late to
that February date and you've got a lot of inventory under the old registration and not
much of the new and you'll have a customer set who will be much more interested in
buying the new recipe.
Grant Watson: Yeah, thank you, Richard. Maybe if I just talk through firstly at a very high level what
the timeframes are that we are working to. We're currently working our way through
the technical review process with SAMR. We put forward a dossier, they request
feedback, we work through that together. That will take place between or is taking
place and we'll expect that to conclude between now and the end of the year. Early
next year, we would then expect to be audited by SAMR, which would be effectively
carried out by NPI, and then at some stage next year we would expect all things
going well, we would expect to get our registration for the new GB standard. What

we've done with A2 is that we've worked up a whole range of scenarios as to how
those timings could move around and then off the back that what does a phase out, a
ramp up look like?
Obviously that speaks to the need to build up inventory but before the 21st of
February and then once we get registration, on the basis we get registration, which
we're expecting to, we would then be ready with all of the right materials and base
powders to then go into production against that new GB standard product. Look,
there's no point getting into any detail. We've got one core assumption that we're
operating to, a number of different iterations around that and we're confident that
between A2 and ourselves, we're confident that we'll ensure the market has product
on shelves. And look, we will manage the risks around transition together in the true
spirit of a partnership.
Stephan Ridgewe...: Do you feel that ... I mean, if you look back in relatively recent history, it felt like
Synlait got the raw end of the deal on some of those inventory situations with A2
when they pull back their, I guess their sales targets and that put you guys in a very,
very difficult position. I guess the risks are you could end up in another difficult
situation. Is the relationship, does that take that into account, the previous scenario
where it felt like Synlait did carry more of the burden than A2?
Grant Watson: I think it's fair to say that the learnings have been banked on both sides from the
challenges of FY '21. This is such a critically important piece of work for both
organisations. We are joined at the hip on all fronts as to how we navigate our way
through this. Again, to ensure that we keep product on shelf up in China through a
period of transition.
Stephan Ridgewe...: Yep. Okay. All right. Thank you. That's helpful.
Operator: Thank you. Your next question comes from Marcus Curley with UBS. Please go
ahead.
Marcus Curley: Good afternoon. Can we just start with your outlook for the adult nutritional business?
In previous results, you've given some loose guidance in terms of volume
expectations. Can you talk about what would be an appropriate range for this year?
Rob Stowell: Hi Marcus. It's Rob here. You mean nutritional powders, our nutrition, is that what
you're talking about?
Richard Barwick: Yeah, adult nutrition out of Pokeno.
Rob Stowell: Yep. Look, the plan is I placed to have that commissioned in December. January
we'll start making products on the line, then we'll be exporting product at the end of
Q3 of the financial year. The volumes are materially the same as what we anticipated
previously and we're working very hard towards that.
Marcus Curley: Okay. The same question on the liquid cream into China. Can you give us any colour
on your volume expectations for this year?

Grant Watson: We're fairly cautious at this stage, Marcus. Again, it's really important we understand
how the product responds in market and get a sense as to what demand could look
like. We are very cautious but we expect certainly heading into FY '24 that we'll have
a business that's growing and will set us up nicely for the future.
Marcus Curley: Then on lactoferrin, could you talk to the contribution that made at the gross profit
level or at the very least of directional colour on gross profit contribution from
lactoferrin in FY '22?
Rob Stowell: Yeah. Look, lactoferrin, it continues to be a really strong contributor, Marcus. I
probably don't want to disclose that at the moment, but if you look at market prices
for lactoferrin and look at our volume, it'd be quite easy to work it out.
Marcus Curley: Well to be fair, there isn't a market benchmark for pricing unless I'm wrong. An
indication that we have had is lactoferrin prices are significantly down over the course
of the last 18 months.
Rob Stowell: Yeah. Look, we've seen really strong evidence of robust pricing and the reason we're
seeing that is because a lot of the major lactoferrin manufacturers that are putting
product into China are putting that into their products. From our perspective we're
seeing very strong signals from a number of international players. I probably don't
want to say anything more than that, Marcus, at this stage.
Marcus Curley: And how about on bulk infant formula? Could you give us any colour on the volumes
achieved on that part of the business this year?
Rob Stowell: Those volumes are very, very small, Marcus, of our whole result. Very small,
immaterial.
Marcus Curley: Okay. And finally, you mentioned I think $70 odd million worth of CapEx this year.
Could you give us a breakdown of what's in that?
Rob Stowell: Look, it is mainly just the tail end of our ERP project, the Pokeno project and a couple
of smaller sustainability projects and an RO project. We put in reverse osmosis into
the dryers, that's going to allow us to process more milk in the future. We signalled
that previously. That's basically it and the rest is operational CapEx and a cheese
line at Dairyworks.
Operator: Thank you. A reminder to please limit your questions to two per person. Your next
question comes from Adrian Allbon with Jarden. Please go ahead.
Adrian Allbon: Oh, good afternoon team. Just first question, I guess following on a little bit from what
Marcus was asking about the nutritionals gross margin per tonne, if you do take out
an estimate for lactoferrin, it looks like your GM per metric tonne for if you like the
infant formula stuff to A2 feels like it's sort of either sort of around 1300 per metric
tonne to about 1500 in the second half. It's still 45, 50% down on what you would've
been achieving in FY '20. Can you provide a bit of a bridge on that delta?

Grant Watson: Yeah. Look, it's hard to supply the exact details, Adrian, but basically the key reasons
the margins lower is our base powder manufacturing engine just still haven't caught
up with the consumer packaging. In FY '22, our consumer packaging production was
kind of in line with demand, but our infant base, our engine, while better than the
previous year was knowing there what it was back in FY '20 when we're building
base powders for increased value for the following year, the following years when
demand was going up. That's kind of how it works.
Adrian Allbon: Okay. Given that some of your previous comments were you saying that the volumes
have been building nicely through the second half, and you're expecting further into
'23, we should assume some leverage back in that, in the '23 guidance?
Grant Watson: Absolutely.
Adrian Allbon: And in terms of ... Sorry, this is all within the same question, in the 2700 that was sort
of like the FY '20 sort of level, what sort of level ... Is there any sort of reason why it
couldn't get back to that?
Grant Watson: No. Look, I think ... No, I don't think there is actually. I think providing we can
continue to become more efficient as a producer. We've got the Pokeno site now so
we need to make sure we continue to look at filling that site up and running our plants
more efficiently in Dunsandel, as well. It probably just depends on the timing of the
inflationary pressures and how that affects wage rates and all that sort of stuff within
our cost base as well.
Adrian Allbon: Okay. And maybe second question, probably more for Grant, just in terms of some of
that strategy refresh stuff on the slides, like you mentioned developing a 10 year
asset footprint and in '23 and implementing it in Horizon two. Can you give us a
sense of on that '27 ambition of a of return on investment capital or capital employed
around the 15% mark, are you thinking about a sort of stable capital employed
number from the sort of 1.1 billion now? Or are you thinking growing that, are you
thinking reducing that with potential of dividends and stuff like that? Can you just give
us a sense of what you're thinking there and what that asset footprint would be?
Grant Watson: Yeah, sure. Yeah, the really important point there is that off the back of the refresh
strategy we need to give thought to what categories and assets we will invest in.
We'll work our way through that process in the next 12 months. Certainly when it
comes to the return on capital number that we've stated and the strategy, that comes
off a bottom up build. We've factored into the equation clearly a revenue series
product mix and we've made some initial assumptions around capital investment,
whether it be health and safety, food safety, basic business continuance, all the way
through to RO type opportunities. It's fairly high level at this stage but it is bottom up
and we'll be in a position to firm up our thinking in the next 12 months once we have
completed that 10 year asset footprint.
Adrian Allbon: But I guess at this stage, should we be ... You're not talking about new plants, right?
We're talking about optimising existing stainless steel footprint on this horizon,

presumably? Given what you've just narrated back in terms of health and safety and
stuff like that.
Grant Watson: Yeah, look, our key focus right now is to utilise the existing capacity we've got.
Clearly Pokeno is a great example. The liquids plant in Dunsandel is a great example
but certainly if there's compelling opportunities to invest behind more capacity then
we'd look to do that. We'll work out as Rob said, we'll work our way through a
process in the next 12 months around cheese at Temuka. Again, let's complete the
plan and then we can give you more flavour to that this time of 12 months.
Adrian Allbon: Then just maybe, sorry, just related probably to the '27 timing, presumably that would
be, if there was a significant loss in the A2 English label volumes, that would be sort
of happening around that time as well? What are you thinking in terms of that target
and potentially the risk around that event?
Grant Watson: Look, we've got plans in place to grow the business, to reduce concentration risk and
that relates to customers categories and geographies. As much as that might be one
scenario and could have a negative impact on us, there are many other scenarios
that could have a positive impact on us.
Adrian Allbon: And those are the ones that through the presentation you're sort of alluding to, like
the beverages customer, multinational execution and also which is the one that
beverages and cream I presume is the other one?
Grant Watson: Yeah, I mean look, there's a whole range of obvious opportunities for us. Again, filling
up the Pokeno asset, the beverages plant, the space power opportunities throughout
Southeast Asia and up into China. There's a whole range of opportunities for us. And
look, we'll give you more of a flavour when we take you through the strat work in
early December.
Adrian Allbon: Okay. Sorry just-
Grant Watson: Yep, go for it, Adrian.
Adrian Allbon: Sorry, maybe if I clarify it this wa. Over the next couple of years, should we be
expecting quite a strong free cash flow yield off Synlait, as you fill up the plant, the
CapEx come down? Or should we temper that by quite a lot of reinvestment in terms
of achieving some of these customer outcomes that you've sort of talked about? Just
trying to understand the mix of thinking around that. I know it'll ultimately turn up in
the dividend policy when you come forward with that, but just give us a start on that.
Rob Stowell: Yeah. Adrian, it's Rob here. I think as Grant said, there is plenty of opportunities, but
we do have reasonable amount of excess capacity in our assets, so we will work
hard to fulfil that. Free cash flows, you're right, they're going to be coming through
and so we will balance that. If we've got really high value [inaudible] to invest in, we'll
do that. Otherwise we'll pay out dividends is probably where we'll get to.
Adrian Allbon: Okay, no problem.

Grant Watson: Tim, we have the opportunity for one more question.
Operator: Thank you. Your final question comes from Tim Hunter with NBR. Please go ahead.
Tim Hunter: Good morning. Thanks for the presentation. I just wondered if you could just clarify
the situation around the new certification from SAMR. You mentioned that you're
expecting to get that approval sometime next year. I know you've answered one
question on this already, but I just wondered if you could say a bit more about what
happens if that decision happens much later in the year than February? How that
transition goes over from making the original recipe to making the new recipe, how
that will work.
Grant Watson: Yeah, good question, Tim. Look, there's two factors for us to consider. One is the
ability to build inventory and make sure that we've got enough cover on that transition
period, and we're really well positioned in that regard. The second clearly is
consumers' expectations around freshness of product in the market. We are very
aware of that dynamic as well. There are other ways of accessing the China market,
so an obvious would be through an online feedback type channel, which would allow
us continued access into the market, albeit through a different channel. We've
worked through a number of those scenarios and we've believe between the two
organisations, we've got a plan in place that will address that type of outcome.
Tim Hunter: Cool. Thank you.
Operator: Thank you. That's all the time we have for our question and answer session. I'll now
hand back to Mr. Watson for closing remarks.
Grant Watson: Thank you again for your time today. We look forward to engaging with a number of
you one on one during the coming weeks and would certainly appreciate the
opportunity to provide more flavour around our strategy refresh at the AGM in early
December. Thank you again for your time.
Operator: That does conclude our conference for today. Thank you for participating. You may
now disconnect.



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