Special Shareholders’ Meeting – The a2 Milk Company voting

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

NZX: SML
ASX: SM1


8 July 2024

Special Shareholders’ Meeting – The a2 Milk Company voting update

Synlait Milk Limited’s (Synlait) Special Shareholders’ Meeting is to be held at 2.00pm this Thursday 11 July
2024.

The meeting is to vote on the resolution to approve the proposed entry into a $130 million shareholder loan
to be made available to Synlait by Bright Dairy International Investment Limited, a related company of Bright
Dairy Holding Limited, Synlait’s 39.01% shareholder. If the resolution is approved, Synlait will fully draw
down the loan to meet the $130 million payment due to its banks on 15 July 2024.

As communicated in the Notice of Meeting dated 25 July 2024, Synlait committed to updating shareholders
on The a2 Milk Company Limited's voting intention.

Synlait and The a2 Milk Company Limited have continued to engage in discussions. However, The a2 Milk
Company Limited has not advised Synlait how it will vote on the resolution.

Synlait Chair George Adams commented: “The shareholder loan resolution is very important to Synlait’s
future, and we encourage all our shareholders, no matter the size, to have your say and vote on this
important matter. It is particularly important that everyone cast their vote as the future of the company is at
stake and failure to approve the loan will mean the Board have limited options available to them.”

The Independent Directors of Synlait have unanimously recommended that shareholders vote in favour of
the resolution. Bright Dairy cannot vote in favour of the resolution; as such, the Directors appointed by
Bright Dairy have abstained from making a recommendation.

The deadline for returning proxy votes is 2.00pm tomorrow (Tuesday 9 July 2024). Shareholders wishing to
lodge a proxy vote are strongly encouraged to do so online at: www.investorvote.co.nz

Shareholders should carefully read the Notice of Meeting and the independent appraisal report from
Northington Partners. These are available here.

For more information contact:
Media
Allan Swann
Corporate Communications Manager
P: +64 27 211 4874
E: allan.swann@synlait.com

Investors
Hannah Lynch
Head of Strategy & Corporate Affairs
P: +64 21 252 8990
E: hannah.lynch@synlait.com

=== IR PAGE TRANSCRIPT: Synlait Full Year Results 2024 Conference Call Transcript 30 September 2024 ===

TRANSCRIPTION
Company: Synlait Milk
Date: 30 September 2024
Duration: 52:41
Reservation Number: 10040775

[START OF TRANSCRIPT]
Operator: Thank you for standing by, and welcome to the Synlait Milk Full Year Results
Call. 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 via
the phones, 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. Please go
ahead.
Hannah Lynch: Good morning, everyone, and thanks for joining us today on Synlait's Full Year
Results Conference Call. I'm Hannah Lynch, Synlait's Head of Strategy and
Corporate Affairs. With me here at Dunsandel today presenting today's results
is our CEO, Grant Watson; and Charles Fergusson, our Director of On-Farm
Excellence, Business Sustainability and Corporate Affairs. Grant and Charles
will shortly present today's results, and we'll then open the line up to questions.
A reminder to please keep your questions to two per person. Feel free to reach
out to me directly following the call if you have any follow-ups. Otherwise, over
to you, Grant.
Grant Watson: Morena. Good morning to you all. Thank you for joining us. Without question,
FY24 has been the most challenging year for Synlait on record. We began the
year with too much manufacturing capacity, unsustainably high debt levels,
significantly higher interest rates and a continuation of declining demand for
infant formula at a macro level. While we begin FY25 with strong momentum
and stronger foundations than we've ever had before, given the complexity of
our business today, the challenges we faced in FY24 are very evident in today's
results.

As you will soon hear at a headline level, the financial results are extremely
disappointing. However, the team's hard work over the past year means we've
reset the balance sheet off the back of our successful equity raise and
refreshed the banking syndicate, something that would not have been possible
without our investor support and their belief in Synlait and its people.
I will shortly take you through our key achievements in this financial year, the
plan we have announced to retain milk supply and a high-level overview of the
financial results.
Charles Fergusson, who stepped in to fill the acting CFO role from April to
September, will then present today's financial results in detail. Charles has
done an outstanding job leading the finance team through an extremely
challenging time and has now returned to his prior role of Director On-Farm
Excellence and Business Sustainability and has played a critical role in bringing
together the plan we have announced today to retain South Island milk.
Andy Liu joined us several weeks ago as our permanent CFO. I look forward to
introducing Andy to many of you in our upcoming one-on-one meetings during
the days and weeks ahead. Andy has a strong dairy background joining us from
Yili Oceania. Andy is here in the room today with Charles and myself and
available to take any questions during our one-on-ones.
Our key achievements over the past 12 months will enable Synlait to lift
performance and profitability in FY '25. We have started the year with solid
momentum.
Notably, one, we have delivered a much-needed balance sheet reset, a 2-step
plan underpinned by a sustainable bank refinancing package will see us
officially achieve this tomorrow, Tuesday, 1 October. We delivered a $130
million shareholder loan in July and two weeks ago, gained support from our
shareholders to raise circa $218 million in new equity.
Two, we have settled disputes with the a2 Milk Company, which has been an
enormous distraction for both companies. We are very pleased to have this
behind us and delighted to have the a2 Milk Company support in our equity
raise.
Three, the North Island strategic review has concluded and delivers a pathway
for our North Island operations to reach a cash flow breakeven position in circa

two years and sustainable profitable growth beyond that. And this was after an
extremely tough decision to exit milk processing at Pokeno.
Four, customer growth continues. Advanced Nutrition and Foodservice
continues to be a strategic focus area with strong volume growth in both
business units forecast. Key achievements include our first full year of UHT
whipping cream production, which launched into South East Asia. In addition,
readying our new range of Nutrabase nutritional base powders for the market.
And finally, five, we are committed to retaining milk supply, which I will speak to
in detail on the next slide.
Our loyal and dedicated Synlait team is just one group I need to thank today for
delivering these achievements. I'm also grateful to our retail shareholders and
major shareholders, Bright Dairy and the a2 Milk Company for making our
equity raise a reality, and also to those who guided the process.
Turning to Slide 3, our plan to retain milk. Without secure milk supply, our
business recovery will be near impossible. So giving farmer suppliers
compelling reasons to remove cessation notices is a top priority for us. Our
future success depends on having a strong, stable and competitive farmer
base. We remain committed to achieving this.
To recognize the value of milk to us, we are offering a one-off $0.20 per
kilogram of milk solids payment to all South Island farmers that do not have a
cessation notice in place on 31 May 2025 and supplying milk to Synlait in the
2025-2026 season and remain unceased as at 31 August 2025. This one-off
$0.20 per kilogram payment is also available for new farmer suppliers.
Our North Island farmer suppliers will receive a one-off $0.05 per kilogram of
milk solids payment. This reflects a different set of circumstances, namely that
our financial position prevented us from meeting accelerated market advance
rates in FY24 and our discontinuation of processing raw milk at Pokeno.
Farmers have been clear in their expectations of us to improve Synlait's debt
levels and offer competitive advance rates. We are listening and we've acted on
their concerns and expect that this program will lift their confidence in us.
Looking at Slide 4. In terms of our financial results for the full year to 31 July
2024, Synlait reported an adjusted EBITDA of $45.2 million and a total EBITDA

loss of $4.1 million on a non-adjusted basis. The adjusted net loss after tax was
$60.4 million and a total net loss after tax of $182.1 million on a non-adjusted
basis. We will pay our farmer suppliers a market farm gate milk price of $7.83
per kilogram of milk solids and on average, pay a further $0.28 per kg, paying
an average milk price of $8.11 per kilogram.
Net debt at balance date was $559 million. But as referenced earlier, that will
change when the equity raise completes tomorrow, 1 October. These results
are extremely disappointing for a range of reasons that we'll cover off during
this call. I'll now hand over to Charles Fergusson, who will speak to the financial
results in detail.
Charles Fergusson: Good morning everyone, and good to be talking to you today from out here in
Dunsandel. So, look, I'll give you a bit of an overview of all the moving parts in
the financials. I'll primarily focus on the operational aspects and then cover off
the one-offs towards the end. You should have had these slides already via our
release. And look, I'll probably skim over the first slide because there is detail
that comes on each of the following ones after that.
I'm just getting the tech working. I didn't mean to skip that quickly. So look
team, this is our high-level result. We always give you a view of the adjusted
NPAT. So we adjust the non-recurring items. So, you've seen a lot of pressure
in our business over the last 12 months, which has been reflected in a variety of
communications.
So, our Ingredients business has been impacted by being uncompetitive in
foreign exchange, having a weaker lead bucket in the prior year related to skim.
And also, when it comes to AMF, we had quite a difference in phasing between
our sales and the pricing of AMF, which had a significant impact in the second
half of the year on Ingredients.
In the Advanced Nutrition business, we were able to grow volume. However,
weakening lactoferrin prices overshadowed that and put pressure on margins
throughout the year. Dairyworks has had a really strong year. So continued
momentum both in New Zealand, but probably more pleasing is that we're really
starting to see the export portfolio start to lift. I'll talk to costs in a bit more detail
on a couple of slides, but I'll just call out the financing block on this page.

So a significant step-up in our debt servicing. So, we carried a higher debt
balance throughout the year than the prior year and also had to cope with rising
interest rates. So that had quite a significant impact on our financing costs. So
moving it up to some $55 million relative to a number in the mid-30s in the prior
year. So that's what drove a significant step back in performance from last
year's NPAT. There's a table there. We've had a lot of non-recurring items this
year. And so we want to just sort of strip those out so we can get a better
understanding of what our real result is.
So I'll just step through each of the units in turn now. Okay. So from an
Ingredients perspective we're able to get more -- a bit back on track as far as
sales and production goes. So prior year, we had negative impacts from
deploying SAP, and that made it real hard getting volume out the door in the
first quarter of the year. In addition to that, we made some calls to push harder
on China label base powder production in advance of the SAMR registration,
and that displaced some Ingredients production and thus sales.
So we got little back on track from a volume perspective. But as you can see on
the bottom right hand of the chart there, our margin was under significant
pressure. So that's both in absolute terms but also relative to last year. So look,
the first thing, as you'll know from following us, we actually had a skim milk
powder lead bucket in FY24, but it was significantly weaker than the prior year.
Also, when it comes to lead bucket, butter has been a lot stronger as far as its
use of cream in AMF. We don't make butter. We make AMF, and that's given us
a margin squeeze. For foreign exchange, an area where Synlait has historically
performed quite well, we've had a poor year from a performance perspective.
So this goes back quite a way to hedging decisions that we made up to 24
months ago based on forecast at that point of time.
So effectively, we've locked in a stronger Kiwi relative to higher expectations of
U.S. dollars, and those have not come into fruition. And we've kind of had to
carry the impact of that through FY24 relative to the market rate in terms of
what impacts the price of milk. And the final one, and this is a little bit new for
us is that the way that we price and sell AMF is slightly different to the notional
producer.
And what that means is when you have a significant differential in the Q4 of
each year, that can give you a margin squeeze. AMF historically has been

reasonably stable, but you would have seen it nearly doubled from the first half
of the season to the latter part of the season. And that gave us a significant
margin squeeze in the final quarter of the year. So look, a lot of those are
market circumstances that we expect to revert in FY25, but we had to carry a
significant squeeze on margin in FY24.
In the Advanced Nutrition space, you're seeing our strategy take hold here. So
the growth in volume, which is a step-up from what we've seen for a number of
years now has been driven by our plant-based portfolio coming out of the North
Island. First year that we're selling our product to our multinational customer up
there. And whilst that has strong margins at a gross profit level, overall earnings
from Advanced Nutrition stepped back.
So, our lactoferrin portfolio, which is something we're really, really proud of here
at Synlait. We're one of the -- that's one of the strengths of our businesses,
actually was subjected to a weakening in the lactoferrin price. So, it stepped
back a couple of hundred dollars a kilo. I'll just repeat that - a kilo. And once you
scale that up to between 30 tons and 40 tons, it can have a significant impact
on your performance.
So that's both in terms of lactoferrin that we sell or lactoferrin that we consume.
We've also had some operational challenges in terms of the ramp-up of our
new product in the North Island. And as you'd expect, some teething issues in
terms of aged product and use of raw materials, which has weighed on margin
somewhat.
I mentioned Dairyworks upfront. So this is the segment that we refer to as
Consumer Foods. So, this includes Dairyworks and also our fresh milk portfolio
here in Dunsandel. So Dairyworks continued its strong performance. So
stepped up to a record EBITDA and maintained strong market shares in New
Zealand and was also actually able to capitalize on a step-up in consumption,
relaunch some brands, which you'll hear about from Grant a little bit later. But
the team there is really focused on growing export.
And so what we're seeing is that we're able to grow exports at higher margin,
and that's where we see incremental earnings coming from in the Consumer
Foods section of our business. The fresh milk side still continues to be
challenging, especially with lagged pricing. So as prices steepen towards the

end of the year, that gives us a bit of a margin squeeze given the lag pricing.
We expect to recover that as we roll forward through those contracts.
Our foodservice business is another example of our strategy taking hold. So for
a significant period of time now, you've heard us talking about going harder in
Advanced Nutrition and going harder in foodservice. Foodservice products
produced in New Zealand are incredibly highly demanded in China and other
parts of Asia, and it's an area where Synlait is underweight and that we're going
to significantly increase our exposure.
So look, it's still low volumes. What you are kind of seeing here is the first year
of full-year sales. So thus the production and sales are up significantly. From a
profit perspective, it kind of reflects the low volumes. I'd also just highlight that
we're pricing -- the pricing for cream in this portfolio is largely based off fat,
which has been historically high, and we're trying to get a toehold in the market.
So we're pricing what the market can bear, and we would expect to see a
significant step-up in profit as we move into the future, both in terms of pricing,
but also in terms of volume efficiencies that we can create here in Dunsandel.
From a cost perspective, I might just deal with the manufacturing cost to start
with. So like all businesses, we've been subject to a chunk of inflation year-on-
year. So, employees, energy and milk supply down the bottom there are all
largely driven by broader inflationary impacts, but we have managed to make
some savings. So we've phased R&M out. We've been really, really tight on
what we're doing in that space. And from a freight perspective, the prior year,
the freight lines were, I guess, really looking to maximize the disruption in terms
of pricing. And so, we're able to recover a significant chunk of that in FY24.
I'll just call out Dairyworks here. So Dairyworks, just like ourselves were subject
to inflation, increasing costs. They're also carrying a little bit more from some
capital expenditure that they've invested in recently. But despite those two
increased cost bars there, they were more than able to offset that through their
performance.
Moving to the SG&A perspective. You'll recall from last year; we stepped up our
investment in our business significantly. A lot of that was to do with deploying
SAP and also readying the North Island for the future. And you've seen a more
stable SG&A perspective as we compare year-on-year. So, some inflation here,

some savings, but also a significant number of costs in connection to some of
the activity we've been doing regarding recapitalization. So, we've also had
some arbitration costs, recapitalization costs, Dairyworks sale, all rolling
through that line as well.
Grant mentioned the debt upfront. So we have had cash outflow this year. You
can see from the chart in the kind of middle there, a trend which we needed to
halt. And as of tomorrow, you'll see a significant reduction in our net debt bar,
and we're targeting between 200 and 250 by the end of the year. Obviously, our
weak earnings was a contributor to our cash outflow, but we also weren't able
to be as aggressive with our working capital management as we have in the
past.
So, we have incurred some prepayments this year and also some of our
programs with the bank haven't been as achievable as we would have liked
them to be. Again, all things that we see reverting to normal as of tomorrow.
Significant decrease in capex, but we still need to spend close to $20 million a
year in terms of maintenance capex, and there's some very small high payback
IRR spends in this number and the significant step-up in interest, which I
mentioned up the front as well.
From a banking perspective, we have just been through a refinance that will
crystallize tomorrow in parallel with the capital raise. We've been joined by
three new banks into the syndicate. So, two offshore banks and Kiwibank as
well. Delighted to have Kiwibank on board, a Kiwi-owned bank for Kiwi
businesses, and they were really keen to get some exposure to us.
Look, our covenants down the bottom there are about what you'd expect, and
we feel that we've got a high level of comfort of sitting within those both at year-
end and throughout the year. Our banking syndicate has been quite clear that
they expect quarterly progress. And so that's something we'll be focused on as
we move throughout the year.
Obviously, just for those of you who are not aware, we achieved a shareholder
loan with Bright earlier this year. And look, there'll be -- the bonds will be repaid
over the course of the next few months. We're expecting early repayment of
that, and that will be subject to further announcements.

And my final slide, it's more from a transparency perspective. But -- in our
accounts, we make some callouts as far as material uncertainties goes. These
were noted -- or some of these were noted in the accounts at half year. But it's
just our independent directors and in combination with our auditors wanting
readers to be clear that a few things need to fall in place in the future to ensure
going concern. So, number one, improve performance, number two, retain milk
supply, and number three, ensuring that we can refinance in 12 months' time.
From an accounting perspective, we have taken a further impairment on our
North Island assets. At half year, that was in the region of $50 million, and
we've increased that by another $65 million. We had an independent valuation
done of our North Island business, and that was standard process of kind of
looking at a whole variety of different indicators of value, but primarily based on
our forecast future cash flow discounted back, and we've had to make an
adjustment there.
And then, look, just the full year impact of a change in product costing
methodology that we spoke about at half year. That's a decision that we made
to effectively allocate more costs to the ingredients and foodservice parts of our
business to better reflect where those costs sit. We recognized some profit
previously in connection to those decisions, and we kind of have to have a bit of
a catch-up in this year, and that's why it's isolated as a one-off.
So, I'm going to hand back to Grant for a bit more of an update on the wider
business.
Grant Watson: Thank you, Charles. I'll now cover off a brief overview of our business' broader
performance. In summarizing the highlights in our Advanced Nutrition business
on Slide 14, I want to draw your attention to Nutrabase. This is a new range of
nutritional base powders, which Synlait has developed. This is a step change
for us. It is NPD based on an opportunity that we've identified in the market as
opposed to a product developed in response to a specific customer request.
The Nutrabase range consists of Early Life and Adult Nutrition base powders in
25 kilogram bags, which expands Synlait's market offering to accelerate
customer growth in South East Asia and China. Discussion with prospective
customers are progressing positively, and we are on track to commercialize
these products in FY25.

As already noted, we're extremely pleased to have the disputes with the a2 Milk
Company behind us. They are a highly valued customer, and our focus is very
much to support their growth ambitions to the benefit of their business and ours.
As also noted earlier, the completion of the North Island strategic review
heightens our focus on continuing to export a range of dairy and non-dairy
hybrid nutrition products to Asia Pacific markets in a range of packaging
formats.
The performance of our Ingredients business is explained on Slide 15. There
are two key highlights for me. One, the 5-year co-investment partnership
announced with Nestle, which supports our farmer suppliers on-farm
sustainability activities, along, of course, with business opportunities for Synlait.
And two, the launch onto an online sales platform, Nui Market, which has
provided the opportunity for continued growth in connection with a broad range
of Ingredients customers.
Our Ingredients business is now driven by Chief Revenue Officer, Naiche
Nogueira. Combining the reporting lines of the Advanced Nutrition and
Ingredients teams has reduced complexity for our customers and improved the
overall efficiency of our customer-facing teams.
Slide 16, foodservice. Foodservice remains a strategic focus for Synlait. FY24
was our first full year of Joyhana UHT whipping cream production. Joyhana 's
distribution network has grown to more than 300 customers in China after it
won the prestigious New Product Innovation Award at the China International
Bakery Exhibition.
A new partnership with global food company, Uhrenholt saw us launch UHT
Cream under the Emborg Professional brand into South East Asia and Greater
China. Product has been exported to Taiwan, Singapore and Thailand with
strong demand forecast looking forward. FY25 will see the launch of our next-
generation whipping cream.
The next slide, Dairyworks. Recognition must go to the Dairyworks team who
attained a record EBITDA result of 22.8 million in the midst of an extended
strategic review process. This was off the back of strong sales growth, very
much enabled by operational stability and low staff turnover. This was
underpinned by the relaunch of the Rolling Meadow brand, increased demand

from Woolworths Australia and new supply agreements with other Australian
partners.
Other key achievements included entry into Thailand and capital investments
delivering enhanced food quality and production efficiencies. In addition, 85% of
Dairyworks packaging is now recyclable. The remaining 15% will transition in
FY25.
Growth is earmarked to continue in FY25 for 10% volume increase delivered
through new Australian agreements, additional product lines for Woolworths
Australia, the onboarding of a major trans-Tasman retailer and entry into
Vietnam and Philippines.
I will skip over On-Farm Excellence as we've already spoken to our plans to
retain milk and move on to slide 19. FY24 saw us refresh our sustainability
strategy. After canvassing a wide set of stakeholders, we honed our focus to
climate, nature and well-being, well-being for both people and animals.
Key achievements in FY24 included becoming recertified as B Corp.
Whakapuawai, our biodiversity program, has now distributed quarter of a million
native plants to farms and community projects across Canterbury. We will
update you on other progress when we release our first integrated climate
report in November.
Finally, before we move to Q&A, I would like to confirm that as per the text on
Slide 24 that board and management are committed to further resetting Synlait
and are focused on continuing to deliver the next steps of the company's
business recovery plan. Given that this is Synlait's immediate priority, we will
not provide an FY25 guidance statement at this time. I will now ask the operator
to open the lines up for question time.
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 speakerphone, please pick up the
handset to ask a question. Your first question comes from Rob Morrison with
Craigs Investment Partners. Please go ahead.
Rob Morrison: Good morning guys. Can you hear me?
Charles Fergusson: We can.

Rob Morrison: All right. Great job on getting the recapitalisation it's very difficult. So, first
question, I know you haven't really mentioned the June, July production issue.
I'd like to hear more on that, obviously, but failing that, could you let me know
where it was localised, I mean is it an issue with ingredients or manufacturing or
transport? And then maybe you could give me how much product that impacted
in gross tons? Thank you.
Grant Watson: Yes. Thanks for that question. Look throughout FY24, we've had a range of
challenges that have related to supply chain and certainly to operations. Giving
you a couple of examples, an obvious one would be around Red Sea, the
availability of ingredients to produce product. Another operational one would be
around lab turnaround times.
Look, I won't get into the specifics of the a2 element, other than to say that
there were impacts on June, July and August around supply. September we've
made great progress and we're back on track. And certainly, from a Synlait
perspective in FY25, we're not expecting there to be any material financial
impacts.
Rob Morrison: Okay. Thank you. And then next up. So for the bank facilities, it looks like in
order to refinance them that is next year you need to achieve a market
improvement in trading performance and retained milk supply. Could you put
some numbers around that, please?
Charles Fergusson: Look given you've just heard from Grant that we aren't going to issue guidance,
we probably won't get that specific in terms of numbers. I think that to
summarise, we do require a significant improvement on our FY24 EBITDA
approaching sort of levels that we've seen in the past.
And from a milk perspective look I mean I think it will be really important that we
have certainty over our near-term milk supply by the time we come to that next
refinance. So we do have the majority of milk under cease and our goal is to
have the majority of that overturned by 31 May.
Rob Morrison: Okay. Thank you all.
Operator: The next question comes from Sean Xu with CLSA. Please go ahead.
Sean Xu: Well, hi. Morning, Grant, Charles and team. I appreciate you will not be able to
provide FY25 guidance at this stage. I guess just a follow-up on that refinance

facility. If this is not going to happen in 12 months' time, what's your alternative
approach of leverage? Is another capital raising or more asset sale required,
please?
Charles Fergusson: Yes. Look maybe Sean I think the start is we're really confident on refinancing
in 12 months and that's really important for you to hear that from Synlait. That
was a factor in a lot of our conversations with the banks during that time that we
intend to be extending this. I think our preference actually would have been for
two year money.
And I think that would have given everyone a greater sense of stability. But just
given the year we've had, we're there with one year. So look, we don't really
want to get drawn on our backup plans, so to speak. I'd like to think that future
capital raises will be linked to growth rather than debt. And look, as you can see
from this year, we do have assets available, but actually we want to maximise
the value for those in terms of earnings and value creation for Synlait in the
short term.
Sean Xu: That's fair. Maybe another question around Bright. So post the capital raising,
Bright will own approximately 65% of your company. I'm just curious to
understand what kind of strategic support Bright will be able to support Synlait
in terms of new product development or leverage its distribution channel in
China to help Synlait explore new opportunities there?
Grant Watson: Yes. Let me pick that one up, Sean. A couple of really good examples there.
Obviously, they're very, very tapped into the local and large market of China.
And so offering any form of support around sales development, category
development would be one example. As a dairy company in their own right,
they've got their own manufacturing capabilities and certainly comparing notes
in that space would be another example. So very, very committed to supporting
Synlait returning to profitability in any way they can.
Sean Xu: Thank you.
Operator: Your next question comes from Matt Montgomerie with Forsyth Barr. Please go
ahead.
Matt Montgomerie: Hi, guys. Good morning. Just on the milk supply piece. I was just wondering if
you could talk to, firstly, if you've seen any farmers withdraw cessation notices
post the recapitalisation. And secondly how confident are you that the $0.20

additional payment down south will be enough, particularly against the
backdrop of Fonterra's relative strength at the present time?
Charles Fergusson: Yes. Good question there, Matt. Look, we had indicated to our farmer base that
a program would be coming out. So, no surprise that the farmers have been
sitting tight and waiting for it. Now they've got it. We've tested the program with
a number of farmers and the feedback that we've received is that it will be well
received. It is a compelling offer.
Look, I think if you take a step back from that really loyal base of farmers.
They've been very clear with us around get your balance sheet sorted out and
pay competitive advance rates. And we've done both of those things or certainly
the balance sheet as at tomorrow. Also worth noting, if you look at that average
farm gate milk price, the market is sitting at 7.83 for the '24 season, we'll pay an
average of 8.11.
Matt Montgomerie: Okay. And then secondly, Grant, just on Pokeno, I'd be keen if you could please
quantify the loss or the drag on earnings in the year. And then, I guess, the
timelines we should be thinking about to returning to profitability as per your
announcement a couple of weeks ago. And the assumptions within that around
new customers or if it's solely your current customer there today?
Grant Watson: Yes. A few parts to that. Matt, the drag last year was circa $1 million a week at
an EBIT level. The cost-out initiative through exiting the processing of fresh milk
next year, not this year, will be circa 7 million. So therefore, the balance for us
between the current position and getting to cash flow breakeven will be driving
up volume. And a majority of that will come through our large strategic
customer in the North Island, albeit we have got other volumes literally coming
on board to help lift up performance and get us there maybe a bit quicker.
Matt Montgomerie: And sorry, Grant, just the timelines around breakeven/profitability?
Grant Watson: Breakeven at a cash flow level in about two years.
Matt Montgomerie: Thanks.
Operator: Your next question comes from Nick Mar with Macquarie. Please go ahead.
Nick Mar: Good morning, guys. Just in terms of the net debt target for FY25, could you
just talk through the key buckets that will get you down to that 200 million to 250
million range?

Charles Fergusson: Yes, sure, Nick. So obviously, the most significant is the capital inflow that will
be happening tomorrow, I should say. And then look, what we're expecting is
significant improvement in EBITDA, right? But probably the thing that's not as
obvious is the working capital unlock that we're looking for off the back of our
refinance. So, some of our prepayments that we've been making will revert to
normal trading conditions. We expect to get a couple more things done with the
bank in terms of our receivable’s assignment, so some off-balance sheet
financing as well as further work on inventory levels. So, kind of the
combination as the three big buckets is the equity, improved earnings and a
significant improvement in working capital.
Nick Mar: No, that's great. When we look at the earnings profile, you talked about the $45
million improvement by end of FY26, which is consistent with your view at the
half-year, but obviously, earnings came in at the bottom of the range. Can you
just talk about how you think about that improvement? And is that the absolute
improvement for the business? Or are there other assets behind that, that are
not included in that volume and performance initiatives that you call out there?
Charles Fergusson: Yes. No look, it's a fair question. The way I think about that 45 million is that is
kind of incremental over a business-as-usual perspective, yes. So those are
new initiatives from where we are today. Our FY24, which we've talked to you
about today has got a significant number of market conditions, which we expect
to change, and also one-off expenditure. So the way I think about it is I expect
those to revert to normal, that we will reduce our one-off expenditure. And then
that 45 million would come on top of a more normal position.
Nick Mar: Okay. Just to clarify for everyone, you've obviously normalised some stuff out
already to get to the 45 million. Can you just talk about how much those other
market conditions and one-offs you talked about in first instance and then what
we add the 45 on to essentially after that?
Grant Watson: Yes. I think a good example is you've seen a significant backward step in the
ingredient’s earnings in the year, yes. And that's driven by foreign exchange,
AMF reductions in lead bucket. So I would expect that, for example, to reverse
in the future. So what you've got, we've normalised our non-recurring, and that's
why we've called them out. But then we've also had impacts in this year, which
we don't see repeating primarily based on market circumstances.
Nick Mar: And just in aggregate, what's the quantum of that?

Charles Fergusson: We might come back to you on that.
Nick Mar: Okay. That's fine. And then nutritional volumes for FY25, where are you
thinking in terms of growth there, taking into account the outlook for Abbott and
a2? And then on top of that, anything from the new base product?
Charles Fergussn: Yes. Maybe I'll deal with your last one first. I don't think we'll see significant new
volumes in Advanced Nutrition in FY25, but I expect to see more the following
year. And on our broader portfolio, continued uplift from what you've seen FY23
to FY24, we'd expect for FY25.
Nick Mar: Okay. Thanks a lot.
Operator: Once again, if you wish to ask a question, please press star one on your
telephone and wait for your name to be announced. Your next question comes
from Marcus Curley with UBS. Please go ahead.
Marcus Curley: Good morning. I just wondered if you could just explain a little bit on that last
question that Nick had. Like are you suggesting that the continued uplift is a
similar style of volume increase than what you saw last year? Or are you just
saying it's going to go up?
Grant Watson: To put an estimate around it, Marcus, you're certainly talking about less than
10% growth in the Advanced Nutrition space, FY25 over FY24.
Marcus Curley: Okay, thanks. Are you able to give any -- while we're on that topic, any
breakdown of the FY24 Advanced Nutrition, like in particular, obviously, people
are keen on understanding what volume you did through Pokeno and also what
your lactoferrin volumes were?
Grant Watson: Yes. Look, we're not prepared to give a split on Advanced Nutrition volumes.
Effectively, we're talking two customers there, so we start to get into customer-
sensitive information. From a lactoferrin perspective, inventory levels were high
globally. Demand was soft, pricing was soft. We certainly didn't clear through all
of the volume we would have liked in the year, albeit the market has firmed up
quite nicely heading into FY25.
Marcus Curley: Okay. So lactoferrin sales completed in '24 down on '23?
Grant Watson: Correct.

Marcus Curley: Okay. Obviously, people are keen to get any colour they can on the guidance or
lack of it. Maybe I can ask the question in a different way. Can you give us a
feel of what the minimum level of EBITDA needs to be in FY25 to meet the debt
covenants?
Charles Fergusson: I'm just trying to think about that one on the fly, Marcus. Yes, we'll follow up with
you on that. Look, for the call, a significant turnaround on this year and
something approaching what we've seen in the past, albeit that we do see it's
probably a 2 to 3 year picture to reach earnings profiles of what you've seen in
longer-term history.
Marcus Curley: When do you think you'll be in a position to give EBITDA guidance for this year?
Grant Watson: We don't have a clear time frame on that, Marcus. The likely timing for us to at
least provide a further update would be at the Annual Shareholders' Meeting
later in the year.
Marcus Curley Okay. You had another one-off cost with regard to the ERP and the inventory.
Can you just talk a little bit about what happened there?
Charles Fergusson: Yes. So look, that's -- what that kind of reflects is that we -- I'll just get the page
up, so I'm looking at the right thing, Marcus. So effectively, we've had significant
inventory write-offs across the business in connection to ERP deployment. Now
the way I think about this is that ERP has given us much greater insight with
regards to inventory management, and we've had to take some adjustments
and write-offs for a bit of a tidy up. What we kind of worked through in FY24
was more of that.
And the reason we've called that one out year is that a lot of that actually
relates really to the prior year, but we've taken the impact of it in FY24 as we've
found out more about it. So, we thought it was reasonable to kind of call that out
as a one-off that it wasn't from our FY24 performance. It was more of a tidy-up
from the ERP deployment.
Grant Watson: Maybe one further build on inventory. You can imagine as we've learned our
way into cream and ramped that up. We've done something similar for our
North Island customer. And of course, we've on-boarded the new GB standard
China label for a2. Cost of quality as you enter these new products will always
increase initially. And I think it's fair to say that we underestimated heading into
FY24, how much that might be.

Marcus Curley: Okay. And then -- sorry, just one more from me. I think you were sort of saying
that the reason the foodservice gross margin or gross profit was negative, was
because the pricing of the product was below cost. Has that been a reflection of
the fact that butter prices or cream prices have gone up during the year. How
quickly is it going to correct? Obviously, growing a business with a negative
gross margin is something clearly you want to sort of avoid?
Charles Fergusson: I'm definitely trying to avoid that situation, Marcus. I think, look, we brought that
product to market this year, right, at a moment where cream prices are high. So
that's been a factor. But then just reflecting on some of Grant's comments, we
had some operational challenges in the early part of the year, just kind of
getting ourselves to ramp up to commercial production.
So look, we'd expect a revision on the profit per ton as we move forward, both
in terms of pricing that we can pass on, but also a bit of that operational
performance. And we see this as a high-value stream in the future.
Marcus Curley: Okay. So would you say the issue really relates to the size of the business and
effectively manufacturing overhead recovery as opposed to the cost -- the raw
material cost of the product?
Charles Fergusson: Yes. Look, I think it's all of the above. I think it's size. I think it's the fact that it's
our first year. And then I think it's also a market cream price a bit tough on
volumes of that level. And we're obviously trying to get this off the ground, and
that means you have to work with your customer pretty hard.
Marcus Curley: And just as a reference point here, if we look at it relative to Fonterra, are you
having to price at a discount to their like-for-like products to encourage people
in? Or is it just it's a similar price and the cost of you making it higher?
Grant Watson: In terms of market pricing, effectively, we look at all product on the market, look
at their value propositions and ours and effectively price accordingly.
Marcus Curley: So it's not -- you're not pricing at a discount to peers.
Grant Watson: Price reflects functionality. We've got very high functionality. We get a very
good price in the market.
Marcus Curley: Okay, thank you.

Operator: The next question comes from Jonathan Snape with Bell Potter. Please go
ahead.
Jonathan Snape: Yes, hi guys, can you hear me okay?
Grant Watson: We can.
Jonathan Snape: Great. Can I ask just a couple of questions? First of all, around the
deleveraging the targets of thing. In the reduction in prepayments, I assume,
are you talking about that number in your balance sheet that jumped from like
10 million last year up to 28 million this year? Are you talking about that coming
back down?
Charles Fergusson: Yes. I'll have to check back specifically on what you're referring to there, but
long story short...
Jonathan Snape: Yes, prepayments in current assets.
Charles Fergusson Yes. Long story short, yes. So, we don't typically have prepayments with our
suppliers. But some of the key ones insisted on those in the back half of this
year. And we -- as of tomorrow, we'll be stepping into conversations with each
of them for that to revert to normal payment terms.
Jonathan Snape: Okay. And look, if I go to Slide 12, I think it says that you're targeting net
leverage ratio, obviously, shareholder debt to EBITDA below 2.5x. I think you
said you want an exit rate of 200 million to 250 million of net debt. So I'm
guessing the 130 million-odd shareholder loan is excluded from that. Is that the
correct way of thinking about these targets that it's only going to be on the bank
debt?
Charles Fergusson: Yes, only on bank debt. That's the way to look at them.
Jonathan Snape: Okay. So that imply -- this comes back to, I guess, the guidance bit is, that
would imply a fairly low level of EBITDA. Like if you got 250 million, you rip out
130 million, you're testing at 2.5x below that. It's a pretty low number. I think in
your independent expert report, there's a range of numbers that were put out
there. And I think one of them was an internal projection of around about $85
million. But it's quite a wide range.
And I think this is where people are getting a bit jaded or mixed up on what
where you guys are kind of expecting to land. Has anything fundamentally

changed, since that independent expert report went out, because there's clearly
numbers in there and projections for 2025 that, I think people kind of looked at?
And I would assume if it had changed, you would have to have made some
comment by now.
Grant Watson: Nothing has materially changed, John.
Jonathan Snape: Okay, great. All right, thank you.
Operator: There are no further questions at this time. I'll now hand back for closing
remarks.
Grant Watson: Thanks for your engagement on the call today, team. We'll now draw the
questions to a close. Synlait's business recovery is well progressed with several
material distractions behind us, our team is focused on business growth and
executional excellence to ensure we deliver strong returns again to our
shareholders.
If you have any further follow-up questions, as always, feel free to reach out to
Hannah. Charles, Andy, Hannah and I look forward to connecting with many of
you over the coming days and weeks ahead to discuss the result in more detail.
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