Good afternoon, and thank you for joining us. I'm Hannah Lynch, Synlait's Head of Strategy and Corporate Affairs. Before our Acting Chair, Paul McGilvary, opens today's meeting, I will cover off several housekeeping points. Our annual meeting is being held here in person at Dunsandel and online. For those of you who have joined us in person today, welcome. Before we start, here are several health and safety reminders. You completed a personal declaration on entry to our site today. If you feel unwell at all during your visit, please let your Synlait host know immediately. The nearest evacuation point is on the lawn, which is through the doors to my left or your right. If we need to evacuate, the alarm will sound continuous, and the annual meeting will be suspended. Please follow the directions of your Synlait host to meet on the lawn.
Thirdly, if you're planning to join us for afternoon tea following the meeting, a reminder that food can only be consumed in this cafe area. Finally, remember that Synlait is, of course, a non-smoking and non-vaping facility. For those shareholders who are joining us online today, welcome. I will now explain how to vote and ask a question online. Voting today will be conducted via poll for all items of business. To provide online attendees with enough time to vote, online voting is now open for all resolutions. To vote online, as demonstrated on the presentation slide, click on the Vote tab and select your preferred option. Once your vote has been cast, a tick will appear. There is no Submit or Send button. Once you have selected an option, your selection is automatically recorded.
To change your vote at any time, simply click on the words, "Click here to change your vote." For those that are in the room here today in person, you should have received a white voting card when you entered. If you are a shareholder, proxy holder, or corporate representative, and you have not received a white voting card, please raise your hand now. Voting cards will be collected at the end of the resolution and voting section of the annual meeting by the Computershare team. Computershare, our share register, will act as scrutineers of today's results, and the results will be posted to the New Zealand and Australian Stock Exchanges before close of business today. Asking a question online. For those of you attending the meeting online, questions can be submitted at any time.
To ask a question, click on the Q&A icon, type in your question, and press Submit. Our team will monitor your questions and ensure that they are addressed at the relevant part of the meeting. For those shareholders here in the room at Dunsandel, there will be an opportunity to ask questions following each resolution and in general business. If you have difficulty connecting to the online voting platform, asking a question, or voting at any point during the meeting, please refer to the online voting guide issued with the notice of meeting in the first instance. If you're still having difficulty, you can use the Q&A function to message the Computershare team, who are available to assist. If you're still having difficulty, the Computershare team's phone number is on screen now and will be on screen during each of the resolutions.
With the housekeeping and information points out of the way, I'll now hand over to Paul McGilvary, our Acting Chair, to officially open today's meeting.
Well, thank you very much. I really appreciate you all being here, and thank you for joining us this afternoon. As Hannah said, my name is Paul McGilvary. I'm the Acting Chair of Synlait, as many of you will know by now. Before we begin, I'd like to confirm that today we are giving no new announcements, and we're giving no further updates to our previously advised guidance. I'm pleased to confirm that we well and truly have a quorum here, and I declare that the shareholders' meeting is open. A quick summary of our agenda today. I'm speaking first, and I will be followed by Julia Zhu here. Julia is gooing to speak on behalf of our Bright Dairy directors. And following this, Grant Watson, our CEO, will speak.
We will then open the floor to questions, and at the conclusion of today's meeting, we're going to have an operational or an optional site tour for those that are here in person. I really encourage you, if you can, and I know it doesn't apply to a lot of our staff who are here, but I really encourage you to take the site tour. You don't get many opportunities to see one of the most sophisticated dairy plants in the world from the inside, and you get an opportunity today, so I encourage you to take it up. Before I begin, I would like to introduce your board, your board to you. We have Board-appointed director, Dr. John Penno. We have independent director, Paul Washer.
We have our New Zealand-based Bright Dairy-appointed director, Ruth Richardson, and we have our China-based Bright Dairy-appointed directors, Julia Zhu, Edward Yang, and we also have Ryan Liu, but Ryan is an apology today. He got called to some other business in China, so he's not here. We also have our CEO, Grant Watson, here with the board and several members of our Synlait management team in the audience. PwC, Synlait's external auditor, is also with us today, and I really welcome you all to this meeting. At the outset, I would like to explain my role as acting chair. I've taken this role as a caretaker, until we can find a new independent director who will become the chair in due course. The search for this person is already underway, and we have candidates being considered already by the nominations committee.
The nominations committee comprises Paul Washer, Ruth Richardson, and myself. Please be assured, we are absolutely determined to find a strong chair with the necessary experience and skills to lead us through this very challenging time and back into growth again. We will not sacrifice quality for speed. Once we have a new independent director, I will work with that person to determine the optimal time for them to become chair and for me to return being an independent director and chair of our People, Environment, and Governance Committee. Please be assured I intend to remain in the chair role for as long as it takes to find the right permanent replacement. I am determined to provide the necessary governance, stability, and leadership for Synlait until then.
So in terms of being the acting chair, I sort of want to talk to you a little bit about my focus areas. There are four key focus areas for me while I'm doing this role: To work with Synlait's executive team and the board to strengthen Synlait's balance sheet by reducing debt. Look, we are working through a number of options in that regard, and the priority is the sale of Dairyworks, which we've already announced, so we are, we're well advanced on that. We want to also, number two, strengthen our operational performance, which includes various cost-out initiatives, which Grant will talk about a little more later. But most importantly, quality in as well. So, we're, we're very conscious that taking cost out, we want to not sacrifice quality in doing that. And that.
You know, those two things, cost out and quality in, is a pathway to returning us to profitability. The third point I want to, or the third focus area I've got, is working with management to improve and build key customer relationships, including our critical farmer-supplier relationships. Finally, ensure we retain and motivate our high-quality executive team and the staff, many of you who are out there, that make our business happen every day. So Synlait's 2023 performance, being blunt with you, was simply unacceptable. We have engaged with many of you since the delivery of our full year 2023 results, so I'm not going to really dwell on the detail of the numbers here. Suffice it to say to you that the board and management are more than disappointed with the results, and we are really determined to do better.
As I mentioned earlier, key areas of focus at the moment is assessing options to reduce our debt profile, which, as you can see, reached NZD 413.5 million at the end of 2023. We've agreed with our banking syndicate to reduce this by NZD 130 million by the end of March 2024. The key to this is our previously announced intention to sell Dairyworks. The process for this is well underway. In addition, we are looking hard at our bond maturing in December 2024. Plans for this are also being developed at pace. Allied to this are numerous programs to improve our operating performance, including cost out, quality in, as I've mentioned before, and we're trying to hold our capital expenditure this year to an absolute minimum.
Despite the needs for these initiatives, our business now is actually in better shape than it was two years ago. We also delivered some significant wins in 2023. We launched Joyhana UHT Whipping Cream in the market, a key part of our food service strategy, and big strides have been made to start manufacturing from our Pōkeno site and our advanced nutrition business. We completed the SAMR registration, the State Administration for Market Regulation, registration for our infant formula, which is so important to our customers retaining access for their products into China. This registration is fundamental for our biggest customer, the a2 Milk Company, and sets up the platform for us to do more with them going forward. While our relationship with a2 has been challenging at times, there is an inherent logic in both companies working closely together.
And I, in taking this role, am very, very determined to support that to the greatest extent I can. Finally, I want to touch on sustainability. As you know, we have proposed amendments to our constitution for your consideration today, to enable us to maintain our critical B Corp accreditation. One of Synlait's key competitive differentiators in the global market is not only our advanced nutrition technology, but also our leading position in terms of sustainability, as evidenced by our various certifications. Synlait has been a certified B Corp since June 2020. We are the only New Zealand-based dairy company to have this recognition, and we are one of the largest companies to have B Corp certification in Australasia. B Corp certification is important.
Holding B Corp certification demonstrates we have been audited to the very highest standards of social, environmental, performance, including public transparency and legal accountability. It is the global gold standard for sustainability that demonstrates to all stakeholders, especially customers, that we are committed to considering the impact of our actions on our workers, our customers, our farmers, our suppliers, our communities, and our environment. Retaining B Corp certification is completely aligned with our company purpose, doing milk differently for a healthier world. I'm really encouraging you to vote for that today. So that concludes my address. I would like now to invite Julia Zhu, from Bright, to speak to you, on behalf of the Bright appointed directors to the Synlait board. Thank you, Julia.
Thank you, Mr. Chairman, and good afternoon, ladies and gentlemen, and esteemed guests. My name is Julia Zhu, the leading representative director from Bright Dairy. Although I have only been served on the board of Synlait for six months, but my esteemed fellow directors, Mr. Edward Yang and Ms. Ruth Richardson, actually have dedicated more than 10 years to Synlait's service. So together, old and new, fresh and new, we are diligently working to establish a new and diverse board. The composite of Bright appointed directors is now being shaped with professionals from different backgrounds and with varied capabilities, all united with the common effort of actively participating in and contributing to Synlait's management. So as the leading representative today, on behalf of my fellow colleagues, it is really my pleasure to stand before you today to confirm our strategic investment in Synlait.
Bright regards itself as not only a shareholder, but as a significant stakeholder, deeply invested in the history, in the future, and success of Synlait. We place tremendous value on the stability and sustainability of Synlait's operations and its continued development. Our hope is to see Synlait deliver increased returns to all shareholders and stakeholders, not just in financial terms, but in broader ways that reflect our share values and aspirations. Bright's support for Synlait remains steadfast, and we eagerly anticipate exploring new business opportunities for Synlait. The Bright directors have established and maintained a good working relationship with other members of Synlait's board. Synlait's board carries out fortified and constructive deliberations on matters of importance, and resolves on such matters in accordance with Synlait's decision-making mechanism, under Synlait's constitution in an effective manner.
We are also encouraged by the close cooperation between Synlait's board and its management teams. It is commendable to see how the management team actually proactively executes the board's decisions, and how readily they bring innovative proposals to the board's consideration. So last but not least, we all know that, and we all understand, that the business environment is ever-evolving. So, however, as the third largest player in China's dairy industry, Bright Dairy views its investment in Synlait as a vital gateway to resources and capabilities in advanced dairy-related nutrition. This is not only just for infants and children, but also extends to adult and senior demographics. Earlier in November, just about two weeks ago, Synlait actually participate in China International Import and Export Expo, held in Shanghai. There, Synlait showcased its foodservice products and business capabilities to the Chinese market, which received a tremendous positive response.
We are really excited about the potential business prospects for Synlait in China and other emerging markets. Rest assured, we are very eager and fully prepared to support Synlait's journey with these dynamic markets. Thank you again to the chairman, for the opportunity for me to speak on behalf of Bright appointed directors. Thank you.
Yeah. Thank you, Julia. I think you get a sense of just how much value we put on the support of Bright for this company, and the efforts that we're making to coordinate activity with them. I'd now like to introduce our CEO, Grant Watson, to talk to you. Grant joined Synlait as the CEO in January 2022. In fact, I think you and I joined the same day, Grant. Grant has worked hard and at pace to strengthen the foundations of our business during an extremely challenging time. He has refreshed the executive team and tightly refocused our strategy on Nutritionals and Foodservice and products in regions where we have the right to win. Thank you, Grant, for your leadership. I'll now hand over to you.
Kia ora tātou. Good afternoon, everybody, and again, a very, very warm welcome to the 2023 Synlait Annual General Meeting. Reflecting on how we exited FY 2023, we now have an enterprise resource planning system in place that is stable. As Paul mentioned, we got re-registration for our SAMR license , critical for our market access up into China, and in fact, we still have two slots available here on the Dunsandel site. Utilizing capacity. We have wonderful, wonderful capacity within the business, and it's critical that we utilize it to create value for our shareholders. We've made very good progress now in ramping up our adult nutrition, advanced nutrition products in Pōkeno, so that's now ramping up and underway. And the same can be said for our foodservice cream here in Dunsandel for the dairy liquids plant.
We continue to provide absolute commitment to our farmer suppliers so that we provide a competitive offering. In FY 2022, sorry, FY 2023, we paid out a market farmgate milk price of NZD 8.22, meeting the market, and our average farmgate milk price was NZD 8.49. On all key people metrics, we're making very, very good progress. We're improving on health and safety. We're improving when it comes to staff engagement. Turnover is coming down, and I'm pleased to say, as Paul alluded to, that we've now completed the renewal phase of our executive leadership team. We're four months into the year, and we have very, very clear priorities laid out across the business, and Paul's touched on some of these already. His priorities and our priorities, as you'd expect, are completely aligned.
Really important that we continue to grow our advanced nutrition and foodservice businesses, that we strengthen our balance sheet, and of course, that we manage our cost base. And if I can just touch on a few of these areas in a bit more detail. Advanced nutrition. When it comes to early life nutrition, we're primarily talking about infant formula. And as you'll probably appreciate, nearly 50% of all infant formula globally, has demand, the demand comes from within China. But the landscape is changing, and we've seen in more recent times a decline in birth rates. So on one hand, decline in birth rates, and also we're seeing a mixed shift from production being more within China than previously from outside of China. So you could say that those two dynamics are not positive.
But on the other hand, what we are seeing is that we've got less suppliers into the China market, so there's more opportunity for each supplier to have a bit more market share. Secondly, the strong performance of the a2 Milk Company, and if I pick up on the summary from the a2 Milk Company annual general meeting recently, they've delivered 8% growth, in an environment where the market has actually been in decline by 14%. So they're sitting there with 5%-6% market share and really, really good plans in place to deliver further growth. We are expecting to see some recovery in terms of birth rates in the China market. And another area of opportunity that we're working really hard on, is the growth that exists in the Southeast Asian region.
As we think about advanced nutrition, clearly it goes across all life stages. I've touched already on early life nutrition, so when we talk adult nutrition, we're talking about active nutrition, sports nutrition, healthy aging, and clinical nutrition. This is a huge area of opportunity for us. One very, very relevant statistic: In Asia Pacific, this market is the... and it's an emerging category, is $13 billion today. That's a little bit over NZD 20 billion, and it's growing at 8% per year. Another great statistic if we think about China, in 2035, 30% of the entire population will be 60 or older. An amazing opportunity, and you can see why, from our perspective, we're leveraging our infant and plant-based capability to grow into adult nutrition. Let's talk about the balance sheet and our cost base.
So in terms of strengthening our balance sheet, our teams have done a great job of converting inventory into cash. From a CapEx perspective, again, as Paul alluded to, go back to FY 2022, we invested NZD 96 million. In FY 2023, we invested NZD 65 million. This year, we will invest less than NZD 30 million on CapEx. We are working on a range of options to strengthen up our balance sheet. We're doing that with our advisors and with the board, and it is absolutely our intention that within calendar year 2024, we strengthen up our balance sheet. We are making progress with the sale of Dairyworks. We, we're making very good progress. We have several interested parties, but we acknowledge this has taken longer than expected.
In terms of managing our cost base, we have a significant internal program within the organization to reduce operating expenses, to reduce headcounts down, where that's appropriate. But equally important, that as leaders, we focus on growing the capability of our people so we can actually lift up productivity. So those are the three big buckets, for us this year. They are well underway. It's about growing our advanced nutrition and food service businesses. Strengthening our balance sheet is absolutely vital, and of course, managing our cost base and getting more profit to the bottom line. I'd now like to hand back to Paul McGilvary, for resolutions and voting.
Thank you, Grant. So now we're going to move to the more formal part of the meeting. We're going to take the resolutions as set out in the notice of meeting. Resolution one is an ordinary resolution. It is that the board be authorized to determine the auditor's fees and expenses for the 2024 financial year. I move that the board be authorized to determine the auditor's fees and expenses for the, for the 2024 financial year. Are there any questions from anybody on this resolution? Nothing, Hannah? Okay, fine. There being no questions, I invite you to vote by marking your voting option on this resolution on either your printed or electronic voting card. Okay. Resolution two is a special resolution. For this special resolution to pass, 75% or more of the shareholder votes are required.
Resolution 2 proposes three amendments to Synlait's constitution. In summary, these changes are, one, the addition of two new clauses to include a purpose statement and stakeholder consideration to meet the requirements for Synlait Milk Limited to maintain its B Corp certification. As I mentioned in my address, maintaining Synlait B Corp is critical to Synlait's DNA and commercial success. The second clause we want to change is remove the now redundant additions to Clause H, Schedule One, that were adopted at the 2021 annual meeting to allow the board-appointed director to be the chair of the board until the completion of the 2022 annual meeting. So effectively, a redundant clause now. And three, remove Clause Two of Schedule One, which names the Bright directors, as it's now redundant, given the elapse of time since the Constitution was first adopted.
Synlait does not propose to continue to amend the Constitution every time we have a change in a Bright director. To reiterate what I mentioned earlier, if this special resolution does not pass, Synlait forfeits the B Corp certification, which we currently have. The board of Synlait fully support this special resolution. I move that the board be authorized to amend Synlait Milk Limited's Constitution in the form and manner described in the notice of meeting. Are there any questions on these resolutions? Hannah, nothing online? Okay. Okay. If there are no questions, I invite you again to vote by marking your voting option Resolution Two on either your printed or electronic voting card. Can I now please ask Computershare to collect all voting papers in the room? And it'll, we'll shortly be closing off the online voting.
So please, though, for those people online, please complete your voting forms. Thank you, Computershare. Okay, everybody, thank you very much. That concludes the formal resolutions part of this board a part of this general meeting. The results will be published to the NZX and ASX exchanges later today. Online voting is now closed. So, finally, Grant and I will take any further questions from either people in the room or online, relating to any issue you wish to discuss that's relevant to the company. And I think we'll just. Well, you're going to do it there, Grant. I was going to stay. We stand up here and do it, but that's okay. You can stay there, and I'll stay here. So we'll take any questions now that you may have related to Synlait.
We can start with some questions online. Perhaps this question is best placed for Grant, with some builds from our chair. Please explain the issue that the a2 Milk Company had with Synlait.
So, what the a2 Milk Company has done is that they've effectively given us notice around the exclusivity arrangement that we have under our contract with them. And for clarity, the exclusivity arrangement relates to English label product, because the China label product needs to come through our SAMR license . And look, I won't get into too much detail around it, because we're working through a process in good faith, which is an arbitration process. But effectively, the a2 Milk Company have made claims around our service levels being in breach of the contract. We refute the claim, so that's why we're going through an arbitration process to make sure that we can get that resolved. Maybe just to extend on that answer, and we provided this clarity at our annual result.
We're expecting this process could take... And this was back in September. We expect that this process could take up to 18 months. So, maybe before the end of the calendar year, next year, maybe heading into the following calendar year. Time will tell.
Building on the a2 narrative, perhaps a question for you, Chair. Could you explain why Synlait doesn't have a director from the a2 Milk Company on our board?
Look, we've always had four directors from Bright, and we think it's good governance to have three independent directors and one appointed director. So, you know, we've got a board of eight. No particular reason to exclude a2, but we've never had it that way. So, that's the basic reason we don't have an a2 director.
With Pip Greenwood having assumed the chair of the a2 Milk Company, following the retirement of David Hearn as chair and director, does Synlait anticipate engagement governance over dealings with the a2 Milk Company?
a2 Milk Company is our biggest customer. Of course, we're going to engage with them, and we do anticipate that. I've had meetings with Pip. I've had exchanges with her, text messages, emails. Look, I think we understand, despite some difficulties that we've had with a2, you know, as Grant pointed out, the market in China is, it's got some challenges, and it's challenging for them as well as us. So some of the difficulties arise from the basic challenge from the market situation. But look, I think with a2, we are stronger together. I think there's an inherent logic in us working closely together. And as I said in my address, I intend to support that as hard as I can.
A question from the New Zealand Shareholders Association, for you, Chair. Would you formally agree to assume the role of chair at least through to the current end of your term to provide the board and Synlait with greater stability?
Yes.
With the recent pressure from Nestlé on Fonterra to reduce emissions, how feasible is it for New Zealand to accomplish this, considering we are already one of the most efficient producers globally? And how can Synlait leverage its reputation to achieve a better return? Perhaps one for you, Grant.
Yeah, look, there's several parts to that in terms of doing our bit for the environment. We've got great leadership, a great team within the business that focuses on sustainability. Maybe just to call out a few examples. We've got a very, very clear plan in place from a manufacturing perspective to improve sustainability. An example of that would be burning less coal and using more biomass. So one example there. We have a tree planting nursery on the site called Whakapuāwai. Another great way of making a positive contribution to the environment. We have Lead With Pride as our on-farm sustainability leadership program. So what we're doing there is incentivizing our farmers to provide leadership behaviors.
And we're actually now in the position where we're starting to commercialize some of the benefits of that program through premiums with customers. And the last thing that we're very, very proud of is our founding investment of AgriZero NZ, and that's actually pooling resources with agri industry in New Zealand to invest in innovative ways of improving the environment, and it makes so much more sense to have that pooled and collective than trying to go it alone. So we're absolutely committed to our sustainability program. It is making a difference, and actually it is starting to provide a commercial return as well.
Are there any questions in the room?
Well, just with the slots that are available for the registration in China, are there any plans to actually launch more Synlait-branded product? Maybe just not the infant formula market, but into some other product types as well, that actually build the Synlait brand.
Yeah, great question. So, look, we'd love to firstly, love to utilize those two available SAMR-licensed slots here in Dunsandel, and certainly it's not out of scope. We may look to have SAMR slots out of the Pōkeno site also. At this stage, our focus with regards to having a very, very focused strategy is value-add B2B, so it's not placing a whole lot of investment, or any investment actually, in the short term, around our own brands. Look, who knows? One day there might be a Synlait brand around food service, but certainly in the short to medium term, we're great at procuring milk, manufacturing product, innovating and providing value-add B2B solutions to our customers. They can look after the branding. They can look after the distribution.
So that's, in terms of the focus strategy, that's where we're at.
Hello, your ERP system that went live last year, there's obviously some issues. How's integration going, as we currently stand?
Yeah, look, we're moving. We're transitioning from being stable into now having it create value for the business, which clearly was always the intention. It was one heck of a bumpy ride, no question about it, for that first six to nine months. We've got really strong leadership and capability within our business. We've got a really strong partnership with various providers, and it is starting to add some real value. It's taken some time, and it's been painful.
And just while we're on SAP, Grant, three questions on SAP from the NZSA. Can you talk to the actual root cause of the challenges we've had with implementing SAP, some of the learnings that have arisen-
Mm.
and the overall financial impact on the business?
Yeah, so, without getting too technical around SAP, heading into a program like that. And look, you'll never hear of a great implementation. They're very, very challenging initially, but they add significant value over time. So the go lives are very challenging generally. Heading into SAP, it's about the integrity of your data, it's about change management, and it's around the connectivity of SAP with the other systems that operate in the business. And I think the big learnings for us as Synlait, that change management, taking people on a journey, is so critical. In hindsight, we could have done a much better job of that. Data integrity, certainly opportunities on the table there. So those are the challenges. I think those are also the learnings.
We invested NZD 62 million. It's really hard to quantify what some of those operational impacts cost us in FY 2023, but categorically, it had a financial impact. So for us, we're stable. We're making really good progress. We're going after the value that was always intended.
Questions in the room?
I have a question for Grant. When I see your marketing materials, I see, quite rightly, often a focus on China and Asia, which is sensible. I just wonder if your marketing team has made any efforts to look at the US. I know there's issues in the US, but recent reports are saying they're worried about competition and infant formula, and I just wonder if the company's doing any prep work in that market, especially with the climate versus in China.
Yeah, look, it's a great call-out. Stating the obvious in terms of our focus on China and Southeast Asia. Currently, supply chain, market access, the real value of the provenance of our product, are all fantastic reasons to do what we're currently doing, but we do need to manage the diversification geographically of those regions. We are currently pursuing a couple of really good opportunities into the USA market. I can't speak to them because they are, excuse me, they are confidential to the two customers that we're working with. But we do have a couple of very good and active opportunities that may play out over time.
We have no more questions online, so are there any more questions in the room?
Thanks, everybody. Question time is a really important part of these meetings, and I thank you for your questions. Look, if there's no further business for discussion, I'd like to end the meeting by, again, thanking you for all your time, all of you, for your time today to be here in person and online. We can't deny it's been a challenging period for Synlait, and I thank all of our shareholders for their support. I would also like to especially thank Bright Dairy, which I probably did earlier, but I'll say it again.
Not only are they joining us here in person for today's meeting, which is the first time since before COVID. We thank you, Julia and Mr. Yang, for your ongoing support, and it's critically important to us, and we really, really appreciate it. I also just want to have a thank you to our farmer suppliers. You know, our company absolutely depends on milk, and we shout out to our farmer suppliers, the resilience and the commitment they've made to our business, and we really, really appreciate that, too. And finally, thank you to Grant and the Synlait team for their ongoing commitment and hard work and for hosting us here on the Dunsandel site today.
I can now declare the meeting closed and invite those of you who are here in person to join our team for afternoon tea outside the room. And for those of you joining our site tour, please meet here at the front of the stage, in 30 minutes. Okay. Thank you, everybody. I appreciate your time.