Synlait Milk Limited (SML) Earnings Call Transcript & Summary

Hello, everyone, thank you for joining us. I'm Hannah Lynch, Synlait's Corporate Affairs Manager. Before our Chair, Graeme Milne opens today's meeting, I will explain how to participate in Synlait's online annual meeting. Voting today will be conducted via poll for all items of business. Computershare, our share registry, will act as scrutineers, and the results will be posted to the New Zealand and Australian Stock Exchanges before close of play today. Voting is now open. To vote, click on the tab and select your preferred option. Once your vote has been passed, a text will appear. You can vote for all resolutions at once or by each resolution. There is no submit and send button. Your selection is automatically recorded, and it can be changed up until the time the voting closes. Asking a question online. Questions can be submitted at any time. To ask a question, click on the Q&A icon, type your question and press submit. Your question will be addressed at the relevant part of the meeting. We recognize that this meeting format might be new to some of you. If you have difficulty connecting to the online platform, asking a question or voting, please refer to the online voting guide I showed alongside the note of this meeting and the first instance. This guide can also be found on Synlait's website. If you are still having difficulty connecting, use the Q&A function to message the Computershare team or you can call them. Their phone number is on screen now. I will now hand over to Graeme to formally open today's meeting.

Thanks very much, Hannah. Good afternoon, and thank you for joining us, everyone. My name is Graeme Milne. Obviously, I'm the Chair of the Synlait -- of the Synlait Board. So a very warm welcome to the FY '21 Synlait Annual Meeting. It's the first time we're doing it fully virtual, and I have it all worked and nobody gets cut off. Before we begin, I'd like to confirm that there are no new announcements actually today or any changes to some of these guidance. We expect the meeting to last about an hour to 1.5 hours depending on questions. So just so you've got an idea of that. And I'm pleased to confirm that we have a quorum and therefore, declare the Annual Shareholders' Meeting open. So firstly, a quick summary of the agenda today. I will speak first, and then we'll hear from our CFO, Rob Stowell; and then followed by our CEO, John Penno, and then there will be an opportunity to ask questions. There'll actually be several opportunities to ask questions throughout the meeting. So don't panic about, if you missed the first opportunity. We'll then move to the sort of formal business of the meeting, where there will be 3 ordinary resolutions and one special resolution for you to consider and vote is set out in the Notice of the Meeting. And after this, there's a chance to ask questions during that and at the end on the general business. So before I begin, I'd like to introduce your Board. So here in New Zealand, we have Simon Robertson, and Sam Knowles, and Ruth Richardson, and John Penno, of course. And then in Shanghai, we have Edward Yang, and Albert Lu. And we also have Joyce Chen or Min Chen as she's not -- who replaces Min Ben as a Bright Director on the Board, and I'll introduce her just in a minute. And from our management, we have Rob Stowell, the CFO, and also Deborah Marris, who is the Senior Executive in charge of legal, risk and governance. So I'd like to welcome Joyce to the Synlait Board. Joyce will replace Min, as I said, as a Bright appointed director effective today. This change does not need to be voted on by shareholders. Hence, it was not included in the Notice of Meeting. Joyce joined Bright Dairy in 2007 as a Senior Finance Manager and responsible for budget planning, data analysis and business evaluation. And since 2016, Joyce has been the Chief Internal Auditor for Bright Dairy, reporting to the company's Audit Committee Chair and ultimately, to the Board of Directors. So Joyce, would you like to say a few words to the shareholders?

Good afternoon, Mr. Chairman and fellow directors. It is my pleasure to share my professional regimen and my expectation to this position with you through this opportunity. In the past 2 years, the economy rocketed by a severe recession. This was the time that tests the courage of the conviction and strengthen our union. Finally, Synlait had overcome all the difficulties because Synlait choose to move forward as one team, one people. In the split to the further support for our business and to strengthen the communications between the Board and the Bright Dairy, I have been chosen to fill up the gap when the Director, Min Ben leaves the Board. I joined Bright Dairy 14 years ago as a senior finance manager, responsible for the company's budget planning, data analysis and business performance valuation. Since 2006, I had been appointed as Audit Controller in charge of the internal audit department. Prior to Bright Dairy, I have been a practicing CPA in BDO China Shu Lun Pan for about 5 years, conducting audits for many manufacturers in various industries, ranging from small businesses to large, listed companies. I am encouraged to apply my work experience to this position and work close with the Board and the management as one team in order to build a solid foundation base for our business and bring real value in our clients, to our shareholders and our community where we live. That's all. Thank you.

Thanks very much, Joyce. That's great. So now turning to our FY '21 performance, and that wasn't so great. It was a very challenging year. 9 years of profitability and then our largest ever loss, our NPAT results of minus $28.5 million, just over $100 million less than the previous year. This was very much driven by the sudden and dramatic reduction in the a2 milk companies forecasted demand, which we were informed of in December 2020. This major sudden drop in manufacture of infant formula as we adjusted inventory levels to the new requirements, the so-called bullwhip effect, as you can see on the graph there. COVID-19 until that time hadn't affected us badly, actually. In fact, in June and July of 2020, we're in full production because of the initial sort of pantry filling that happened during the first wave internationally. But after the reforecast, all our spray dryers were switched to -- or had to be switched to ingredient manufacture, which also brought its own difficulties and challenges. And the risk of being over-reliant on one product, one customer and one market was well recognized, and we mentioned that in every annual report for the last 4 or 5 years. And of course, we already started to diversify both within nutritionals category and outside the nutritionals category, Pokeno for more infant formula capacity and for our new multi-national customer. And also under cheese, FMCG with the acquisitions of Dairyworks and Talbot Forest. And also under fresh milk, consumer milk and UHT. However, these projects weren't sufficiently embedded in the company to protect us from the a2 in fact. And of course, the switch to ingredients meant another 40,000 tonnes of production, which was unexpected and in a tight market situation was difficult to place at the usual sorts of premiums that we earn with established customers. And we didn't want to hold on to inventory while we established new customers in a low earnings environment and put further pressure on our balance sheet ratios. So this was also at a time where there were other headwinds, including a butter differential to AMF, where butter was returning a higher price, which went against us and a ForEx, the foreign exchange situation, which was forgone, which was also costly. I'm happy to -- today to say that both those issues have reversed in the current year. Fortuitously, we conducted a $200 million capital raise in November of 2020, recognizing the need for financial prudence as COVID was ravaging the world, but not realizing the impact it would see in every one of us. To reset, during the last quarter of FY '21, we carried out a comprehensive analysis of our performance and developed a plan to rebuild. And we concluded 5 key things. Firstly, our strategy remained valid and -- but the execution of it needed to improve. Secondly, we have realigned our structure to set that strategy, which resulted in, unfortunately, a significant number of redundancies and a new matrix structure, which John will talk through soon into 4 profit centers, ingredients, nutritionals, beverages and cream and consumer product -- consumer foods. And we have reset our banking arrangements as previously announced a few months ago. And fourthly, we have refocused on inventory and working capital management. The sudden increase in ingredient manufacturing plus the global logistics challenge saw us carry inventories into the current year, which we are not bearing. These inventories are about the same dollar value as the previous year, but the composition is much less than infant formula related stocks and much more ingredients. So clearing these ingredients will drive significant cash flow into the current financial year and is a key factor in reducing debt this year. And fifthly, we have developed a plan to return to strong profitability over FY '22 and '23. So in summary, we were hit with multiple impacts, precipitated by the a2 reduction. The resizing of inventory requirements essentially resulted in a complete stop for our canning operations as we shifted to ingredients, which then had to be sold to new customers. And there were other weaknesses exposed in terms of our speed of execution on new investments. All in all, a difficult year, but one we expect to recover from this year and the following year. Within this context, for our FY '21 performance, I'll now hand over to Rob Stowell, who will provide a more detailed overview of the numbers. Just before that, I'd like to mention that we appointed Rob to the CFO position and a permanent capacity. Rob has been with Synlait since our early formation years. He stepped up at short notice in May for the interim CFO role and has done a great job in difficult times. So the Board is more than happy to -- was more than happy to confirm him into the permanent role last month. So Rob, over to you.

Thanks, Graeme, and good afternoon, everyone. Following on from Graeme's comments, look, I'm thrilled to be in the role, excited by the challenge of the business turnaround. It has been an intense first 6 months but rewarding all the same. Look, as mentioned quite a few times now, FY '21 was tremendously disappointed -- pointing for us. The root cause being the sudden decline in a2 infant formula demand, which was explained perfectly by Graeme. So let's recap the key financial metrics. Revenue had $1.4 billion, so $65 million up, and this should be seen as a positive. Our underlying earnings will increase off the back of this, and we'll see another big step-up in revenue this year. NPAT loss of $28.5 million was $103 million down on the previous year. As mentioned, this was mainly driven by the a2 volume and downgrade on the business, and subsequent impacts on the business as well. However, to a lesser extent, there were other issues holding our performance back. Notably, our ingredients and sales performance was well below what we'd achieved in previous years. The Dairyworks and Talbot Forest businesses had, had challenges, particularly in Q4 as well. And our management of costs, head count and inventory have become suboptimal, especially in the context of the reduction in the infant demand. Despite all this, we continued to show commitment to our farmers and paid a robust average milk price of $7.82, including premiums of $0.27. This was the second highest milk price in our history. Increasingly, for farmers, this upward trend is set to continue this season. Our cash flow performance was down on previous years, mainly due to our sales volume performance and inventory overhang at the end of the year, and we ended the year with $479 million in net debt. This was clearly too high when compared to our earnings and would have been even higher, had we not raised $200 million in capital earlier in the year. To manage this, we renegotiated our banking arrangements in July and now have a really good funding package for the next 2 years, which time our debt will be expected to be at much lower levels. We'd like to thank both the ANZ and BNZ for their unwavering support through this time. With respect to Slide 12, as previously mentioned by Graeme, John and I conducted a comprehensive review of the business in June. And actions were put in place at the start of this financial year to improve performance. While the key impact in FY '21 was the infant formula decline, the review exposed a number of other areas of underperformance, which gave us confidence [ between ] things around relatively quickly in FY '22. Ultimately, the aim was to increase profit, reduced debt, and grow the outcomes alongside good strategy to see our share price recover. Listed below, on the slide, you can see, it is quite a list of initiatives we reviewed from ingredients business to capital projects. John will talk to some of these shortly as part of his strategy piece. However, I must mention what is really pleasing from my perspective is that a lot of effort has gone into these reviews. They're now complete. They've been adopted by management and are progressing really well. A good example is that people restructure work we did. This was completed in August and September, implemented in October. This was a key work stream executed to both save on costs, some $12 million on a full year basis and seen a great platform up for success going forward. With all that, I'll hand over to John to give you more insights on our strategy, and thanks for tuning in.

Thanks very much, Rob and just before we hand over to John, most of you know that John is a founder of the company and was the original CEO until September 2018, when we hand it over to Leon Clement. With Leon's resignation and departure, John stepped back into the role on an interim basis in May this year. So John has led the refocus and restructure that Rob just talked about of the company since then. So John?

Thanks, Graeme, and thanks and congratulations to Rob. I'd like to reiterate how well reserved Rob's appointment to the position was. And none of us should underestimate the amount of work that Rob has put in over the first 6 months. I'd say seldom as a CFO, pulled more hours than Rob has in that period, and he has made a very strong contribution to getting us back to where we are today, a position that we feel much more comfortable talking about. I'm not going to go over again the past year or the reasons that we got to where we did. Instead, I'd like to focus this forward from this point. When we did the deep dive, of course, we asked the question is our strategy right? Have we got the broad strategic overview or plan right for the coming years? And I'm pleased to say that I'm -- that, if anything, the events, as Graeme mentioned, the events of the last 12 months had done nothing more than reaffirm the view that we need to build a broad base of our business in this dairy company, which has a unique opportunity of starting afresh, starting afresh in a very important industry to our country, where we do get to choose the markets that we play in, the products that we produce, the customers that we work with because actually, while we have an ambition and are well underway, as you'll see in a moment, toward building a business with $2 billion worth of revenue, we'll be doing that with less than 5% of the milk produced in the industry. So we have a lot of choices to make, and we can focus those choices on the highest returning opportunities that our industry has. So our strategy in a page remains firstly grounded in our purpose, and that is to be doing milk differently. That's where our heart is. We want to be producing dairy nutrition for the world in a way that is good for the world. Our goals, if you like, or where our head is, is getting to that $2 billion worth of revenue. We remain a good growth company. We see significant opportunities for growth. But perhaps differently from where we've been in the past. This time, it doesn't need the deployment of large amounts of new capital. We've been through that phase. This phase of growth is about filling up those plants and making sure that we transition from low-returning products to higher-returning products and that we systematically do that over time. We want to do that in a way that is positive for the planet, positive for our communities. And our workforce are very committed to that being the way that we are both here, but also in the way that we partner with our farmers and partner with our customers. And we want to do that with 0 injury, 0 and 0 losses. So do it in a very high-quality way. We could be very proud of the products and the way that we produce them. Perhaps where we are moving is, how we apply the strategy. We have identified for some time that we need to move away from too much reliance on a single customer in a single market and actually too much reliance on a single country being China. And we've got more -- we've got clear about the 4 areas of business that we are going to be continuing to develop. The first being ingredients, that's our whole milk power skim milk powder business; the second being nutritionals, which is at the core of our economic engine, if you like, at the moment, is a very -- has become a very important part of our business where we make infant formula products and ingredients for our other infant formula customers. A new area of business being dairy beverages and cream that you'll -- in a few minutes, I'll talk about how we're developing. And then our consumer foods business, which we both purchased -- acquired through the acquisition of Dairyworks a little more than 12 months ago, but also that we're building out as we move into the fresh milk market in New Zealand to complement the very strong position that Dairyworks has in cheese and butter in the New Zealand market. And we want to do that, as I've said, in a way that is net positive for the planet. Results in a healthier Synlait and is good for our people here and builds world-class value chains, recognizing that while we're here in New Zealand, our consumers are almost always out in the world other than those who we said in the domestic market, of course. If we go to the next slide, I think it's fair to say that one of the most important things we learned through the discovery phase that Rob mentioned was that we hadn't done a good job of aligning our structure to our strategy and ensuring there was good accountability back for delivery of various areas of that strategy to keep people at a senior level in the organization and then made sure that we had systems and processes that made what we were trying to achieve very clear and how we were measuring that success clear. The sorts of things that you would see in a high-performing management structure within a business at the scale. In this page, is a -- I'm not going to go into the detail of it, but as we've moved to a matrix structure, a structure where people are working together in cross-functional teams, clearly aligned to the business outcomes that we need and those 4 areas of business that I just outlined, in ingredients, in nutritionals and dairy beverages and cream and in our retail business. We're really pleased to have appointed Grant as our CEO incoming. And Grant will say a few words, if he's online, he will say a few words to us in a moment. We're pleased for 2 reasons. One is that he brings deep technical expertise in some of the newer areas of our business, some of the areas that we need to develop out in coming -- in the coming years for our strategy to be successful. But also, he has a track record of making these complex management structures work well. He himself had a very senior role in Fonterra, where he was the global lead of their foodservice business and needing to work across multiple teams who didn't report directly to him, whether they were in-country teams and market or whether they were manufacturing teams here in New Zealand and yet he showed the ability to build a very large, very impressive and very profitable business, as he worked with that large group of people and led them towards success, and that's what we absolutely believe he'll be able to do as he works with our team, and we're greatly looking forward to him coming on board and helping us find success into the future. I'll now very briefly going to just give you an overview of each of these areas and how we're thinking about them. Our ingredients business is our longest-standing business. This is where we made our start and skim milk powder, whole milk powder and AMF. And again, we're a very small part of a large industry and therefore, have opportunity to choose our markets and our customers and how we work with those. We have separated this business out from our ingredients, from our nutritionals business, and we'll be becoming much more focused on keeping it simple, keeping focused on those few key things we can do to add value. And very importantly, in this part of the business, maintaining cost structures that a competitor that are competitive with those who are also supplying into this market. You'll see us prioritizing sales strategies that build long-term relationships with some of the world's best customers. And we -- unfortunately, that's been a journey for many years, and we continue to find opportunities to serve those customers better and better. But while still maintaining enough spot business that we can take advantage of the product mix differentials that exist, while not entering into speculative risk as we develop that business. Our nutritionals business on the next slide is, as I said, the heart of our economic engine at the moment. But we have built a big and very capable team who are, I think, some of the best in the world in terms of manufacturing high-quality nutritional products. These are products for infants and adults, where we're blending many ingredients with theory and at times, not including dairy, to provide high-value consumer products to our partner companies, to our partner customers. In this business, we are looking to really rebuild in the next few years and take advantage of that capacity and capability that we have in the business. We do expect to see some recovery in our core -- at our key customer, the a2 business. However, with their purchase of MVM and with the market changing significantly in recent years, we're not expecting large increases in the production, rather we're putting our efforts into ensuring that we develop new customers. At Pokeno, we are well down the track with delivering adult nutritional products actually made from plant-based materials to one of the world's leading multi-nationals. And I said before that I see the team as being truly world-class. And one of the best measures of that is the fact that we've been able to sign up this customer and develop the relationship the way that we are. And I have no doubt that as long as we serve them well, they will become one of, if not our most important customer in the years to come. And we'll look back on the start of this relationship as being an extremely important relationship to have established at this time for that very high quality Pokeno site. We're also seeing the reemergence of demand from China as their dairy -- as their infant and nutritional companies are getting a larger and larger share of what is the most important market in the world. We're seeing demand come for base powders, and we would like to think that, that will result in some further demand in that for those base powders, and we're working on opportunities at the moment that we would hope will come to fruition in the next 12 months. Finally, in this area of our business, our lactoferrin business, we have a unique proprietary process for manufacturing our lactoferrin. It is recognized as extremely high quality. We have grown volumes and is a strong contributor to our earnings, even through the last 12 months, and we expect it to continue to be. While there is lactoferrin capacity being built in around the world, we're not concerned about that because if we look at the reformulations that are happening right now for Chinese infant formula products, we see very strong demand growth coming for lactoferrin as people included at higher and higher rates in the leading infant formula brands sold into that particular market. Dairy beverages and cream is a new area of business for us, but exciting. In this area of business, it's based on high value consumer products packed here on site. Now there's 2 parts to it. The first is liquid products into the domestic market. And fits in alongside what we have in Dairyworks with a very strong position in butter and cheese. And we're thinking our way through, how do we make sure that we bring products, bring white milk products, fresh milk products to the market, but in ways that don't just copy everybody else in ways that create additional value and serve the market in new ways. And you might have seen our Swappa Bottles, which we're trying in the market at the moment, while at the same time, planning to roll out at scale as quickly as possible as we learn how to execute those products. We do see, however, over time, that there will be an ongoing move in the Chinese market, in particular, to products -- consumer products that have been packed at stores, not in market, particularly at the high end of that -- at the high end of that market and we are exploring several opportunities both with partners and on our own account to move products into those markets, including a cream product, which is long-life, whipping cream and culinary creams, which we would expect to have in the market inside this financial year, taking advantage of the tariff, the large tariff reduction that's going to be made available to product imported from New Zealand from January and the coming year. Finally, our Consumer Foods business, which is Dairyworks. About 60% of the table cheese that is sold through retail outlets in New Zealand comes out of that repackaging facility that we have acquired as part of Dairyworks. Whether -- so we're #1 in cheese, we're #2 in butter. And if we can build out some of the other categories, we believe that we've got a plan in place to grow to become the second largest player in the New Zealand domestic market. Beyond that, there are opportunities we see to use some of the skills and networks that suddenly has to help Dairyworks become an export orientated company, again with some of those consumer products. They're making inroads into the Australian market at the moment, and we are pursuing opportunities to move products into the Chinese market as well. Of course, the same cost control measures and operational efficiency focus that we've had here at Synlait in the last 6 months has been rolled out at Dairyworks. And like -- I'd like to congratulate Tim Carter, who's the CEO for the gains that he's been making. Longer term, we have an opportunity to begin manufacturing our own cheese for that plant. And while the purchase of Talbot Forest Cheese has been somewhat of a disappointment. And at the moment, we're not operating that plant as we make some changes to recover way and provide a pathway to manufacturing cheese profitably at that site after some investments that we make here. That will give us an integrated cheese to consumer pipeline, probably not for all of the volume that we manufacture and sell at Dairyworks, but for the half of the volume. And we -- but that will take some time to bring that about. Finally, before we -- I hand back to Graeme, let me go to our guidance. As Graeme said at the outset, we're not changing our view on guidance. We did say at the -- at the announcement of our year-end results back in September, that we expect to return to robust profitability in the FY '22 year. And that will be based on, well, our ingredients business returning to normal trading conditions. Graeme talked about a little bit of that. The butter AMF differential is not as we saw in the past, FX conditions remain strong, and the product mix options in the market are favorable to us at the moment, and we're being able to capitalize on some of that. We will see improved base powder volumes flowing through the business as we return to a more normal manufacturing profile, having worked through a large amount of inventory in the first half of this year and last year and late last year. And then we see growing contributions from some of those new areas of the business that will also contribute. And then on top of RPD sale and leaseback and cost savings through the business, we are well on track, not only to get to the profitability numbers that we expect, but also to get the balance sheet and net debt numbers to more acceptable levels. Although I do note that it would -- we see this as a 2-year journey to being back to where we were rather than a 1-year pioneer journey. Just before I finish with this point, I would like to acknowledge the work that your directors had put in over the last 12 months. When things get tough, that's when everybody goes to work, and we have been very well served by directors who have never stood back from the challenges that are in front of us and the work that is required to work through them in a robust way and get to the best decisions that we possibly can. And I thank them for that. I also acknowledge the work that the senior management team has put in here. We've been through some really difficult change, particularly in the last 6 months. And they have leaned in, they have worked hard and they've found time to enjoy it every now and again as well, even though it's been tough going at time. So I thank them for that. And I look forward to continuing to serve you into the future. So Graeme?

All right, thanks very much for the comprehensive comments there, John. So we got a question time. So questions on anything that John or Rob or myself was said. The first question, just opening the technology works here, which is well-proven and does. So the first question is, I think John has already covered in his comments, it's about Talbot Forest. Why do we buy it in the first place? Why is it not operating at the moment? And what's the future? I think you pretty much covered it there, John, but have you got any further comments to make on them?

Look, I think it's fair to say that we did get a few things wrong when we did the analysis and made the decision to buy. The -- it's taken us longer to get to a solution to recover the way. And that's a really important part of running a cheese operation efficiently and profitably, just making sure that all the milk components that go to the manufacturing side are used, particularly with something that is valuable as whey. And we didn't get that quite right. So we have decided that the best thing to do is to actually stop manufacturing there until we get that solved. And -- but are confident of doing so and have a plan in place to do that. So I think -- so in summary, we got that a bit wrong. We didn't act fast enough, and -- but we have -- working towards a solution.

Okay. It takes a little while where you type in the questions for them to come through. I'm not seeing any others at the moment, but we'll just wait. You can -- you can type a question, and when we've moved on, we'll come back to the question. We'll still see it here. I think there's a first question coming through it, but I can't see it.

I think I can see a question there on, Graeme.

Can you ask and get it before me?

Can you see that one?

No.

Let me see…

Yes, yes, here we go.

You've got it? Good.

Good shareholders be watchful of the farm gate milk price and what are its effects on company profitability? It's pretty much -- I'll get John again to -- or Rob to comment, but it's pretty much a pass-through. Obviously, when the prices move rapidly, there's a risk that will be too fast into the market, too early or too late. And so that definitely affects profitability. But when prices are high or prices are low, we pretty much calculate them with price and pass that through. But John or Rob, do you want to add anything to that?

I think that's a good description, Graeme.

Right. My computer is obviously a bit slower than others. Can anybody see any other question? Supply of milk to food stuffs has been making a loss. What has been done to correct this? When can we expect it to become profitable, making a loss? Rob, I wouldn't say it was making a loss. Can you comment on that?

Can I go, Rob?

You go, John.

Look, the key issue there is that we've invested in a lot of plant and equipment, and we have a plan to continue to -- we invested with a plan to fill that then over time. At this stage, that's the only contract we have in place. And so it's carrying a whole lot of overheads and so forth that on a plant that is effectively less than half fold. So there's 2 lines there. There's a pasteurized milk line, which the products to come -- the food stuff come off. There's quite a lot more capacity. We're building that out at the moment. We have a Dairyworks milk in the market that's going out through in your local cafe. You might see some Dairyworks milk in the fridge, which is going out through a distributor that we're working with. We're looking to roll it out nationally. That will build volume. And as volumes build, we'll get back closer to the business case for those products. And you'll see as the overheads are shared of a larger volume of milk, you'll profitability come into it. And more importantly, in that facility is filling up the -- what we call the [ sudden ] line, the line that is export orientated and long-life PET format. We have a whole range of products that we're working on there, one of them is the export cream product. There are other customers where we're looking at packing consumer products for them. And as we get volume on those lines, you'll see -- we're confident that we'll bring that to be a profitable and important part of the business, potentially even at higher margins that we make from milk power business at the moment.

Thanks, John. Dennis has asked my favorite question, which is, when will the company start to pay a dividend because clearly, capital growth is not something investors can rely on? Thank you, Dennis. Synlait since inception has been a growth company. I mean we've always had ideas rather than a yield company, and we're not established in churning out yield and paying dividends yet. Not to say that, that day won't come. Actually, if you look back in our accounts, you'll see that we churn a lot. It's a cash engine. Even this year with this, what is a massive and disappointing loss, which has been inflicted on this to a fear extent, although we're putting our hand up to side the company, think of it being some things that could have been done better. We do -- even this year, this year, we're reporting on making a loss, but still an operating profit. So that's not out of the question. We've pretty much come to the end of our cycle of capital investment. We're now executing against that. We're filling those plants. We're getting the best profitability we can out of them. And that will bring us back into that strong cash-generating situation again. And so then the Board will be looking at have we got new and advanced proposals that will get good return on investment for shareholders? Or will we start returning some of that cash back to shareholders. That will be a decision that's laid in the future. Rob or John, do you want to add anything to that? No, right. So can you explain exactly what then plant-based initiatives are? Okay. So plant-based, John mentioned that our new multi-national customer that's coming on stream at Pokeno will be predominantly plant-based. So there are ingredients that go into those products. It's quite complex and well-established products internationally known. They're predominantly plant-based. So they are made from plant materials rather than from bovine milk. That's what we mean by that. I hope that covers that question. Is the instability C-19 is creating -- oh, COVID-19 globally helping or hindering Synlait? Well, like we said, at first, there was pantry stocking and but we didn't think that was a help. We thought that was a blip in the flow and the logistics. What we didn't see coming but was now obvious is the big interruption to our key customer, a2 milks, international trading situation using, to some extent, [ dig ] which is Chinese students in Australia and New Zealand. So that certainly was a big disruption to our business. However, as John and Rob, to some extent, have covered, we're responding in a multitude of ways and other businesses and the diversification that will insulate us to some degree from the COVID environment, but obviously, it's still a risk. It's sort of still companies and is risk to us. But we're making food. We're making added value food, nutritional foods, and so there will always be a demand for that if people can afford it. Do you want to add anything to that, John or Rob?

No, I think that's very clear. It's changing the shape of the business as it's changing the shape of the world. I think that's -- and we're trying to respond as quickly as we can. So clearly, it's had a very big impact on demand for infant formula because people aren't having babies through this, they're choosing to -- so birth rates have fallen right away. And when you're in the infant formula game, that's not a good thing. But on the other hand, we're seeing very strong demand growing for lactoferrin, a product that can give immunity properties to the consumer. And so we're seeing infant formulas being formulated with a lot more lactoferrin in them, probably in response to the global pandemic and the products that we are going to be manufacturing in -- on the Pokeno line, these plant-based products that Graeme was explaining before are consumed by older people. They're often consumed by ill people, and we're seeing very fast growth in demand for those products, double-digit growth in what has been well established, large brands. And so that's really good for us. And product flows, we talk about the negative impact of product flow around the world. There were some markets that are much more expensive for us to get to at the moment because of shipping problems. However, there are opportunities opening up in the market where some of our global competitors have been selling into strongly and now can also -- can access those markets or the shipping costs of those competitors, those international competitors reaching those markets is much higher, and that's giving us opportunities. So there's always -- when these big things happen, there's always negatives, which we tend to focus on, but those -- we've got to be just as mindful of the opportunities and be quick to take them.

Thanks, John, and I'll throw this one to John, Swappa Bottle, how is it going so far? And what's been the customer feedback?

Look, it's a very early start. We're trying it in a few supermarkets and crushes, but we have been genuinely surprised pleasantly with both the demand in those stores and the interest beyond those stores. And so it's fair to say the team is accelerating the rollout plans and figuring out how to make sure that we meet the demand that's coming. It might well be, one, we're watching competitive response, may well be one of those things that you get on, and we're changing and other people will be quick to follow. So we need to make sure that we take advantage of the early -- of that early start and get it out there. What I can suggest as anyone near the store should be buying it and moving right away from your plastic bottles, only using standard steel ones whenever you get access to it. Make sure you take them back. That's the whole point is making sure we recycle and a very robust, high-quality container with fantastic milk in it worth every penny.

Thanks, John. We have a massive marketing opportunity. Next question is -- question is very excited about us going into plant-based products, which we did announce earlier on. Does the CapEx allow for further contracts or is it fully allocated? We do expect that this is a large customer that we're just finishing the build for now. And we do expect them to utilize the capacity over time. But in the first few years, there will be capacity for new contracts and new customers in that area. So do you want anything -- add anything to that, Rob or John?

No, I think that's fair, Graeme. And so it's a big installation. There's a lot of product. We do see that customer filling it reasonably quickly over time. But we're learning a lot. It's -- we're learning a huge amount internally. We're building capability in this area. And I agree with whoever asked the question. I think it's transferring our skills out of dairy and to nutritionals, which we've done over the last 10 years and now into plant based products, we think is important.

Yes. So it is a bit more of a high-level question. You can stand about fermentation alternatives. Fungi can be used to create a liquid with similar properties to animal milk or to make animal free ice creams or cream cheeses. Yes, we watch the trends, and we're participating in the trends and to some extent, we're creating the trends. As I said, we're already into some existing plant based products, and we're looking at further alternatives. So we are doing not differently for a healthier world, that is us. And where customers want to go. That's where we'll be going and to some extent, leading customers. But obviously, at the moment, we are very, very strongly bovine milk based company. Do you want to add anything to that, John or…

No, other than to say we need to focus on the advantages in New Zealand heads. We do produce milk with a much lower carbon footprint than many other large tier industries around the world. And -- but as Graeme said, we need to stay with changes. The bugs that the company is coming along, producing products out of fermentation, they don't get it for free, they have to feed them an awful lot of sugar, and that sugar has to be growing somewhere too. They like to be a bit quiet about that, but yes.

Next question is, will we ever know who the large international customer is? Yes, you will. Because once we start manufacturing, it's going to have it all over the labels. And so we'll be -- is that particular customer, it's a very well-known customer, large multi-national, that many, many, many people will have heard of. Not exactly sure why they are bit shy at the moment. But anyway, that is the case, and we respect that. But yes, that will become obvious in due course. Anything to add there? Right. I think, unless my computer is, I can't see any further questions at the moment. So we've given that a good bash but keep writing in the questions because we'll do a general business at the end and have another go, if necessary. So with that, we might -- thank you for all of that. We might move on to the next part of the meeting, which is the formal resolutions. But what I'll do is 3 out of the 4 resolutions are devoted to changes in the Board or changes and confirmation. So I will just put some context to that first, and then we'll go into the actual voting. But you can vote at any time and you can change your vote at any time. So firstly, I announced in 2018 that I would stand down as the Chair this year after, I think, something like 17 years in the role. This allows for new talent, but at the same time, the Board has asked me to stay on as an adviser for 1 year, which I'm more than happy to do. So I'll step down when Grant Watson starts, as the new CEO, which is around about the 24th of January. And our new Chair will be John Penno. So unfortunately, the timing doesn't quite fit with the Annual Meeting. So I am having to stand again for reelection just to be a director until Grant starts in January. John is ideally placed to be our new Chair as we go through the recovery phase as you've heard and to assist directly in bidding in the new CEO. However, a constitution requires that the Board Chair is an independent Director, which John, by way of being the current interim CEO is not by way of the definition. So therefore, there's a need for a temporary change to the constitution, and that's all explained in the notice of meeting. We do see independence's best practice. And therefore, John's tenure will be for a relatively short 1 or 2-year period until a longer-term replacement is identified. So filling my place as a new Independent Director will be Paul McGilvary, who I will introduce in a couple of minutes and ask to say a few words. So in summary, for the next period, we're structuring the Board as such that we retain the experience of John and myself, while we bring on the new skills of Grant and Paul, alongside the rest of the Board. So in 2022, your Board will have 3 strong independents and Simon Robertson, who is an experienced director and [ former listed ] company executive and the Chair of Synlait's Audit and Risk Committee. And then Sam Knowles, who is also a very experienced director and Chair of Synlait's People, Environment and Governance Committee; and then Paul McGilvary, who will just cover off in a little minute. And this will be complemented by the Bright directors being Ruth Richardson, a Bright appointee and the original Non-Executive Director on the Synlait Board; Edward Yang, who's in charge of strategy at Bright Dairy, so senior executive there; Albert Lu, who's responsible for offshore investments at Bright Food Group, which is the corporate over and above Bright Dairy, and then Joyce, who you've met this afternoon, who's got a strong finance in audit background. So just to introduce Paul McGilvary to you, and I will ask him to say a few words. Paul brings a strong sector experience to the table. He's had an international career in dairy. In fact, I've worked with him internationally. Before returning to New Zealand and becoming the CEO of HortResearch, which is now Crop and Food. And then as the CEO of Tatua and -- which is certainly the most successful dairy corp in New Zealand. And for the last 6 years, Paul has had a career in governance. So Paul, would you like to say a few words?

Thank you very much, Graeme. I really appreciate this opportunity to join the Synlait Board. I'm very, very passionate about value-adding in dairy, believing New Zealand has to focus on providing nutrition to the wealthier and more discerning customers of the world. We simply can't feed everybody, and therefore, we must use our unique position to provide more functional, better returning products that are valued by the most sophisticated customers and consumers. This includes providence and sustainability, which have been referred to earlier in the presentation, and these underpin the New Zealand supply story, and Synlait has really embraced this whole heartedly. I ran the food ingredients business for Fonterra in Australia and Europe for more than 10 years, including advanced blended powders and functional fats. I was the CEO of Tatua Dairy Company for 9 years. Tatua perhaps epitomizes a value-add company with its range of sophisticated products and optimized operations, delivering superior returns to shareholders year-after-year. During my tenure at Tatua, we completed a new foods plant to produce high-value creams for consumer and foodservice applications. We constructed a highly specialized [ spray dryer] for sophisticated protein products such as hydrolysis the infant formula and adult nutrition, and we invested heavily in systems to ensure our environmental impact was negligible. Tatua is also well-known for its very deep customer orientation. Currently, I'm the Deputy Chairman of Australia and New Zealand's largest food testing and inspection organization, AsureQuality. I am Chairman of the People and Culture Committee for this organization and a Director of dairy agri-tech company, Waikato Milking Systems. I believe this background and skill set will enable me to support and guide the further development of Synlait as we focus hard on the needs of our core customers, while diversifying further our products and markets to rebuild the performance of the company. I assure you, I will bring passion and energy to the Board and a high degree of cooperation with management, shareholders and other directors, including a relentless focus on customer and company performance. Thank you, again. I'm very excited and appreciative of this opportunity.

Great. Thanks very much, Paul. That's great. So finally, I wanted to touch on the experience and background of our new CEO, Grant. So Grant has most recently been the CEO of Miraka dairy company. And before that, he was at Fonterra for 10 years, where he had various roles, including heading up the global foodservice division, but also worked in Fonterra brands and was the Managing Director of Tip Top before so. Prior to that, Grant worked for McDonald's for 17 years becoming Chief Operating Officer for New Zealand. So he brings a wealth of -- and John has already commented to some degree as well. So it brings a wealth of dairy experience plus a proven track record of success and materially transforming businesses and achieving sustainable results. So Grant, you're online. Would you like to say a few words to the shareholders as well?

Thank you, Graeme. [Foreign Language] Good afternoon. To briefly touch on -- to briefly touch on my career path, I, as Graeme mentioned, started with McDonald's at the age of 16 part-time on French Fries. And during that 17 years, worked my way up through that corporate organization to Chief Operating Officer. And I think for me, it was a great opportunity to work for one of the most disciplined business models in the world, ranging from consumer insights, supply chain and financial disciplines. I then spent 10 years with Fonterra, initially got into Fonterra to help turn around their anchor milk business in New Zealand and ran their foodservice business as well. Then went on, as Graeme mentioned, to run the Tip Top ice cream business. And then for the last 5 years, headed up one of the 3 global divisions of Fonterra being the global foodservice division. We took that business over a 5-year period from $1.4 billion to $2.8 billion. And if I reflect on what drove the performance of that foodservice business, it was very much around having a very, very focused strategy, having the right capability and right structure to support that strategy and developing very much a high-performance culture across the organization. And the other -- and potentially the most important part of that journey was just a relentless focus on execution. More recently, I've headed up the Miraka dairy business based in Taupo, and the focus there very much literally from strategy all the way through to execution to really lift up the financial performance of Miraka. What really attracts me to Synlait, it's a business that has an amazing track record when it comes to sustainability and innovation. As both John and Graeme have mentioned, it's got fantastic capabilities today, especially with its people and with its factory capability. And it's just so well positioned to deliver strong value in the years ahead, whether that be the consumer business, Dairyworks, the potential that exists with foodservice, and certainly, it's a very, very strong position today with nutritionals. And the other area that I see as being a huge opportunity, again, it's been touched on is in the area of operational excellence, whether be around filling the capacity of the plants today through to ensuring that we deliver against that world-class benchmark. So for me, really looking forward to joining the team and getting on board effective the 24th of January next year.

Right. And we're looking forward to joining us as well, Grant. And there is a question that I think you've answered it says what was the primary motivator that motivated you to join the Synlait team? And what do you think Synlait does better than those peers? And I think you just covered that. Is there anything else you wanted to add?

No.

Great. Thanks very much, Grant. So I hope I haven't confused everybody in the sort of intro to the resolutions, but we'll find out when we go to the resolution, so which we'll do right now. So resolution one is not to do with the Board, but is to -- is reasonably straightforward, is to appoint PwC, PricewaterhouseCoopers as Synlait's auditor and that the Board be authorized to determine the auditors' fees and expenses for the FY '22 financial year. So this is a change in auditor from Deloitte have been the auditor for many years. And it's a good thing to -- it's a good practice to change the auditor every now again to rotate every few years. And also, there's a rationale here and that Bright recently changed to PwC. There's more convenient if both Bright and us use the same auditor, even if they're using PwC in China. And it's also good to retender the opportunity now again and make sure the audits are correctly priced. So is there any questions on that proposal? If not, I would ask you to vote accordingly and hopefully support that resolution. I'm not seeing any questions, right. So we'll move on to the second resolution, which relates to me. So I'll hand over to John to chair us then.

All right. Thanks, Graeme. So as Graeme outlined before, we're asking Graeme to go the extra mile and stand in the position of Chair for -- or to be reelected, so he can remain Chair through until when Grant starts. And then if the other resolutions are supported that he would then stand aside and we would bring on Paul. But of course, constitutionally, that requires us to reelect Graeme at this point. So we look, I'm certainly comfortable recommending us to direct -- to our shareholders and ask you to vote on that resolution now. And with that, Graeme, I'll hand back to you.

Okay. Look, just in terms of my reelection and all the other elections, thanks very much to all my fellow shareholders and all Synlait staff and all shareholders, obviously, for your support. It's been extremely gratifying to be part of a company that's come from an idea to a $1 billion company and soon to be a multibillion-dollar company. So you don't get those opportunities very often. And so I am very grateful. And it's a bit -- it's more than a bit unfortunate that the last year of reporting is a loss. But the current year is going to be a robust profit. We're confident about that as we've guided. So yes, I do appreciate your support one last time. Thank you. All right. So now we'll go to resolution 3, which relates to reelection of John Penno. So John, although a Board-appointed director, New Zealand Stock Exchange listing rule said he has to go to shareholders every 3 years. It's 3 years ago since we elected him last time. So -- and John is obviously offering himself for reelection today. And so just before asking John to say a few words, I'd like to thank him for stepping back into the CEO role in May at very short notice. Since stepping down in September 2018, John has obviously involved himself in a lot of new ventures and created startups themselves, new ones that need his time and energy. And so that was no easy decision for him to go back into what is essentially a full-time or more than a full-time role at Synlait, which in difficult and challenging times. So a genuine and sincere, thank you, John, from all Synlait's stakeholders for doing that. So John, it's fine, whether you want to say any words to shareholders before we put that to the vote.

No, Graeme, look, I appreciate that. And you get to these moments, and there's no choice really. You -- we are all deeply committed to the success of the business. And it's been a privilege to get back involved and work with the team, work with the Board and begin to reshape things for the future again. Very much looking forward to working with Grant. And I do ask for shareholder support for this, not just for me [ do it come ] on, but for the -- we will take this as if I am supported and this reelection will take it as mandate to put the changes in place for me to come through to that Chair role and to continue to work with Grant and the Board and the staff to make sure that we bring the company through to -- back to a strong position financially and put the company in a position where it can move forward to take up the potential that we all see for the business long term, too. So thanks for your words, Graeme and I ask for people's support.

Thanks very much. If you could vote now on that, if you haven't already. And if there are any questions, just keep firing them in as we go through these resolutions. I'm not seeing any questions. So I'll go on to resolution 4, which is a special resolution, which means that it requires 75% support of those that vote. A normal resolution is 50%. So the proposed amendments here are to the constitution, they're explained in the notice of meeting. But in summary, we proposed one amendment to the constitution to enable the Chair of the Board to be either an Independent Director or the Board appointed Director for a limited period up until the next Annual Meeting to be held towards the end of 2022. So currently, of course, the Chair can only be an Independent Director. So the resolution enables the Board to appoint John Penno to the Chair role when Grant steps up and I step down. So we do believe in an Independent Chair. It's the change we propose automatically resets after 1 year. A search for the next Chair -- the next permanent Chair after John will begin sometime early in 2022. So we do have one advanced question, and that's from [ Saul Has ] basically, having the Board appointed director to become the chair, is this the way to go? Well, [ Saul ] in that circumstance, it is the way to go. John's obviously been the author, as I've said, of the recovery, led the recovery plan. And so to have him as the Chair, as Grant comes into the CEO role is, in this instance, right now, the very best thing for Synlait in the opinion of the directors. Long term, it is listing guidance for the listed companies and most other companies to have an independent chair. And so we will revert to that good practice. But right now, yes, as you put it, it is the way to go. Just see if there's any questions for that resolution. It doesn't appear to be so, so I'd like you to vote on that as well, if you haven't already. So thank you very much. That really concludes the resolutions and the results will be published to the market later today and e-mailed to shareholders reasonably soon. Process doesn't take too long. And so online voting will now close. So let's take any further questions? Yes, and we do have some further questions. So questions of any sort of general business are fine. We'll take another 5 to 10 minutes, if they're there. So I've heard that Synlait [indiscernible] very high grade. You're well informed. Is that true? And how is Synlait placed in comparison to other producers? Yes, that is true. It is high grade. Maybe, John, you'd like to comment on that?

Yes. Look, when we designed the process, we designed it for 2 purposes. We saw that the current lactoferrin products in the market had opportunity to preserve to look after the bioactivity a little better. And the second thing we saw opportunity for us for drying and in a different way. We spray dry lactoferrin and most lactoferrin is not spray dried, it's freeze dried. And for inclusion in infant formula products, it makes it -- it enables it to blend much more easily. So they were 2 specific design criteria we had when we put our process together. And we were really pleased that in the last 12 months, completely unknown to us, there was a study done at UC Davis, which compared lactoferrin from around the world, and they pitched the Synlait lactoferrin as most like human lactoferrin and a number of characteristics. And they independently ranked it as -- we would interpret as the best in the world. So that was very pleasing. And we certainly see very good demand from our customers we sell to some of the world's most respected customers and buyers. That's a product we're very proud of.

Thanks, John. It doesn't appear to be any other questions? So with that, I think I'm going to pass it back to you again.

There's another slide to come up here, which is our final slide. Look, this is -- as we've explained through the course of this meeting, we are entering into a transition phase where we're transitioning the way from Graeme, assuming that you support the resolutions that we've put to at this meeting. And so it's appropriate that we stop and mark the contribution that Graeme has made to this business. Over the 17 years that he has been involved with the Synlait company. I'd also like to pause, though, and point to the wider contribution that Graeme has made to the dairy industry. This marks the -- I guess, a drawing to a close of a period of a lifetime's commitment to the industry. Before Graeme started with Synlait 17 years ago, he had already been a CEO of Bay Milk where he helped that company that cooperative manufacturing company and [ at Bay ] recovered from the earthquake that it occurred and destroyed much of the plant in the years just before Graeme took the helm as CEO. He guided that company through to being probably one of the best respected dairy companies in New Zealand. They had an [ inevitable ] customer base. Actually, one of the customers who we talked -- have talked about on this call, are a key customer with Graeme and that company at that time. He then oversaw the merger of that company into New Zealand Dairy Group to form the largest dairy manufacturing, cooperative in New Zealand's history as part of the dairy group. He went overseas and served the New Zealand dairy industry from England, overseeing -- I'm not quite sure of the role, Graeme, I can't remember the name of it, but basically in charge of sales for about 1/3 of the dairy industry at that time through Europe and North Africa and the Middle East. He oversaw a very infamous moment in the industry's history, making sure our executives didn't go to jail for doing things with butter that they perhaps were pushing the limits on. And then he came back and became the Chief Executive of the New Zealand Dairy Group. And during that time, he's actually credited with being the person who started promoting the idea that all of the manufacturing cooperatives and the New Zealand dairy Board should come together into a large company that served the interest of New Zealand farmers, and a company that would come together some years later and be called Fonterra. He served as CEO of New Zealand Dairy Group, which was the -- at that time, was the largest cooperative and the company that he had merged or overseen the merger of Bay Milk into a -- all of this was before Synlait, and he probably stood away from -- or stood down from being CEO of the company thinking his time in dairy was done, but little did he know. He joined us when we were dairy farming with ideas to manufacture products and build a manufacturing company here at Dunsandel. I think we might have bought the farm with ideas about where we were going to put it. But those ideas were in hindsight, perhaps not fully formed. And that was -- and Graeme had an enormous influence on the way the plan came together, helping us make contact with people in the industry who we needed to build an idea to a company. The photograph that's in front of you is Graeme and the digger turning the first site [ in true known style ] and the digger -- that we had a ceremony. We turned the first site [indiscernible] and Graeme said, that's not a side turning. Give me the keys to the digger and jumped on and took a great scoop out of the earth on the very site, where I'm sitting now here at Dunsandel. Graeme has had an unwavering commitment to the business and to its future and to its success, and it's been an unselfish one. He has never stood back from the time commitment or energy that the company is required. The calm persona that you saw throughout this meeting is exactly the persona that we have always had in every moment, whether it be good or bad. But below that is an absolutely formidable intelligence and intelligence that can take complex situations and sum them up quickly, quickly see the right answer and work alongside people who took a little longer to get to the right answer over time in a patient but determined way. So Graeme, I owe you a debt of gratitude for the mentoring that you've given me over the years. The shareholders owe you a debt of gratitude and everybody who you have worked with as yours -- holds you an hugest theme, you're greatly respected and it's absolutely deserved, and we thank you for the contribution that you've made. And the matter of fact that you're willing to continue to work through us -- with us through this difficult time is testament to the way that you worked. So look, if we were in the room, we would give you a standing ovation. It's not hard to do that on Teams, but I'm sure that everybody wishes that we could, and we wish you all the best. We wish you many, many happy years with Julie, as you move forward through your next adventures. I'm not going to call it retirement because I don't know that you know what that means. But we look forward to many years of friendship here. Thank you.

Thank you very -- very much fellows for those very kind words. Some of them might be stretching the truth a little bit, but thanks, I'll take it anyway. And yes, I'm still the Chairman of a company that's just recently bought 2 dairy farms in Canterbury, and they both supply Synlait's, there you go. I'll still have a connection to the company. So thank you very much. It's very humbling. So that actually concludes. There are no final questions. So that concludes all of the business for today. Thank you very, very much for your support, all the shareholders. That has been a trying time during the year that we reported on, our share price halved, and we realize that. We're very, very conscious of that. And we're doing everything we can, and I'm sure we'll be successful to reverse that and more. So we look forward to the next period. Thank you very much, and the meeting is now closed.

Thanks, everybody.