Synlait Milk Limited (SML) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining us. I'm Hannah Lynch, Synlait's Head of Strategy and Corporate Affairs. Before our Chair George Adams formally opens today's meeting, I will cover off several housekeeping points. The special shareholders' meeting is being held here in person at Dunsandel and online. Thank you for all taking the time to vote on this extremely important resolution. For those of you who have joined us here in person today, welcome. Here are several health and safety reminders. One, if you feel unwell during your time here at Synlait, please let us know, and we will look after you. Two, the nearest evacuation point is on the lawn, which is through the doors to my right or your left. The alarm will be continuous, and the meeting will be suspended if we need to evacuate. Please follow the directions of a Synlait team member. A reminder, also that smoking and vaping is not permitted while you are on site. I will now explain how to vote and ask a question. There is only one resolution to vote on today, which will be conducted via poll. To provide online attendees with enough time to vote, online voting is now open. If you are joining us online, 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, simply click on the words click here to change your vote. For those of you who are here in person, you should have received a voting card on arrival. If you are a shareholder, proxy holder or corporate representative and you do not have a white voting cards, raise your hand and the Computershare team will assist you. Voting cards will be collected at the end of the meeting by the Computershare team. Computershare will act as scrutineers of today's results of the resolution, and this will be posted to the New Zealand and Australian Stock Exchanges before close of business today. Asking a question online. [Operator Instructions]. Our team will monitor the questions ensure they are addressed at the relevant part of the meeting. Please also note that your questions may be moderated or if we receive multiple question on one topic amalgamated together. For those shareholders here in the room, raise your hand when asked and someone will bring you the microphone to ask you a question. And finally, if you are having difficulty connecting to the online platform asking a question or voting, please refer to the online voting guide issued with the notice of meeting in the first instance. If you're still having difficulty online, you can use the Q&A function to message the Computershare team who are on standby to help. If you're stilling difficulty, you'll see that Computershare's phone number is on the screen now and will be on the screen during the formal resolution part of the meeting. Now with the housekeeping out of the way, I will hand over to our Chair, George Adams, to officially open today's meeting. George.

All right. Thanks, everyone. Good to see you all, and good afternoon, and thank you for joining us. I'm extremely grateful for the high level of interest in this meeting and the support of our broader shareholder base. As Hannah has said, I'm George Adams, and I'm the Chair of Synlait. So before we begin today, I would like to confirm that there will be no new announcements today. I would, however, like to acknowledge that to ensure fair, orderly and transparent trailing in Synlait's ordinary shares of bonds during the special meeting at the discretion of New Zealand RegCo, the regulator of New Zealand Stock Exchange. Synlait has been placed into a trading halt on the local exchange here in New Zealand and in Australia. Trading halt commenced at 1:30 p.m. and will be in place until after the outcome of today's resolution has been released. I want to be very clear that the trading halt had been put in place by New Zealand RegCo. It does not reflect a view on Synlait's compliance with the listing rules and should not be interpreted as implying New Zealand RegCo has information on the likely outcome of this meeting or that New Zealand RegCo has any views about this outcome of the meeting. This -- the notice of meeting you received is substantial and goes into extensive detail around the technicalities of what we are asking you to vote on. I recommend all shareholders ensure that they have read the notice of meeting and the independent auditor's report in its entirety before voting. And I'm pleased to confirm that we have a quorum and I declare the special shareholders meeting open. So firstly, a summary of our agenda today. I'll speak first, and then we'll hear from Julia Zhu on behalf of Bright appointed -- Bright Dairy appointed directors. We will then move on to the formal business of the meeting and vote on the resolution. So the purpose of this meeting is to vote on the resolution to approve the proposed entry into a $130 million shareholder loan to be made available to Synlait by Bright Dairy International Investments Limited, our released company of Bright Dairy Holding Limited, Synlait's 39.01% shareholder. So before I make a short presentation, I would like to introduce to you our Board. We have Bright appointed directors, Leon Fong, who is with me here in person today; Julia Zhu; Edward Yang; and Tao Zhang, all joining us virtually. And we also have our independent directors, Paul McGilvary, and Paul Washer and also our CEO, Grant Watson, online. Thank you for attending. So on to our business for today. Thank you for joining us. First important vote on the proposed entry into a $130 million loan facility. This will ensure that Synlait's $130 million payment due to the banks on the 15th of July can be made in time -- on time and in full. The loan requires your approval by way of ordinary resolution, that is greater than 50% of those shares able to vote. Bright Dairy, as a provider of the loan, cannot vote. The loan facility is initially for a 12 month's term but can be extended at Synlait's option for a further 12 months, subject to interest rates and certain other conditions set out in section 3 of your notice of meeting. So I won't go into all of that detail. But again, I do encourage all shareholders to read it. In accordance with the NZX Listing Rules, the Board commissioned an independent appraisal report from Northington Partners to support Synlait's shareholders in their consideration of the resolution. Shareholders can find this report in the Appendix of the Notice of Meeting. Again, we encourage all shareholders to read the report in the full. A summary of some of the key conclusions reached by Northington Partners is centered in section 5 of the Notice of Meeting under the heading conclusion from the independent report. The series of today's resolution should not be understated. I strongly encourage you to exercise your rights to vote on this important matter. The Board is of the view that Synlait will not be able to meet its $130 million payment obligation to its banks if today's resolution does not pass. If that payment is not made and the banks do not agree to alternative refinancing agreements or -- the Board's view is that Synlait will need to cease trading or initiate a formal insolvency process. The Board does not want that to happen, and thanks to those shareholders who have already voted in support of today's resolution. So I will now move on to my formal chair's address. The Board is extremely aware that Synlait needs to significantly progress with reducing its debt. We have a 2-step plan underpinned by bank financing. Today is $130 million shareholder loan is a bridge towards our other program of work on equity raise to reduce debt to a sustainable level. Our banks also require that the amount of debt be reduced, not just ahead of July 15 but also longer term. As we continue to plan to undertake an equity risk to achieve this, you will see from the slide details of the [ arrears ] are still being worked through, but we are working towards updating shareholders further in August. Bright Dairy has indicated it fully supports Synlait's equity -- equity raising, which we are extremely grateful for. The scale of the challenges Synlait faces are widely known. The Board has six key areas of focus going forward to address these challenges. Firstly is naturally the completion of our deleveraging plan. This is the program of work discussed earlier, which enables Synlait to return to a sustainably profitable and high-performing company. The second is the completion of our North Island strategic asset review. This review covers our Advanced Nutrition manufacturing facility in Pokeno, its Blending and Canning facility in Auckland. The review is ongoing. And while we don't have any new announcements to make today, the important factor for us is to ensure that these assets perform for our shareholders. Like our decision to withdraw Dairyworks from the market, we will not make any rash decisions that may impact the company's future performance. Retention of our high-quality milk supply is also a critical priority. Much of this is related to point one. Our Synlait's balance sheet has come under continued pressure, succession notices from our former suppliers have increased. The Board and I have held several panel sessions with our farmer suppliers earlier in the year, and the feedback was nearly unanimous. Our farmer suppliers want to see Synlait's balance sheet deleveraged, so we can pay competitive advance rates and be successful in the long term. Our success means their success. The company provided competitive forecast milk price updates for '23 and '24 and the '24 and '25 seasons and a competitive advance rate for the '24,'25 season has been announced. We strongly believe that Synlait presents an excellent value proposition to farmers with our best-in-class Lead With Pride program, attractive specialty milk premiums as standard features of our offering. Can I just finish? And I'll come back to you for questions on a second. So a focus on customer service, quality and cost effectiveness in the pursuit of greater alignment with Synlait's major customers. Our strategic focus on Synlait's core B2B Advanced Nutrition and Foodservice businesses and the partners we support with world-class dairy ingredients and products remained unchanged. We have strong partners in the a2 Milk Company, our customer in the North Island and Nestlé and Danone in our Ingredients business, for example. We need to continue to provide great customer service while accelerating volume growth and optimizing our costs and operational performance to support them better. Number 5 is recruitment and retention of key talent. One of Synlait's advantages is the complex products we make that are very specialized, high-tech and often highly regulated products such as infant formula and foodservice creams. The margin for error in production is very low and requires rare industry expertise and skill sets that are in high demand. Retaining our people is vital in these technical areas as well as retaining our leaders across Synlait's whole business who are critical to building ongoing capability and a great culture. Number six is to deliver sustainable earnings growth in FY '25 and beyond. There really isn't much I need to add here. This is basically the culmination of everything I've just mentioned. Reducing Synlait's debt burden to a commercially sustainable level solves a significant problem for Synlait and allows us the time to focus on the other opportunities. We have world-class manufacturing assets that are highly flexible and scalable, which ensures that we're well positioned ahead of emerging customer demand trends, especially in market areas such as early life and adult nutrition. We are in several trials with new customers of scale with several new products already in development. We have fantastic people with unique skill sets, creating new opportunities for Synlait to grow both in new geographies, across new product lines and attracting new customers. Our farmers have told us that they don't want to leave if they don't have to, resolving our debt issues and paying them a fair rates for their is the baseline for their further support. To conclude, we now need to deleverage Synlait and get back to focusing on what we do best: sourcing, developing and producing innovative nutrition products for the world's largest food companies. In connection with the proposed equity raising, Synlait is refinancing its bank facilities. Both these actions require today's resolution to pass to keep progressing. If today's resolution passes, we will update you on our equity raising plans in August. We would like to sincerely thank shareholders on especially Bright Dairy for their support as we determine Connie's next chapter. So that concludes my address today, and I will now invite Julia Zhu to speak on behalf of the Bright Dairy appointed directors. We will then open the floor to any questions. Julia will speak to Bright Dairy's commitment to Synlait over the long term and why they have provided this loan to the company Thank you. Julia, I'll now hand over to you.

[Foreign Language] Mr. Chair. Thank you to the Synlait team for the opportunity to speak today. Bright Dairy invested in Synlait almost [ 15 ] years ago to help the company recapitalize and expand when there was no sufficient support from the equity market. We then supported company's public listing and several rounds of subsequent fundraising. And here we are. Today, we remain deeply committed to working alongside your Board and to address the short term challenges facing the company, which we believe we will overcome. We ambition a pathway through recycle that requires greater utilization of Synlait's assets, involving concert integration into international foods and dairy production and supply chains. This is an area where Bright Dairy can and desire to contribute significantly. Our approach and support or the turn on our actions [indiscernible] Board and Synlait executive team are bringing together is evidenced by today's shareholder vote of Bright Dairy's $130 million loan facility. Watching this facility together has also required a huge effort from the Bright Dairy's team. Our company is listed on Shanghai Stock Exchange and on the 8th of July, our investors approved the facility you are voting on today. This facility is also only one part of a much wider commitment we believe we are going to make. And yes, we are the largest company's shareholder, but we are happy to make and willing to make a very significant commitment to [ that ], which I believe Synlait shareholders will witness. So this vote today is a new opportunity to back to action plans coming together to reset the Synlait business to come out of this economic cycle in a strong and competitive position. Given the opportunity to speak today, I would also like to provide some background about our company. Bright Dairy Group is one of China's leading food company and a prominent player in the global food industry. Two of the Bright Food Group companies, Bright Dairy and Bright Meat Group have long established investments in New Zealand's primary sector. Bright Food Group is a long-term key investor in New Zealand private sector, a market-leading, sustainable producer, which established relationships in major international markets like China and global products and supply chains. Bright Dairy supports Synlait's renewed focus on the real opportunities, which are to support product innovation and [indiscernible] customers' needs and success. Given the long-term prospects for dairy not just in China but also in Southeast Asia and many other key markets in the world. This is an area where Bright Dairy can and will to continue to help Synlait expand through our extensive networks, dairy industry research and develop capabilities and market reach. So in summary today, Bright Dairy expansion is this. Synlait has this, a high valuable portfolio of assets. Its product base is sourced from some of the best dairy farms and farmers throughout New Zealand and their reputation is first class across Asia, its world-class products are being exported into major markets where the long-term commercial fundamentals are slow. Synlait and The a2 Milk Company have in the past proven, they can partner effective. And now it's the time to reignite this collaboration. Bright Dairy is committed to assisting in resetting and returning Synlait to sustainable growth and profitability. We will not lessen our commitment during challenging times. So we see a stronger, healthier future for the business. Thank you.

Great. Thank you very much, Julia. So we will now take any questions you have.

We'll go to the room first. If I could just ask you to wait for the microphone because no one can hear you online without the mic. Introduce yourself.

Yes, sure. Can you hear me?

Yes.

My name is Miles [indiscernible]. I live just down by [indiscernible] down the road, small-time investor, how have we got to this situation? It seems like Synlait was a Roll Royce company, and now we're begging on our knees. So I'd like to have an explanation.

Okay. Okay. I mean I'm not sure I'm on my knees quite, but...

If the vote doesn't go here to [ solvent ].

Yes, correct. But they got to the company. I think, if you have a look at where we were probably 2018, 2017, 2018, the company made a number of decisions, I think, in terms of assets, particularly around the North Island assets where they spent on the order of $400 million. We acquired Dairyworks when we acquired the cheese company. Now Dairyworks performed, so it's actually okay, but the other assets haven't. And the fact is that, that was borrowed money that was used to basically invest against those assets, which ultimately didn't return sufficient to shareholders. Now you might say, well, why did the company do that? So if you take, I guess, post-earthquakes, the market was saying we needed to diversify from Dunsandel because there was a lot of risk parked in just one location. So hence, the idea was to move to a North Island location and Pokeno was chosen. I can see where that made sense right? Then in terms of the second one was that actually, we had all our eggs in one basket with one large customer, and what will happen at that large customer we run into trouble. And so basically, it also enabled us to diversify away from that one customer, particularly in the North Island. I think COVID happened. And obviously, the infant birth rate in China essentially halved. So it went from 17 million to roughly 8 million or 9 million infants in the last year. The opportunities for the [ Daigou ] channels, particularly Australia into China essentially dried up during COVID. So I think there was probably a reasonable rationale around why the investments were made. The fact is that issues arose, that method didn't pay off. So the company is where the company is today because of that. And that's really the reason why we're here is because we -- the company basically spent money it was borrowed and didn't have a performance, particularly around 2021, '22 and '23 to justify the level of commitment to get around nonperforming assets. So I think that's why we're here.

George [indiscernible] here from the New Zealand Shareholders Association. I guess I've got a couple of questions. The first one is what faith does the Board, or assurances can the Board provide that if the vote today is approved or the proposal stays approved, that the banking syndicate negotiation good faith in terms of restructuring that debt very soon.

Yes. Look, as you can imagine, we have been in constant dialogue with our bankers and with opportunities for refinancing and our banking syndicate. And at this point in time, I must confident as I can that they will refinance the business. The fact is that we're going to need to deleverage significantly, right? And if we do that, ultimately, risk to our senior -- lenders under considerably less. We'll also be looking at our forward-looking forecast in terms of profitability. And so the banks will actually make their own decision based on that. But ultimately, I'm very confident that we'll have a package from our financiers that would enable the business to move forward on a very competitive basis.

Thank you, George. I guess one further question, you've already alluded to this, the next step in the process will be around setting out a capital raise for shareholders, potential outcome of that capital raise is that Bright Dairy will increase its ownership stake. Just in reference to the question that was asked previously, one could argue that the unique governance structure that surrounds Synlait's Board could have contributed to the reason that you're in this situation today or could be perceived to help create that. In that context, does this present an opportunity for the Board of Synlait to restructure the constitution of the company such that the right of Bright Dairy to appoint four directors to the Board and control it is removed, should they exceed that 50% threshold?

Yes. Well, firstly, naturally, we're talking about hypotheticals because haven't actually created a refinancing equity raise proposal yet, but we will be working on that and that is a potential outcome. I have to acknowledge that yourself and the NZX -- sorry, the Shareholder Association have got a view on this. And as much as I can say at this stage is that, that would be an opportunity to review it.

Thank you, George, and we'll keep encouraging you to reconsider that seriously when that time arises.

I imagine so. I mean they have to abide by the NZX Listing Rules. That's the key issue but fully realized that they were given essentially effectively a derogation some years ago. But I agree with you, it is certainly something that will be presented as an opportunity should that eventuality come to pass.

Are there any more questions in room? Otherwise, we move to questions online.

Steven Bryantt, I am a retail shareholder. Stage 2 is an equity raise. And if I look forward to equity raise, I have some worries about my position. Can you give some assurance that the interest of -- before we go vote that retail shareholders in this company is going to be considered as part of the process with the standard rules and just transparency rules for retail investors.

Yes, absolutely. Look, before we move to any decision on capital raise, it is incumbent upon the Board to seek external third-party verification that anything we do is fair for retail shareholders. And that is obviously something that we're not really committed to, but we don't have any, we have an obligation to do that. So we will ensure that, that bull work for furnace is in place to make sure that our retail shareholders are looked after. You are welcome.

Our first question on line comes from Michael, Chair, and he's looking for confirmation that Bright Group and the Chinese government has approved the loan.

Well, that's a very good question. And yes, I can assure you that the loan has been approved. We have the appropriate documentation and approvals in place for that. So I'm comfortable to say yes to that question.

Our second question comes from Reece. And he is asking when the company will the company become cash flow positive? And when will the contemplated asset sales be completed?

So there's two questions in that. Ideally, our cash flow positive, if I take, say, as calculated by EBITDA, less obviously interest and capital without giving you any forward-looking statements, I would have to say it's got to be very soon. And I would imagine that's going to be in 2025 without being -- want to be caught out on that. But no, it has to be absolutely in the next year. Second part of the question was...

Around when the contemplated asset sales will be completed.

Yes. As we've indicated, we have withdrawn Dairyworks for Synlait, has been for sale for 12 months, and we just haven't found a new buyer who was willing to pay for it sufficiently. And as far then as the assets in the North Island are concerned, which is the North Island review, that's ongoing. We have not committed to selling any assets in the North Island, but we are committed to making sure that they deliver a profitable return to shareholders.

The next couple of questions relate to a2. Could the company please help shareholders understand how the relationship with a2 became so acrimonious, considering the immense symbiotic potential ahead for R&D and future growth?

So number one, I wouldn't characterize it as acrimonious. I speak to the Chair of a2 regularly, and I'm confident that we've got actually a very good relationship. But could the relationship be stronger? And the answer to that is yes. It's absolutely doing good and should, and I think that over the next 12 months, that's something which I've got in my talks we are committed to making sure it's put in place.

Are the a2 Milk Company actively considering an increased equity investment in some way?

That will be a question for a2 Milk.

Given the drying up of the daigou channel and the reduction in birth rates in China, and the -- and by extension lease products sold, does the company ever expect to reach pre-COVID levels of revenue?

Yes, that's a good question. And the answer is yes, we do. There are other opportunities for us with some of our other international partners, which don't rely upon the infant formula market. And actually, it is part of the diversification that we are looking at to make sure that the business doesn't just have that sort of singular reliance on one particular product.

I just want to check if there are any questions on the room again. Otherwise, I'll keep going online. Oliver.

Thank you, Hannah. So in [ in the slides, it's ] previously referenced the Board stability of Synlait, and we know that there have now been 15 board changes since January 2022. That seems like quite a few. I mean, following this vote, following the -- what seems to be a very clear plan that is now in the process of being implemented. To what extent can shareholders expect greater stability in the Board in the near future, at least until this plan is put through?

Yes. Look, I think we've got a very stable [ platform ] today, acknowledging that the changes you're talking about largely before my time. But I have been here for the long term. And my assumption is the shareholders will vote again for me come the AGM. If they don't, obviously, I could be seriously wrong. But you're right, Board stability going forward, I think, is going to be important for us. And certainly, as Chair, I'd like to encourage us to take a much longer-term view of the Board.

I think that long-term view will be encouraged by shareholders as well.

Good.

Okay. Moving back to online. It is reported that 50% of suppliers have given that farmer suppliers have given notice to exit Synlait. If this is the case, are there any plans in place to attract new farmer suppliers?

I don't think we reported 50%, but we reported that a substantial majority had given us cease notices, and that's true. Otherwise, we would not have said it. So it is an issue for us. But I think speaking to a lot of farmers over the last 3 months, and we've had three kind of meetings with quite a few farmers, ultimately, I think what we're told is a lot of them took an option on the basis that Synlait's performance was clearly a concern for them. And they were -- at the same time, I think sending us a very clear message that they were unhappy with the fact that we were not able to pay competitive advance rate for the last season. So our commitment is to retaining those farmers. And I think that actually, the opportunity is definitely there to do that. We've got a plan in place to do that. Charles is nodding his head. He's in charge of such plans. So there is a plan in place to do that. We have announced a competitive advanced rate for the '24,'25 season. We've announced also a competitive milk solids price also. So we're back in the market, and I fully expect that farmers will begin to withdraw cease notices once we deleverage our balance sheet.

We've had a few questions come through on the Pokeno site. Regarding the plant-based utilization of Pokeno, it was initially expressed to shareholders at an annual meeting, but the client most of the capacity. However, that does not appear to be the current case. How can management and the Board explain this to shareholders who seem to have been sold a false narrative? There was also another question that's come through, which is asked whether the Board is considering mothballing the Pokeno site. So maybe you'd like to answer those as a package.

Yes. So two questions there. The first one, I have to say it wasn't that particular conversation. But at the minute, Pokeno particularly in plant-based is not running at or anywhere close to capacity. However, we have to recall and remember that the plant-based production has actually been in commissioning for the last 12 months. So that means that we're actually working with the customer to make sure that they're comfortable that we can actually manufacture the product to their process on specifications. So having done that and actually having achieve that, essentially then we look for a ramp-up in the next 3 years as markets open up, but also as we get better at actually supplying our customers' requirements. And ideally within the next 3 to 5 years, we are looking at actually Pokeno being fully utilized against plant-based product. The second piece was also considering mothballing. And I have to say we're considering many options. That's part of the reason why you announced our strategic review. So looking at do you dispose, do you basically put more business in there, do you mothball, do you look to partnership, do you look to create some sort of joint venture? There's a whole range of things that we're looking at to make sure that ultimately, the Pokeno site, which has got a great product, has a great reputation and great people actually performs for shareholders.

Another question online, potentially for Bright Dairy chair. Has Bright Dairy considered instead of providing a loan of $130 million to buy out the company with an offer of around $1 per share and to reorganize the business in a more efficient and sustainable way?

I'll throw it over to Julia, who can answer on behalf of Bright Dairy, but I don't believe that's the case. Did you hear the question, Julia?

I think Bright Dairy, it's a long-term committing [indiscernible] Synlait and Synlait is actually one of the first overseas investment being conducted connected by Chinese enterprises internationally and by state owned enterprise, and we were proud of [ Synlait ] remain as a holistic company, dual estate company in New Zealand and in [indiscernible] market, and we believe that keep Synlait as a listed company in New Zealand, where the sources are coming from. It's beneficial to the business and also by beneficial to the wider range of economic reasons, and we believe that -- and we're confident that with this listed company governance, Synlait will be doing a good job in global market. Thank you.

Thanks, Julia.

Another question online. What level of capital raising are you anticipating as required?

Working through but you're talking about certainly hundreds of millions of dollars.

Could the Board please clarify some Synlait's exclusivity clause with the a2 Milk Company? Is Synlait legally allowed to sell a2 products to other companies?

Now that's not something that I'd prepared to get into at this point. That's a commercially confidential discussion.

We're coming to the end of our questions online. There is two similar questions, which are very similar to the first question we received from the floor, but perhaps, George, I'll just quickly read them and you can wrap up with an overarching response.

Yes.

Why have directors and management left it so late to raise funds? Isn't it lack of duty to perform their fiduciary duties? First, they went to head and built Pokeno and paid off the neighbor. What will stop directors and management from not running this business into the ground and the share price shows lack of business acumen by management and directors? A follow-up question as well, how did the company come to this position?

Thanks for that. I think I've covered off the second one quite well at this stage. So towards the third, fourth quarter last year, the company knew it was in some strife and basically put a number of assets up for sale, Talbot Forest and our Dairyworks business was already on the block at that stage. It was actually quite possible that the sale of both of those would have contributed very significant to debt reduction and would have actually avoided the need for this loan, particularly. So that obviously, as your first choice go to when you're an asset company is to look to the assets that you've got. And generally, it's kind of family silverish, you get rid of the family silver first. But ultimately, that would have produced, I think the expectation was sort of between $120 million and $150 million. That would have solved much of the issue we've got today. And to be fair, the Board put those companies up for sale. They were went up the -- actually went up the garden path twice, but we're unable to make other of those deals stick. So I'd kind of question while that the Board was being asleep at the wheel. You look to asset sales first, which the company did. Neither of those actually panned out for whatever reason, which means that essentially then phase 2 is then you look to do things like borrow money or raise capital. I guess I joined the company in -- towards the end of March. We announced this quite recently. I think that the Board has recently taken a very active position in understanding that is got to essentially get rid of the leverage from its balance sheet. Can I give you a commitment? I mean, I can give you my commitment. I can see the Board's commitment and I would strongly suggest that if you're not feeling that commitment come the AGM, then you can vote the way you feel appropriate. I think Oliver has got another question.

Sort of in relation to that. Board assurance, I mean a big part of the issue seems to be the debt maturity profile seem to mature at a very similar -- within a very short time frame. Is that a mistake that the Board is going to repeat in the future? What assurance can shareholders get that there'll be a more realistic debt maturity profile emerging from the refinancing?

It's an interesting question, Oliver. I'll give you a slightly contrarian view on it. I don't know of any issue with the debt maturity profile whatsoever. The issue is that the company has been making enough money in the last for 24 months. They thought it would. And had it been making enough money, it would have been comfortably able to service the debt.

So are you implying then that Synlait is happy to run with a less resilient profile compared to other sectors?

Not saying at all. Actually, your question was, is that the issue? That is not the issue, that is an issue amongst issues. But the fundamental issue is lack of profitability in the last 1.5 years.

Your first slide, mentioned the key objective was deleveraging. And if I look at it closely, I would think Pokeno would be an obvious one to deleverage, but say, deleveraging across the board with Dairyworks. In terms of that is a little bit of a worry that Fonterra is also, at the moment, dispensing of quite a few assets. So it probably becomes quite important issue in terms of having the time of deleveraging as an issue to achieve reasonable prices?

Yes. Thank you for the question. Look, it's an interesting question. I don't think it's necessarily related. They're getting rid of consumer assets. We don't have any of those. Ours asset are all essentially ingredient assets. Fonterra's core business, which is also ingredients has been performing extraordinarily well, actually. So I think Fonterra's challenge was that they said it got rid 10 years ago because they're not very good at that.

We've got two more questions online. One relating to ERP. What was the purpose of the new ERP implementation? And why was it done during the challenging years?

It kind of causes me to speculate a little bit to be fair. The company needed a new ERP system. They selected SAP. And I'm also conscious that the system that they had needed upgrading, and therefore, it wasn't really an option not to go at a particular point in time. But the issue presupposes as being busy is a reason not to install an ERP system, which is clearly have to say, having done it many times, not the case. The issue was that it was poorly implemented, and so there was a failure of execution. The strategy was absolutely spot on.

Another question online. Can an increase in Synlait supplying its products to Bright Dairy helped to improve performance?

It's possible. It's certainly one of the things that we have been considering with a new product, which we are currently in the process of working through with Bright Dairy. So that's definitely part of the consideration set.

That concludes our questions online. I'd like to acknowledge the very high turnout that we've had online today. Thank you for joining us.

It's fantastic. Any more in the room? Do you have one more?

Thank you. [indiscernible], Retail Punter, George. I like to commend you for putting your name, we hand up to pick up the role as Chair of the business, which clearly when you said yes, you knew was going to have challenges. Just wondering, as Chair with your -- how much time you're spending with your colleagues on the art of governance and discussing amongst yourselves the this -- this challenge of acting in the best interest of the company as opposed to responding to shareholders wishes in your opening speech, you said that the company responded to market. Desires, well, that's probably the first mistake the company made. And then the second mistake, I think, as has been stressed here today, is actually we seem to be where we are at late stage, we're a debt proposition being bought when it should be an equity proposition because the Board has been put in a place where it's responding to shareholder wishes. So you are the Chair,[indiscernible] from the head. George, how do you intend to encourage your colleagues to exercise fiduciary duty in its purest form -- best form?

Yes, it's a really interesting question. Thank you for that. I hope it's not my head that's rotting. But look, the Board is acutely aware of its obligations to shareholders. All shareholders and clearly not just our two largest ones. We spend considerable time in conversations about that. And obviously, how we deliver against that furnace is what you experience as opposed to what you hear, right? I can't rewrite history. When I joined the Board, the issues were the issues. And ultimately, we had to then solve those issues. Ideally, we would have sold Dairyworks, and so we would not need this loan, we would not need this conversation. And if that had been the case, I suspect mostly would have went yes, that makes sense, that makes sense. And then you move into Phase 2, which is an equity raise over the next couple of months. And that being the case, I suspect there have been quite a different narrative, right? So it looks like the Board essentially has got to the point where it's being -- its hands being forced by the market. Its hands being forced by the bank per se because we signed up to our refinancing deal, which had a step down, 15th of March, which we moved -- March, which we moved out to this particular July. In terms of then, do you hang on and make sure you try to sell Dairyworks. I think the Board did the right thing, trying to make sure they could do that. But ultimately, working along in the background with a short term stay of execution on loan also made sense because you got to have a plan A and a plan B. Plan C is essentially the recapitalization of the business, which will happen in the next couple of couple of months, and that's really the key issue here is to get to that point. Ultimately, because we're probably having this conversation because Bright is early at the party, as opposed to if we just have been able to basically raise it from ordinary shareholders, it wouldn't be an issue. But the fact is it's really the party, which is why we're having the conversation. But the Board meeting every single day. So it's not that we're not doing the yards to make sure that we deliver against the requirements of all shareholders.

Two quick questions, if I may off -- out of my head. Firstly, why do they a2 Milk take so long to come out publicly and support the vote probably say it's their business, but be nice to have some insight into that? And secondly, given the way the market is pricing your bonds, how are you going to capital raise, the market clearly has a heavy negative sentiment against the equity?

Yes, two good questions. The first one, I genuinely cannot give you any insight into why a2 took so long. I suggest you attend their AGM and ask them that question. But the fact is they have supported us. That's positive. The second one is, you're right, that there is a high degree of complexity in terms of having to raise essentially several times our market cap as far as equity goes. So that makes life complicated compared to the request for equity versus the size of our register at the [indiscernible], right? So that's for sure. We have a complex relationship with two major shareholders, which we've got to resolve to ensure that we can deliver on equity raise. So that means we are -- and we've also got to take into account the volatility of our share price and the bond price. So overall, that leaves you with a fairly volatile equity thesis, which would be -- which we've got to solve for. So it's not straightforward. We think we are getting to an outcome which is reasonable. But it's got to be obviously in the company's best interest. And hopefully, we'll have that resolved in the next 3, 4 weeks and announce that to the market and obviously, our shareholders for their consideration. But it is -- it's not easy. Any more for any more? Oliver looks like you've got another one. No, great. Because whatever it is, it will be a good one. All ready, are we anything more online? No, all good. Okay. Thanks, everybody, and thanks, Julia. So we'll now move to the formal part of the shareholders' meeting, which is our ordinary resolution today that the shareholder loan as described in the notice of meeting dated 25th of June 2024 be approved, under and for the purposes of the NZX Listing rules, 5.1.1(b) and 5.2.1. The resolution, as I have indicated, requires a majority to pass. The independent directors of Synlait unanimously recommend shareholders vote in favor of the resolution. Bright Dairy cannot vote in favor of the resolution. As such, the directors appointed by Bright Dairy have abstained from making a recommendation. So I move that Synlait be authorized to enter into the shareholder loan with Bright Dairy with regards to conditions noted in the notice of meeting. Can I ask if there are any questions on the resolution? There being no questions, I invite you to vote by marking your voting option on resolution 1 either on your printed or electronic voting card now. And can I please ask that Computershare collect, all in the room voting papers. We will shortly close voting online. So please finalize your vote now. Thank you. I'll give you another few seconds to do that. [Voting]

Conclude the voting. So I'll now announce that the proxy votes have been cast ahead of the meeting. We've had proxy votes 4 of $59.6 million or just under 57%, proxies directed at an open capacity, $44.8 million against the motion was $235,000 or 0.23%. And and 4,200 up standing. So I want to thank everyone for the very strong proxy vote before, which actually closed on Tuesday afternoon service before a2 gave us their indication. And we are pleased to let you know that a2 Milk Company Limited updated us on their voting intentions this morning and have indicated they'll be voting in favor today, and we welcome a2 support. So you may have seen that both Synlait and the a2 Milk Company made announcements on the New Zealand and Australian Stock Exchanges earlier today confirming this. And we are committed to working collaboratively with the a2 milk company to ensure the successful growth of both companies going forward. So thank you, everyone. That concludes the formal resolutions. The results will be published to the NZX and ASX stock exchanges later today. So online voting has now closed. We'll now take any final questions if there are any in the room or online. Nothing at all Okay. Thank you. So there's no further business for discussion. I'd like to really thank everyone for attending today. It's been a really challenging period for Synlait, and I thank all of our shareholders for your support on this extremely important resolution for Synlait's future. I'd also like to especially thank Bright Dairy, who have provided this loan, we thank you for your ongoing support and commitment to our company. And finally, a big thank you to the Synlait team for your ongoing commitment and hard work. I now declare the meeting closed. Thank you.