Full Year 2026 Synlait Milk Ltd Earnings Call

September 27, 2026

Speaker #1: Good day, everyone. My name is Ronnie, and I will be your conference operator today. At this time, I would like to welcome you to the Sinlai FY26 results call.

Operator: Good day everyone. My name is Ronnie and I will be your conference operator today. At this time, I would like to welcome you to the Synlait FY26 results call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, and if you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. At this time, I would like to turn the call over to George Adams, Synlait Chair.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, and if you have joined via the webinar, please use the raise-hand icon, which can be found at the bottom of your webinar application.

Speaker #1: This time, I would like to turn the call over to George Adams, Sinlai Chair.

Speaker #2: Thank you. Good morning, everyone. I'm George Adams, Chair of Sinlai, and it's my pleasure to welcome you to our FY26 full-year results conference call.

George Adams: Thank you. Good morning, everyone. I am George Adams, Chair of Synlait, and it is my pleasure to welcome you to our FY26 full year results conference call. Joining me on the call is our Acting CEO, Leon Fung, and our CFO, Andy Liu. They will take you through the results in detail shortly. First, I want to acknowledge that financially, this has been another difficult year for Synlait, and I appreciate that for our shareholders, that is challenging news to hear. However, we have delivered a major operational recovery in the H2, and just like the repairs to the company's liquidity, milk supply, and balance sheet over previous years, this is critical to our future. Synlait is now stronger and more focused than before and well-positioned to progress for recovery.

Speaker #2: Joining me on the call is our acting CEO, Leon Fung, and our CFO, Andy Liu. They will take you through the results in detail shortly.

Speaker #2: First, I want to acknowledge that financially this has been another difficult year for Sinlai, and I appreciate that for our shareholders, that is challenging news to hear.

Speaker #2: However, we have delivered a major operational recovery in the second half. And just like the repairs to the company's liquidity, milk supply, and balance sheet over previous years, this is critical to our future.

George Adams: However, we have delivered a major operational recovery in the H2, and just like the repairs to the company's liquidity, milk supply, and balance sheet over previous years, this is critical to our future. Synlait is now stronger and more focused than before and well-positioned to progress for recovery.

Speaker #2: Sinlai is now stronger and more focused than before, and well-positioned to progress for recovery. That is real progress, and I want to thank Sinlai's team for delivering that, including Heinrich and Ruben, who you can see on the front of our investor presentation and annual report.

George Adams: That is real progress and I want to thank Synlait's team for delivering that, including Hendrik and Reuben, who you can see on the front of our investor presentation and annual report. There have been many long hours worked and the board and I are grateful for that. I will now hand you over to Leon and Andy, and there will be Q&A after the presentation. Thank you. Leon.

Speaker #2: There have been many long hours worked, and the board and I are grateful for that. I'll now hand you over to Leon, and Andy, and they will be Q&A after the presentation.

Speaker #2: Thank you.

Speaker #3: Thank you, George. Good morning, everyone. Thank you for joining us for Sinlai's full year 2026 results call. FY26 was a difficult year financially. It was also a year of real progress in our recovery.

Leon Fung: Thank you, George. Good morning, everyone. Thank you for joining us for Synlait's full year 2026 results call. FY26 was a difficult year financially. It was also a year of real progress in our recovery. In the H2, operations stabilized, and this resulted in a strong improvement in financial performance. Today, Andy and I will cover the progress, the work still ahead, and how we will work to ensure Synlait's recovery continues. We will start by looking at our H1 performance, as this is what has driven the overall result for FY26. The half year result was impacted by three main issues. Manufacturing plan adjustments, lower ingredients returns, and deferred tax assets. The financial impact was significant. We posted a H1 EBITDA loss of NZD 34.7 million and an overall net loss after tax of NZD 80.6 million. Synlait responded with a clear recovery roadmap.

Speaker #3: In the second half, operations stabilized, and this resulted in a strong improvement in financial performance. Today, Andy and I will cover the progress, the work still ahead, and how we will work to ensure Sinlai's recovery continues.

Speaker #3: We will start by looking at our first half performance. This is what has driven the overall result for FY26. The half-year result was impacted by three main issues.

Leon Fung: We will start by looking at our H1 performance, as this is what has driven the overall result for FY26. The half year result was impacted by three main issues. Manufacturing plan adjustments, lower ingredients returns, and deferred tax assets. The financial impact was significant. We posted a H1 EBITDA loss of NZD 34.7 million and an overall net loss after tax of NZD 80.6 million. Synlait responded with a clear recovery roadmap.

Speaker #3: Manufacturing plan adjustments, lower ingredients returns, and deferred tax assets. The financial impact was significant. We posted a first half EBITDA loss of 34.7 million dollars, and an overall net loss after tax of 80.6 million dollars.

Speaker #3: Sinlai, responded with a clear recovery roadmap. It has three interconnected horizons: stabilize the business by fixing the fundamentals, simplify by focusing on dancendo, and finally, scale.

Leon Fung: It has three interconnected horizons. Stabilize the business by fixing the fundamentals, simplify by focusing on Dunsandel, and finally, scale, creating a strategy to drive future growth. I am pleased to say we have made real progress on the first two horizons, stabilize and simplify. This slide shows some of the work we have done. This is the deep work that has involved resetting the fundamentals across four areas: operations and assets, quality, people, and revenue. In operations, we strengthened frontline leadership. We are investing in our assets, have improved production planning, and completed major projects to support long-term stability. In quality, we strengthened protocols and processes to align with new regulatory expectations in the key markets, including China. We also introduced new product checks and improvements and embedded a company-wide food safety culture.

Speaker #3: Creating a strategy to drive future growth. I'm pleased to say we have made real progress on the first two horizons. Stabilize and simplify. These slides show some of the work we have done.

Speaker #3: This is the deep work that has involved resetting the fundamentals, across four areas: operations and assets, quality, people, and revenue. In operations, we strengthened frontline leadership.

Leon Fung: In operations, we strengthened frontline leadership. We are investing in our assets, have improved production planning, and completed major projects to support long-term stability. In quality, we strengthened protocols and processes to align with new regulatory expectations in the key markets, including China. We also introduced new product checks and improvements and embedded a company-wide food safety culture.

Speaker #3: We are investing in our assets. Have improved production planning. And completed major projects to support long-term stability. In quality, we strengthened protocols and processes.

Speaker #3: To align with new regulatory expectations in the key markets, including China. We also introduced a new product checks and improvements and embedded a company-wide food safety culture.

Speaker #3: For people, we developed our frontline and senior leaders. Uplifted engagement. Drove a new performance framework. And launched a new health, safety, and well-being strategy.

Leon Fung: For people, we developed our frontline and senior leaders, uplifted engagement, drove a new performance framework, and launched a new health, safety, and wellbeing strategy. We reset our revenue function with a strengthened business development team, broadened our infant formula customer base, progressed adult nutrition opportunities, and tightened pricing discipline. Together, these actions have built a strong foundation for recovery. Our key achievement for the year has been operational recovery. Manufactured in spec improved from 88% in FY25 to 93% in FY26. Production plan attainment rose year-on-year from nearly 92% to 95.5%. That is a huge achievement, thanks to our frontline teams. I am pleased to say that manufactured in spec was 99% for August. We are focused on delivering that consistently to reach that level of operational excellence we are aiming for.

Speaker #3: We reset our revenue function with a strengthened business development team broadened our infant formula customer base progressed add-on nutrition opportunities by tightened pricing discipline.

Speaker #3: Together, these actions have built a strong foundation for recovery. Our key achievement for the year has been operational recovery. Manufactured in spec, improved from 88% in FY25 to 93% in FY26.

Leon Fung: Our key achievement for the year has been operational recovery. Manufactured in spec improved from 88% in FY25 to 93% in FY26. Production plan attainment rose year-on-year from nearly 92% to 95.5%. That is a huge achievement, thanks to our frontline teams. I am pleased to say that manufactured in spec was 99% for August. We are focused on delivering that consistently to reach that level of operational excellence we are aiming for.

Speaker #3: Production plan attainment rose year-on-year from nearly 92% to 95.5%. That is a huge achievement. Thanks to our frontline teams. I'm pleased to say that manufactured in spec was 99% for August.

Speaker #3: We are focused on delivering that consistently. To reach that level of operational excellence we are aiming for. You can see on slide 5 that operational improvement translated into a much stronger second half financial performance.

Leon Fung: You can see on slide 5 that operational improvement translated into a much stronger H2 financial performance. Reported EBITDA improved by NZD 77.5 million. Underlying EBITDA improved by NZD 38.1 million. Reported net profit after tax improved by NZD 85.8 million, and underlying net profit after tax improved by NZD 33 million. These results show the benefit of a more stable business. However, the full-year result reflects the difficult H1. My final slide for you shows the overall results. The total group revenue for the year has increased to NZD 1.93 billion. Reported group EBITDA was NZD 8.1 million. Underlying group EBITDA was NZD 46.3 million. We have reported a net loss after tax of NZD 75.4 million, with an underlying net loss after tax of NZD 21.6 million. Net debt reduced by 14% to NZD 215 million. Operating cash flow was -NZD 183.3 million. This reflects weaker operating performance and higher working capital needs.

Speaker #3: Reported EBITDA improved by 77.5 million dollars. Underlying EBITDA improved by 38.1 million dollars. Reported net profit after tax improved by 85.8 million dollars. And underlying net profit after tax improved by 33 million dollars.

Speaker #3: This result show the benefit of a more stable business. However, the full-year result reflects the difficult first half. My final slide for you shows the overall results.

Leon Fung: My final slide for you shows the overall results. The total group revenue for the year has increased to NZD 1.93 billion. Reported group EBITDA was NZD 8.1 million. Underlying group EBITDA was NZD 46.3 million. We have reported a net loss after tax of NZD 75.4 million, with an underlying net loss after tax of NZD 21.6 million.

Speaker #3: The total group revenue for the year has increased to 1.93 billion dollars. Reported group EBITDA was 8.1 million dollars. Underlying group EBITDA was 46.3 million dollars.

Speaker #3: We have reported a net loss after tax of 75.4 million dollars. With the underlying net loss after tax of 21.6 million dollars. Net debt reduced by 14% to 215 million dollars.

Leon Fung: Net debt reduced by 14% to NZD 215 million. Operating cash flow was -NZD 183.3 million. This reflects weaker operating performance and higher working capital needs. The good news is for our farmers. Synlait is confirming its second highest milk price in our history at NZD 10.07 per kilo of milk solids. This includes the incentives we pay our farmers above the base milk price. I will now hand over to Andy Liu.

Speaker #3: Operating cash flow was negative, 183.3 million dollars, this reflects weaker operating performance and higher working capital needs. The good news is for our farmers.

Leon Fung: The good news is for our farmers. Synlait is confirming its second highest milk price in our history at NZD 10.07 per kilo of milk solids. This includes the incentives we pay our farmers above the base milk price. I will now hand over to Andy Liu.

Speaker #3: Sinlai is confirming its second highest milk price in our history, at 10 dollars and 7 cents per kilo of milk solids. This includes the incentives we pay our farmers above the base milk price.

Speaker #3: I will now hand over to Andy.

Speaker #2: Good morning, everyone. Thanks for joining us. I will begin with the main drivers of FY26 result. Followed with business unit performance, the North Island discontinued operations, cash flow, and net debt.

Andy Liu: Good morning, everyone. Thanks for joining us. I will begin with the main drivers of FY26 results, followed with business unit performance, the North Island discontinued operations, cash flow, and net debt. Move to page 8. Let me start with the main drivers. Improved H2 operations kept Synlait's recovery on track, although the full-year results still reflected significant H1 impacts. The main point on the bridge is that volume was not the issue. Consumer and food service growth contributed NZD 2.3 million into bottom line, but that benefit was more than offset by price, mix, and cost. Price and mix reduced impact by NZD 7.3 million, reflecting higher portion of relatively lower-margin products in advanced nutrition, and an unfavorable ingredients product mix, partly offset by stronger food service and butter price. Costs were the biggest challenge, reducing impact by NZD 39.8 million.

Speaker #2: Move to page 8, let me start with the main drivers. Improved second half operations kept Sinlai's recovery on track. Although the four-year results still reflected significant first half impacts.

Speaker #2: The main point on the bridge is that volume will not be issued. Consumer and food service growth contributed 2.3 million into bottom line. But that benefit was more than offset by price, mix, and cost.

Andy Liu: Consumer and food service growth contributed NZD 2.3 million into bottom line, but that benefit was more than offset by price, mix, and cost. Price and mix reduced impact by NZD 7.3 million, reflecting higher portion of relatively lower-margin products in advanced nutrition, and an unfavorable ingredients product mix, partly offset by stronger food service and butter price. Costs were the biggest challenge, reducing impact by NZD 39.8 million.

Speaker #2: Price and mix reduced impact by 7.3 million. Reflecting higher portion of relatively lower margin products in advanced nutrition. And an unfavorable ingredients product mix.

Speaker #2: Partly offset by stronger food service and butter price. Costs were the biggest challenge. Reducing impact by 39.8 million. Operational disruption reduced fixed cost recovery and increased manufacturing, quality, and milk transport costs.

Andy Liu: Operational disruption reduced fixed cost recovery and increased manufacturing, quality, and milk transport costs. Milk premiums also increased the costs. These impacts moderated in the H2. Other margin and income were mainly affected by unrealized foreign exchange losses at year-end. This was partly offset by Abbott TSA income. SG&A provided a NZD 1.6 million benefit. This come from closing Palmerston North office, lean our leadership and commercial structure, and tighter spending controls. We achieved these savings despite inflation and oil-related cost pressures. At the same time, we continued to invest in our people, systems, and core capabilities. Financing was a clear benefit. Despite negative operating cash flow, financing costs improved by NZD 22.2 million. This reflected improved banking pricing, better base rates, debt reduction following the North Island sale, and more cost-effective CNH funding. After adjusting for one-off items, underlying impact was a NZD 21.6 million loss in FY26.

Speaker #2: Milk premiums also increased the costs. These impacts moderated in the second half. Other margin and income were mainly affected by unrealized foreign exchange losses at year end.

Speaker #2: This was partly offset by EBIT TSA income. SG&A provided a 1.6 million benefit. This come from clothing pharmaceutical office link our leadership and commercial structure and tighter spending controls.

Speaker #2: We achieved these savings despite inflation and oil-related cost pressures. At the same time, we continued to invest in our people, systems, and core capabilities.

Andy Liu: We achieved these savings despite inflation and oil-related cost pressures. At the same time, we continued to invest in our people, systems, and core capabilities. Financing was a clear benefit. Despite negative operating cash flow, financing costs improved by NZD 22.2 million. This reflected improved banking pricing, better base rates, debt reduction following the North Island sale, and more cost-effective CNH funding. After adjusting for one-off items, underlying impact was a NZD 21.6 million loss in FY26.

Speaker #2: Financing was a clear benefit. Despite negative operating cash flow, financing costs improved by 22.2 million. This reflected improved banking pricing, better base rates, debt reduction, a follow the North Island sale, and more cost effective CNH funding.

Speaker #2: After adjusting for one of items, underlying impact was a 21.6 million loss in FY26. Go to page 9, I will show how these drivers came through across business units.

Andy Liu: Go to page 9. I will show how these drivers came through across business units. The portfolio result was mixed. Consumer and food service delivered growth and stronger margins, while advanced nutrition and ingredients were affected by operation disruption, capacity constraints, and weaker skim return. Advanced nutrition revenue was broadly flat, but gross profit declined 78%. The key issue was manufacturing efficiency with operational disruption, product plan changes, and increased cost from production catch-up. Lower lactoferrin sales also reduced the contribution. Ingredients revenue declined 15%, with gross profit down 26%. Lower volumes and constrained product mix forced us to produce more Whole Milk Powder and sold into lower price markets in the H1. The mix improved later in the year, especially through Skim Milk Powder and AMF. Consumer revenue increased 32%, with gross profit at NZD 51.7 million.

Speaker #2: The portfolio result was mixed. Consumer and food service delivered growth and stronger margins. While advanced nutrition and ingredients were affected by operation disruption, capacity constraints, and weaker stream returns.

Speaker #2: Advanced nutrition revenue was broadly flat. But gross profit declined 78%. The key issue was manufacturing efficiency with operational disruption. Product plan changes and increased the cost from production catch up.

Speaker #2: Lower lactoferrin sales also reduced the contribution. Ingredients revenue declined 15% with gross profit down 26%. Lower volumes and constrained product mix forced us to produce more whole milk powder.

Andy Liu: Lower lactoferrin sales also reduced the contribution. Ingredients revenue declined 15%, with gross profit down 26%. Lower volumes and constrained product mix forced us to produce more Whole Milk Powder and sold into lower price markets in the H1. The mix improved later in the year, especially through Skim Milk Powder and AMF. Consumer revenue increased 32%, with gross profit at NZD 51.7 million.

Speaker #2: And sold into lower price markets in the first half. The mix improved later in the year. Especially through skim milk powder and AMF. Consumer revenue increased 32% with gross profit at 51.7 million.

Speaker #2: This reflected growth across export and private label channels, good butter price achievement, improved manufacturing recovery, and inventory management. Food service revenue increased 62% with gross profit improving by 15.6 million to 11 million.

Andy Liu: This reflected growth across export and private label channels, good butter price achievement, improved manufacturing recovery, and inventory management. Food service revenue increased 62%, with gross profit improving by NZD 15.6 million to NZD 11 million. The first full year of positive gross profit. This was driven by 43% volume growth, improved pricing, lower fat costs, new China contracts, and expansion across Southeast Asia. Other revenue increased 32%, reflected tactical milk sales in order to manage surplus milk volumes and manufacturing capacity constraints. Next page 10. This page separates the North Island's discontinued operations from the continuing business. The North Island sale is complete, making Synlait simpler and more efficient. The table shows the continuing business we are taking forward. The North Island result, including the gain on sale. Without the gain and related tax benefit, the North Island operations were still in loss-making in FY26.

Speaker #2: The first four-year of positive gross profit. This was driven by 43% volume growth, improved pricing, lower fat costs, new China contracts, and expansion across Southeast Asia.

Speaker #2: Other revenue increased 32%, reflected tactical milk sales in order to manage surplus milk volumes and manufacturing capacity constraints. Next page, page 10. This page separates the North Island discontinued operations from the continuing business.

Andy Liu: Other revenue increased 32%, reflected tactical milk sales in order to manage surplus milk volumes and manufacturing capacity constraints. Next page 10. This page separates the North Island's discontinued operations from the continuing business. The North Island sale is complete, making Synlait simpler and more efficient. The table shows the continuing business we are taking forward. The North Island result, including the gain on sale. Without the gain and related tax benefit, the North Island operations were still in loss-making in FY26.

Speaker #2: The North Island sale is complete. Making Sinlai simpler and more efficient. The table shows the continuing business we are taking forward. The North Island result including the gain on sale.

Speaker #2: Without the gain and related tax benefit, the North Island operations were still in loss making in FY26. Continuing operations generated 1.68 billion of revenue and underlying EBITDA of 46.3 million.

Andy Liu: Continuing operations generated NZD 1.68 billion of revenue and underlying EBITDA of NZD 46.3 million. This is a relevant baseline for assessing future performance. Now we have a clearer operating base, with our focus and investment centered on Dunsandel and Dairyworks. Page 11. It shows how operating performance translated into cash flow and net debt. Cash remains the biggest financial challenge in FY26. Operating cash flow was negative, reflecting weaker operating performance and significant working capital build, which was mainly affected by higher receivables and inventory. Against that, the North Island sale generated roughly NZD 296 million of cash proceeds and materially strengthened the balance sheet. After operating cash outflows, capital investment, interest, and other movements, net debt finished the year at NZD 215 million. In summary, the second half showed clear improvements in operating stability and financial performance.

Speaker #2: This is the relevant baseline for assessing future performance. Now we have a clearer operating base. With our focus and investment centered on downsandal and dairy works.

Speaker #2: Page 11, it shows how operating performance translated into cash flow and net debt. Cash remains the biggest financial challenge in FY26. Operating cash flow was negative.

Andy Liu: Operating cash flow was negative, reflecting weaker operating performance and significant working capital build, which was mainly affected by higher receivables and inventory. Against that, the North Island sale generated roughly NZD 296 million of cash proceeds and materially strengthened the balance sheet. After operating cash outflows, capital investment, interest, and other movements, net debt finished the year at NZD 215 million.

Speaker #2: Reflecting weaker operating performance and significant working capital build. Which was mainly affected by higher receivables and inventory. Against that, the North Island sale generated roughly 296 million of cash proceeds and materially strengthened the balance sheet.

Speaker #2: After operating cash outflows, capital investment, interest, and other movements, net debt finished the year at 215 million. In summary, the second half showed clear improvements in operating stability and financial performance.

Andy Liu: In summary, the H2 showed clear improvements in operating stability and financial performance. The next step is to translate that progress into stronger margins and cash generation, with continuing to reduce debt through disciplined execution and capital allocation. I will now hand back to Leon for the business update.

Speaker #2: The next step is to translate that progress into stronger margins and cash generation which continuing to reduce debt through disciplined execution and capital allocation.

Andy Liu: The next step is to translate that progress into stronger margins and cash generation, with continuing to reduce debt through disciplined execution and capital allocation. I will now hand back to Leon for the business update.

Speaker #2: I will now hand back to Leon for the business update.

Speaker #1: Thank you, Andy. I will now cover off the performance and the priorities of our business units. Advanced in nutrition, ingredients, food service, consumer, and milk supply.

Leon Fung: Thank you, Andy. I will now cover off the performance and the priorities of our business units: Advanced Nutrition, Ingredients, Food Service, Consumer, and Milk Supply. Advanced Nutrition makes high-value products for early life and adult nutrition. In FY26, we secured purchase orders from a new Middle East infant nutrition customer for commercial supply commencing in 2027. This is a significant win for the team as we seek to onboard new customers, and we are confident this partnership will scale up quickly. I am pleased to report we have a pipeline of customers keen to work with Synlait. This means we are confident we will field the capacity created by The a2 Milk Company moving its English label production. We have also commercialized Nutrabase, creating a platform for adult nutrition products and multiple private label opportunities in Southeast Asia.

Speaker #1: Advanced nutrition makes high value products for early life and adult nutrition. In FY26, we secured purchase orders from a new Middle East infant nutrition customer for commercial supply commencing in 2027.

Speaker #1: This is the significant win for the team as we seek to onboard new customers. And we are confident this partnership will scale up quickly.

Speaker #1: I'm pleased to report we have a pipeline of customers keen to work with Sinlai. This means we are confident we will field the capacity created by the A2 milk company moving its English label production.

Leon Fung: I am pleased to report we have a pipeline of customers keen to work with Synlait. This means we are confident we will field the capacity created by The a2 Milk Company moving its English label production. We have also commercialized Nutrabase, creating a platform for adult nutrition products and multiple private label opportunities in Southeast Asia.

Speaker #1: We have also commercialized Nutrabase. Creating a platform for adult nutrition products and multiple pride with label opportunities in Southeast Asia. We also strengthened our dedicated business development function.

Leon Fung: We also strengthened our dedicated business development function, a structured opportunity pipeline, and Project Lotus. These projects focus on specialty nutrition using high-value ingredients, including lactoferrin. Looking ahead, our priorities are to grow the Middle East contract, onboard new customers from Southeast Asia, expand higher-value consumer-ready solutions, commercialize specialty supplements, and reduce exposure to any one customer or market. Our Ingredients portfolio includes milk powders, milk fats, specialty ingredients for global customers. During FY26, we focused strongly on value over volume. This includes tighter pricing decisions, customer profitability modeling, and stronger sales controls. We advanced diversification across Southeast Asia and the Middle East, simplified product specifications, and strengthened sales facing, hedging, and risk management. With manufacturing stability materially improved, our future focus is to extract greater value from available milk.

Speaker #1: A structured opportunity pipeline and the project blotters. These projects focus on specialty nutrition using high value ingredients. Including lactoferrin. Looking ahead, our priorities are to grow the Middle East contract, onboard new customers from Southeast Asia, expand higher value consumer ready solutions, commercialize specialty supplements, and reduce exposed to any one customer or market.

Speaker #1: Our ingredients portfolio includes milk powders, milk fats, specialty ingredients for global customers, during FY26, we focus strongly on value over volume. This include tighter pricing decisions, customer profitability modeling, and stronger sales controls.

Leon Fung: Our Ingredients portfolio includes milk powders, milk fats, specialty ingredients for global customers. During FY26, we focused strongly on value over volume. This includes tighter pricing decisions, customer profitability modeling, and stronger sales controls. We advanced diversification across Southeast Asia and the Middle East, simplified product specifications, and strengthened sales facing, hedging, and risk management. With manufacturing stability materially improved, our future focus is to extract greater value from available milk.

Speaker #1: We advanced diversification cross Southeast Asia and Middle East, simplified product specifications, and strengthened sales facing. Hedging and risk management. With manufacturing stability materially improved, our future focus is to extract greater value from available milk.

Speaker #1: That means disciplined pricing, stronger product mix, greater use of our infant formula grade capability, customer led technical solutions, and growth in higher value applications.

Leon Fung: That means disciplined pricing, stronger product mix, greater use of our infant formula-grade capability, customer-led technical solutions, and growth in higher-value applications. Food service delivered its first materially profitable year, supported by 43% volume growth, improved pricing, and wider geographic reach. We expanded across Southeast Asia, strengthened our Shanghai presence, and launched Synlait-branded UHT whipping cream in China. A new customer-owned brand partnership broadened our routes to market, while changes to the sales and marketing team strengthened distributor and end-user management. We will now grow volume and market share while protecting returns. We will expand through our distributor network, build on our China launch, and use Synlait product quality, Grass Fed certification, and New Zealand origin to stand out. Our consumer business delivered strong growth through Dairyworks and its portfolio of brands. More than 5,000 additional metric tons of cheese was shipped to Australia compared with FY25.

Speaker #1: Food service delivered its first materially profitable year. Supported by 43% volume growth. Improved pricing, and wider geographic reach. We expanded across Southeast Asia, strengthened our Shanghai presence, and launched Sinlai branded UHT whipping cream in China.

Leon Fung: We expanded across Southeast Asia, strengthened our Shanghai presence, and launched Synlait-branded UHT whipping cream in China. A new customer-owned brand partnership broadened our routes to market, while changes to the sales and marketing team strengthened distributor and end-user management. We will now grow volume and market share while protecting returns.

Speaker #1: A new customer owned brand partnership broadened our rules to market. While changes to the sales and marketing team strengthened distributor and end user management.

Speaker #1: We will now grow volume and market share while protecting returns. We will expand through our distributor network, build on our China launch, and use Sinlai product quality grass fed certification and New Zealand origin to stand out.

Leon Fung: We will expand through our distributor network, build on our China launch, and use Synlait product quality, Grass Fed certification, and New Zealand origin to stand out. Our consumer business delivered strong growth through Dairyworks and its portfolio of brands. More than 5,000 additional metric tons of cheese was shipped to Australia compared with FY25.

Speaker #1: Our consumer business delivered strong growth through dairy works and its portfolio of brands. More than 5,000 additional metric tons of cheese was shipped to Australia, compared with FY25.

Speaker #1: Dairy works brands delivered 11% volume growth. And 17% value growth in the latest annual total. Value added graded sliced and snacking formats generated more than 55% of dairy works growth.

Leon Fung: Dairyworks brands delivered 11% volume growth and 17% value growth in the latest annual total. Value-added, grated, sliced, and snacking formats generated more than 55% of Dairyworks growth. Innovation remained important. Dairyworks Protein, launched in June, contributed 50% of natural cheese snacking segment growth. Talbot Forest brand continued to grow strongly, and Costco sales increased 133% year on year. Our focus on Project Hedgehog is to improve plant efficiency, further growth in Australia and Southeast Asia, new product development, and supply chain optimization. Strong farmer relationships remain fundamental to Synlait's success. We have almost 200 farmer suppliers. As mentioned earlier, we are confirming the second-highest milk price in Synlait's history today, NZD 10.07 per kg of milk solid, including incentive for the 2025 to 2026 season. During FY26, we introduced a new customer-funded sustainability incentive of 2 cents per kg of milk solid.

Speaker #1: Innovation remained important. Dairy works protein launched in June contributed 50% of nature cheese snacking segment growth. Tobit Forest brand continued to grow strongly. And Costco sales increased 133% year on year.

Speaker #1: Our focus on project Hedgehog is to improve plant efficiency, further growth in Australia, and Southeast Asia, new product development, and supply chain optimization. Strong farmer relationships remain fundamental to Sinlai success.

Leon Fung: Our focus on Project Hedgehog is to improve plant efficiency, further growth in Australia and Southeast Asia, new product development, and supply chain optimization. Strong farmer relationships remain fundamental to Synlait's success. We have almost 200 farmer suppliers. As mentioned earlier, we are confirming the second-highest milk price in Synlait's history today, NZD 10.07 per kg of milk solid, including incentive for the 2025 to 2026 season. During FY26, we introduced a new customer-funded sustainability incentive of 2 cents per kg of milk solid.

Speaker #1: We have almost 200 farmers suppliers. As mentioned earlier, we are confirming the second highest milk price in Sinlai's history today. $10.07 per kg of milk solid including incentives for the 25 to 26 season.

Speaker #1: During FY26, we introduced a new customer funded sustainability incentive of $0.02 per kg of milk solid. This is focused on reducing greenhouse gas emission and expected to double in the future.

Leon Fung: This is focused on reducing greenhouse gas emission and expected to double in the future. We also delivered a new tool to provide real-time tanker arrival information, and our biodiversity program have now distributed more than 385,000 native trees across Canterbury. Our future focus is to grow customer sustainability partnership, improve the digital offer, and continue our market-leading on-farm support. We will look to the future now and explain how we will maintain the momentum we achieved in the second half. We are continuing to focus on our recovery roadmap. In operations, we have created a production plan to make the most of every drop of our farmers' milk. We will retain our focus on stability, strengthening our assets, and deepen our talent pool.

Speaker #1: We also delivered a new tool to provide real time tanker arrival information and our biodiversity program have now distributed more than 385,000 native trees across Canterbury.

Speaker #1: Our future focus is to grow customer sustainability partnership, improve the digital offer, and continue our market leading on farm support. We'll look to the future now and explain how we will maintain the momentum we achieved in the second half.

Leon Fung: We will look to the future now and explain how we will maintain the momentum we achieved in the H2. We are continuing to focus on our recovery roadmap. In operations, we have created a production plan to make the most of every drop of our farmers' milk. We will retain our focus on stability, strengthening our assets, and deepen our talent pool.

Speaker #1: We are continuing to focus on our recovery roadmap. In operations, we have created a production plan to make the most of every drop of our farmers milk.

Speaker #1: We will retain our focus on stability, strengthening our assets, and deepen our talent pool. In quality, we are recruiting the chief quality officer continuing to reduce cost of quality and progressing asset investment to maintain access to the key markets and reduce regulatory risk.

Leon Fung: In quality, we are recruiting the chief quality officer, continuing to reduce cost of quality, and progressing asset investment to maintain access to the key markets and reduce regulatory risk. For our people, we will continue leadership development, target critical capability, refresh onboarding, embed Synlait Safe mindsets, and critical control assurance. We are focused on diversifying our revenue streams while aligning the product portfolio with plant capability, milk supply, and returns. As mentioned earlier, we will also deliver the strategy to scale of our success and share with you in 2027. We remain clear about the risks ahead and have active plans in place to manage them. Operational excellence. We will keep our focus on our plans and maximize returns from our Dunsandel assets. Leadership and strategy. We have a strong executive team at Dunsandel, and we will maintain that.

Speaker #1: For our people, we will continue leadership development. Target critical capacity refresh onboarding embed Sinlai safe mindsets and critical control assurance. We are focused on diversifying our revenue streams while aligning the product portfolio with plant capability milk supply and returns.

Speaker #1: As mentioned earlier, we will also deliver the strategy to scale our success and share with you in 2027. Remain we will remain clear about the risk ahead and have active plans in place to manage them.

Leon Fung: As mentioned earlier, we will also deliver the strategy to scale of our success and share with you in 2027. We remain clear about the risks ahead and have active plans in place to manage them. Operational excellence. We will keep our focus on our plans and maximize returns from our Dunsandel assets. Leadership and strategy. We have a strong executive team at Dunsandel, and we will maintain that.

Speaker #1: Operational excellence. We will keep our focus on our plans and maximize returns from our transcendal assets. Leadership and strategy. We have a strong executive team at Dancendo.

Speaker #1: And we will maintain that. We will finalize CEO and the chief quality officer appointments and deliver a reset strategy in 2027. shift we have a new business pipeline which means we are confident of backfilling this volume.

Leon Fung: We will finalize CEO and the Chief Quality Officer appointments and deliver a reset strategy in 2027. A2 volume shift. We have a new business pipeline, which means we are confident of backfilling this volume. Contracted commitment from our new Middle East customer have the opportunity to scale up quickly. Revenue, as well as addressing our concentrated revenue stream, we are focused on protecting margins and ensuring all commercial arrangements add value for Synlait. Refinancing. We will continue working with our banking syndicate after showing them we can manage through challenging years like this one, whereas dairy support is very helpful, along with their renewal of shareholder loan, which now matures in 2028. China market registration. We have an experienced cross-functional team working to renew the approvals required to continue manufacturing infant formula for China, and we are confident of success.

Speaker #1: Contracted commitment from our new Middle East customer have the opportunity to scale up quickly. Revenue as well as addressing our concentr concentrated revenue stream we are focused on protecting margins and ensuring all commercial arrangements add value for Sinlai.

Speaker #1: Refinancing. We will continue working with our banking syndicate after showing them we can manage through challenging years like this one. Whereas dairy support is very helpful.

Leon Fung: Refinancing. We will continue working with our banking syndicate after showing them we can manage through challenging years like this one, whereas dairy support is very helpful, along with their renewal of shareholder loan, which now matures in 2028. China market registration. We have an experienced cross-functional team working to renew the approvals required to continue manufacturing infant formula for China, and we are confident of success.

Speaker #1: Along with their renewal of shareholder loan which now matures in 2028. China market registration. We have an experienced cross-functional team working to renew the approvals required to continue manufacturing infant formula for China and we are confident of success.

Speaker #1: We are also well equipped to deal with changing quality and regulatory requirements. Managing stakeholder confidence and continuing to show leadership in on farm sustainability.

Leon Fung: We are also well-equipped to deal with changing quality and regulatory requirements, managing stakeholder confidence, and continuing to show leadership in on-farm sustainability. Synlait is still in a recovery phase, and TP26 is a five-month transitional period that will be influenced by the timing of production, sales, working capital movements, and other seasonal factors. Given the short and the non-comparable nature of this transitional period, Synlait is not providing guidance for the five months ending 31 December 2026. You only have to look across Synlait's financial performance over the past 11 years to see the company was most profitable before it expanded to North Island. Profitability peaked in FY19 with a net profit after tax of just over NZD 82 million. The North Island assets created a drag on Synlait's performance, and now they are sold. The company is stronger, simpler, and well-positioned for the future.

Speaker #1: Sinlai is still in a recovery phase. And TY26 is a five months transitional period that will be influenced by the timing of production sales working capital movements and other seasonal factors.

Speaker #1: Given the short and the non comparable nature of this transitional period Sinlai is not providing guidance for the five months ending 31st of December 2026.

Leon Fung: Given the short and the non-comparable nature of this transitional period, Synlait is not providing guidance for the five months ending 31 December 2026. You only have to look across Synlait's financial performance over the past 11 years to see the company was most profitable before it expanded to North Island. Profitability peaked in FY19 with a net profit after tax of just over NZD 82 million. The North Island assets created a drag on Synlait's performance, and now they are sold.

Speaker #1: You only have to look across Sinlai's financial performance over the past 11 years to see the company was most profitable before its expanded to North Island.

Speaker #1: Profitability peaked in FY19 with a net profit after tax of just over $82 million. The North Island assets created a drag on Sinlai's performance and now they're sold.

Speaker #1: The company is stronger simpler and well positioned for the future. The graph identified a period of underperformance and the we are making sure we learn from the past.

Leon Fung: The company is stronger, simpler, and well-positioned for the future. The graph identify the period of underperformance, and we are making sure we learn from the past. Our executive has taken a holistic view and identified issues that have caused Synlait to underperform, not just in FY26, but back to FY20. An oversupply of manufacturing capacity, the impact of COVID, and a subsequent decline in China's birth rate impacted every year until FY26.

Leon Fung: The graph identify the period of underperformance, and we are making sure we learn from the past. Our executive has taken a holistic view and identified issues that have caused Synlait to underperform, not just in FY26, but back to FY20. An oversupply of manufacturing capacity, the impact of COVID, and a subsequent decline in China's birth rate impacted every year until FY26. Operational stability issue impacted performance in FY25 and FY26. We have worked to address these issues. The capacity issue is resolved following the sale of our North Island assets. Our new revenue strategy will ensure Synlait is no longer exposed to a single customer, market, or product again, which help to protect us from future shocks. As we have achieved operational stability, our goal is to return the company to its earlier successes.

Speaker #1: Our executive have taken a holistic view and identified issues that have caused Sinlai to underperform not just in FY26 but back to FY20. And our supply of manufacturing capacity the impact of COVID and the subsequent decline in China's birth rate impacted every year until FY26.

Speaker #1: Operational stability issue impacted performance in FY25 and FY26. We have worked to address these issues. The capacity issue is resolved. Following the sale of our North Island assets our new revenue strategy will ensure Sinlai is no longer exposed to a single customer market or product again.

Leon Fung: Operational stability issue impacted performance in FY25 and FY26. We have worked to address these issues. The capacity issue is resolved following the sale of our North Island assets. Our new revenue strategy will ensure Synlait is no longer exposed to a single customer, market, or product again, which help to protect us from future shocks. As we have achieved operational stability, our goal is to return the company to its earlier successes.

Speaker #1: Which help to protect us from future shocks. As we have achieved operational stability our goal is to return the company to its earlier successes.

Speaker #1: We are confident we will do that given the pipeline of customers we are working with. And the capacity and capability of Sinlai's asset and its people.

Leon Fung: We are confident we will do that given the pipeline of customers we are working with, and the capacity and capability of Synlait's asset and its people. The key message from me from today, Synlait has made meaningful progress in stabilizing and simplifying the business. Second half performance improved substantially across EBITDA and net profit after tax measures. Operational recovery has been achieved, and we are on track to deliver continuous operational excellence. The North Island sale simplified the business and strengthened our balance sheet. We have started addressing our next biggest challenge, diversifying revenue. This is an opportunity we are excited about. It will strengthen Synlait for the future. And a reminder, we will deliver full strategy to scale at our success in 2027. My final remark is to assure you all that Synlait is well-placed to progress our recovery. Thank you.

Speaker #1: The key message from me from today a Sinlai has made meaningful progress in stabilizing and simplifying the business. Second half performance improved substantially cross EBITDA and net profit after tax measures.

Speaker #1: Operational recovery has been achieved and we are on track to deliver continuous operational excellence. The North Island sale simplified the business and strengthened our balance sheet.

Leon Fung: The North Island sale simplified the business and strengthened our balance sheet. We have started addressing our next biggest challenge, diversifying revenue. This is an opportunity we are excited about. It will strengthen Synlait for the future. And a reminder, we will deliver full strategy to scale at our success in 2027. My final remark is to assure you all that Synlait is well-placed to progress our recovery. Thank you.

Speaker #1: We have started addressing our next biggest challenge diversifying revenue. This is an opportunity we are excited about. It will strengthen Sinlai for the future.

Speaker #1: And a reminder we will deliver full strategy to scale at our success in 2027. My final remark is to assure you all that Sinlai is well placed to progress our recovery.

Speaker #1: Thank you.

Speaker #2: We will now move to our question and answer session with you have joined via the webinar. Please use the raise hand icon which can be found on the bottom of your webinar application.

Operator: We will now move to our question and answer session. If you have joined via the webinar, please use the raise hand icon, which can be found on the bottom of your webinar application. When you are called on, please unmute your line and ask your question. We kindly ask that you limit yourself to one question and one follow-up. We will now pause a moment to assemble the queue. Your first question comes from Stephen Ridgewell with Craigs Investment Partners. Please unmute your audio and ask your question. Steven, your line is open. You may ask your question. Steven, we will return to you. We will move on to Nick Marr with Macquarie. Please unmute your audio and ask your question.

Speaker #2: When you are called on please unmute your line and ask your question. We kindly ask that you limit yourself to one question and one follow-up.

Speaker #2: We will now pause a moment to assemble the queue. You are first question comes from Steven Ridgewell with Craig's Investment Partners. Please unmute your audio and ask your question.

Operator: Your first question comes from Stephen Ridgewell with Craigs Investment Partners. Please unmute your audio and ask your question. Steven, your line is open. You may ask your question. Steven, we will return to you. We will move on to Nick Marr with Macquarie. Please unmute your audio and ask your question.

Speaker #2: Steven, your line is open. You may ask your question. Steven, we will return to you. We will move on to Nick Marr with Macquarie.

Speaker #2: Please unmute your audio and ask your question.

Speaker #3: Hi guys. Can you hear me?

Nick Marr: Hey, guys. Can you hear me?

Nick Mar: Hey, guys. Can you hear me?

Speaker #4: Yep.

Leon Fung: Yep.

Nick Marr: Yeah, that's good. Just in terms of the kind of outlook, I know you're not wanting to provide guidance this H1 period, but do you think that the run rate on an underlying basis achieved in the H2 is a sustainable basis for the business?

Nick Mar: Yeah, that's good. Just in terms of the kind of outlook, I know you're not wanting to provide guidance this H1 period, but do you think that the run rate on an underlying basis achieved in the H2 is a sustainable basis for the business?

Speaker #3: Yep. That's good. Just in terms of the kind of outlook and I know you're not wanting to provide guidance in this half period but do you think that the run rate on an underlying basis achieved in the second half is a sustainable basis for the business?

Speaker #4: Yes. Thank you. Thank you Mark for your question. Yes. We are confident to see we will continue the improvement in the second half. And we will continuously making effort to maintain that success and which will enable us for scale up in the near future.

Leon Fung: Yes. Thank you. Thank you, Mark, for your question. Yes, we are confident to see we will continue the improvement in the H2, and we will continuously making effort to maintain that success, which will enable us for scale up in the near future.

Speaker #3: And in terms of the slide that you put on about the sort of pre North Island earnings like are you are you saying that that kind of a earnings figure is achievable in the future with just a North Island is it set up today and sort of evolved customer and product mix?

Nick Marr: And in terms of the slide that you put on about the sort of pre-North Island earnings, are you saying that that kind of earnings figure is achievable in the future with just the North Island as it is set up today and the sort of evolved customer and product mix?

Nick Mar: And in terms of the slide that you put on about the sort of pre-North Island earnings, are you saying that that kind of earnings figure is achievable in the future with just the North Island as it is set up today and the sort of evolved customer and product mix? Or is it purely very illustrative?

Speaker #3: Or is it purely you know very illustrative?

Andy Liu: Or is it purely very illustrative?

Speaker #4: Just the the slide actually show some historical data when Sinlai was very successful before the North Island North Island asset established. But of course it's not the only reason there are other challenges alongside we summarize that the birth rate reduction declining in China also contribute on to against our initial plan.

Leon Fung: The slide actually shows some historical data when Synlait was very successful before the North Island asset established. But of course, it is not the only reason. There are other challenges alongside. We summarize that the birth rate declining in China also contribute to against our initial plan. But the key message here is that we have a very solid plan to move forward to get success again in the near future.

Speaker #4: But the the key message here is that we have a very solid plan to move forward to get success again in the near future.

Speaker #4: Yeah. If if I could just add clearly it's not indicative of a number in future. However I would just add that it was also fairly clear that Pocono was a significant drag on the business and that drag has been eliminated.

George Adams: Yeah. If I could just add, clearly it is not indicative of a number in future. However, I would just add that it was also fairly clear that Pokeno was a significant drag on the business, and that drag has been eliminated.

Speaker #2: We are circling back now to Steven Ridgewell with Craig's Investors Partners. You may unmute your audio and ask your question.

Operator: We are circling back now to Stephen Ridgewell with Craigs Investment Partners. You may unmute your audio and ask your question.

Speaker #4: Good morning. Can you hear me? We can.

Stephen Ridgewell: Good morning. Can you hear me?

Speaker #3: Yeah.

George Adams: We can, yeah.

Speaker #4: Okay. Thanks guys. Look just thanks for the update. First of all on the milk supply in a positive difficulty at the top of the call if you've already answered this let me know but can you just give us an update on Sinlai's degree of success in its effort to efforts to retain its farmer suppliers because we have various anecdotes that you know some of them are still still going to be competitive so just any any sort of more detailed updates you can provide on on that would be appreciated.

Stephen Ridgewell: Perfect. Okay, thanks, guys. Look, thanks for the update. First of all, on the milk supply, and apologies if you had difficulty at the top of the call, if you already answered this, let me know, but can you just give us an update on Synlait's degree of success in its efforts to retain its farmer suppliers? Because we have had various anecdotes that some of them are still going to competitors. So just any sort of more detailed updates you can provide on that would be appreciated. Thank you.

Speaker #4: Thank you.

Speaker #3: Yeah. Thank you Steve.

Leon Fung: Yeah, thank you, Stephen. In terms of the milk supply, we have the right amount of milk for our plant, for our factories. That is the first thing I want to highlight. I talk to our farmers, many of them, and I can see that our farm suppliers, they are very keen to see Synlait to be successful again. I really appreciate their support. I don't see there's a, in the near future, that we have challenges on the milk supply. All what we need to do is to deliver the performance to our stakeholders, to our shareholders, and to our farm suppliers, and we can continuously bring the value back to them.

Speaker #4: In term of the milk supply we have the right amount of milk for our plant for our factories. Right. This is the first thing I want to highlight.

Speaker #4: And I talked to our farmers many of them and I see I can see that our farm suppliers they are very keen to see Sinlai to be successful again.

Speaker #4: And I really appreciate their support. I don't see this in the near future that we have challenges on the milk supply. All what we need to do is to deliver the performance to our stakeholders to our shareholders and to our farm suppliers and we can continuously bring the value back to them.

Speaker #4: Okay. But but so so if we look at production volume that you just go on it was down 6%. You know should we be expecting volumes to stabilize in FY27 and FY28 or should we expect further decreases?

Stephen Ridgewell: Okay. But so if you look at production volume in the year just gone, it was down 6%. Should we be expecting volumes to stabilize in FY27 and FY28, or should we expect further decreases? I'm just trying to understand what the right level of supply is. It sounds like you might possibly are expecting some of your farmer suppliers to go to other brands, but that's part of the plan. Just help us understand. Maybe a few numbers would be helpful. Thanks.

Speaker #4: I'm just trying to understand you know what the right level of supply is. You know it sounds like you might possibly you are expecting similar some of your farmer suppliers to to go to other brands but that's part of the plan.

Speaker #4: They're just just help us understand maybe a few numbers would be helpful things.

Speaker #3: We actually have a very good start of the season.

Leon Fung: We actually have a very good start of the season. We are expecting 3% to 6% more than budget. As I highlighted earlier, we have the right amount of milk for our plant, and we just want to get the right product mix in order to get the value of the available milk.

Speaker #4: We are expecting 3 to 6% more than budget as a high highlight earlier we have the right amount of milk for our plant and we just want to get the right product mix in order to get the value of the available milk.

Speaker #4: If I could just maybe also add to that maybe Andy can give us some detail but one of the reasons we had a decline in production last year was actually not with a shortage of milk but we actually had to sell milk at peak because we were unable to process it due to the manufacturing challenges.

George Adams: If I could just maybe also add to that, maybe Andy can give us some detail, but one of the reasons we had a decline in production last year was actually not really the shortage of milk, but we actually had to sell milk at peak because we were unable to process it due to the manufacturing challenges. So there's an artificial drop in the volume, as opposed to us actually not having the milk supply.

Speaker #4: So there's a there's an artificial drop in the volume as opposed to actually not having the milk supply.

Speaker #1: Yeah. I think as George just covered what I want to say but also just a reminders that for this outlooks for the new season's volumes that we should also take into account that for the Pocono side we don't have it then that which means we definitely for the advanced nutritions we have some kind of a reductions which is we already expected early enough.

Andy Liu: Yeah, I think George just covered what I want to say, but also just remind us that, for these outlooks for the new season's volumes, we should also take into account that for the Pokeno side, we do not have it, which means we definitely for the advanced nutritions, we have some kind of reductions, which is we already expected early enough.

Speaker #4: Okay. That's helpful. And maybe just just on the same topic so you you're currently paying a premium I think 38 cents a kg of milk solids you know at some point if you're in the right supply you got the right amount of supply we one would presume that might come off a little bit or or you know you sort of comfortable with the 38 cents per kg premium do you think over time that should come down and and the reason I'm asking it is if I think of a medium term profitability track certainly obviously for that to come down a bit maybe where it was in the past would be helpful to profitability in some of your targets there.

Stephen Ridgewell: Okay, that is helpful. Maybe just on the same topic, you are currently paying a premium, I think NZD 0.38 per kg of milk solids. At some point, if you are in the right supply and got the right amount of supply, one would presume that might come off a little bit. Or are you comfortable with the NZD 0.38 per kg premium? Do you think over time that should come down? The reason I am asking it is I think from a medium-term profitability track, certainly obviously for that to come down a bit to maybe where it was in the past would be helpful to profitability and some of your targets there.

Stephen Ridgewell: The reason I am asking it is I think from a medium-term profitability track, certainly obviously for that to come down a bit to maybe where it was in the past would be helpful to profitability and some of your targets there. Any comments on that premium, how long that might stay at that kind of level or perhaps does it need to go up in the near term, or do you see it potentially coming down at some point in the future?

Speaker #4: So any comments on you know that premium how long that might stay at that kind of level or or perhaps doesn't need to go up in the near term or do you see it potentially coming down you know at some point in the future?

Stephen Ridgewell: Any comments on that premium, how long that might stay at that kind of level or perhaps does it need to go up in the near term, or do you see it potentially coming down at some point in the future?

Speaker #3: We we renew or review our milk price strategy every year like everyone does. But what I want to say that Sinlai came from very deeply on the farming background.

Leon Fung: We review our milk price strategy every year, like everyone does. What I want to say is that Synlait came from very deeply on the farming background. That is part of our DNA. We want to bring the value back to our farmers. Good examples are Lead With Pride, which is very well welcomed and supported by our farmers. That bring the value. That is part of the reason we can pay more incentives on top of the farm gate price. We also have customer-funded sustainability programs, which help as a part of our incentives, what we pay above the farm gate milk price. We will continuously doing that, and we do have global customers who are very interested working with Synlait, working with our farm suppliers on that.

Speaker #3: That is part of our DNA. So we want to bring the value back to our farmers good examples are lead with pride which it's very well welcomed and supported by our farmers.

Speaker #3: So that bring the value that is part of the reason we can pay more incentives on top of the farm gate price. We also have customer funded sustainability programs which help is a part of our incentives what we pay above of the farm gate milk price.

Leon Fung: We also have customer-funded sustainability programs, which help as a part of our incentives, what we pay above the farm gate milk price. We will continuously doing that, and we do have global customers who are very interested working with Synlait, working with our farm suppliers on that. Yes, we will maintain or looking at more incentives to bring back more values to our farmers. But year-on-year, it will be some difference.

Speaker #3: We will continuously doing that and we do have global customers who are very interested working with Sinlai working with our farm suppliers on that.

Speaker #3: So yes we will maintain or looking at the the more incentives to bring back more values to our farmers but year on year it will be some difference.

Leon Fung: Yes, we will maintain or looking at more incentives to bring back more values to our farmers. But year-on-year, it will be some difference.

Speaker #4: Okay. So you can sort of line of questioning was on the advanced nutritionals business. So just a point of clarification on the statement you've made that you expect essentially this new Middle East customer and maybe some other customers to see you recover volumes that you're that you're going to lose from A2 milk internalizing English label this year.

Stephen Ridgewell: Okay. Second line of questioning was on the advanced nutritionals business. Just a point of clarification on the statement you have made that you expect essentially this new Middle East customer and maybe some other customers to see you recover volumes that you are going to lose from The a2 Milk Company internalizing English label this year, which you have obviously stated publicly. Just wanted to clarify, when you say that you are going to recover the volumes, first of all, are you referring to the FY25 year where you, I think it was 40 MTs, or you are referring to FY26, which was 45 MTs? What is baseline when you make that statement?

Speaker #4: They've obviously stayed publicly. You know just wanted to clarify when you say that you're going to recover the volumes first first of all are you referring to the FY25 year where you I think it was 40 MTs where you're referring to FY26 was 45 MTs what is baseline when you make that statement and then second part of the question is you know for this new Middle East customer are you expecting the volume from that customer to be material over the next 6-12 months or is is that more of a you know is it going to ramp up sort of back in the next year some indication of time would be helpful that new customer thinking.

Stephen Ridgewell: Just wanted to clarify, when you say that you are going to recover the volumes, first of all, are you referring to the FY25 year where you, I think it was 40 MTs, or you are referring to FY26, which was 45 MTs? What is baseline when you make that statement? Then second part of the question is, for this new Middle East customer, are you expecting the volume from that customer to be material over the next sort of six to 12 months, or is it going to ramp up sort of back end of next year? Some indication of time would be helpful that your customer is thinking.

Stephen Ridgewell: Then second part of the question is, for this new Middle East customer, are you expecting the volume from that customer to be material over the next sort of six to 12 months, or is it going to ramp up sort of back end of next year? Some indication of time would be helpful that your customer is thinking.

Speaker #3: All right. Just to give you a little bit clarity the new Middle East customer we we are working with is is quite big supplier player in the market.

Leon Fung: All right. Just to give you a little bit of clarity. The new Middle East customer we are working with is quite a big supplier, player in the market. They are quite interested to work with us as a long-term partnership. The volume we are looking at is significant. That is why we say that we have the confidence to backfill the gap that The a2 Milk Company, they are moving away the English label from Dunsandel. Also, there are a list of customers we are working with, the team have been working on, and we are looking at onboard more customers to Synlait. It is not only the infant formula, but also adult nutrition as well. Synlait's strength is the nutritional product. Once we are very good at infant formula, it is easier for us to get into adult nutrition, the other nutritional products as well.

Speaker #3: They are quite interested to work with us a long term as a long term partnership. The volume we are looking at is significant and that's why we say that we have the confident to backfill the gap that A2 milk they are moving away the English label from Dancendo.

Speaker #3: So and also there are a list of customers we are working with the team have been working on and we are looking at onboarding more customers to Sinlai.

Leon Fung: Also, there are a list of customers we are working with, the team have been working on, and we are looking at onboard more customers to Synlait. It is not only the infant formula, but also adult nutrition as well. Synlait's strength is the nutritional product. Once we are very good at infant formula, it is easier for us to get into adult nutrition, the other nutritional products as well.

Speaker #3: It's not only the infant formula but also adult nutrition as well. So Sinlai's strength is the nutritional product once we are very good at infant formula it's easier for us to get into adult nutrition the other nutritional products as well.

Speaker #3: And if we look at in a positive way that that's why we say that we are excited about opportunity when A2 moved away some of this volume especially the English label products to to their Pocono factory.

Leon Fung: And if we look at in a positive way, that's why we say that we are excited about opportunity. When a2 Milk moved away some of this volume, especially the English label products to their Pokeno factory, this created opportunity for us to be diversified, rather than just exposed on one customer, one product, one market.

Speaker #3: This create opportunity for us to be diversify rather than just exposed on one customer one product one market.

Speaker #4: Sorry can I just ask again sorry the distance here is that Middle East customer sort of take the point it's it's a potentially large customer but do you have an idea or you know perhaps how we should be thinking about the ramp up?

Stephen Ridgewell: Sorry, can I just ask again? Sorry, just in terms of that Middle East customer, so take the point it is a potentially large customer, but do you have an idea perhaps with how we should be thinking about the ramp-up of those volumes when?

Speaker #4: Of of that of those volumes.

Speaker #3: Just to give you just to give you example the volume we are looking at is that representing 18% of our FY27 capacity. So that is quite significant.

Leon Fung: Just to give you example, the volume we are looking at is that representing 18% of our FY27 capacity. So that is quite significant.

Speaker #1: Yeah maybe just to add it just to add it Stephen that yeah so regarding that the ramp up we assume about three year roughly three year time we can backfill.

Andy Liu: Yeah, maybe just to add it. So regarding that, the ramp-up, we assume about roughly three year time, we can backfill.

Speaker #3: Yeah because for any nutritional customer it does take a little bit time to ramp up the volume. So normally it takes two to three years.

Leon Fung: Yeah, because for any nutritional customer, it does take a little bit of time to ramp up the volume. Normally it takes 2 to 3 years to get the peak volume we are expecting.

Speaker #3: To get the the peak volume we are expecting.

Speaker #4: Okay. No, that's great. Good news. And then just so just to be clear then it's three years call it to get to 18% of capacity.

Stephen Ridgewell: Okay, no, that's great. Good news. Then just to be clear, it's 3 years, call it, to get to 18% of capacity. That would be a rough idea in terms of the trajectory.

Speaker #4: That's that would be a rough idea. In terms of the trajectory.

Speaker #3: No what I said that in 2027 we are expecting a big volume growth already.

Leon Fung: No. What I said that in 2027, we are expecting a big volume growth already.

Speaker #4: Okay.

Speaker #1: So Stephen if I can clarify so what Leons mean is that for the next 12 months it will be 18% backfill the the loss volumes or capacity and in three years time we can fully backfilled the capacity.

Andy Liu: Steven, if I can clarify, what Leon means is that for the next 12 months, it will be 18% backfill the lost volumes or capacity, and in 3 years time, we can fully backfill the capacity or the demand.

Speaker #1: Or the demand.

Speaker #4: Okay. Got it. Thank you. And then just just last one I guess just in terms of the revised banking facility which you announced and end of July just in the near term before this new customer ramps up right and you've got you asked everyone on A2 volumes and we're you know English volumes are coming off and they're trying to label volumes are down a bit at the moment so just wanted to you know ask you know are you confident that you the company will remain compliant with its banking covenants you know over the next call at 12-18 months and particularly you've got a three monthly EBITDA test that looks at so you know are you comfortable given that the near term impact on production for demand from A2 that you can still be compliant with those covenants or you likely need waivers in the near term?

Stephen Ridgewell: Okay, got it. Thank you. Just last one, I guess just in terms of the revised banking facility which you announced in end of July. Just in the near term before this new customer ramps up, and you have obviously you are still very reliant on a2 Milk volumes. English volumes are coming off and near China label volumes are down a bit at the moment. Just wanted to ask, are you confident that the company will remain compliant with its banking covenants over the next call it 12 to 18 months, and particularly you have a three monthly EBITDA test that looks to it. So, are you comfortable given that the near-term impact on fluctuations of demand from a2 Milk that you can still be compliant with covenants, or you likely need waivers in the near term?

Stephen Ridgewell: Just wanted to ask, are you confident that the company will remain compliant with its banking covenants over the next call it 12 to 18 months, and particularly you have a three monthly EBITDA test that looks to it. So, are you comfortable given that the near-term impact on fluctuations of demand from a2 Milk that you can still be compliant with covenants, or you likely need waivers in the near term?

Speaker #3: Yeah so regarding the ramp up together with this A2 English label actually it's already we already knew that early enough. So all of this is we're already taking into account in our forecast and very openly shared with the banks.

Andy Liu: Yeah. Regarding the ramp-up together with this a2 Milk English label, actually, we already knew that early enough. All of this is we already take into account in our forecast and very openly share with the banks. That is why that we said for Synlait business, the H2 is really good to see the improvement of the operation stabilities and the improvement, which really makes the financial numbers can be more reliable. Now that we have also a very close follow-up for all the bank covenants, and as of today that, yeah, we feel comfortable or confident we meet the compliant.

Speaker #3: So that's why that we said for Sinlai's business the second half is really good to show see the the improvement of the operations liabilities and the improvement which really makes the financial numbers can be more reliables.

Speaker #3: And now that we have also a very close follow up for all the bank covenants and as of today that yeah we feel comfortable or confident we meet the compliant.

Speaker #4: Nice. Just last one last one. Given you've obviously got those detailed plans with the banks and you've shared it with them and they're comfortable and you're comfortable you know did you give them more consideration to providing guidance to the equity market because I guess if I if I sit back and look at your five month for you know period that you're about to go into now you've had two months of actuals roughly and you've only got a three month period to forecast.

Stephen Ridgewell: Can I ask just one last one? Given you have obviously got those detailed plans with the banks, and you have shared it with them and they are comfortable and you are comfortable. Did you give more consideration to providing guidance to the equity market? Because I guess if I sit back and look at your five-month period that you are about to go into now, you have had two months of actuals, roughly, and you have only got a three-month period to forecast. I mean, is it just this period you will not be giving guidance, or is it generally the products that you will not give guidance to the equity market for reporting periods going forward?

Stephen Ridgewell: Because I guess if I sit back and look at your five-month period that you are about to go into now, you have had two months of actuals, roughly, and you have only got a three-month period to forecast. I mean, is it just this period you will not be giving guidance, or is it generally the products that you will not give guidance to the equity market for reporting periods going forward?

Speaker #4: I mean did you did you are you going to is it just this period you won't be giving guidance or is it generally an approach that you won't give guidance to market or particularly market for you know reporting periods going forward?

Speaker #3: We actually haven't given guidance for some time and I think that was on the basis of us genuinely struggling to get our hands around operations I think we stopped giving guidance already 10 months ago so what we'd like to do is to review our position on guidance at the end of this year and we'll we'll get back to the markets and and obviously yourselves probably early February with our view on that.

Leon Fung: We actually have not given guidance for some time, and I think that was on the basis of us genuinely struggling to get our hands around operations. I think we stopped giving guidance about 18 months ago. What we would like to do is to review our position on guidance at the end of this year. We will get back to the markets and obviously, yourselves, probably early February, with our view on that. But at this stage, that remains our position. Yeah.

George Adams: We actually have not given guidance for some time, and I think that was on the basis of us genuinely struggling to get our hands around operations. I think we stopped giving guidance about 18 months ago. What we would like to do is to review our position on guidance at the end of this year. We will get back to the markets and obviously, yourselves, probably early February, with our view on that. But at this stage, that remains our position. Yeah.

Speaker #3: But at this stage that remains our position.

Speaker #4: Yeah. Thank you very much for your answers.

Stephen Ridgewell: Cool. Thank you very much for your answers.

Speaker #2: Thank you. Your next question will come from Marcus Curley with UBS. Please unmute your audio and ask your question.

Operator: Thank you. Your next question will come from Marcus Curley with UBS. Please unmute your audio and ask your question.

Speaker #5: Good morning. Can you hear me?

Marcus Curley: Good morning. Can you hear me?

Speaker #3: Yeah.

Leon Fung: Yeah.

Speaker #5: Great. Just one point of clarification. Andy you mentioned you know 18% of the capacity being filled with the new customer. Can you give us know what is the reduction in volumes you know from the A2 internalization for this year?

Marcus Curley: Great. Just one point of clarification. Andy, you mentioned 18% of the capacity being filled with the new customer. Can you give us some perspective on what is the reduction in volumes from The a2 Milk Company internalization for this year? What is the level of capacity you are looking to replace?

Speaker #5: Yeah what is the level of capacity you're looking to replace?

Speaker #3: Yeah I think from the A2's volume it's more commercial sensitive. So I don't think I can answer that. But maybe proposal you can find some other kind of export numbers that to find it.

Andy Liu: Yeah, I think from the A2 volume, it is more commercial sensitive, so I do not think I can answer that. Maybe proposal, you can find some other kind of export numbers to find it. What I can say is that regarding that volume, yes, that we try to backfill the 18%. Sorry, I cannot answer that.

Speaker #3: So what I can say that regarding that volumes yes that we try to fill backfilled the 18%. Yeah sorry I can't answer that.

Speaker #5: But maybe a different style of question on it then. Are you expecting to do any material English label volumes for A2 in the next 12 months?

Marcus Curley: Then maybe a different style of question on it then. Are you expecting to do any material English label volumes for A2 in the next 12 months?

Speaker #3: This is the question to ask A2 actually because they want to prioritize their procurement factory. For English label we are planned we are you know have the plan to not have their English label production in Downsendo.

Leon Fung: This is the question to ask A2, actually, because they want to prioritize their Pokeno factory. For English label, we have the plan to not have their English label production in Dunsandel. From time to time, they may still need our help. In fact, we are still doing some English label for them.

Speaker #3: But from time to time they may still need our help and in fact we are still doing some English label for them.

Speaker #5: Okay. Good to know. In in the underlying result as as you highlighted you know the advanced nutrition EBITDA was low and particularly low on a per ton basis.

Marcus Curley: Okay, good to know. In the underlying result, as you highlighted, the advanced nutrition EBITDA was low, and particularly low on a per ton basis. You called out efficiencies, and you called out costs. How much of it is structural? How much additional cost are you needing to carry now, particularly around testing and quality, that will mean that the gross profit per ton is lower than what we have seen in the past?

Speaker #5: How much of that is and and you called out efficiencies and you called out costs how much of it is structural yeah how much additional cost are you needing to carry now particularly around testing and quality you know that will mean that you know the the gross profit per ton is lower than what we've seen in the past?

Speaker #3: Let me answer this question at a high level first and then get Andy to show tell you a little bit more details. The high cost or lower margin and last financial year is not representative.

Leon Fung: Let me answer this question at a high level first, then I get Andy to tell you a little bit more details. The high cost or lower margin in the last financial year is not representative. Advanced Nutrition is a profitable business. Just that when we have the instability of the operation and some challenges, the cost is going up very quickly. That also came to our food safety, product quality mindset. When we see some challenges, when we see the potential risks, we take a cautious approach. That cost us a lot, but I want to say that what you see now in the last financial year is not representative of its real picture should be. We are confident after resetting the old fundamentals, we will be back to profitable business on the nutritional business. Yeah, Andy.

Speaker #3: Okay. Advanced nutrition is a profitable business. Just that when we have the instability of the operation and some challenges the cost is going up very quickly.

Speaker #3: And that also came to our food safety product quality mindset. When we see some challenges when we see the potential risks we take cautious approach.

Leon Fung: That also came to our food safety, product quality mindset. When we see some challenges, when we see the potential risks, we take a cautious approach. That cost us a lot, but I want to say that what you see now in the last financial year is not representative of its real picture should be. We are confident after resetting the old fundamentals, we will be back to profitable business on the nutritional business. Yeah, Andy.

Speaker #3: That cost us a lot. But I want to say that what you what you see now in in the financial last financial year is not representative of its real picture should be.

Speaker #3: And we are confident we are after resetting the all the fundamentals we'll be back to profitable business on the nutritional business.

Speaker #4: Yeah. Andy.

Speaker #3: Yeah. So to build on that what Leon just mentioned once that we have this operational stabilities and also let's say that we have the better controlled for the quality everythings definitely that we expected the margin will back to the more normal levels which means previous the more standard years.

Andy Liu: Yeah. To build on that, what Leon just mentioned, once that we have these operational stabilities and also let us say that we have the better control for the quality, everything, definitely that we expected the margin will back to the more normal levels, which means the previous, the more standard years. Yeah, normal years.

Speaker #3: Yeah normal years.

Speaker #5: Okay. And so you with additional costs like you know the incremental testing that you have to do to meet the Chinese regulations that's going to be passed on to customers?

Marcus Curley: Okay. With additional costs like the incremental testing that you have to do to meet the Chinese regulations, that is going to be passed on to customers?

Speaker #3: Any extra cost will be discussed with our customer. Because as you realize that there's a regulatory change and quality standard change especially for the China market.

Leon Fung: Any extra cost will be discussed with our customer because as you realize that there is a regulatory change and quality standard change, especially for the China market. In the last few years, the testing cost, as example, does increase.

Speaker #3: So in the last a few years so the the testing cost as example does increase.

Speaker #5: Okay. And then just finally on on getting working capital you obviously a bigger crease in working capital are you expecting any reduction or or any of the issues that lifted the working capital be temporary?

Marcus Curley: Okay. Then just finally, on debt and working capital, obviously a big increase in working capital. Are you expecting any reduction or any of the issues that lifted the working capital to be temporary? I am talking about large magnitudes here.

Speaker #5: I'm talking about large magnitudes here.

Speaker #3: Yeah that Marcus is a very good questions. Actually that you know for me and my teams for the now from now on the focusing the biggest one is cash generation.

Leon Fung: Yes, Marcus, it is a very good question. Actually, for me and my teams, from now on, the focus in the biggest one is cash generation. So definitely that we expected the working capital should be improved from both inventory management and also receivable side. Yes.

Andy Liu: Yes, Marcus, it is a very good question. Actually, for me and my teams, from now on, the focus in the biggest one is cash generation. So definitely that we expected the working capital should be improved from both inventory management and also receivable side. Yes.

Speaker #3: So definitely that we expected the working capital should be improved from the both inventory management and also receivable side. Yes.

Speaker #5: Okay. Any any magnitudes Andy? You know so like you know can you give us any any targets in terms of you know you know reductions in working capital you know over the course of the next 12 or 24 months?

Marcus Curley: Okay. Any magnitudes, Andy? Can you give us any targets in terms of reductions in working capital over the course of the next 12 or 24 months?

Speaker #3: Not for the moment. I can just to check it and to see what else what I can provide you maybe afterwards.

Andy Liu: Not for the moment. I can just to check it and to see what I can provide you, maybe afterwards.

Speaker #5: Okay. And and in the accounts just following on from that in the accounts there is noted some EBITDA minimum milestones that need to be met you know for the bank facilities.

Marcus Curley: Okay. In the accounts, just following on from that, in the accounts, there is noted some EBITDA minimum milestones that need to be met for the bank facilities. Are you able to give us any perspective on what they are?

Speaker #5: Are you able to give us any perspective on what they are?

Speaker #3: No. Sorry I can't.

Andy Liu: No, sorry, I cannot.

Speaker #5: Okay. Thank you very much.

Marcus Curley: Okay, thank you very much.

Speaker #3: Thank you.

Leon Fung: Thank you.

Speaker #1: We will return now to Mick Mick Marr with Macquarie for your final questions. You may unmute your audio and ask your question.

Operator: We will return now to Nick Marr with Macquarie for your final questions. You may unmute your audio and ask your question.

Speaker #4: Hi. Thanks. Sorry it seemed to cut off confirm whether that sort of bulk or base product versus tin product and how we should think about the margin profile I guess initially and is it ramps up versus what volumes you're giving away?

Nick Marr: Hi. Thanks. Sorry, seemed to got cut off before. Just in terms of the Middle Eastern customer, can you confirm whether that is a sort of bulk or base product versus a tin product, and how we should think about the margin profile, I guess, initially and as it ramps up versus what volumes you are giving away or losing K2?

Nick Mar: Hi. Thanks. Sorry, seemed to got cut off before. Just in terms of the Middle Eastern customer, can you confirm whether that is a sort of bulk or base product versus a tin product, and how we should think about the margin profile, I guess, initially and as it ramps up versus what volumes you are giving away or losing K2?

Speaker #4: Or losing tattoo?

Speaker #3: Yeah I can give you a high level picture of that. It is in the in the bulk and the base powder. All right. So this customer has their own brand.

Leon Fung: Yeah, I can give you a high-level picture of that. It is in the bulk, in the base powder. This customer has their own brand. They want to use New Zealand high-quality product, Grass Fed product for their brands. Yes, this is a very promising business for us for the near future.

Speaker #3: They want to use New Zealand high quality product grass feed product for their brands. So yes this is a very promising business for us for the near future.

Speaker #4: And any sort of indication of relative margins of the sort of bulk product like that versus the tin product you're doing try to?

Nick Marr: Any sort of indication of relative margins of a sort of bulk product like that versus the tin product you are doing for A2?

Nick Mar: Any sort of indication of relative margins of a sort of bulk product like that versus the tin product you are doing for A2?

Speaker #3: We do have a good margin on that because there's nutritional product even though it's packed into 25 kg bags. But the details I cannot share because commercially sensitive.

Leon Fung: We do have a good margin on that because it is a nutritional product, even though it is packed into 25 kg bags. The details I cannot share because commercially sensitive.

Speaker #4: Okay. That's all. Thanks. We'll check later on.

Nick Marr: Okay. No, that is all. Thanks. We will chat later on.

Nick Mar: Okay. No, that is all. Thanks. We will chat later on.

Speaker #3: Thank you.

Leon Fung: Thank you.

Speaker #1: There are no more questions at this time. I'd now like to turn the call over to Leon Fung acting CEO.

Operator: There are no more questions at this time. I would now like to turn the call over to Leon Fung, acting CEO.

Speaker #3: Thank you. Thank you everyone. This concludes today's call and I really appreciate your time and questions. If you have any further questions please contact Joe Scott who is the head of corporate affairs and engagement.

Leon Fung: Thank you. Thank you, everyone. This concludes today's call. I really appreciate your time and questions. If you have any further questions, please contact Jo Scott, who is the Head of Corporate Affairs and Engagement. Thank you very much.

George Adams: Thank you all.

Nick Marr: Thank you.

Nick Mar: Thank you.

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Full Year 2026 Synlait Milk Ltd Earnings Call

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