Latest / Best of Business / Grant Watson: Synlait CEO on the company's multi-million dollar net loss

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Grant Watson: Synlait CEO on the company's multi-million dollar net loss · Best of Business

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  Speaker 1: You're listening to a podcast from News Talks. There'd be
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  Speaker 1: follow this and our wide range of podcasts now on iHeartRadio.
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  Speaker 2: And Sinley's putting on a brave face despite reporting a
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  Speaker 2: big loss for the year to July. So the company's
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  Speaker 2: full year results show a one hundred and eighty one
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  Speaker 2: point one hundred and eighty two point one million dollar
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  Speaker 2: loss and debt up thirty three percent to just over
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  Speaker 2: five hundred and fifty million dollars, but Sinley says it
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  Speaker 2: is optimistic, especially after shaerholders approved a more than two
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  Speaker 2: hundred million dollar capital raise to restore its balance sheet.
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  Speaker 2: CEO Grant Watson is with us this evening.
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  Speaker 3: Hi, Grant Cure to Jack, good evening.
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  Speaker 2: Why has it been such a tough time?
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  Speaker 3: Oh? Look, a combination of factors. The first is an
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  Speaker 3: impairment of one hundred and fifteen million dollars and that
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  Speaker 3: speaks to our very underutilized assets in the North Island. Secondly,
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  Speaker 3: trading has been very, very challenging on a number of fronts.
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  Speaker 3: And thirdly we've been sitting on too much debt and
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  Speaker 3: then off the back of that, the final and costs
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  Speaker 3: have been very very high.
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  Speaker 2: What are those trading challenges.
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  Speaker 3: Trading challenges for US range from lower demand, lower pricing,
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  Speaker 3: the way that we operate our ingredients contracts. There's a
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  Speaker 3: lag and in the back end of Y twenty four
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  Speaker 3: that generated some quite negative profitability for US foreign exchange
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  Speaker 3: and less favorable product mix.
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  Speaker 2: Are those conditions turning around it all? Do you have
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  Speaker 2: reason for optimism on the trading front?
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  Speaker 3: Yeah, we certainly do. We've started twenty five off on
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  Speaker 3: a really good footing and if we look at each
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  Speaker 3: of those areas, all of them are moving far more
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  Speaker 3: in favor for US. And Y twenty five. Y twenty
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  Speaker 3: four was a year of headwinds. Are twenty five heading
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  Speaker 3: into that it's looking more like tailwinds on balance?
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  Speaker 2: Oh that's good to hear. So talk us through the
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  Speaker 2: one off payments to South Island farmers. What is the
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  Speaker 2: purpose of that.
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  Speaker 3: So effectively our have said to us, we want to
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  Speaker 3: stay with sinlay. Give us a reason to stay. Sort
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  Speaker 3: out your balance sheet, we've done that. Sort out your
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  Speaker 3: advance rates, we've done that. The twenty cent incentive is
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  Speaker 3: to effectively sure up their supply. A number of our
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  Speaker 3: farmers have cease noticism, which have a two year period
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  Speaker 3: and we've effectively got those two years to convince them
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  Speaker 3: to stay. So rather than wait for two years, it's
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  Speaker 3: offering offering that twenty cents up, bringing it forward and
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  Speaker 3: knowing that we've got a certainty around milk supply moving forward.
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  Speaker 2: So sorry, just just explain that to me. So the
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  Speaker 2: cease note is basically that you have locked in for
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  Speaker 2: two years and if they want to leave Sinlay, they've
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  Speaker 2: got to give you two years notice, and you can
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  Speaker 2: use that two years to try and convince them to
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  Speaker 2: stay as how it works.
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  Speaker 3: Yeah, that's exactly right, that's exactly right. So we've got
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  Speaker 3: some with only a year to run, some with two
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  Speaker 3: years to run. We want to reverse those cease notices.
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  Speaker 3: Know that we've got that milk supply locked in and
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  Speaker 3: the feedback we're we've had from our farmers is a
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  Speaker 3: twenty cent per kilogram of milk solids is a really
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  Speaker 3: good incentive and the feedback we've had today has been very,
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  Speaker 3: very positive in that regard.
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  Speaker 2: Yeah, talk to us about the feedback today.
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  Speaker 3: Oh look, look, I mean we've just paid out seven
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  Speaker 3: eighty three as a market farmgate milk price. We're paying
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  Speaker 3: on average and extra twenty eight cents per kilogram. This
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  Speaker 3: is the icing on the top. This is enough of
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  Speaker 3: an incentive for them to draw that notice. And so
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  Speaker 3: off the back of that, it's been very very positive
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  Speaker 3: feedback from our.
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  Speaker 2: Farmer and so I appreciate its early days. You've only
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  Speaker 2: had a few hours to digest this, but what percentage
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  Speaker 2: of farmers that have ceased notices in place have already
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  Speaker 2: said that they will remove those ceased notices?
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  Speaker 3: Oh, look, it's very early days. We've got our field
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  Speaker 3: teams out working with farmers at the moment, getting a
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  Speaker 3: sense of their plans, getting those commitments locked in. So literally,
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  Speaker 3: it was released this morning. They've got them till the
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  Speaker 3: end of May twenty twenty five. But the feedback, the
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  Speaker 3: sentiment coming back is extremely favorable.
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  Speaker 2: So what do you think again, I know it's early days,
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  Speaker 2: but like, what would extremely favorable mean that eighty percent
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  Speaker 2: of those who've got these notices at the moment would
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  Speaker 2: withdraw them or is there another figure you've kind of
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  Speaker 2: got in your mind.
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  Speaker 3: Yeah, we're targeting one hundred. Clearly, if we land it's
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  Speaker 3: something close to ninety percent, that would work very very
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  Speaker 3: well for our business model.
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  Speaker 2: How many farmers had the seas notices in place.
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  Speaker 3: We haven't disclosed the exact amount, but it's comfortably north
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  Speaker 3: of fifty percent.
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  Speaker 2: Right, that's a big number.
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  Speaker 3: Aim, it's a big chuck, it's a big check.
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  Speaker 2: Oh yeah, And so what do you put that down to?
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  Speaker 2: What do you put the dissatisfaction down to?
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  Speaker 3: Up to this point, Oh, I've known that we've been
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  Speaker 3: very leveraged in terms of our balance sheet for the
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  Speaker 3: season twenty three twenty four, we didn't keep up with
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  Speaker 3: the market advance right. So when I say advance right,
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  Speaker 3: that's effectively the cash flow profile during the season to
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  Speaker 3: our farmers. We were behind the eight ball there. Both
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  Speaker 3: of those things are unacceptable to our farmers. We accept that,
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  Speaker 3: and that's exactly why we've addressed that. We've listened to them,
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  Speaker 3: and we've added this additional twenty cents into the mix.
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  Speaker 2: So acknowledging that you've had really good feedback that farmers
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  Speaker 2: say that, yeah, we had to ceased notice in place,
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  Speaker 2: but we're we're going to be ending that, and that
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  Speaker 2: you think that ninety percent of farmers who have those
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  Speaker 2: notices in place are likely to stick with some Well,
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  Speaker 2: what would have been the impact if they hadn't just
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  Speaker 2: on the impact on the business.
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  Speaker 3: Do you think, Look, it would be quite devastating to
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  Speaker 3: the business. We were a dairy company with our good
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  Speaker 3: supply coming off the farms and onto our process and facilities.
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  Speaker 3: We're very limited as to the business we can operate,
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  Speaker 3: so it would have been devastating.
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  Speaker 2: Yeah, okay, So give us a bit of a picture
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  Speaker 2: for the next twelve months or so. If we're having
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  Speaker 2: this conversation twelve months from now, what do you think
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  Speaker 2: you'd be saying.
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  Speaker 3: Yeah, there's three curious for us in the next twelve months.
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  Speaker 3: We've deleveraged the balance sheet and we need to continue
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  Speaker 3: to deliverage the balance sheet. We need to address profitability
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  Speaker 3: and it's primarily a function of lifting up our trading
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  Speaker 3: volumes and reducing expenses, and we've got a very very
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  Speaker 3: clear plan in place that we've started the year well.
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  Speaker 3: And thirdly, just making sure that we retain that milk
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  Speaker 3: supply with our farmers.
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  Speaker 2: Yeah, fantastic. Hey, thanks so much for your time, Really
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  Speaker 2: appreciate it. Gran that is Grant Watton, who is the
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  Speaker 2: CEO of Sinlay.
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