Latest / The SME Stream / 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 · The SME Stream

• 0:00
  Speaker 1: And Cindley's putting on a brave face despite reporting a
• 0:03
  Speaker 1: big loss for the year to July.
• 0:05
  Speaker 2: So.
• 0:05
  Speaker 1: The company's full year results show a one hundred and
• 0:07
  Speaker 1: eighty one point one hundred and eighty two point one
• 0:10
  Speaker 1: million dollar loss and debt up thirty three percent to
• 0:14
  Speaker 1: just over five hundred and fifty million dollars, but Sinley
• 0:17
  Speaker 1: says it is optimistic, especially after shareholders approved a more
• 0:21
  Speaker 1: than two hundred million dollar capital raise to restore its
• 0:24
  Speaker 1: balance sheet. CEO Grant Watson is with us this evening.
• 0:27
  Speaker 1: Hi Grant Cure to Jack good Edmon, why has it
• 0:30
  Speaker 1: been such a tough time?
• 0:32
  Speaker 2: Oh? Look, a combination of factor is. The first is
• 0:36
  Speaker 2: an impairment of one hundred and fifteen million dollars and
• 0:39
  Speaker 2: that speaks to our very underutilized assets in the North Island. Secondly,
• 0:44
  Speaker 2: trading has been very, very challenging on a number of fronts.
• 0:47
  Speaker 2: And thirdly we've been sitting on too much debt and
• 0:50
  Speaker 2: then off the back of that, the financing costs have
• 0:52
  Speaker 2: been very, very high.
• 0:54
  Speaker 1: What are those trading challenges?
• 0:56
  Speaker 2: Trading challenges for us range from lower demand, lower pricing,
• 1:03
  Speaker 2: the way that we operate our ingredients contracts, there's a
• 1:05
  Speaker 2: lag and in the back end of Y twenty four
• 1:11
  Speaker 2: that generated some quite negative profitability for US foreign exchange
• 1:16
  Speaker 2: and less favorable product mix.
• 1:18
  Speaker 1: Are those conditions turning around it all? Do you have
• 1:21
  Speaker 1: reason for optimism on the training front?
• 1:23
  Speaker 2: Yeah, we certainly do. We've started twenty five off on
• 1:27
  Speaker 2: a really good footing and if we look at each
• 1:29
  Speaker 2: of those areas, all of them are moving far more
• 1:33
  Speaker 2: in favor for us. And Y twenty five. Y twenty
• 1:36
  Speaker 2: four was a year of headwinds. Are twenty five heading
• 1:40
  Speaker 2: into that it's looking more like tailwinds on balance?
• 1:43
  Speaker 1: No, that's good to hear. So talk us through the
• 1:45
  Speaker 1: one off payments to South Island farmers. What is the
• 1:48
  Speaker 1: purpose of that.
• 1:50
  Speaker 2: So effectively our farmers have said to us, we want
• 1:54
  Speaker 2: to stay with sin Lay. Give us a reason to stay.
• 1:57
  Speaker 2: Sort out your balance sheet, we've done that. Sort out
• 1:59
  Speaker 2: your advance rates, we've done that. The twenty cent incentive
• 2:04
  Speaker 2: is to effectively sure up their supply. A number of
• 2:07
  Speaker 2: our farmers have cease noticism which have a two year period,
• 2:13
  Speaker 2: and we've effectively got those two years to convince them
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  Speaker 2: to stay. So rather than wait for two years, it's
• 2:19
  Speaker 2: offering that twenty cents up bringing it forward and knowing
• 2:23
  Speaker 2: that we've got a certainty around milk supply moving forward.
• 2:26
  Speaker 1: So sorry, just just explain that to me. So the
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  Speaker 1: cease note is basically that you have locked in for
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  Speaker 1: two years, and if they want to leave sin lay,
• 2:34
  Speaker 1: they've got to give you two years notice, and you
• 2:36
  Speaker 1: can use that two years to try and convince them
• 2:38
  Speaker 1: to stay. As how it works.
• 2:39
  Speaker 2: Yeah, that's exactly right, that's exactly right. So we've got
• 2:42
  Speaker 2: some with only a year to run, some with two
• 2:45
  Speaker 2: years to run. We want to reverse those cease notices.
• 2:48
  Speaker 2: Know that we've got that milk supply locked in, and
• 2:51
  Speaker 2: the feedback we've had from our farmers is a twenty
• 2:53
  Speaker 2: cent per kilogram of milk solids is a really good
• 2:56
  Speaker 2: incentive and the feedback we've had today has been very
• 2:59
  Speaker 2: very positive in that regard.
• 3:00
  Speaker 1: Yeah, talk to us about the feedback today.
• 3:03
  Speaker 2: Oh look, look, I mean we've just paid out seven
• 3:06
  Speaker 2: eighty three as a market farmgate milk price. We're paying
• 3:10
  Speaker 2: on average and extra twenty eight cents per kilogram. This
• 3:14
  Speaker 2: is the icing on the top. This is enough of
• 3:17
  Speaker 2: an incentive for them to draw that notice and so
• 3:21
  Speaker 2: off the back of that it's been very very positive
• 3:23
  Speaker 2: feedback from our farmer.
• 3:24
  Speaker 1: And so I appreciate its early days. You've only had
• 3:27
  Speaker 1: a few hours to digest this, but what percentage of
• 3:30
  Speaker 1: farmers that have ceased notices in place have already said
• 3:33
  Speaker 1: that they will remove those ceased notices?
• 3:36
  Speaker 2: Oh? Look, it's very early days. We've got our field
• 3:39
  Speaker 2: teams out working with farmers at the moment, getting a
• 3:43
  Speaker 2: sense of their plans, getting those commitments locked in. So literally,
• 3:48
  Speaker 2: it was released this morning. They've got them till the
• 3:51
  Speaker 2: end of May twenty twenty five. But the feedback, the
• 3:53
  Speaker 2: sentiment coming back is extremely favorable.
• 3:55
  Speaker 1: So what do you think again, I know it's early days,
• 3:58
  Speaker 1: but what would extremely favorable mean that eighty percent of
• 4:01
  Speaker 1: those who've got these notices at the moment would withdraw
• 4:04
  Speaker 1: them or is there another figure you've kind of got
• 4:06
  Speaker 1: in your mind.
• 4:07
  Speaker 2: Yeah, we're targeting one hundred. Clearly, if we land at
• 4:11
  Speaker 2: something close to ninety percent, that would work very very
• 4:14
  Speaker 2: well for our business model.
• 4:15
  Speaker 1: How many farmers had the sea's notices in place?
• 4:19
  Speaker 2: We haven't disclosed the exact amount, but it's comfortably north
• 4:22
  Speaker 2: of fifty.
• 4:23
  Speaker 1: Percent, right, that's a that's a big number.
• 4:25
  Speaker 2: Am, it's a big chunk, it's a big check.
• 4:28
  Speaker 1: Oh yeah, And so what do you put that down to?
• 4:30
  Speaker 1: What do you put the dissatisfaction down to?
• 4:33
  Speaker 2: Up to this point, Oh, I've known that we've been
• 4:37
  Speaker 2: very leveraged in terms of our balance sheet. For the
• 4:40
  Speaker 2: season twenty three twenty four, we didn't keep up with
• 4:44
  Speaker 2: the market advance right. So when I say advance right,
• 4:47
  Speaker 2: that's effectively the cash flow profile during the season. To
• 4:50
  Speaker 2: our farmers. We were behind the eight ball there. Both
• 4:54
  Speaker 2: of those things are unacceptable to our farmers. We accept that,
• 4:58
  Speaker 2: and that's exactly why we've we've addressed that, We've listened
• 5:03
  Speaker 2: to them, and we've added this additional twenty cents into
• 5:05
  Speaker 2: the mix.
• 5:06
  Speaker 1: So acknowledging that you've had really good feedback that farmers
• 5:10
  Speaker 1: say that, yeah, we had to ceased notice in place,
• 5:12
  Speaker 1: but we're we're going to be ending that, and that
• 5:13
  Speaker 1: you think that ninety percent of farmers who have those
• 5:16
  Speaker 1: notices in place are likely to stick with some Well,
• 5:19
  Speaker 1: what would have been the impact if they hadn't, Just
• 5:23
  Speaker 1: on the impact on the business, do.
• 5:24
  Speaker 2: You think, Oh, look, it would be quite devastating to
• 5:27
  Speaker 2: the business. We were a dairy company with our good
• 5:31
  Speaker 2: supply coming off the farms and onto our process and facilities.
• 5:37
  Speaker 2: We're very limited as to the business we can operate,
• 5:40
  Speaker 2: so it would have been devastating.
• 5:41
  Speaker 1: Yeah, okay, So give us a bit of a picture
• 5:44
  Speaker 1: for the next twelve months or so. If we're having
• 5:46
  Speaker 1: this conversation twelve months from now, what do you think
• 5:48
  Speaker 1: you'd be saying.
• 5:50
  Speaker 2: Yeah, there's three curios for us in the next twelve months.
• 5:53
  Speaker 2: We've deleveraged the balance sheet and we need to continue
• 5:56
  Speaker 2: to deliverage the balance sheet. We need to address profitability
• 6:00
  Speaker 2: and it's primarily a function of lifting up our trading
• 6:04
  Speaker 2: volumes and reducing expenses, and we've got a very very
• 6:08
  Speaker 2: clear plan in place that we've started the year well.
• 6:11
  Speaker 2: And thirdly, just making sure that we retain that milk
• 6:13
  Speaker 2: supply with our farmers.
• 6:14
  Speaker 1: Yeah, fantastic. Hey, thanks so much for your time. Really
• 6:16
  Speaker 1: appreciate it. Grant that is Grant Watton, who is the
• 6:19
  Speaker 1: CEO of Sinlay