Kilden and welcome to shared lunch. Well, milk is on the menu today. Cinlay is not a name that you will see on supermarket shelves, but it is playing a part in our big dairy exports story. I'm Garth Bray and I'm joined by Sinlay's chair George Adams to talk about a big vote that could shape the future of the company. But first here's some important information.

Kilden and welcome to shared lunch. Well, milk is on the menu today. Cinlay is not a name that you will see on supermarket shelves, but it is playing a part in our big dairy exports story. I'm Garth Bray and I'm joined by Sinlay's chair George Adams to talk about a big vote that could shape the future of the company. But first here's some important information.

Investing involves the risk you might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and here is current at the time of recording.

Investing involves the risk you might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and here is current at the time of recording.

No my heart, am I welcome here at George. A lot of people won't know what Sinnay is, what it does. Can you give us a sense of where it fits into the industry?

No my heart, am I welcome here at George. A lot of people won't know what Sinnay is, what it does. Can you give us a sense of where it fits into the industry?

Absolutely? Thanks for having me. Hey, look, Sinley is part of the New Zealand dairy industry. We would be discribed was a tier two player. So you've obviously got Fonterra, who is the you know, the the largest of all the large dairy companies, and then there's a probably three or four Tier two players which sit just onto that so similar today I think would be the third largest by production volume in the in the country. So a sizeable company in an off its own rate, and I think a reasonably important player for New Zealand's export industry.

Absolutely? Thanks for having me. Hey, look, Sinley is part of the New Zealand dairy industry. We would be discribed was a tier two player. So you've obviously got Fonterra, who is the you know, the the largest of all the large dairy companies, and then there's a probably three or four Tier two players which sit just onto that so similar today I think would be the third largest by production volume in the in the country. So a sizeable company in an off its own rate, and I think a reasonably important player for New Zealand's export industry.

George Adams Sinley chere, that's got a pretty new ring to it. But you've got plenty of experience around boardroom tables and unlisted companies, a lot of it in sort of food and that kind of technology. But you also ran Coca Cola amatal here for about like a decade. What did a decade of selling fizzies teach you about how to handle the dairy industry right here and right now.

George Adams Sinley chere, that's got a pretty new ring to it. But you've got plenty of experience around boardroom tables and unlisted companies, a lot of it in sort of food and that kind of technology. But you also ran Coca Cola amatal here for about like a decade. What did a decade of selling fizzies teach you about how to handle the dairy industry right here and right now.

I have to say probably a decade of selling Coca Cola, Probably not so much, to be fair, but you certainly learn, you know a lot about the commercial side of business. Coca Cola was a fantastic thing, to be honest, and you know a lot of what people don't really know about it is it's one of the most efficient manufacturing systems anywhere in the world. It is one of the most efficient and smartest distribution systems anywhere in the world. And if you want to understand how to create you know, get a product within an arm's reach of desire of the consumer, which is part of the mantra. You know, the coke system is a great place to learn the disciplines of fast moving consumer goods.

I have to say probably a decade of selling Coca Cola, Probably not so much, to be fair, but you certainly learn, you know a lot about the commercial side of business. Coca Cola was a fantastic thing, to be honest, and you know a lot of what people don't really know about it is it's one of the most efficient manufacturing systems anywhere in the world. It is one of the most efficient and smartest distribution systems anywhere in the world. And if you want to understand how to create you know, get a product within an arm's reach of desire of the consumer, which is part of the mantra. You know, the coke system is a great place to learn the disciplines of fast moving consumer goods.

As there much of a match then for taking those skills into the boardroom and explaining how a Sinila gets its product to market, gets that milk or whatever it is that you're making with an arm's reach of desire, right Fay.

As there much of a match then for taking those skills into the boardroom and explaining how a Sinila gets its product to market, gets that milk or whatever it is that you're making with an arm's reach of desire, right Fay.

Probably not so much from the front end perspective, because certain is effectively an ingredient manufacturer, so we would sit behind the Coca Cola type business. But from a product efficiency perspective, from a distribution efficiency perspective, I mean, essentially that's what we trade on. Has been able to manufacture the same product day in, day out very efficiently because the market for pricing is largely set, so we're we're largely priced takers on tear pretty much in the and and the and the global dairy auction pretty much sets the price. So your ability to manufacture ahead of that and and and and which should be currency or product type, your ability to actually operate within the with with within a really strict kind of uh, you know, tram tracks, not disimilar to anybody in in business.

Probably not so much from the front end perspective, because certain is effectively an ingredient manufacturer, so we would sit behind the Coca Cola type business. But from a product efficiency perspective, from a distribution efficiency perspective, I mean, essentially that's what we trade on. Has been able to manufacture the same product day in, day out very efficiently because the market for pricing is largely set, so we're we're largely priced takers on tear pretty much in the and and the and the global dairy auction pretty much sets the price. So your ability to manufacture ahead of that and and and and which should be currency or product type, your ability to actually operate within the with with within a really strict kind of uh, you know, tram tracks, not disimilar to anybody in in business.

What drew you to the company, because if it's not quite exactly what you've been used to doing, what it's a it's a bit of a turnaround, really, isn't it, with a lot of interested parties having the essay what what drew you in there? Yeah?

What drew you to the company, because if it's not quite exactly what you've been used to doing, what it's a it's a bit of a turnaround, really, isn't it, with a lot of interested parties having the essay what what drew you in there? Yeah?

Probably certainly unusually and and yes, I've got ten years experience in the boardroom today, mostly private companies, family companies, a couple have kind of co founded, but also probably in the last five or six years, a number of public companies also, I genuinely guess a couple of things. One, I think Simley is important, and I'll tell you why it's important. I think it's important to the dairy industry in general. I think that it's important to our farmers, it's importantly to our staff. But it's important to have smaller companies aren't necessarily the fonterers of the world who can generally go after smaller but important opportunities, because you know, the big monopolies generally can't do that, right And that was certainly my experience of British Telecom some years ago, but also genuinely was very enthusiastic about the challenge. Right, You've got a lot of directors and boardrooms today who are actually quite a freid and quite cautious around taking on challenges like this. And I genuinely felt, having looked at it in detail, that there was a pathway through to a solution for Sidley and for our waiter, you day aspa of interested stakeholders, and I felt that it was worth taking that risk.

Probably certainly unusually and and yes, I've got ten years experience in the boardroom today, mostly private companies, family companies, a couple have kind of co founded, but also probably in the last five or six years, a number of public companies also, I genuinely guess a couple of things. One, I think Simley is important, and I'll tell you why it's important. I think it's important to the dairy industry in general. I think that it's important to our farmers, it's importantly to our staff. But it's important to have smaller companies aren't necessarily the fonterers of the world who can generally go after smaller but important opportunities, because you know, the big monopolies generally can't do that, right And that was certainly my experience of British Telecom some years ago, but also genuinely was very enthusiastic about the challenge. Right, You've got a lot of directors and boardrooms today who are actually quite a freid and quite cautious around taking on challenges like this. And I genuinely felt, having looked at it in detail, that there was a pathway through to a solution for Sidley and for our waiter, you day aspa of interested stakeholders, and I felt that it was worth taking that risk.

Let's talk a bit about the pathway then, because I mean, you've got you've had a pretty hectic five months so that she took on the chair, And I'm just going to recap some of the events to catch people up if they haven't caught it as I understand them anyway. First, you had a dispute over intellectual property rights and production agreements with a business partner A two Milk who also happens to be quite a major shareholder.

Let's talk a bit about the pathway then, because I mean, you've got you've had a pretty hectic five months so that she took on the chair, And I'm just going to recap some of the events to catch people up if they haven't caught it as I understand them anyway. First, you had a dispute over intellectual property rights and production agreements with a business partner A two Milk who also happens to be quite a major shareholder.

Awkward.

Awkward.

And then a bailout from your biggest shareholder, Bright Dairy. And now you're asking my minority Sorry, now you're asking minority hit Sorry, Now you're asking minority shareholders to effectively kind of hand control of the company to those two major shareholders. Am I going okay?

And then a bailout from your biggest shareholder, Bright Dairy. And now you're asking my minority Sorry, now you're asking minority hit Sorry, Now you're asking minority shareholders to effectively kind of hand control of the company to those two major shareholders. Am I going okay?

So far that's not bad. I probably correct you slightly in terms of handing control. I mean effectively Bright Hu Hud control since twenty ten when they were a majority shareholder, and while they dropped to thirty nine percent I think twenty thirteen is my history. They woultend a very interesting constitutional arrangement which the ends it exclained off on whereboy they could control the board. So in that sense it's kind of status.

So far that's not bad. I probably correct you slightly in terms of handing control. I mean effectively Bright Hu Hud control since twenty ten when they were a majority shareholder, and while they dropped to thirty nine percent I think twenty thirteen is my history. They woultend a very interesting constitutional arrangement which the ends it exclained off on whereboy they could control the board. So in that sense it's kind of status.

Qual So this is coming to quite a crunch though, because you're putting together a capital raise basically in a restructure of your debts and so on, and that's happening within the next week or so. On September the eighteenth, we walk people through that. So those two big shareholders, Bright Dairy and A two Milk, they're putting in close to two hundred and twenty million dollars to sort of reset the balance sheet. And that's set a time when I think Sinay's carying about five hundred and fifty million dollars worth of.

Qual So this is coming to quite a crunch though, because you're putting together a capital raise basically in a restructure of your debts and so on, and that's happening within the next week or so. On September the eighteenth, we walk people through that. So those two big shareholders, Bright Dairy and A two Milk, they're putting in close to two hundred and twenty million dollars to sort of reset the balance sheet. And that's set a time when I think Sinay's carying about five hundred and fifty million dollars worth of.

Debt all spot on.

Debt all spot on.

So for so with that reset, Bright Dairy goes to about two thirds of the shareholding of the company to keep six twenty percent, and that if you do the maths means that all of those other minority retail shareholders basically get squeezed down. They wind up with about half of what they had before, right.

So for so with that reset, Bright Dairy goes to about two thirds of the shareholding of the company to keep six twenty percent, and that if you do the maths means that all of those other minority retail shareholders basically get squeezed down. They wind up with about half of what they had before, right.

Correct, actually quite actually actually actually less.

Correct, actually quite actually actually actually less.

So what makes you confident that shareholders will accept that?

So what makes you confident that shareholders will accept that?

Yeah? Yeah, no, it's Look, honestly, you've pretty much described the conundrum that we've had and we've been working through it. And look, I'm not doing this by myself, right, I've got a you know, I'm part of a board which which sets alongside of management team and trying to work our way through this. So yeah, essentially we needed to reais at least two hundred and twenty million dollars. In reality, we are a one hundred and thirty million dollars which Break Food Group put in roughly yet weeks ago, which was by way of shareholder on but a subordinated it's that's one hundred and thirty million dollars is subordinated to the senior debt that we that we have, so it sits behind that, but it does set out of our bonds. Right So, so ultimately as three hundred and fifty million dollars to reset effectively the five hundred and fifty million dollars in debt that that that we had, and there's no doubt about it. This effectively is a is A is a bailout, right. So it's so the challenge I think for us, sitting as really three independent directors is how do you go to the market and raise three and a half times your market cap? That's the challenge, so, you know, and we looked long and hard at the you know how, we had to also have assurance that we could raise the money because our bank refinance runs out on the second of October, which is in two and a half weeks time, right, so the clock is ticking for us on all fronts, on top of having to sort out the disputes between ourselves and a two plus three is capital in a in a certain way, and we're all doing a refinance. I don't I think you might have forgotten that one. So essentially everything's moving right, So we had to be absolutely certain that we we could raise this cash. Otherwise we wouldn't get to a point where we could do the refinance deal with the banks, who are still going to need to basically have around four and fifty million dollars of flexible term debt sitting available for Sinny. So back to the challenge, which is raising three and a half times your market cap. So to put that in perspective, if I'm sitting there as a as an independent shareholder with ten thousand dollars with a stock this is at our previously undisturbed sure price as the term is, and I've got ten grand in Sinley, I would have been asked for about thirty four thousand dollars to retain my relative a percentage holding position. Now, we did take soundings, and I have to say that it's highly unlikely that we would have raised a lot of money on that front. So then you look at well do you do? And the mechanism for that, sorry is you would do generally a rights issue. So rights issues are done at the at a turp, which is a theoretical X rights price. Right, So that minus a discount normally twenty twenty five percent, Given that we're in a distressed position, it probably would have been Latin and more, which means that we would have been issuing shus at four cents. That's the theoretical X rights price less a discount, which meant we've had issue. I think I've worked at five point four billion shures, right, so quite challenging pinball numbers, pinball numbers. And the difficulty with that is then essentially, if those rights aren't taken up, someone's got to pick them up. And that would have meant bright only to picking out and I genuinely think we would have ended up probably in about the same position from a shareholding perspective. And the difficulty with actually issuing stock at a discount is that the existing minority shareholders wouldn't be sitting here looking at fourteen percent post raise. They would have been smashed. They'd have been sitting with literally a couple of percent because we'd have been issuing stock at a heavy discount. That's the best outcome, I think, which we will have gotten to, whereas issuing stock at a which we were doing to two of the shareholders, we're doing it at a premium. So coming back to your numbers, let me just probably work through this. At the thirty cents which was referred to this previously undisturbed price, and that's the price at which was the day before, effectively we made the announcement, the minority shareholders were worth twenty seven million dollars market cap post cap raise, assuming the same short price, the minority shareholders will be worth forty two million dollars. So even though you've got a smaller percentage you're shareholding, the value for shuretolding actually increases.

Yeah? Yeah, no, it's Look, honestly, you've pretty much described the conundrum that we've had and we've been working through it. And look, I'm not doing this by myself, right, I've got a you know, I'm part of a board which which sets alongside of management team and trying to work our way through this. So yeah, essentially we needed to reais at least two hundred and twenty million dollars. In reality, we are a one hundred and thirty million dollars which Break Food Group put in roughly yet weeks ago, which was by way of shareholder on but a subordinated it's that's one hundred and thirty million dollars is subordinated to the senior debt that we that we have, so it sits behind that, but it does set out of our bonds. Right So, so ultimately as three hundred and fifty million dollars to reset effectively the five hundred and fifty million dollars in debt that that that we had, and there's no doubt about it. This effectively is a is A is a bailout, right. So it's so the challenge I think for us, sitting as really three independent directors is how do you go to the market and raise three and a half times your market cap? That's the challenge, so, you know, and we looked long and hard at the you know how, we had to also have assurance that we could raise the money because our bank refinance runs out on the second of October, which is in two and a half weeks time, right, so the clock is ticking for us on all fronts, on top of having to sort out the disputes between ourselves and a two plus three is capital in a in a certain way, and we're all doing a refinance. I don't I think you might have forgotten that one. So essentially everything's moving right, So we had to be absolutely certain that we we could raise this cash. Otherwise we wouldn't get to a point where we could do the refinance deal with the banks, who are still going to need to basically have around four and fifty million dollars of flexible term debt sitting available for Sinny. So back to the challenge, which is raising three and a half times your market cap. So to put that in perspective, if I'm sitting there as a as an independent shareholder with ten thousand dollars with a stock this is at our previously undisturbed sure price as the term is, and I've got ten grand in Sinley, I would have been asked for about thirty four thousand dollars to retain my relative a percentage holding position. Now, we did take soundings, and I have to say that it's highly unlikely that we would have raised a lot of money on that front. So then you look at well do you do? And the mechanism for that, sorry is you would do generally a rights issue. So rights issues are done at the at a turp, which is a theoretical X rights price. Right, So that minus a discount normally twenty twenty five percent, Given that we're in a distressed position, it probably would have been Latin and more, which means that we would have been issuing shus at four cents. That's the theoretical X rights price less a discount, which meant we've had issue. I think I've worked at five point four billion shures, right, so quite challenging pinball numbers, pinball numbers. And the difficulty with that is then essentially, if those rights aren't taken up, someone's got to pick them up. And that would have meant bright only to picking out and I genuinely think we would have ended up probably in about the same position from a shareholding perspective. And the difficulty with actually issuing stock at a discount is that the existing minority shareholders wouldn't be sitting here looking at fourteen percent post raise. They would have been smashed. They'd have been sitting with literally a couple of percent because we'd have been issuing stock at a heavy discount. That's the best outcome, I think, which we will have gotten to, whereas issuing stock at a which we were doing to two of the shareholders, we're doing it at a premium. So coming back to your numbers, let me just probably work through this. At the thirty cents which was referred to this previously undisturbed price, and that's the price at which was the day before, effectively we made the announcement, the minority shareholders were worth twenty seven million dollars market cap post cap raise, assuming the same short price, the minority shareholders will be worth forty two million dollars. So even though you've got a smaller percentage you're shareholding, the value for shuretolding actually increases.

Something is better than one hundred percent or nothing kind of thing.

Something is better than one hundred percent or nothing kind of thing.

More or less, more or less. So certainly in this case, forty one percent of something is worth a lot less than fifteen percent of something. That so you know, we've tried to be as far as possible, but genuinely we're threatening eye of a needle in terms of assurance on the dollars that we needed to raise, plus the the the the bank, and also not making sure you don't creator the value for minorities or who actually don't want to participate.

More or less, more or less. So certainly in this case, forty one percent of something is worth a lot less than fifteen percent of something. That so you know, we've tried to be as far as possible, but genuinely we're threatening eye of a needle in terms of assurance on the dollars that we needed to raise, plus the the the the bank, and also not making sure you don't creator the value for minorities or who actually don't want to participate.

You mentioned before that sinlay is important for a lot of reasons. Surely part of it was to give retail investors and exposure to what is an industry that underpins New Zealand. Does this cut that back?

You mentioned before that sinlay is important for a lot of reasons. Surely part of it was to give retail investors and exposure to what is an industry that underpins New Zealand. Does this cut that back?

Look it certainly? From so let's go back if you talk about percentages, yes, it does. You'd have to say that over the last few years it has not performed particularly well. Right, So from about and I think for reasons of COVID et cetera. And and and particularly with the Chinese infant births dropping off from an average kind of longer an average of seventeen million to maybe nine million, which halfs the market effectively.

Look it certainly? From so let's go back if you talk about percentages, yes, it does. You'd have to say that over the last few years it has not performed particularly well. Right, So from about and I think for reasons of COVID et cetera. And and and particularly with the Chinese infant births dropping off from an average kind of longer an average of seventeen million to maybe nine million, which halfs the market effectively.

Because most of what Sinai is doing is creating.

Because most of what Sinai is doing is creating.

A big chunk of it was infant formula. These days we're much more diverse house so we're infant formed the adult nutrition ingredients into the likes owns and nesle. So there's a there's a bunch of other things that we that we do, including fresh milk, and particularly the one that actually is growing for us very strongly is creams, so shelf stable creams into Southeast Asia and interestingly, I mean even Fonterra is getting into that as as well with their recent announcements. So yes, it does give that exposure. I'd have to say it hasn't been it hasn't been a great outcome over the last couple of years, but I guess we are we are, and ultimately what I'm giving the shareholders is an opportunity to continue to participate in the upside going forward.

A big chunk of it was infant formula. These days we're much more diverse house so we're infant formed the adult nutrition ingredients into the likes owns and nesle. So there's a there's a bunch of other things that we that we do, including fresh milk, and particularly the one that actually is growing for us very strongly is creams, so shelf stable creams into Southeast Asia and interestingly, I mean even Fonterra is getting into that as as well with their recent announcements. So yes, it does give that exposure. I'd have to say it hasn't been it hasn't been a great outcome over the last couple of years, but I guess we are we are, and ultimately what I'm giving the shareholders is an opportunity to continue to participate in the upside going forward.

Should we maybe talk about what you think Sinley is worth, then what is sinlay Worth, Oh.

Should we maybe talk about what you think Sinley is worth, then what is sinlay Worth, Oh.

Well Sinddley is worth sor what our market caps probably seventy really million dollars at the minute. That's pretty much what it's worth going forward. That if you disaggregate that right in reality, we've got a business in Dune Sandal which I think we'll be able to get back to a strongly profitable position. Last two years have been challenging for a number of reasons, but largely for X exposure has has really troubled the business. Haven't done particularly well there. So I think that's a strongly profitable business. Dairy Works, I think it's been on the cards for a bit, certainly as far as some of the parts goes. Yep, we've had sort of offer, but in really nothing that God has anywhere close to effectively what it cost.

Well Sinddley is worth sor what our market caps probably seventy really million dollars at the minute. That's pretty much what it's worth going forward. That if you disaggregate that right in reality, we've got a business in Dune Sandal which I think we'll be able to get back to a strongly profitable position. Last two years have been challenging for a number of reasons, but largely for X exposure has has really troubled the business. Haven't done particularly well there. So I think that's a strongly profitable business. Dairy Works, I think it's been on the cards for a bit, certainly as far as some of the parts goes. Yep, we've had sort of offer, but in really nothing that God has anywhere close to effectively what it cost.

But just senal disclosure, I really like your dairy Works tasty cheese. I think it's probably one of the better tasty cheeses on the market. I'm not sure if that will make the cut in the podcast, but well, this is a personal disclosure of interest. Look, I suppose I was asking what is it worth because the former chair John Peno, he was challenging your numbers wasn't it. He was saying, actually, broken up, this company is worth more than the reports that you are seeing it is worth. And that is why you should seriously consider not voting for this proposal and instead just put it through and you will actually make more money that way. Why should why should shareholders pay him?

But just senal disclosure, I really like your dairy Works tasty cheese. I think it's probably one of the better tasty cheeses on the market. I'm not sure if that will make the cut in the podcast, but well, this is a personal disclosure of interest. Look, I suppose I was asking what is it worth because the former chair John Peno, he was challenging your numbers wasn't it. He was saying, actually, broken up, this company is worth more than the reports that you are seeing it is worth. And that is why you should seriously consider not voting for this proposal and instead just put it through and you will actually make more money that way. Why should why should shareholders pay him?

No mind? No? I think you know. Look, John's are broad, gay and a lot of time for John, and he certainly holds I think a very sincere very sincere view. I don't think it's right, but I think it's very sincerely held. You we've been looking at essentially selling a couple of the company's assets for the past few months, and as you know, we also were looking at what the Pocono business was worth, and you know, the market's changed a little bit and right now we just cannot find the value that John was purporting to believe that the company was worth. That's fine, that's the difference off opinion between us. Ultimately, we also have to then take advice. So you know, part of doing a CAPRAS is you're obligated to get an independent assessor's report, which we have got through Northington, and I think Northington's numbers are the ones which the board is pretty much obligated to pay attention to. So that's the one that says that our view on the future value is that actually it was certainly lower than the numbers that John was indicating that he thought it was worth. So that's the numbers effectively that we got to plug into our model going forward, which means that ultimately we think there is value in the In the Capris.

No mind? No? I think you know. Look, John's are broad, gay and a lot of time for John, and he certainly holds I think a very sincere very sincere view. I don't think it's right, but I think it's very sincerely held. You we've been looking at essentially selling a couple of the company's assets for the past few months, and as you know, we also were looking at what the Pocono business was worth, and you know, the market's changed a little bit and right now we just cannot find the value that John was purporting to believe that the company was worth. That's fine, that's the difference off opinion between us. Ultimately, we also have to then take advice. So you know, part of doing a CAPRAS is you're obligated to get an independent assessor's report, which we have got through Northington, and I think Northington's numbers are the ones which the board is pretty much obligated to pay attention to. So that's the one that says that our view on the future value is that actually it was certainly lower than the numbers that John was indicating that he thought it was worth. So that's the numbers effectively that we got to plug into our model going forward, which means that ultimately we think there is value in the In the Capris.

You make it sound like a very very principled and gentlemanly disagreement, but you were talking about Russian roulette in respect of what he was saying. I mean, let's say he described it pretty strong words.

You make it sound like a very very principled and gentlemanly disagreement, but you were talking about Russian roulette in respect of what he was saying. I mean, let's say he described it pretty strong words.

Yeah look Russian roulette in yeah, look and look I worked in Russia for a while, so I'm very familiar with with with with the particular phrase. But it wasn't to describe John in anyway. But John's view was essentially we should take it to VA, right, And I don't think there is an elegant VA option after be really frank, you know, my conversations with some of the receivers quite recently have been very clear and consistent that, you know, companies don't go into VA and come out looking.

Yeah look Russian roulette in yeah, look and look I worked in Russia for a while, so I'm very familiar with with with with the particular phrase. But it wasn't to describe John in anyway. But John's view was essentially we should take it to VA, right, And I don't think there is an elegant VA option after be really frank, you know, my conversations with some of the receivers quite recently have been very clear and consistent that, you know, companies don't go into VA and come out looking.

Better, right, They just voluntary administration.

Better, right, They just voluntary administration.

Administration, and it essentially provides for asset break up and seal of the assets, right, which is so so in other words, it's a single shot right, Whereas what we're doing right and bearing in mind the directors are obligated to act in the best interests of company. Right, And particularly when you get down to the point where you're looking at a challenging future from an insolvency perspective, you then also got to start to think really heavily about your creditors. So the proposal that we're supplying refloats the business, refinances, the business, pays our creditors, provides a future for our farmers and our staff and for Sinley as an ongoing business in the dairy industry. So our proposal, I believe as independent directors, provides multiple options for multiple stakeholders and satisfies a lot more than say a single shot, which is let's take it to VA and see what happens.

Administration, and it essentially provides for asset break up and seal of the assets, right, which is so so in other words, it's a single shot right, Whereas what we're doing right and bearing in mind the directors are obligated to act in the best interests of company. Right, And particularly when you get down to the point where you're looking at a challenging future from an insolvency perspective, you then also got to start to think really heavily about your creditors. So the proposal that we're supplying refloats the business, refinances, the business, pays our creditors, provides a future for our farmers and our staff and for Sinley as an ongoing business in the dairy industry. So our proposal, I believe as independent directors, provides multiple options for multiple stakeholders and satisfies a lot more than say a single shot, which is let's take it to VA and see what happens.

Look, you mentioned the famis that if we look at the supply side, you can't have a dairy company unless you've got dairy. So how do you convince your suppliers to stick with Sinley?

Look, you mentioned the famis that if we look at the supply side, you can't have a dairy company unless you've got dairy. So how do you convince your suppliers to stick with Sinley?

It's a really good question, and I probably characterize this a number of ways. So we've been going a long time. It's particuarly in the Sutherland and the majority of farmers that have that are with us in these two hundred and twenty one of the minute farms have been with us since the start, so we've got a very long history with a lot of those farms and they've been making it really clear to us that they like working with Sinley. They've had a good relationship for the context and it may be something that is helpful for your listeners is that New Zealand is a little bit unusual in that farm generally will only sell the one processor, so not multiple processors. So if they have balance sheet risk, that becomes your day factor risk. Also, so our farmers, who you know, been on the land a long time, in most cases intergenerational, they feel the risk of selling to one process or very acutely, particularly if you've got balance stress, which we've had. So the message that we've had from them, and you know, I've met a lot of them in the past five months, is you need to sort your balance dope, because that's a real problem for us and you need to get back to paying market marching advanced threats. Right, so we acknowledged that, so one we do when we have we are back paying market marching advanced threats. We announced an increase in milk price last week to sixty eighty, which actually is ten sounds higher than the market sixty. I think you get sixty.

It's a really good question, and I probably characterize this a number of ways. So we've been going a long time. It's particuarly in the Sutherland and the majority of farmers that have that are with us in these two hundred and twenty one of the minute farms have been with us since the start, so we've got a very long history with a lot of those farms and they've been making it really clear to us that they like working with Sinley. They've had a good relationship for the context and it may be something that is helpful for your listeners is that New Zealand is a little bit unusual in that farm generally will only sell the one processor, so not multiple processors. So if they have balance sheet risk, that becomes your day factor risk. Also, so our farmers, who you know, been on the land a long time, in most cases intergenerational, they feel the risk of selling to one process or very acutely, particularly if you've got balance stress, which we've had. So the message that we've had from them, and you know, I've met a lot of them in the past five months, is you need to sort your balance dope, because that's a real problem for us and you need to get back to paying market marching advanced threats. Right, so we acknowledged that, so one we do when we have we are back paying market marching advanced threats. We announced an increase in milk price last week to sixty eighty, which actually is ten sounds higher than the market sixty. I think you get sixty.

So I mean this is we're really getting too the weeds or the long grass or the pastures here. But basically, we've got a system where dairy companies a little bit like a company paying a dividend, they kind of set a price that they will pay an average price across the air if you like more or to suppliers, and that's a guarantee that they can take to the bank. Literally. So if the farmers are getting an eight dollars sixty price from you, are they breaking even? Now? Are their balance sheets okay?

So I mean this is we're really getting too the weeds or the long grass or the pastures here. But basically, we've got a system where dairy companies a little bit like a company paying a dividend, they kind of set a price that they will pay an average price across the air if you like more or to suppliers, and that's a guarantee that they can take to the bank. Literally. So if the farmers are getting an eight dollars sixty price from you, are they breaking even? Now? Are their balance sheets okay?

Oh yeah, there would be certainly in terms of in terms of their operating costs. I mean the good you know, really good, really good farmers been around a long time, probably slowly bigger. They're making recentably good money at that point.

Oh yeah, there would be certainly in terms of in terms of their operating costs. I mean the good you know, really good, really good farmers been around a long time, probably slowly bigger. They're making recentably good money at that point.

Smarter people than the analystic banks have said probably that price needs to be more like eight dollars seventy. Oh look, how does sin they get to that price?

Smarter people than the analystic banks have said probably that price needs to be more like eight dollars seventy. Oh look, how does sin they get to that price?

Well, we do the same math as everybody else does, So we basically sit down and work out, essentially in fact, with what our mass balance is. So every milk, every dairy company takes in a lead of milk, right, and then from it you disaggregate it into the various parts, and some parts sell for more. So wholemok poter will sell for more than skim milk poter friggs, for example, in formula poter might sell for more than that. Again, cream's butters, et cetera. And so you kind of break it up into a range of different products and they sell for different amounts of value, and what you try and do is you try to maximize that value depending on the equipment and the installed capacity that you've that you've got, so it's a balance and effectively that means you can afford to pay so much for the milk?

Well, we do the same math as everybody else does, So we basically sit down and work out, essentially in fact, with what our mass balance is. So every milk, every dairy company takes in a lead of milk, right, and then from it you disaggregate it into the various parts, and some parts sell for more. So wholemok poter will sell for more than skim milk poter friggs, for example, in formula poter might sell for more than that. Again, cream's butters, et cetera. And so you kind of break it up into a range of different products and they sell for different amounts of value, and what you try and do is you try to maximize that value depending on the equipment and the installed capacity that you've that you've got, so it's a balance and effectively that means you can afford to pay so much for the milk?

Can you get to out seventy?

Can you get to out seventy?

Look, honestly, I think it seveny might be late for this year. You know, certainly, indications that we're looking at is that actually it might go higher than that. But you gotta remember only two months into the into the season. You've only sold a tiny portion of the year as such, but certainly indications are that that that pricing is likely to strengthen across the the year. I mean, Fonteria went up from eight dollars eight dollars, fifty went from we went from eighty at six sixty. So I think there could well be room and have to put a obviously a warning or that that's that's not a guarantee of the future of a of a of a future of a future payer.

Look, honestly, I think it seveny might be late for this year. You know, certainly, indications that we're looking at is that actually it might go higher than that. But you gotta remember only two months into the into the season. You've only sold a tiny portion of the year as such, but certainly indications are that that that pricing is likely to strengthen across the the year. I mean, Fonteria went up from eight dollars eight dollars, fifty went from we went from eighty at six sixty. So I think there could well be room and have to put a obviously a warning or that that's that's not a guarantee of the future of a of a of a future of a future payer.

So but back to your don't start looking at the new Ford ranger just yet.

So but back to your don't start looking at the new Ford ranger just yet.

Yet, just yet, But back to your question. That's essentially give us confidence that once we've resolved with two issues, our farmers like doing business with us, and I've given us very strong indications that at that stage they'll start to withdraw their cease notices.

Yet, just yet, But back to your question. That's essentially give us confidence that once we've resolved with two issues, our farmers like doing business with us, and I've given us very strong indications that at that stage they'll start to withdraw their cease notices.

Right because they're I mean, they're really the clock sticking for them too, right.

Right because they're I mean, they're really the clock sticking for them too, right.

And taking for them too. They have two years you basically give two seasons on a day effectively is the notice period that you have to to give.

And taking for them too. They have two years you basically give two seasons on a day effectively is the notice period that you have to to give.

You've talked a bit about why you think it's important, but can you expand a little bit more on the future for this company and what you would want to see, you know, doing differently if you can get this one over the line.

You've talked a bit about why you think it's important, but can you expand a little bit more on the future for this company and what you would want to see, you know, doing differently if you can get this one over the line.

But I think a couple of things are probably worth also remembering is that fundamentally the two businesses that we run are well run, smart businesses. So if I look at the Dune Hattle Busines, I mean it's a fantastic business, runs well and you know, nine years out of ten will make a very good return, just not last year. But that's a different issue. Therery works good business. You know Tim runs it, does a great job, right, so that that's a solid business. Ultimately, the decisions that we're taken around some of the investments were taken not by the people who are running these businesses or operating these businesses. There were issues effectively taken after say by senior manager at the board table, which for whatever reason didn't pan out. So ultimately, what we're doing through this cap is actually taking that issue, solving for that issue. So the future force in me is really in the in the adult nutrition, infant nutrition and value add ingredient business going forward. So it's a little bit back to the roots, but it's really focusing on what we do well because you know there is significant growth available to us in those markets. And just for context, I think it might be helpful to know that global dairy is worth approximately twice what Apple is worth. Right. So, but the recent report I saw from Coriolisis vows it about nine hundred million dollars, which is twice what Apple's capitalized. That right, Global consumption of dairy is increasing by one point something kilos per person per year, as essentially the world gets wealthier, that you're seeing consumption and increase. And here's the start that absolutely blew my mind is that the growth required to support the increase in demand globally is one point two New Zealand's every year.

But I think a couple of things are probably worth also remembering is that fundamentally the two businesses that we run are well run, smart businesses. So if I look at the Dune Hattle Busines, I mean it's a fantastic business, runs well and you know, nine years out of ten will make a very good return, just not last year. But that's a different issue. Therery works good business. You know Tim runs it, does a great job, right, so that that's a solid business. Ultimately, the decisions that we're taken around some of the investments were taken not by the people who are running these businesses or operating these businesses. There were issues effectively taken after say by senior manager at the board table, which for whatever reason didn't pan out. So ultimately, what we're doing through this cap is actually taking that issue, solving for that issue. So the future force in me is really in the in the adult nutrition, infant nutrition and value add ingredient business going forward. So it's a little bit back to the roots, but it's really focusing on what we do well because you know there is significant growth available to us in those markets. And just for context, I think it might be helpful to know that global dairy is worth approximately twice what Apple is worth. Right. So, but the recent report I saw from Coriolisis vows it about nine hundred million dollars, which is twice what Apple's capitalized. That right, Global consumption of dairy is increasing by one point something kilos per person per year, as essentially the world gets wealthier, that you're seeing consumption and increase. And here's the start that absolutely blew my mind is that the growth required to support the increase in demand globally is one point two New Zealand's every year.

There's an opportunity.

There's an opportunity.

So that's the opportunity that we're leaning into into, right, I mean, there is fabulous growth in this global industry which we can play a big part in and that's the opportunity for Sinny.

So that's the opportunity that we're leaning into into, right, I mean, there is fabulous growth in this global industry which we can play a big part in and that's the opportunity for Sinny.

So it sounds like you're just cranking more and more out of that plant down in Canterbury.

So it sounds like you're just cranking more and more out of that plant down in Canterbury.

Cranking more and more, but also being smarter about it. Right. And also, we announced yesterday that we will be retaining the Pocono facility. We're not going to process milk there anymore, so that milk is all there was still our contracts, but open Country will might be basically processing that milk and we'll focus on actually adding value to simously advanced nutrition through that facility.

Cranking more and more, but also being smarter about it. Right. And also, we announced yesterday that we will be retaining the Pocono facility. We're not going to process milk there anymore, so that milk is all there was still our contracts, but open Country will might be basically processing that milk and we'll focus on actually adding value to simously advanced nutrition through that facility.

So but that was why there was quite a lot of investment in that plant. Once you'd already built at sea is still checking a bit of good money after bed there.

So but that was why there was quite a lot of investment in that plant. Once you'd already built at sea is still checking a bit of good money after bed there.

No no effect of what we're doing is I think we're still have a foot on a home base. So we've taken the foot off home base now, so we're we're just simply not going to process milk, which means we don't spend half the month processing milk and in a half a month basically getting into nutrition advanced nutrition products now will be one hundred percent focused on advanced nutrition products. Was still used dairy, but that dairy would be processed some somewhere else and would it simply come to us as as an ingredient.

No no effect of what we're doing is I think we're still have a foot on a home base. So we've taken the foot off home base now, so we're we're just simply not going to process milk, which means we don't spend half the month processing milk and in a half a month basically getting into nutrition advanced nutrition products now will be one hundred percent focused on advanced nutrition products. Was still used dairy, but that dairy would be processed some somewhere else and would it simply come to us as as an ingredient.

Was that pretty much the money that's been spent at that plant, which you know, anyone that's sort of driven out of all plane heading towards coromand or sees this sizeab huge piece of stainless steel and concrete on the horizon. That's been the millstone around the neck as it.

Was that pretty much the money that's been spent at that plant, which you know, anyone that's sort of driven out of all plane heading towards coromand or sees this sizeab huge piece of stainless steel and concrete on the horizon. That's been the millstone around the neck as it.

Yeah, that's basically it was. That was that was that was a four hundred and fifty million dollars roughly facility which sentially has never made a cent.

Yeah, that's basically it was. That was that was that was a four hundred and fifty million dollars roughly facility which sentially has never made a cent.

Wow.

Wow.

Yep, yeah, look again context right, So you go back and you look at that that that business was kind of conceived probably sixteen seventeen, eighteen, nineteen twenty was was kind of built, and our infant formula business was literally going off the charts at that stage, right, I mean, it had been in just relent this growth and it was doing extremely well. Analysts were kind of looking in our business going, ooh, you've got a bit of risk around that done saddle facility because you know Chrysier's earthquakes blah blah blah. You've got a single facility site risk. So can you basically put some money into somewhere somewhere else, which the business did, and then of course COVID happened. Infant Forma dropped off a cliff for our period and it's unlikely to recover to that same levels. The Diagoo channels basically have evaporated, and so it never really got around to producing what it was intended for, so you know, you'd have to say that was just really bad luck, I mean, super bad timing. Then the business basically invested a further ninety two hundred million dollars basically converting it to advanced nutrition, but it was still producing or protesting milk, and the problem with that was it's too far really from the center of milk production. So the actual on cost for us to get milk from farms to poconol was more than we could bear as an ingredient manufacturer, as opposed to infant milk from the manufacturer, which can absorble lot more overhead, and so that was losing fortune. Frankly. Then we were commissioning the facility for the last year to produce advanced nutrition. That's a three hundred day commissioning process early year, so ultimately, you know, we were losing best part of the million dollars a week, which is not much you've said, if you said fast.

Yep, yeah, look again context right, So you go back and you look at that that that business was kind of conceived probably sixteen seventeen, eighteen, nineteen twenty was was kind of built, and our infant formula business was literally going off the charts at that stage, right, I mean, it had been in just relent this growth and it was doing extremely well. Analysts were kind of looking in our business going, ooh, you've got a bit of risk around that done saddle facility because you know Chrysier's earthquakes blah blah blah. You've got a single facility site risk. So can you basically put some money into somewhere somewhere else, which the business did, and then of course COVID happened. Infant Forma dropped off a cliff for our period and it's unlikely to recover to that same levels. The Diagoo channels basically have evaporated, and so it never really got around to producing what it was intended for, so you know, you'd have to say that was just really bad luck, I mean, super bad timing. Then the business basically invested a further ninety two hundred million dollars basically converting it to advanced nutrition, but it was still producing or protesting milk, and the problem with that was it's too far really from the center of milk production. So the actual on cost for us to get milk from farms to poconol was more than we could bear as an ingredient manufacturer, as opposed to infant milk from the manufacturer, which can absorble lot more overhead, and so that was losing fortune. Frankly. Then we were commissioning the facility for the last year to produce advanced nutrition. That's a three hundred day commissioning process early year, so ultimately, you know, we were losing best part of the million dollars a week, which is not much you've said, if you said fast.

I'm just thinking, if I'm setting there trying to make a decision about whether or not as Beck a company like that, that's that's pretty material information that I'd want to be building up as I.

I'm just thinking, if I'm setting there trying to make a decision about whether or not as Beck a company like that, that's that's pretty material information that I'd want to be building up as I.

And that's yeah, that's and we just yeah, that's so that's in the accounts. You'll you'll see that's pretty straightforward. So, yeah, we had a final solution for that, and so essentially eliminating dairy processing, going boots and all in to the adult nutrition and advanced nutrition business moves the way forward for that for that site. And literally we just announced that two days ago.

And that's yeah, that's and we just yeah, that's so that's in the accounts. You'll you'll see that's pretty straightforward. So, yeah, we had a final solution for that, and so essentially eliminating dairy processing, going boots and all in to the adult nutrition and advanced nutrition business moves the way forward for that for that site. And literally we just announced that two days ago.

So you're actually holding the vote at that Dune Sandal plant.

So you're actually holding the vote at that Dune Sandal plant.

Yes, we are.

Yes, we are.

The shareholders Association has been pretty active, but I think that it's open disclosure was that we still haven't quite made up our minds about whether or not we want to back this, So we're not giving that kind of guidance to people.

The shareholders Association has been pretty active, but I think that it's open disclosure was that we still haven't quite made up our minds about whether or not we want to back this, So we're not giving that kind of guidance to people.

I respect the Shoulder Association's use conscious that when you leave a minority group out off a caprears, you know, that's that's pretty much a red flag for them, and so they're not kind to be happy with that.

I respect the Shoulder Association's use conscious that when you leave a minority group out off a caprears, you know, that's that's pretty much a red flag for them, and so they're not kind to be happy with that.

You can get a kicking from that, aren't you.

You can get a kicking from that, aren't you.

You're going to get a bit of a kicking for that. And you know, I mean, and I've certainly learned to take my legs frankly when you're since since I've been doing this job. But ultimately I hope that minority shoutdles will read through the documentation and we'll understand that this is a rational decision. It hasn't been a decision I've taken because I don't like minority shareholders, or the board doesn't like minority shuffles were really late minority shareholders. It's just this is the only one that for us makes sense, texts all the boxes for us to move forward with. So look, ultimately, I acknowledge the Shoulder Association always have a challenging job on these on these things, it's it's not easy, but I think there also will they'll be sufficiently nuanced in terms of there's probably a headline which says dead rut, which I think was the headline, But below that I think, as I said, even a dead rut can be nutritious.

You're going to get a bit of a kicking for that. And you know, I mean, and I've certainly learned to take my legs frankly when you're since since I've been doing this job. But ultimately I hope that minority shoutdles will read through the documentation and we'll understand that this is a rational decision. It hasn't been a decision I've taken because I don't like minority shareholders, or the board doesn't like minority shuffles were really late minority shareholders. It's just this is the only one that for us makes sense, texts all the boxes for us to move forward with. So look, ultimately, I acknowledge the Shoulder Association always have a challenging job on these on these things, it's it's not easy, but I think there also will they'll be sufficiently nuanced in terms of there's probably a headline which says dead rut, which I think was the headline, But below that I think, as I said, even a dead rut can be nutritious.

It's a tasty thought.

It's a tasty thought.

Well, apparently was a big thing in medieval times. Right on a stick. Barbecued rut on a stick in London apparently was a real thing.

Well, apparently was a big thing in medieval times. Right on a stick. Barbecued rut on a stick in London apparently was a real thing.

George Enams, thank you very much. You're welcome, right, and thank you for joining us. Also, you can watch Shared Lunch on YouTube or listen on your favorite podcast. Why not rate us and shoot us a comment about what you'd like to hear about in the future. That's us for now.

George Enams, thank you very much. You're welcome, right, and thank you for joining us. Also, you can watch Shared Lunch on YouTube or listen on your favorite podcast. Why not rate us and shoot us a comment about what you'd like to hear about in the future. That's us for now.

Now you can combine the experience of multiple fund managers and get even more diversification in your Chase's kiwisaver scheme. Select up to six base funds ranging from conservative to high growth to make at least fifty percent of your investment plan, and add your own picks on top if you wish it's real choice multiplied. Head to Chezy's dot mz slash kisab to get more info. Chezy's Investment Management Limited is the issuer of the Chazy's kisab scheme. View the lodged product disclosure statement at Chezy's dot z slash kiwisaver slash documents

Now you can combine the experience of multiple fund managers and get even more diversification in your Chase's kiwisaver scheme. Select up to six base funds ranging from conservative to high growth to make at least fifty percent of your investment plan, and add your own picks on top if you wish it's real choice multiplied. Head to Chezy's dot mz slash kisab to get more info. Chezy's Investment Management Limited is the issuer of the Chazy's kisab scheme. View the lodged product disclosure statement at Chezy's dot z slash kiwisaver slash documents