Good morning, everyone, welcome to Synlait Milk Limited's half year results conference call. My name's Hannah Lynch. I'm the head of Strategy and Corporate Affairs here at Synlait. I'll shortly hand you over to our CEO, Grant Watson, and our CFO, Robert Stowell, who'll provide a short overview presentation of today's results. It will open the line for Q&A. I ask that when we reach the Q&A portion of today's presentation, that you keep your questions to two per person. If you have any follow-ups after the call, please feel free to reach out to me directly. Over to you, Grant. Thank you, Hannah, and again, welcome to our half year results investor presentation. In terms of the key takeaways from our update today, there are five. The first is that our two-year recovery will now take up to three years. While underlying momentum is lifting in the business, the recovery will take longer than planned. The second is that operational stability and cost challenges have impacted performance. There's been a range of economic and climatic factors that have impacted the stability of Synlait's daily operations. Number three, re-registration for China market access continues to progress. We are on track for re-registration and commencement of production in Q4 of FY 2023. Number four, business unit diversification builds. We've delivered strong performance through both our consumer and ingredients business units. We've now commercialized UHT cream up into China. Number five, executive leadership team transformation is well progressed. We are lifting the capability, the culture and the accountability of our leadership team. I'd now like to hand over to Rob Stowell, our CFO, to take us through our financial performance. Thank you, Grant. Good morning to all those online. There's no doubt this has been a very tough six months to navigate. Not only the fact that we've had four big programs to manage concurrently with our ERP implementation project, China SAMR registration, the multinational Customer S Pokeno upgrade, and the launch of our Joyhana UHT cream brand into China. We've also had to deal with the ongoing supply chain disruption, tight labor market and of course inflationary pressures, all at the same time. However, even with these short-term challenges, there are bright spots in our results. I'll try to highlight these throughout the summary. If we turn to page four, results at a glance, revenue is down 3% to NZD 769.8 million. Revenue was impacted by our ERP implementation. NPAT is down NZD 23.1 million to NZD 4.8 million. However, it's important to look through these numbers as there were one-off factors in both six-month periods. Our normalized NPAT was NZD 8.9 million, versus last year's NZD 15.7 million. We get there by adjusting out the sale and leaseback of our Richard Pearse Drive buildings in Auckland that we completed last year. The second is by adding back the one-off SAP and derivative costs across both years. EBITDA, on a normalized basis, is down NZD 3.1 million to NZD 55 million. The base milk price is forecasted at NZD 8.50 per kilogram of milk solids, which is still relatively high by historical standards. As we all know, farmers have experienced rapid cost inflation, tight labor market and rising interest rates also. Operating cash was down NZD 242 million to - NZD 125 million. A very big drop from last year, mainly due to the impacts of our ERP system implementation and the challenges around product release and sales. CapEx tracked down by 27% to NZD 33.5 million. Pleasing to see this further step down as planned. Net debt is up 32% to NZD 518.6 million. This is disappointing to see our debt come back up again after the progress that we've made in previous periods. A lot of this corresponds to the ERP system challenges we've experienced in the first half and also some of the cost increases that we've seen. We just turn to page five. This slide unpacks the result in a little bit more detail. If you cast your eyes across to the bridge on the right-hand side, you can see it takes our adjusted NPAT from last half year to our adjusted NPAT of NZD 8.9 this year. I'll quickly summarize the key factors. Ingredients delivered a NZD 2.2 million margin loss due to the volume impacts of roughly 48% less ingredients products coming through in the first six months. This was mainly due to our ERP challenges. This had a negative impact of NZD 16.8 million. To counter that, we had positive margin impacts from the excellent skim, slash AMF stream returns that we received in the first six months. This was also in light of the strong FX gains that we had last year. This is a really positive result and will mean that this bar will turn into a positive bar in our second half. A big shout out to our ingredients sales team on some excellent selling practices this year. If we turn to advanced nutrition margin, reduction of NZD 1.3 million. This was, again, there's two parts to this. The first part is we've had a positive volume impact of NZD 7.2 million. This is from a further 3,600 of packaged infant formula, offset by slightly lower lactof volumes in the first half. The negative margin impact of NZD 8.1 million is driven by a couple of things. Firstly, the lagged nature of our pricing, infant pricing model. The large increases in manufacturing overheads across people, milk collection, energy and R&M are really hitting this business unit, offset by some higher volumes of base powder. Again, disappointing to see that bar with a down arrow, but mainly due to this rapid cost inflation that we're seeing coming through. Consumer foods, which includes Dairyworks, is a really positive story. We're seeing NZD 9.4 million margin growth here, and really good to see this part of the business performing better. The main explanation here is we've had a large margin uplift, which is down to several factors. One, the pricing mechanism is working for us this year as opposed to last year where it worked against us. The other factors are of operating with much lower overhead costs and the ongoing idling of the Temuka cheese plant has had its full effect coming through into to this year. It's a really good news story there. Milk trading. This area is becoming more and more important for us as we trade milk in both the North Island and the South Island. This year it's, we've had a lot of cream sales due to the fact that we're pushing our skim milk powder lead bucket. These contracts have performed well for us this year. The sales, the adjusted sales, SG&A costs have increased NZD 11.6 million. We'll come to this in another slide shortly, the material drivers are really across employee costs, travel, consultancy, logistics, and general inflationary pressures. We've also split out the recurring ERP costs. We've estimated the ERP system's going to cost us around about NZD 10 million per annum, NZD 6 million of which is depreciation, and the other NZD 4 million is really around support costs and licensing. There's a NZD 5 million that we've pulled out for this half. Of course, interest costs. The interest costs have really increased, mainly due to wholesale interest rates lifting. This doesn't include the fact that we've increased our inventory levels due to the ERP implementation. That's a fly-through of the half year results and the key moving parts. If we move to slide six, revenue and sales volumes. Overall, the reported revenue was down 3% or NZD 20.8 million. This slide simply gives more detail on the key movements, so I won't dwell on it other than to say you can see the most dramatic drop comes from ingredients being down 41% or NZD 172 million. Also to note is our advanced nutritional business revenue was up 32% or NZD 56 million. We turn to page seven, production and inventory volumes. Overall, production reduced 5% or 6,500 metric tons. This is mainly due to the ingredients volumes being driven down by higher production of infant base powder, displacing ingredient products. Our milk process was down 1.6% due to us maximizing the skim milk powder lead bucket, meaning we sold surplus cream to other processors for periods during the first half when we were at capacity. Closing inventories were up 22% due to the ERP challenges constraining sales in the first half. We've now got those challenges well under control. In advanced nutrition, there was a healthy increase of 110% in volumes for both consumer packaged and infant base powder production as we successfully supported The a2 Milk Company, both for sales and stock build for the SAMR registration date. In consumer, we had a relatively stable volumes of production. In food service, we made 328 metric tons of food service UHT cream as we started to commercialize this business. Reports back from market are that the product is of a high quality and demand is very strong. Hence, we expect a much stronger second half volume build. Raw materials inventories are up 62% due to the following three reasons: costs of raw materials have been pushed up significantly by global inflation, high levels of predicted base powder manufacture, Customer S preparation, and cheese holdings requiring another 25% of volume holdings. We also increased our safety inventory in some areas where we were seeing risk. We turn to page eight, gross margin performance. In total, our gross margin was up 18% or NZD 12.6 million on last year. This is another bright spot in our results. Now sitting at NZD 81.7 million, up from NZD 68.1 million last year. This slide really repeats a lot of the summary information that we have on pages five to seven. However, it gives more detail and shows the impact by each business unit on a per metric ton basis. I won't go into further detail on this call, but the information is there. Page nine is really explaining what's happened to our costs. You've got the SG&A costs and the manufacturing cost performance. As mentioned earlier, we have been impacted significantly by rising costs, and we've given visibility to what is driving the makeup of these costs in both manufacturing and SG&A. In short, there are many reasons, but the main themes are as follows: We have increased our payable costs in response to a very tight labor market. We similarly felt it necessary to give market-based pay increases to retain and attract new talent. Supporting The a2 Milk Company with stock build, we employed three extra shifts to meet the demand required by the 21st of February and ongoing. We've also started to build resource and the readiness of our Customer S business in Pokeno, and we've continued to make changes to our executive leadership team. We have had extra costs incurred on our ERP implementation. While we went live on the 1st of August, we've had to spend more than anticipated on hypercare and stabilization phases of the project. This was critical as we sought to assist staff get product out the door. While there are several other factors, such as increases in travel, higher levels of R&M due to a couple of one-off events and the overwhelming driver to our costs have been pushed up by strong inflationary pressures. The key focus over the next 12 months will be how we can further mitigate these increases in costs. We turn to slide 10, cash flows and net debt. I'll be blunt, cash flow and net debt reductions have been challenging through the period. We've had a constrained sales, increases in costs, and further invested in raw material inventories. This has meant our debt has risen NZD 176.7 million on where we were a year ago. In saying this, while we feel like this is kind of one step forward and two steps back, we still remain comfortably within our banking arrangements. Key points to note in this slide are operating cash flows were NZD 242 million down on the previous half year due to reasons already mentioned. We have continued to reduce capital expenditure. We've wound up our ERP project and are in the tail end of the works at Pokeno upgrade. Operational CapEx came in at a similar level to last half year, which is around about NZD 18 million. Net debt is up to NZD 518.6 million since last July. This is high due to timing differences in ingredients business, inventories of raw materials, and cost increases. While we have been comfortably within our limits, reducing this debt level is important to us as we can continue to be a, and will continue to be a focus in the medium term. You'll also see that we've given some guidance around our debt ratio. We're now guiding to between 3x and 3.5x for FY 2023. As per our guidance statement, just over a week ago, we see EBITDA being lower and debt being higher as at July 31, 2023. In regards to our banking facilities and debt structures, our banking syndicates, made up of both ANZ and BNZ, have continued to be hugely supportive over the last six months. We have our facilities up for renewal at the end of this year and our retail bonds the year after. We are well into this review on how we optimize our debt funding models over the next few years. To be clear, to the audience, we are not looking at equity options. We will be able to give you more details on the direction of our thinking at our Investor Day on the eighth of May. Look, that's a wrap on the financials. I'll hand back to Grant to take us through the business update. Thanks for that, Rob. I'll start off with an update around our advanced nutrition business. We had Naiche Nogueira join the business as Director of Advanced Nutrition in January. He is already making a fantastic impact within this business unit and across the leadership team generally. In terms of our multinational customer at Pokeno, operationally, the site is now ready to go. There has been a delay, however, in terms of our first lot to stock, and this effectively is as a result of a change in customer phasing from current source origin to Synlait manufacturing. From a CapEx perspective, we continue to be on track as previously communicated. Lactoferrin demand remains strong, as does pricing. In terms of nutritional base powders, we're working through a number of opportunities, both in China and in Southeast Asia as well. One of the things that Naiche and his team are working through at the moment in terms of base powder is a full market mapping and segmentation exercise as it relates to channel, category, and geography. We'll give you more of a sense of that at our Investor Day on the 8th of May. In terms of consumer packaged infant formula, we continue to work very hard and well with The a2 Milk Company to help enable their growth. Very good examples of this would be their growth plans for the China market, but also opportunities into the USA. A brief update on the SAMR re-registration process. Currently, we're expecting the audit process to be completed in Q3, that we would get our re-registration and commence production in Q4, and that product would be in market Q2 of FY 2024. In terms of ingredients, as Rob mentioned, the shipping of ingredients products was very much impacted in the first half and especially in the first quarter of the year. What I can say is our shipping rates are back to normal levels, and in fact, in January, our shipping rates were nearing all-time records. The ingredients organization delivered very strong performance, and in fact, gross margins 81% higher in the first half of this year, compared to the first half of last year. We're expecting all product to be shipped, and sold, to take place in the second half of this year. In terms of customers and forward focus, we've signed up a major Chinese customer from an ingredients perspective, already in FY 2023, and the focus there is to find the right balance between contracted customers and selling on the stock market. In terms of consumer, Tim Carter, who is the CEO of Dairyworks, is now also the director of all consumer products that are produced at Synlait, and that ensures that we've got greater coordination and greater utilization of capability across the business. Dairyworks continues to deliver very, very strong market share performance. We've seen a $1 million savings for this financial year over last financial year as a result of the new warehouse and distribution center that we put into play last year. We continue to idle the Temuka cheese plant and plan to have a clear view on the future of that site in the second half of this financial year. In terms of our beverage facilities at Dunsandel, we've had very good engagement with a number of multinational customers. In terms of consumer beverage and food service cream, we expect to have this facility 70% utilized in FY 2024. From a food service perspective, Abby Yi joined the business in March and is already making a fantastic contribution to the business. Abby heads up food service, but also heads up the China market geography. We've commercialized sales into China for the Joyhana food service cream, and we're expecting a strong ramp-up of that in the second half of FY 2023. Just a reminder, our partnership is with Savencia, and although many of you may not have heard of Savencia, they are in fact the 12th largest dairy company in the world. Similar to that of Naiche, Abby is going through a process at the moment of completing a full market map and segmentation of opportunities as they relate to China in food service, but also across our other three business units. In terms of on-farm excellence, for the first time, this role now sits at the leadership team level, Director of On-Farm Excellence and Business Sustainability is with Charles Fergusson. Charles joined us in early February. A real focus there, not just on milk supply, but driving very strong relationships with our farmer suppliers. In addition, we've formed a Synlait farmer supplier leadership team, which we're working very, very closely with, ranging from the strategic direction of milk supply, also in terms of prioritizing the key tactical bits of execution that we need to focus on. Worth acknowledging also is Cyclone Gabrielle and the flooding events in the North Island that took place in recent times. Certainly from a safety perspective, albeit it did have a significant impact, all of our team, both internally at Synlait and farmer suppliers, were safe and accounted for. Acknowledging the challenges with roading, internet, and power outage disruptions, we collected all milk, and more importantly, ensured the welfare of cows on the farm. If I can briefly touch now on priorities and outlook. We remain very, very focused on our key priorities. Nothing is more important to us right now, above and beyond health and safety and food safety, than ensuring that we get the SAMR license through for the benefit of The a2 Milk Company and ourselves. Also ensuring, as I've mentioned, supporting the overall growth agenda of The a2 Milk Company. Onboarding our multinational customer, Synlait Pokeno is a key priority. Making sure that we move from stabilizing our SAP enterprise resource platform to actually delivering benefits that were always intended with SAP. Improving operational stability, we've touched on a range of different dynamics there that we're working hard to address. Of course, ensuring that we progress our ELT transformation to lift capability, culture, and accountability of that team and to have that cascade through the organization. Lastly, if I can touch on our guidance statement, as we updated the market on the 17th of March, the guidance we're providing is net profit after tax between NZD 15 million and NZD 25 million, acknowledging some key challenges across the business with advanced nutrition demand, operational stability, and the impacts of our ERP go live. Also it's important that we do call out the strong momentum and performance of our ingredients business and our consumer business and that we're now underway with our UHT foodservice cream. We will continue to manage a range of risks across the business and certainly not limited to the SAMR re-registration, the UHT volume ramp-ups, onboarding the multinational customer at Pokeno, a very tight labor market and operating in with very high inflationary cost pressures. Of course, these factors could impact Synlait's current guidance, and we are working very, very hard to ensure that there's more upside than downside. We'll look to provide a further update on our performance on the eighth of May at our Investor Day, up at Pokeno. Just, finally, a reminder of that agenda for the day, the opportunity to take a tour through the site. There'll be presentations from each of our executive leadership team, and there'll be a governance session with our Chair, Simon Robertson. On that note, I'd now like to open the call up to questions. Thank you. If you wish to ask a question via the phone, you need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type your question into your Ask a Question box and click Submit. Your first phone question comes from Matt Montgomerie from Forsyth Barr. Please go ahead. Hi, guys. Good morning. I might just start with quite an open-ended question. I'm just trying to further understand the events of the last three or four months a little bit more. You know, if we cast our minds back to early December at the ASM, you know, it felt as if the business was trudging along okay. Late December guidance was, you know, that it would be constrained to the first half, and it was more or less a timing issue. Then, you know, the reasonably material downgrade came last week. It appears to be advanced nutrition driven, so I'm just trying to understand further the mismatch here between, you know, I guess what you're saying and the fact that your key customer's guidance hasn't really changed. Just, yeah, a broader explanation on this dynamic, particularly the margins within that business, and why they're so depressed versus history. You know, despite the last results sort of reiterating that, you know, you think you can get back to normal levels for that business line? Thanks, Matt. Let me kick off with an overview of your question around demand, and then I'll hand to Rob in terms of margins. Two factors have played out in terms of demand reduction. One is a reduction in demand for this year, the other is a delay in go live with our multinational customer. If I can talk to the latter first. Effectively, in the last couple of weeks, it was confirmed to us that there would be a delay in go live, and that's just to do with how they've configured the first markets that we'll start selling product into. That's recent news to hand in terms of the majority of our demand and advanced nutrition obviously comes through The a2 Milk Company. We had an indication in late January that relative to the demand forecast we were working with, that that would be reduced, that was formalized during February. The process that we ran there is we took those formal demand demand signals, ran them through our Integrated Business Planning process, looked to understand the impact of those. Some pressure testing, as you can imagine, with the customer, an update of our forecast, and then as soon as we'd done that, we informed the market. It's worth making two points really clear. The a2 Milk Company have not reduced their demand forecasts with us post them going to the market with their mid-year results. Just to be crystal clear on that. The second, and it's a little bit more complicated, the shape of our P&L and the dynamic of our P&L is very different from that of The a2 Milk Company. I'll give you one example as it relates to the volume component of the P&L. We have four volume factors that createValue in our business. One is making base powder for the year we're in. The second is canning the product. The third is selling that completed product. That's within this year. We had a demand reduction there. The fourth dynamic is we have a view on the first half of our next financial year, and that determines what base powder we produce this year. Relative to the numbers we were working to, we reduced our demand in that space. Our dynamics are very different. The shape of our P&L is very different. We've gone through a robust Integrated Business Planning review. We've gone through a robust forecast update, as soon as we completed that exercise, we informed the market of the impact of that review. Thanks, Grant. I'll just talk to the margins. First of all, there's quite a few moving parts here, Matt. The first thing I'll touch on is the way we run our costing models at Synlait is we run a counterfactual model. What that means is our ingredients costs are driven off a theoretical ingredients producer cost. We adjust those costs each year by normal rates of inflation and various other things. What we've seen this year, and the other key point I'll make is all other costs get routed through to the nutritional business. What's happened this year, we've had a number of cost lifts, mainly in employee costs, but also in a whole lot of other areas. The nutritional business unit is getting lumbered with those costs. That's the first piece. You can argue whether theoretically that's the right thing to do, but that's how our costing models work here at Synlait. The second piece is, with the rapid increase in raw materials and other input costs, they have our pricing models work on a lag basis. Our pricing doesn't fully cover those. Initially that will wash through over future months. Our margins have been, I guess, have been squeezed through that process as well. They're the key factors that have squeezed our margins in nutritionals. Great. Thank you. I might just ask one more, and this is for you, Grant. I just wanna sort of double-click on, you know, the comments around forecasting mechanisms or your business integration plans within the business. Just acknowledging that, you know, there's been a couple of instances of this over recent times. Yeah, I mean, I suppose it's particularly important too, as the business attempts to diversify. Just trying to understand exactly what is going on behind the scenes, and the work that is done or you guys conduct through this demand signaling or forecasting process. Yeah. Look, we run a monthly rhythm, Matt. We pick up demand signals effectively on the first day of the month. We then work through a full demand review. Then we work through a full supply review. Then we do a reconciliation of both, and that includes an update in numbers. Then we finish the month off with a management business review, which effectively looks at historical performance, but more importantly, a view of future performance. That runs over a four-week cycle. The other thing that we have in the mix there is a product management review, which effectively looks at our innovation pipeline, and available capacity that we have across all of our plants. It's the Oliver Wight Class A program that we operate to, and it's, it does the heavy lifting. It's a very robust process. All right. Thank you. That's all from me. I'll come back with some more later. Cheers. Thank you. Your next question comes from Adrian Allbon from Jarden. Please go ahead. Good morning, team. Just, can you hear me okay? We can. Morning. Maybe just to simplify, I mean, obviously reasonably long, and sort of complicated answers to Matt's question, but if we were trying to attribute a NZD 30 million impact change, which is roughly, you know, NZD 50 million back down to NZD 20 million, like, and just listening to what you're saying and also just going through your statement, like in terms of loose buckets, could we put NZD 10 million against the SAP event, like, you know, sort of split 50/50 OpEx and sort of revenue loss? Sort of if I do this, then you can maybe... And then sort of the inflationary interest costs another NZD 15 million, and then sort of the demand change multi-net stuff about NZD 5 million. Is that sort of broadly an okay split of the NZD 30 million? Yeah, Adrian, I'll have a go at this. What I will say is, roughly 75% of the impact here is due to both demand and related production changes that are required. I'm not just talking about demand obviously for this financial year, but I'm talking about demand in FY 2024, which we look forward at and when we're making our base powder decisions, as Grant mentioned previously. We have had a big impact from our SAP and inflationary stuff, but it's probably more on the around 25%, maybe somewhere between 25% and 30% sort of range, if that makes sense. They are the buckets that we're working to. Okay. It's around the other way then. sort of, Yeah. Okay. Yeah. Yep. All right. Sort of less than 10 on that SAP and 20 on the sort of, 20 on the, on the chain and demand, the inflationary stuff punching through. Yeah. Yeah. Correct. Just in terms of, obviously the debt is pretty high. Like, just going through some of that stuff, is it kind of, broadly speaking, is about NZD 40 million of it related to the increase in A2 inventory? Then sort of NZD 80 million in the sort of finished goods, across the ingredient side, which is obviously related to the SAP stuff and hopefully you're trying to work down quite quickly? Yeah. A lot of it, that number that you're talking to sounds close actually on the ingredient side. There's kinda three buckets that I've been working to. One's obviously the ingredients phasing, which we absolutely expect to catch up in the second half. The second is we actually have paid out more advanced rates to farmers this year also than we had done the previous years. That's a component. The third component's around the costs increases and obviously a little bit on the interest costs as well. They are the three buckets. Okay. Just, like just coming back to where Grant started, I suppose, with the sort of the 2-year recovery now three. Like out of the sort of, out of that attribution and stuff, like what are the elements that run on into the sort of the two becoming three? What are the key ones for us to sort of be aware of? Yeah. I think, where I'd start is you've got, obviously your demand. Essentially what's happening is our demand is kinda delayed or moving out. That's the first component. We have obviously started to set up our cost structures in FY 2023 to service slightly higher demand. We need to, we'll have to manage that through. At the same time we're seeing underlying costs move up quite aggressively. We hope we can try and manage that, but that's the case. Then we've got the interest costs kinda coming in on that higher debt level. That is obviously offsetting with some really good performance in our ingredients business and consumer foods business. It's really probably what... from what we expected, Adrian, around demand slowly lifting up year -on -year. You know, when we started this recovery, it just hasn't really picked up or it's been delayed from what we anticipated. We also haven't seen the base powder business, which we've spoken about, with regards to China getting some of that base powder business. That hasn't eventuated as quickly as we kinda expected or anticipated. Okay. If I can just ask two final ones. Just like on your lower base powder view, I guess into first half 2024, is that like a, is that a macro view around birth rates or is that more of a function of cycling off this inventory sort of crossover for the, for the label changeover? That's clearly an update from A2 around their customer demand relative to what we had in our model. You know, in terms of market dynamics and market growth, and we're talking five months out next financial year, A2 Milk Company are better to talk to what they believe will play out end of this year and for next year. Sorry, just on the Pokeno, on the Pokeno customer, just obviously because this has slipped a few times. Like what commitments do you actually have like for that starting up at the end of the year and obviously critically into 2024? Like what sort of contractual commitments do you have? Yeah, look, we can't get into the details of the contract. But they've got really strong demand signals, and we play a really important part in terms of providing that supply to them. Look, as much as there is a delay by a quarter, which we're not happy with, it is what it is. Our challenge is to work with them to ensure that we catch up lost volumes within the first year or two of that go live. Okay. All right. I'll leave it there. I've probably snuck in a few more. Thank you. Your next question comes from Stephen Ridgewell from Craigs Investment Partners. Please go ahead. Hey, good morning. Just a first question on the FY 2023 guidance range for NZD 15 million-NZD 25 million. Just wondering if you can share with us a little bit more, you know, the allowances you've made for general inflationary and cost of debt pressures in the second half and, you know, you're confident that you've now made sufficient allowance for those pressures? Thanks. Hi, Stephen. Rob here. Look, yes, we have. We do anticipate, you know, we do anticipate there being probably some unknown costs that might pop out in the second half. We've allowed for that. We've allowed for some extra provision for even, you know, costs around stabilization for SAP and those sorts of things. In saying that, it's in our guidance statement, there's still a lot of moving parts here. You know, we're ramping up our UHT cream business. We're going through the SAMR audit process, and we're building inventory for A2 on that. There's a lot of pieces which need to come together. That's why we've been cautious with our guidance range. Okay, thanks. Then maybe just one more for you, Rob. you know, you had to provide a little bit more comfort, you know, that Synlait's on track to get net debt to EBITDA down to 3x-3.5 x. I know that's in your guidance statement, you know, from our back of the envelope numbers, that implies net debt of around about NZD 350-NZD 400, down from sort of NZD 518 or so you've just reported. I mean, how do you kind of bridge, you know, the net debt from where you are now to that kind of lower number in the second half? You know, I know there's some seasonality in the business, but I think maybe a little bit more explanation would be helpful to provide that comfort around your finances. Thanks. Yeah, no, that's a good question. Look, the 350-400 range, I see it being at the higher end of that range. We will see You know, we haven't sold much ingredients in the first half. That will come through in the second half and with the bottleneck, those constraints there, that'll come through. We do also have quite a bit happening in our second half with regards to production of base powder, production of lactoferrin and sales. There's quite a lot of activity there. We are conscious that we've also got higher costs coming through, but, you know, we've modeled it all out. That's where we think it's going to land. We're fairly confident we'll hit within that range. Okay, thanks. Maybe just one last one from me for Grant. I mean, I guess just following up on Adrian's questions around the delays at Pokeno, you know, and you attribute it to the customer delaying when they want to ramp up. I mean, can you just for the record, can you give us some confidence that, you know, the delays at Pokeno are not due to any kind of production issues at, on the Synlait side? I mean, is Synlait able to produce the, you know, the plant-based and formula product at the quality and volume that your customer requires? Can you give us some comfort there, please? Yeah, good clarifying question, Stephen. We've jumped through every hurdle, passed every audit to date, and we are good to go. The next big milestone for us is first lot to stock and then looking to ramp up. Again, look, we're disappointed in the delay, and we will push hard to recover that volume within the first year or two. Operationally, we're good to go. Okay. No, that's helpful, Grant. I guess, you know, and appreciate this timeless relationship, and it will depend how quickly that customer ramps up. You know, if all goes well from here, you know, would you hope to be pretty full at Pokeno by some point in FY 2025? Is that, you know, what you'll be planning for? Yeah, Stephen, I'll answer this. Look, obviously there's water to go under the bridge, yes, FY 2025 would expect to be very, you know, quite a lot fuller than we are at the moment, that's for sure. Our projections show a steady build from FY 2024 into FY 2025 is the best way to explain it. The numbers are good, solid, robust numbers. Thanks. That's all from me. Thanks, guys. Thank you. Your next question comes from Nick Mar from Macquarie. Please go ahead. Morning, guys. Just following up on the sort of base powder impacts. Can you just remind us sort of, I guess how much color a2 gives you in terms of forward demand versus what you guys have to make assumptions on? We obviously went through this in FY 2021, which was, you know, part of the problem and you sort of said you've aligned your processes to take less risk and it seems like there's been a challenge there again. Can you just talk through that in a little bit more detail? I won't get into too much detail, Nick, but the arrangement we've got with A2 is that we get a 12-month rolling forecast off them every month. That's what we work to. If the information changes, then we change our models accordingly. Right. In sort of January, February, you know, you would have had out to February next year. You were just taking a view on What, FY 2024? In terms of what you were producing for ahead of their demand and hence changing it downwards? Yeah. In terms of base powders this year, this financial year for next year, it's more around understanding the second half of this calendar year, so less about the first half of next calendar year. As I said, we worked through an update of the demand from August through until December. Off the back of that, relative to what we had in our model, we've reduced our base powder production in this financial year. Yeah. Just to be clear, you already had an update from A2 for that part of, you know, the August to December. Your model was already telling you a different number to that, and you had to revise it down, or the A2 model came down towards a number lower than what you had already previously had? It just doesn't add up if you already had 12 months of data and you're saying that you've taken too optimistic a view previously and had to revise that down for a period you already had a forecast from A2 from. Yeah. I'm not quite sure where you're going with that, Nick. We had a view of demand that we were working to for the A2 business, let's just say, for the entire calendar year. Late January, we got an indicative update that was firmed up in mid-Feb. We reran the numbers and effectively, that related to a reduction in demand for the second half of this financial year and the first half of next financial year. Okay. just in terms of the ingredients, is the majority of that contracted so you haven't taken the price risk on the existing inventories? Nick Mar. Rob Stowell here. It is. We're about 95% contracted at this point in the year. Really the big job for us is making sure we get that product on ships and exported before July. Have there been any sort of, kind of penalties from potential delayed shipments of that, those orders due to the SAP issues you've had? Yeah. No, really good question. We were concerned about that, particularly in the first quarter. We've managed to ride that out with no material discounting or cancellation of contracts, which is pleasing and probably a testament to the relationships that we've got with those customers. Okay. That's great. Thank you. Thank you. Your next question comes from Marcus Kiley from UBS. Please go ahead. Good morning. I just wonder if we can talk a little bit about the costs. Like, to be fair, when I look at the result, you know, the costs look to be a much bigger delta than the volumes. Yeah, I'm sort of interested, you know, to understand a little bit more about whether all these cost increases were effectively planned. Yeah, so, specifically, I just wondered if you can talk to, you know, the increase in SG&A, you know, and SAP costs. That lift of NZD 17 million and a half, you know, you would expect to annualize that into the full year and then ongoing? Yeah, no. Look, really good question. Probably the best way to explain it is we did plan for a lot of these costs. We knew we were going to do an SAP implementation. We knew it would be a wee bit bumpy, but actually it turned out to be a lot bumpier than we first anticipated. Those costs definitely increased. We also had some higher people costs, but just not to the extent that we've seen come through. We've had other areas like energy pop up, milk collection because of the fuel costs. We've also had this CO2 shortage and those costs have really come through higher than anticipated, really. My view on these costs is obviously some of these we will have to continue with into the future, but there's a lot of work that we could go in to see how we can do things differently, to see how we can take costs out, et cetera, going forward. That's a piece of work that we've started. It'll carry on into our budget process, where we do a zero-based budget approach as well. Just for, you know, for the guidance, is it fair enough to assume that, yeah, this NZD 17 million is annualized? No, I wouldn't annualize it. I think there's an element of one-off in there, but we need to work through it, do a little bit more work on it. I suppose the other element of cost increase came through the, you know, the nutritional gross margins. You know, I just wondered whether you could call out, Rob, you know, how, you know, how, what the quantum was, you know, when you talk about, you know, the delays to the adult product and, you know, the non-recourse costs, you know, which have gone up. First time I've heard of non-recourse costs, but, you know, could you call out, you know, how much collectively those were, which were obviously, you know, within the gross margin. Probably don't have all those numbers absolutely to hand. What I will say, some of our nutritional pricing co-contracts, we have the ability to pass on some cost to the customer around raw materials and such and other costs we can't. They sit with us and that is obviously impacting us here. We also have, you know, element of the increase in the cost you could argue should be allocated the ingredients business unit. The way we account it's gone through and into nutritionals. Most of it's gone through into the nutritionals actually. We simply need to just try and manage these costs and make sure at least we can either reduce them or manage them, such that they don't continue to erode margins going forward. I see in the notes just on the gross margin or cost of goods sold, there's a NZD 7 million increase in provisioning, which, you know, sounds like it's all related to nutritional, both infant formula and adult. Yeah. Is you know, is that gonna repeat or is that, you know, is that a one, you know, sort of a one-off, you know, limited to the first half? Yeah. No, that's in the financial statements. Look, that related to... It's, it's in the financial statements actually. That related to essentially some raw materials that we that we wrote down because they were either close to expiry or expired, and that was, that's as a result of past demand fluctuations. We should not see anywhere near the level of that sort of provisioning going forward, both because we see, you know, we've got demand at least either stable or increasing rate. We've got new customers coming on board, and we'll manage that far better with our new ERP system as well. The other callout within that is, you know, production issues, you know, with, you know, with trials. You know, one would assume that's the new adult customer and so, you know, is that the same sort of bucket of costs, you know, which, you know, you're referring to when you talk about the, you know, the costs associated with the delays to the start to the adult? Look, a lot of those costs... Yes, you're right. There is a lot of costs which through these projects that aren't all capitalized, both for the Customer S project and, you know, even the SAMR registration process. However, we do try and capitalize a lot of these trial costs to the balance sheet and amortize them over the length of the registration. That's generally how we account for it. Accounting rules dictate that we actually can't, you can't capitalize 100% of those costs. Some of those costs are washing through as well. And then just, secondly, I suppose when you, when you provided the update a couple of weeks ago, you know, I suppose there was an expectation of some level of extra detail around, you know, what you're assuming around infant formula volumes. Obviously there's nothing that I can see within the release. I just wondered, you know, if you're, you know, you wanna talk to, you know, what's in the guidance for infant formula volumes, you know, or whatever else you would, you'd like to point to. I suppose it sort of, it felt a little, light in terms of disclosure around there relative to what was said, previously. Look, at this stage, Marcus, we won't provide any more granularity in that regard. We'll certainly look to provide more of an update on the 8th of May. The critical component in all of this is for us to be really clear on all elements of demand across the four business units. We've got some more work to do to make sure that we're really confident around what that looks like for FY 2024 and beyond. I think we've got. Thanks for that, Marcus. I think we've got time for one more question. Otherwise, we'll leave it at that. Thank you very much. Thank you. Thank you. Your next question comes from Richard Barwick from CLSA. Please go ahead. Right. In the nick of time by the sounds. Grant and Rob, just wanted to clarify, I guess with the talk that this is the 2-year turnaround is now three years. Can we actually or do we need to change the definition of what this turnaround actually looks like? Previously you'd couched it in terms of an NPAT back to a pre-2020, FY 2020 level. Roughly, you know, NZD 70 million or NZD 70 million+ is what the turnaround should look like. In some of the drivers that you're talking about or the factors, you're talking about operating costs being up significantly. Does the turnaround NPAT, you know, is that still the right level to think about it or do we need to adjust that down for these higher operating costs? Yeah, thanks for that question, Richard. Let us give you a clearer position on that when we get together on the eighth of May. Look, I acknowledge that previously we'd talked about an exit run rate from this year that related to historical profitability in FY 2019. I think we need to let that go. Let us work through