SYNLAIT MILK LIMITED

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NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

You are invited to Synlait Milk Limited’s (Synlait) Special Shareholders’ Meeting on Wednesday, 18 September 2024 at 9.00am (NZST).

The Special Shareholders’ Meeting will be held in person at Synlait’s Dunsandel facility, located at 1028 Heslerton Road, RD13 Rakaia, Canterbury, New Zealand, and online via the Computershare meeting platform at: www.meetnow.global/nz

Further details about joining the meeting in person and online can be found on page 31 and in the accompanying Virtual Meeting Guide released with this Notice of Meeting.

KEY DATES AND TIMES (NZST) :

Voting/Proxy Forms to be received by:

9.00am on Monday, 16 September 2024

Record date for entitlement to vote: 5.00pm on Monday, 16 September 2024

Special Shareholders’ Meeting: 9.00am on Wednesday, 18 September 2024

RESOLUTIONS

Bright Placement – Ordinary Resolution 1 To consider and, if thought fit, pass the following resolution: That, subject to Ordinary Resolution 2 being passed, the issuance of 308,333,333 shares to Bright Dairy Holding Limited at an issue price of 60 cents per share, contemporaneously (or substantially contemporaneously) with the occurrence of the matters contemplated in Ordinary Resolution 2 and the Bank Refinancing, as described in the Notice of Meeting dated 20 August 2024, be approved for all purposes, including under NZX Listing Rules 4.2.1 and 5.2.1 and Rule 7(d) of the Takeovers Code.

Implementation of the matters contemplated by this resolution is conditional upon Ordinary Resolution 2 (detailed below) also being approved by the shareholders of Synlait and is subject to the other matters as described in this Notice of Meeting.

a2MC Placement and a2MC Settlement – Ordinary Resolution 2

To consider and, if thought fit, pass the following resolution: That, subject to Ordinary Resolution 1 being passed: (i) the issuance of 76,283,104 shares to The a2 Milk Company Limited (or, at its direction, a wholly-owned subsidiary of The a2 Milk Company Limited) at an issue price of 43 cents per share; and (ii) the settlement deed dated 16 August 2024 between Synlait, Synlait Milk Finance Limited, A2 Infant Nutrition Limited and The a2 Milk Company Limited becoming effective, in each case contemporaneously (or substantially contemporaneously) with the occurrence of the matters contemplated in Ordinary Resolution 1 and the Bank Refinancing and as described in the Notice of Meeting dated 20 August 2024, be approved for all purposes, including under NZX Listing Rules 4.2.1 and 5.2.1.

Implementation of the matters contemplated by this resolution is conditional upon Ordinary Resolution 1 (detailed above) also being approved by the shareholders of Synlait and is subject to the other matters as described in this Notice of Meeting.

Constitution Amendments – Special Resolution 1

To consider and, if thought fit, pass the following resolution: That, subject to Ordinary Resolution 1 being passed, Synlait Milk Limited’s constitution be amended, with effect from the issuance of 308,333,333 shares to Bright Dairy Holding Limited contemplated by Ordinary Resolution 1, as described in the Notice of Meeting dated 20 August 2024.

Implementation of this resolution is conditional upon Ordinary Resolution 1 (detailed above) also being approved by the shareholders of Synlait.

This is an important document and requires your immediate attention. You should carefully read it in its entirety (including the Independent Report from Northington Partners Limited that accompanies this Notice of Meeting as Appendix 2) before deciding whether or not to vote in favour of the resolutions. If you are in any doubt about what you should do, you should seek advice from your broker or your financial, taxation or legal adviser immediately.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

IMPORTANT INFORMATION

Purpose of this Notice of Meeting

The purpose of this Notice of Meeting is to:

inform you about, and enable you to understand the implications of, the Proposed Transactions requiring Synlait Milk Limited shareholder approval;
make you aware of the Special Shareholders’ Meeting to be held at Synlait’s Dunsandel facility, located at 1028 Heslerton Road, RD13 Rakaia, Canterbury, New Zealand, and online via the Computershare meeting platform at www.meetnow.global/nz; and
help you decide how to vote on the resolutions. If you choose not to vote you should be aware that whether the relevant resolution is passed or not will be determined solely by reference to the number of votes cast by shareholders who do vote on that resolution.

Voting/Proxy Form

Accompanying this Notice of Meeting is a Voting/Proxy Form to enable you to vote on each resolution by:

attending the Special Shareholders’ Meeting, whether in person or online; or
appointing a proxy to attend and vote on your behalf at the Special Shareholders’ Meeting.

You are urged to complete and return the Voting/Proxy Form as soon as possible if you do not plan to attend the Special Shareholders’ Meeting.

Sold your shares?

If you have sold your shares, please immediately hand this document and the accompanying Voting/Proxy Form to the purchaser or the agent through whom the sale was made, to be passed to the purchaser.

Your decision

This Notice of Meeting does not consider your individual investment objectives, financial situation, or needs. You must make your own decisions and seek your own advice in this regard.

The information and recommendations contained in this Notice of Meeting do not constitute, and should not be taken as constituting, financial advice.

If you are in any doubt as to what you should do, you should seek advice from your financial, taxation or legal adviser before making any decision regarding the Proposed Transactions.

Forward looking statements

This Notice of Meeting contains certain forward looking statements. You should be aware that there are risks (both known and unknown), uncertainties, assumptions and other important factors that could cause the actual conduct, results, performance or achievements of Synlait to be materially different from the future conduct, market conditions, results, performance or achievements expressed or implied by such statements or that could cause future conduct to be materially different from historical conduct. Deviations as to future conduct, market conditions, results, performance and achievements are both normal and to be expected.

Forward looking statements generally may be identified by the use of forward looking words such as ‘aim’, ‘anticipate’, ‘believe’, ‘estimate’, ‘expect’, ‘forecast’, ‘foresee’, ‘future’, ‘intend’, ‘likely’, ‘may’, ‘planned’, ‘potential’, ‘should’, or other similar words.

Neither Synlait nor any other person gives any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward looking statements in this Notice of Meeting will actually occur. You are cautioned against relying on any such forward looking statements.

Additional information available under Synlait’s continuous disclosure obligations

Synlait is subject to continuous disclosure obligations under the NZX Listing Rules which require it to notify certain material information to NZX. The ASX Listing Rules also require that Synlait immediately provides to ASX all the information which it provides to NZX that is, or is to be, made public. Market announcements by Synlait are available at www.nzx.com under the ticker code “SML” and at www.asx.com.au under the ticker code “SM1”. In particular, Synlait recommends that you read:

the Notice of Meeting dated 25 June 2024 in respect of the special meeting of shareholders relating to the Shareholder Loan;
the announcements dated 11 July 2024 in respect of the presentation and results of the special meeting of shareholders relating to the Shareholder Loan;

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

the announcement dated 17 July 2024 in respect of Synlait’s FY24 guidance withdrawal; and
the announcement dated 16 August 2024 in respect of Synlait and The a2 Milk Company having conditionally agreed to resolve all disputes subject to arbitration.

Effect of rounding

Several figures, amounts, percentages, prices, estimates, calculations of value and fractions in this Notice of Meeting are subject to the effect of rounding. Accordingly, actual calculations may differ from amounts set out in this Notice of Meeting.

Defined terms

Synlait may make additional releases to NZX and ASX prior to the Special Shareholders’ Meeting. Shareholders should carefully monitor Synlait’s market announcements prior to that meeting.

Capitalised terms set out in this Notice of Meeting have the meanings given to them in the Glossary contained Section 9 ( Glossary ) of this Notice of Meeting.

Currency

NZ RegCo

NZ RegCo has provided written confirmation that it does not object to this Notice of Meeting pursuant to NZX Listing Rule 7.1.1. However, NZ RegCo accepts no responsibility for any statement in this Notice of Meeting.

In this Notice of Meeting, a reference to $ is to New Zealand dollars, unless otherwise stated.

Date of this Notice of Meeting

This Notice of Meeting is given on Tuesday, 20 August 2024.

QUERIES:

If you have any queries in relation to this Notice of Meeting, please contact one of the following:

Synlait on: +64 (0) 21 269 4257 Computershare on: 0800 650 034 / +64 9 488 8777

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

	CONTENTS PAGE 1. 2. 3. 4. 5. 6. 7. 8. 9. Key Dates Letter From the Chair Bright Placement a2MC Placement and a2MC Settlement Other Important Information Frequently Asked Questions Notice of Special Shareholders’ Meeting Explanatory Notes Glossary APPENDIX 1: Required Information – Bright Placement DIRECTORY APPENDIX 2: Independent Report

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

1. KEY DATES

Indicative date and time (NZST)
Event
Tuesday, 20 August 2024
Notice of Meeting– date this Notice of Meeting was distributed
to shareholders.
Monday, 16 September 2024 at 9.00am
Closing– time and date for Voting/Proxy Forms for the Special
Shareholders’ Meeting to be submitted.
Monday, 16 September 2024 at 5.00pm
Voting Eligibility Time– for determining eligibility to vote at the
Special Shareholders’ Meeting.
Wednesday, 18 September 2024 at 9.00am
Special Shareholders’ Meeting– to be held in person at
Synlait’s Dunsandel facility, located at 1028 Heslerton Road,
RD13 Rakaia, Canterbury, New Zealand, and online via the
Computershare meeting platform at:www.meetnow.global/nz
If Ordinary Resolution 1 and Ordinary Resolution 2 are approved by shareholders
On Tuesday, 1 October 2024
Bright Placement– subject to all of the conditions to the Bright
Placement (including the Bank Refnancing) being satisfed,
Synlait will issue 308,333,333 shares to Bright at an issue price
of 60 cents per share contemporaneously with the issue of
shares under the a2MC Placement.
a2MC Placement– subject to all the conditions to the a2MC
Placement (including the Bank Refnancing) being satisfed,
Synlait will issue 76,283,104 shares to a2MC at an issue price of
43 cents per share contemporaneously with the issue of shares
under the Bright Placement.
a2MC Settlement– subject to completion of the Bright
Placement, the a2MC Placement and the Bank Refnancing, and
a2MC making the required payment under the a2MC Settlement
Deed, the a2MC Settlement Deed will become efective.
If Special Resolution 1 is also approved by shareholders
On Tuesday, 1 October 2024
Constitution Amendments– subject to completion of the Bright
Placement, the Existing Constitution will be amended and the
Constitution Amendments will take efect.

All dates in the table above are indicative only. In particular, the timing of completion of the Proposed Transactions will depend on the timing of the satisfaction of their various conditions, as described in this Notice of Meeting. Any material updates to the timetable will be announced via the announcement platforms of NZX and ASX and notified at: www.synlait.com

All references to time in this Notice of Meeting are references to New Zealand Standard Time (NZST), unless otherwise stated. Any obligation to do an act by a specified time in NZST must be done at the corresponding time in any other jurisdiction.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

2. LETTER FROM THE CHAIR

20 August 2024

Dear shareholders

On behalf of the Synlait board, and as a critical next step toward addressing Synlait’s debt position, this Notice of Meeting outlines important information related to the proposed issuance of approximately $217.8 million of new equity capital. Shareholders are being asked to approve:

a $185 million issue of shares to Bright Dairy Holding Limited increasing its holding from 39.01% to 65.25%, as further detailed in Section 3 ( Bright Placement ) of this Notice of Meeting (the Bright Placement ); and
a $32.8 million issue of shares to The a2 Milk Company (the a2MC Placement ) resulting in its holding of 19.83% being retained, and a settlement with The a2 Milk Company and A2 Infant Nutrition Limited with respect to various disputes (the a2MC Settlement ), as further detailed in Section 4 ( a2MC Placement and a2MC Settlement ) of this Notice of Meeting.

The above matters are inter-conditional, such that if one resolution is not passed, neither of the resolutions will be implemented.

Shareholders are also being asked to approve certain administrative changes to the constitution of Synlait, which would become effective on completion of the Bright Placement, to remove provisions which shall cease to apply and shall be deemed to be deleted (and therefore redundant) under the terms of the existing constitution upon Bright Dairy Holding Limited increasing its shareholding above 50%.

The passing of the resolutions set out in this Notice of Meeting provides Synlait with authority to implement the matters contemplated by them. Actual implementation of the matters themselves, as well as the refinancing of Synlait’s existing bank facilities, are also interconditional, meaning that the matters must all occur contemporaneously (or substantially contemporaneously) with each other.

Reset of Synlait’s balance sheet

The proposed equity raise and concurrent refinancing of Synlait’s existing bank facilities represents the second stage of a process to strengthen Synlait’s balance sheet, by raising additional equity and reducing the amount of debt, and prioritise returning to a strong free cash flow position again and, in time, sustainable profitability and growth.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

Bright Dairy International Investment Limited’s $130 million shareholder loan, which was approved at a Special Shareholders’ Meeting, and subsequently drawn down to meet the bank payment on 15 July, was very important to our future and completed the first step towards resetting Synlait’s balance sheet. Thank you to Bright for its substantial and steadfast financial support, and to all our shareholders for your vital support at that critical juncture.

The further financial support, in the form of approximately $217.8 million of new equity capital at a premium to Synlait’s current share price, is proposed to come from Synlait’s two major shareholders who together hold around 60% of Synlait’s shares (and, upon completion of the equity raise, will together hold around 85% of Synlait’s shares). Based on current circumstances, including the risks involved in participating in an equity raise, other shareholders are not being asked to participate. See further information below under the heading “What is the impact on shareholders and why was a placement to the two major shareholders chosen?”.

The equity raise will only complete if it does so concurrently with the proposed refinancing of Synlait’s existing bank facilities with proposed new facilities of up to $450 million. These new facilities are expected to mature 12 months from the date of closing of the refinancing, replace the existing facilities, and be additional to the $130 million Bright Dairy International Investment Limited shareholder loan. Further information in relation to the proposed refinancing of Synlait’s existing bank facilities is set out in Section 5 ( Other Important Information ) of this Notice of Meeting.

All Shareholders are encouraged to vote on the resolutions to approve the matters outlined above at the Special Shareholders’ Meeting on Wednesday, 18 September 2024.

If both of the resolutions relating to the Bright Placement and the a2MC Placement and the a2MC Settlement are approved by shareholders (and all conditions under the associated documents have been satisfied, as further explained in this Notice of Meeting), Synlait will issue shares to Bright Dairy Holding Limited and The a2 Milk Company on the terms of the Bright Placement and the a2MC Placement (and the equity raise condition

under the proposed concurrent refinancing of our bank facilities will be satisfied), and the a2MC Settlement will become effective. Completion of the Proposed Transactions will also provide the basis for Synlait to seek to restore farmer supplier confidence and the withdrawal of cessation notices received from farmers who have sought to terminate their milk supply agreements. Farmer suppliers have signalled that they want to see Synlait’s balance sheet deleveraged, so advance rates can be lifted further. Delivering the Proposed Transactions will help to enable this and seek to ensure that Synlait has sufficient milk supply to satisfy its obligations to its customers.

Importance of the resolutions

Unless the resolution relating to the Bright Placement is passed, the resolution relating to the a2MC Placement and the a2MC Settlement is passed and the refinancing of our bank facilities occurs, Synlait will not be able to reset its balance sheet by way of using the approximate proceeds of $217.8 million to repay a portion of its third party bank debt and, including as a result of the refinancing, reduce its overall debt position. Further, the disputes relating to the a2MC Settlement will remain unresolved. In this situation, Synlait would likely need to cease trading and initiate a formal insolvency process unless it were to become clear that further support would be forthcoming from its existing banks. Further, even if the Board were to form the view in these circumstances that Synlait could continue trading, the existing banks may seek to initiate a formal insolvency process, such as appointing a receiver, were Synlait to default on its obligations to those banks. All tranches of the existing facilities (other than tranches with a combined limit of approximately $62 million) are due to mature on 1 October 2024 and all amounts outstanding under those tranches must be repaid by Synlait on or before that date if not refinanced.

Key terms of the Bright Placement

The issue price of 60 cents per share for the Bright Placement reflects a 100% premium to the Synlait closing share price on the NZX Main Board on 15 August 2024 (which was the last undisturbed share price prior to announcement of the a2MC Settlement and a2MC’s support of an equity raise), and a 40% premium to the issue price of 43 cents per share for the a2MC Placement. The issue price under the Bright Placement has been negotiated on an arms’ length basis between Bright Dairy Holding Limited and the Independent Directors of Synlait,

1 Please refer to the Independent Report attached as Appendix 2 to this Notice of Meeting for further information in relation to the valuation range and the associated methodology, qualifications and assumptions. In particular, see sections 5.1 (Valuation Approach), 5.2 (Valuation Methodology), 5.3 (Valuation Summary) and 5.4 (Key Assumptions) of the Independent Report. Section 5.0 (Company Valuation) of the Independent Report sets out various valuation models including an alternative insolvency valuation.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

with the input of external financial advisers for both parties. It includes a premium for control above the current market price of Synlait shares, and is within the valuation range of 46 cents to 83 cents per share[1] determined by Northington Partners in the Independent Report in Appendix 2 to this Notice of Meeting. Further information about the premium for control is set out in Section 3 ( Bright Placement ) of this Notice of Meeting.

The Bright Placement would result in Bright Dairy Holding Limited increasing its shareholding percentage from 39.01% to 65.25%, giving it an increased level of control over Synlait compared to its position today. As a result of Bright Dairy Holding Limited’s shareholding percentage exceeding 50%, its specific governance rights in Synlait’s constitution shall cease to apply and shall be deemed to be deleted, and it will instead have the rights that accrue to any majority shareholder of an NZX Listed Company under the Companies Act, subject to the NZX Listing Rules. The amendments proposed to the constitution of Synlait will remove the provisions that will become redundant upon Bright Dairy Holding Limited’s shareholding increase. The rights that will accrue to Bright Dairy Holding Limited as a majority shareholder will include it having the right to appoint such number of Directors as it sees fit, by virtue of being able to control an ordinary resolution of Synlait, subject to the restrictions contained in Synlait’s constitution and the NZX Listing Rules. Please refer to Section 3 ( Bright Placement ) of this Notice of Meeting for further information about the implications of Bright Dairy Holding Limited increasing its shareholding percentage.

Key terms of the a2MC Placement and the a2MC Settlement

The a2MC Placement will result in The a2 Milk Company retaining its 19.83% shareholding in Synlait. The issue price of 43 cents per share for the a2MC Placement reflects a 43% premium to the Synlait closing share price on the NZX Main Board on 15 August 2024 (which was the last undisturbed share price prior to announcement of the a2MC Settlement and a2MC’s support of an equity raise). The issue price under the a2MC Placement has been negotiated on an arms’ length basis between the Independent Directors and a2MC and with the input of external financial advisers for both parties. It is less than the issue price being paid under the Bright Placement, as the issue price under the Bright Placement includes a premium for control. It is also below the valuation range of 46 cents to 83 cents per share determined by Northington Partners in the Independent Report in Appendix 2 to this Notice of Meeting, and is a 8% discount to the theoretical price of 0.47 cents per share at which Synlait’s shares would trade immediately following settlement of the Bright Placement and the a2MC Placement.[2]

The a2MC Settlement is a comprehensive settlement of the disputes that Synlait has been involved in with The a2 Milk Company. The a2MC Placement and a2MC Settlement will not occur unless the Bright Placement and the refinancing of our existing bank facilities occur concurrently or substantially concurrently with the a2MC Placement and the a2MC Settlement. Further information about the a2MC Placement and the a2MC Settlement is set out in Section 4 ( a2MC Placement and a2MC Settlement ) of this Notice of Meeting.

Use of proceeds

The change in Bright Dairy Holding Limited’s shareholding will also constitute a change of control for the purposes of Synlait’s Bonds and certain agreements to which Synlait is party. Further information as to what this means for Bondholders and for Synlait is contained in Section 3 ( Bright Placement ) of this Notice of Meeting.

The Bright Placement will not occur unless the a2MC Placement, the a2MC Settlement and the refinancing of our existing bank facilities all occur concurrently or substantially concurrently with the Bright Placement.

The gross proceeds to be received by Synlait from the Bright Placement and the a2MC Placement (if completed) will be approximately $217.8 million. The amount after costs will be applied to repay outstanding bank debt such that, when combined with the refinancing, Synlait will have facilities available to it to improve its ability to pursue its long-term strategy, to meet its expected working capital and other corporate requirements and to allow for the repayment of the Bonds on maturity in December 2024 or earlier if the redemption rights triggered by the Proposed Transactions are exercised (see Section 3 ( Bright Placement ) of this Notice of Meeting for further details). The Proposed Transactions and refinancing of our existing bank facilities will result in a reduction in Synlait’s debt compared to its earnings.[3]

2 See footnote 1 on page 7 and footnote 8 on page 22 of this Notice of Meeting.

3 Synlait’s senior debt to EBITDA ratio (calculated on the same basis as under Synlait’s existing bank facilities) as at 31 July 2024 was 6.2x. If the equity proceeds had been received and the refinancing of our existing bank facilities had occurred at that time, this ratio would have been 1.7x. These numbers have been calculated for illustrative purposes only and are based on preliminary and unaudited FY24 financials. The numbers also assume that the Proposed Transactions and Bank Refinancing occur prior to FY24 year-end, which will not be the case.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

Approvals required

The shareholder vote to approve the resolution relating to the Bright Placement and the resolution relating to the a2MC Placement and the a2MC Settlement will take place at the Special Shareholders’ Meeting. In broad terms:

the Bright Placement will require approval by way of an ordinary resolution (greater than 50% of those shares entitled to vote and voting) as the Bright Placement is an issuance of shares requiring approval under NZX Listing Rule 4.2.1, a “Material Transaction” with a “Related Party” (as those terms are defined in the NZX Listing Rules) requiring approval under NZX Listing Rule 5.2.1 and an issuance which will result in an increase to Bright Dairy Holding Limited’s 20% or more holding of voting rights in Synlait requiring approval under Rule 7(d) of the Takeovers Code – all shareholders other than Bright Dairy Holding Limited and its “Associated Persons” and “associates” (as those terms are defined in the NZX Listing Rules and the Takeovers Code respectively) can vote on Ordinary Resolution 1; and
the a2MC Placement will require approval by way of an ordinary resolution (greater than 50% of those shares entitled to vote and voting) as the a2MC Placement constitutes a “Material Transaction” with a “Related Party” (as those terms are defined in the NZX Listing Rules) requiring approval under NZX Listing Rules 4.2.1 and 5.2.1. As the a2MC Placement and the a2MC Settlement Deed are each expressed to be conditional upon the other occurring, Synlait has included the coming into effect of the a2MC Settlement Deed as part of the approval sought in Ordinary Resolution 2 –The a2 Milk Company and its “Associated Persons” (as that term is defined in the NZX Listing Rules) may not vote in favour of Ordinary Resolution 2. All other shareholders can vote on Ordinary Resolution 2.

The shareholder vote to approve the amendments to Synlait’s constitution will also take place at the Special Shareholders’ Meeting, and will require approval by way of a special resolution (75% or more of those shares entitled to vote and voting) – all shareholders can vote on Special Resolution 1. Implementation of Special Resolution 1 is conditional upon Ordinary Resolution 1 also being approved by those shareholders entitled to vote on Ordinary Resolution 1 and voting.

What is the impact on shareholders and why was a placement to the two major shareholders chosen? The size of the required recapitalisation is significant. The gross proceeds to be raised under the equity raise represent around three times Synlait’s current market

capitalisation. It is highly challenging to raise that amount of new equity capital in light of Synlait’s financial position and underperformance. Accordingly, after taking external financial advice, the Independent Directors formed the view that the optimal offer structure for the company and its shareholders is with the support of its two major shareholders via the Bright Placement and the a2MC Placement.

In forming that view, the Independent Directors carefully considered the impact on shareholders other than Bright Dairy Holding Limited and The a2 Milk Company, including the dilution of such shareholders’ aggregate shareholding percentage from 41.2% to 14.9% on completion of the Bright Placement and a2MC Placement. The Independent Directors also weighed the benefit to shareholders of extending participation to all shareholders under a pro rata offer structure (with shares likely needing to be issued at a significant discount to market price) against the reasons why the current structure (with shares being issued at a significant premium to market price) was selected.

The recapitalisation will involve the two major shareholders putting in new money. Although the recapitalisation is to achieve a reset of Synlait’s balance sheet, the Independent Directors consider that the risk level of such an additional investment in Synlait shares given our current financial situation is high. The Independent Directors concluded that this recapitalisation should only be undertaken with major shareholders who have a detailed understanding of the business and a willingness to subscribe at a premium to the market price. Bright Dairy Holding Limited is the largest shareholder with four Bright appointed Directors on the Board, and The a2 Milk Company is the major customer and second largest shareholder. The Independent Directors granted Bright Dairy Holding Limited and The a2 Milk Company access to undertake due diligence on Synlait in an expedited process. Each of these major shareholders were able to form their own view on the merits and the risks of participating in the equity raise.

Further, the selected structure also provides the greatest certainty of raising sufficient equity proceeds in the shortest timeframe. The Independent Directors’ view is that a pro rata offer to all shareholders would ultimately have been largely taken up by the two major shareholders in any event, by way of their respective pro rata entitlements as well as the shortfall not taken up by other shareholders. Given Synlait’s recent challenges, the Independent Directors believe that participation by Synlait’s other shareholders even at a significant discount to Synlait’s share price, would have been very low. As such, a pro rata structure was considered by the Independent Directors to be very unlikely to raise

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

meaningful capital from investors other than Bright Dairy Holding Limited and The a2 Milk Company. For these reasons, the Independent Directors decided that the selected structure is better for Synlait than a deeply discounted pro rata offer available to all shareholders.

The business will also continue to have a focus on sustainability, as this forms a core part of Synlait’s right to play when it comes to retaining and growing all stakeholder groups.

Independent Report

The Board does however acknowledge the strong support retail shareholders have provided to Synlait to date, especially with the recent approval of the $130 million Bright Dairy International Investment Limited shareholder loan. The Board is committed to restoring confidence in Synlait for the benefit of all its stakeholders.

Synlait’s long-term strategy

Synlait’s long-term strategy remains focused on its Advanced Nutrition and Foodservice businesses, where we believe that we are well-positioned to take advantage of emerging customer demand trends.

The development and planned growth of our Advanced Nutrition business is centred around expanding our Early Life and Adult Nutrition offerings in China and throughout Southeast Asia, where Bright is also present. Our team is also focused on accelerating the growth of the Foodservice UHT cream business through product innovation and growing our distribution partnerships in China and Southeast Asia. The performance of these two businesses will be underpinned by a well-run and disciplined Ingredients business.

Additional drivers of growth for Synlait will come from further improvements in asset stability and utilisation, and yield and efficiency. We also remain steadfast in our commitment to maintaining strong cost control, to underpin our financial stability, as well as retaining our high-quality milk supply, enabled by our market-leading Lead With Pride on-farm excellence programme.

In April, Synlait announced it was undertaking a strategic review of its North Island assets, including its manufacturing facility in Pokeno and its blending and canning facility in Auckland. The rationale for the strategic review was the Board’s commitment to exploring the highest-value ownership structure of these assets to maximise value for all shareholders. The assets’ utilisation has been a challenge and options under consideration include changing the products (or mix of products) manufactured at the facilities, a divestment in whole or part or another form of commercial arrangement such as a joint venture or leaseback. The strategic review was expected to take several months. It is now nearing the final stages, and Synlait expects to make a further announcement before it releases its full-year results at the end of September.

In accordance with the NZX Listing Rules and the Takeovers Code, the Board has commissioned an independent report from Northington Partners (refer to the Independent Report in Appendix 2 to this Notice of Meeting) for the benefit of shareholders who are not prohibited from voting in favour of, or on, the relevant resolution to support their consideration of the resolution to enter into the Bright Placement and the resolution to enter into the a2MC Placement and for the a2MC Settlement to come into effect. A summary of some of the key conclusions reached by Northington Partners is set out in Section 7 ( Notice of Special Shareholders’ Meeting of this Notice of Meeting under the heading “Conclusions from Independent Report”. Overall, Northington Partners concludes in its Independent Report that: (a) on balance and having regard to all relevant factors, the merits of the Bright Placement, the a2MC Placement and the a2MC Settlement outweigh the negative aspects and are in the best interests of existing Synlait shareholders; and (b) in its opinion, the terms and conditions of both the Bright Placement and the a2MC Placement and the a2MC Settlement collectively are fair to Synlait shareholders not associated with Bright or a2MC. Shareholders should carefully read the Independent Report in full.

Voting intentions of major shareholders

The a2 Milk Company is eligible to vote on Ordinary Resolution 1 relating to the Bright Placement, and Bright Dairy Holding Limited is eligible to vote on Ordinary Resolution 2 relating to the a2MC Placement and the a2MC Settlement.

The a2 Milk Company has confirmed that it intends to vote in favour of the resolution relating to the Bright Placement, subject to the independent directors not changing or withdrawing their recommendation as expressed below. As the holder of 19.83% of the shares (which equates to approximately 33% of the votes eligible to be cast on Ordinary Resolution 1 as a result of Bright Dairy Holding Limited not being able to vote its shareholding on that resolution), The a2 Milk Company’s vote will be influential in determining the outcome of the resolution to approve the Bright Placement.

Bright Dairy Holding Limited has confirmed that it intends to vote in favour of the resolution relating to the a2MC Placement and the a2MC Settlement. As the holder of 39.01% of the shares (which equates to approximately

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

49% of the votes eligible to be cast in favour of Ordinary Resolution 2 as a result of The a2 Milk Company not being able to vote its shareholding in favour of that resolution), Bright Dairy Holding Limited’s vote is expected to determine the outcome of the resolution to approve the a2MC Placement and the a2MC Settlement coming into effect.

Recommendation in relation to the Bright Placement, the a2MC Placement and the a2MC Settlement

The Independent Directors fully support the Bright Placement, the a2MC Placement and the a2MC Settlement as outlined in this Notice of Meeting and unanimously recommend that shareholders vote in favour of Ordinary Resolution 1 and Ordinary Resolution 2 at the Special Shareholders’ Meeting (including the allotment of shares under Rule 7(d) of the Takeovers Code). The Independent Directors are recommending this approval to shareholders as they believe it is the best way to reset Synlait’s balance sheet and provide a platform to return to sustainable growth. The Directors appointed by Bright Dairy Holding Limited, being Leon Fung, Sihang Yang, Tao Zhang and Yi Zhu, have abstained from making a recommendation because of Bright Dairy Holding Limited’s involvement in the Proposed Transactions.

Recommendation in relation to the Constitution Amendments

All Directors support the proposed amendments to Synlait’s constitution and unanimously recommend that shareholders vote in favour of Special Resolution 1. Your vote is important, regardless of how many shares you own. I strongly encourage you to exercise your right to vote on this important matter.

Please read this Notice of Meeting carefully. It contains important information which you should consider before you vote. You may also wish to seek independent legal, financial, taxation and other professional advice when considering your vote.

We look forward to your participation in the upcoming Special Shareholders’ Meeting on Wednesday, 18 September 2024 at 9.00am.

Yours sincerely

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George Adams Chair

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

3. BRIGHT PLACEMENT

The details of the Bright Placement are set out below. These have been the subject of robust and independent negotiations between Synlait, through the Independent Director committee, and Bright.

Bright has agreed to subscribe for 308,333,333 fully paid ordinary shares in Synlait at the Bright Issue Price, each payable in cash in full on issuance in accordance with the terms of the Bright Commitment Letter. The Bright Placement will not occur unless:

Ordinary Resolution 1 and Ordinary Resolution 2 as set out in this Notice of Meeting are passed;
the conditions precedent to the Bright Commitment Letter are satisfied, being:
the Independent Directors unanimously recommending that the shareholders of Synlait vote in favour of Ordinary Resolution 1;
Synlait providing evidence to Bright that it has used its reasonable endeavours to obtain the consent of counterparties to certain customer and supplier contracts to the change of control of Synlait that will result from the completion of the Bright Placement;
Ordinary Resolution 1 as set out in this Notice of Meeting being passed; and
Bright obtaining all governmental approvals, filings and registrations required under applicable laws of the People’s Republic of China for the Bright Placement, including all approvals, filings and registrations required by the People’s Republic of China National Development and Reform Commission or its designated local authorities, the People’s Republic of China Ministry of Commerce or its designated local authorities, and the People’s Republic of China State Administration of Foreign Exchange or its designated local authorities or its designated handling bank for the Bright Placement; and
the a2MC Placement, the a2MC Settlement and the Bank Refinancing all occur concurrently or substantially concurrently with the Bright Placement.

Bright has the right to terminate its obligations under the Bright Commitment Letter if the offers under the Bright Placement and the a2MC Placement are withdrawn, or if any of the conditions precedent referred to above are not satisfied (or waived, if capable of waiver, by Bright).

The shares are expected to be issued to Bright under the Bright Placement on Tuesday, 1 October 2024. The aggregate issue price for the Bright Placement is $184,999,999.80.

Key terms of the Bright Placement

Issuer	Synlait Milk Limited
Subscriber	Bright Dairy Holding Limited
Conditions	As above
Number of shares	308,333,333 ordinary shares
Share price	$0.60 per share
Issuance date	Tuesday, 1 October 2024

Premium for control

Given the Bright Placement will result in Bright’s shareholding exceeding 50%, Bright will, following completion of the Bright Placement, have voting control of Synlait (as further described below). The Independent Directors believe that under such circumstances, the Bright Issue Price of 60 cents per share represents a fair and reasonable premium for Bright obtaining that control. Refer to item 1 of table 2 in section 1.3 of the Independent Report in Appendix 2 to this Notice of Meeting for further information.

The Bright Issue Price reflects:

a 100% premium to Synlait’s closing share price on the NZX Main Board on 15 August 2024 (which was the last undisturbed share price prior to announcement of the a2MC Settlement and a2MC’s support of an equity raise);
a 94% premium to VWAP calculated over the 3-month period to 15 August 2024;
a 55% premium to VWAP calculated over the 6-month period to 15 August 2024; and
a 40% premium to the a2MC Issue Price.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

The premium to Synlait’s closing share price on the NZX Main Board on 15 August 2024 (which was the last undisturbed share price prior to announcement of the a2MC Settlement and a2MC’s support of an equity raise) and the VWAP calculated over the 3-month period to 15 August 2024 are materially higher than the NZX average takeover premiums for the last trading day, and the VWAP calculated over the 3-month period, prior to the announcement of the relevant takeover of 41% and 37% respectively, and the NZX median takeover premiums for those timeframes of 34% and 29% respectively.[4] The Independent Directors believe that longer VWAP timeframes (e.g. 12 months) are less relevant to the current circumstances given the significantly challenged operational and financial performance of the business over the last 12 months that has resulted in a number of earnings downgrades over such a period.

In reaching this view, the Independent Directors note the limited alternative options available to Synlait.

Bright Deed Poll

Pursuant to the terms of the Bright Deed Poll and for the purposes of ASX quotation requirements in respect of the new shares to be issued to Bright, Bright has:

undertaken not to sell, assign or otherwise dispose, or transfer the effective control, of the shares the subject of the Bright Placement for a period of 12 months from the date of allotment of such shares, subject to certain exceptions, including a transfer under a takeover offer, scheme of arrangement or share buyback, a transfer to a related company, a transfer under a security interest in favour of any bona fide lender, a transfer to a wholesale, institutional or sophisticated investor who agrees to be bound by an equivalent transfer restriction under a deed poll for the remainder of the 12 month period or if Synlait issues a cleansing notice at the time of any sale or as a result of a requirement of applicable law; and
authorised Synlait to apply a holding lock, meaning that Computershare, being the share registrar that manages the Synlait share register, will be able to ensure that the shares the subject of the Bright Placement will not be able to be traded for 12 months from the date of allotment of such shares, subject to certain exceptions summarised above.

4 NZX average takeover premiums have been calculated by reference to publicly announced takeovers over $100 million (by way of scheme of arrangement and full and partial takeover offers) of a group of 17 NZX listed issuers, excluding outliers above 100% and below 20%, in the period from February 2016 to November 2023 and uses VWAP for the relevant timeframe prior to the announcement of the relevant takeover transaction. NZX median takeover premiums have been calculated by reference to publicly announced takeovers over $100 million (by way of scheme of arrangement and full and partial takeover offers) of a group of 17 NZX listed issuers, applying no exclusions, in the period from February 2016 to November 2023 and uses VWAP for the relevant timeframe prior to the announcement of the relevant takeover transaction.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

Impact on Bright’s shareholding and control rights

The Bright Placement will result in Bright increasing its shareholding in Synlait from 39.01% to 65.25%. As a result of Bright’s shareholding exceeding 50% upon completion of the Bright Placement, its specific governance rights in the Existing Constitution will cease to apply and be deemed to be deleted, and instead it will have such rights that accrue to any majority shareholder of an NZX Listed company under the Companies Act and subject to the NZX Listing Rules. The changes proposed to the Existing Constitution will remove the provisions that will become redundant at this point.

The rights that will accrue to Bright as a majority shareholder of Synlait will include Bright ultimately having the right to appoint such number of Directors as it sees fit by virtue of being able to control an ordinary resolution of Synlait. That right will be subject to the restrictions contained in the Amended Constitution and the NZX Listing Rules, including with respect to residency of directors, the maximum number of directors, the minimum number of independent directors and director rotation.

The table below summarises the key governance rights that Bright has under the Existing Constitution (and the rights Bright is proposed to have under the Amended Constitution), the Companies Act and the NZX Listing Rules before and after the Bright Placement.

Issue Current Position	After Bright Placement
Special constitutional rights Yes, as noted below	No, governed by Companies Act and NZX Listing Rules
Bright’s right to appoint/elect Directors Bright can appoint four out of eight Directors (and control the appointment of the Board appointed Director) Bright cannot vote on the election of the three Independent Directors No restriction on Bright appointed Directors holding ofce without re-election past the third annual meeting following appointment or three years, whichever is longer	The Amended Constitution provides for a Board of up to eight Directors, and Bright can vote on and therefore determine the election of all Directors A table setting out the annual meeting at which each of the current Bright appointed Directors will next be required to retire is set out below:
	Bright appointed Director Annual meeting at which Bright appointed Director must retire
	Sihang Yang FY24
	Yi Zhu FY25
	Leon Fung FY26
	Tao Zhang FY26
	Each of these Directors will be eligible for re-election at the relevant annual meeting and, if so re-elected, will hold ofce until the third annual meeting following their re-election or three years, whichever is longer
Board’s right to appoint the Board appointed Director One, appointed by the remainder of the Board for up to a three year term by a majority decision (i.e., Bright appointed Directors can also control the outcome of the appointment of this Director)	None
Number of Independent Directors Minimum of three	Minimum of two
New Zealand resident directors Minimum of two	Minimum of two
Ability to control voting decisions of the Board Bright can appoint or control the appointment and removal of up to fve out of the eight Directors (including via the Board’s right to appoint the Board appointed Director), allowing it to control the outcome of all Board decisions (where the matter does not relate to Bright)	With a majority shareholding, Bright will be able to control the appointment and removal of all of the Directors, up to a maximum of eight Directors, made up of at least two Independent Directors and up to six non-independent Directors. Those non-independent Directors will have the power to control all Board decisions, except in limited circumstances if they are restricted from voting

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

Another outcome of Bright holding more than 50% but less than 90% of the voting rights in Synlait is that, under Rule 7(e) of the Takeovers Code, Bright will be able to increase the percentage of voting rights it holds or controls in Synlait by 5% or less from the lowest percentage of the voting rights it holds or controls in any 12-month period without being in breach of the fundamental rule under the Takeovers Code. The fundamental rule provides that a person who already holds or controls 20% or more of the voting rights in Synlait cannot (together with its associates) become the holder of an increased percentage of voting rights in Synlait (other than in compliance with the Takeovers Code or through an exemption). Bright will not be able to increase the percentage of the voting rights it holds or controls in Synlait in this manner for 12 months from the date of allotment of shares to Bright under the Bright Placement.

Change of control under Synlait agreements

In addition, a2MC’s commitment to purchase certain products exclusively from Synlait under the terms of the NPMSA would cease to apply following a change in control of Synlait as a result of the Bright Placement. However, as set out in Section 4 ( a2MC Placement and a2MC Settlement ) of this Notice of Meeting the settlement agreed with a2MC provides that this exclusivity will cease to apply from 1 January 2025 in any event and, as a result, a2MC has agreed not to exercise its right to terminate exclusivity following a change of control of Synlait provided the conditions to the a2MC Settlement are satisfied on or before 7 October 2024 and a2MC’s rights are not otherwise prejudiced.

Synlait’s listed bonds

Synlait has $180 million of subordinated Bonds outstanding which are quoted on the NZX Debt Market. The Bonds mature on 17 December 2024 if not redeemed prior.

Under the Bond documents, if a “Change of Control Event” occurs, Bondholders may choose to redeem their Bonds

before the maturity date (subject to no “Interest Deferral Condition” existing or resulting from the redemption (see below)). A “Change of Control Event” includes if any circumstance or event arises which results in a person (together with its associates) holding or controlling more than 50% of the voting rights of Synlait. This would occur at the time of completion of the Bright Placement.

An “Interest Deferral Condition” would exist in respect of the Bonds if Synlait would not satisfy the solvency test following the applicable payment of interest, or, in respect of a Synlait debt document (such as the Bank Facilities Agreement), if Synlait has breached a covenant or undertaking (or such breach would occur as a result of a payment of interest), or an event of default (however described) has occurred and has not been waived or remedied to the satisfaction of the applicable senior creditor, or a cancellation notice has been issued by the applicable senior creditor in respect of more than $35 million of commitments as a result of an event of review (however described).

In summary, the issuance of shares to Bright under the Bright Placement will constitute a Change of Control Event in respect of the Bonds. The steps in respect of such Change of Control Event will be as follows:

Once the Change of Control Event occurs, Synlait must promptly notify Bondholders (via NZX) and The New Zealand Guardian Trust Company Limited as bond supervisor (the Supervisor ) of the Change of Control Event.
Synlait intends to give notice of the Change of Control Event to Bondholders (via NZX) and the Supervisor on the date that the issuance of shares under the Bright Placement occurs (the Change of Control Event Notice ).
The Bondholders have a period of not less than 10 business days after the date of the Change of Control Event Notice (the Holder Election Date ) in which to elect to exercise their redemption rights.
The Change of Control Event Notice must also specify the date on which the Bonds that are subject to redemption notices will be redeemed (the Change of Control Event Redemption Date ), which must be no more than 30 business days after the date of the Change of Control Event Notice. On that date, Synlait must pay the “Change of Control Event Redemption Amount” (as defined below) to each Bondholder who has elected to redeem their Bonds.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

If, as a result of the Bondholders’ elections, there will be fewer than 50,000,000 Bonds remaining outstanding upon the redemption of the Bonds (the Outstanding Bonds ), Synlait may elect to redeem all (but not part) of the Outstanding Bonds by providing notice to Bondholders. Synlait expects that it would not elect to exercise this optional redemption right if triggered.
If Synlait elects to redeem the Outstanding Bonds, Synlait must pay the “Change of Control Event Redemption Amount” (as defined below) to each Bondholder on the Change of Control Event Redemption Date (regardless of whether that Bondholder elected to redeem their Bonds).
The “ Change of Control Event Redemption Amount ” means an amount equal to the greater of: (i) the Redemption Amount (being the principal amount of each Bond, accrued interest and any other amounts due and payable); or (ii) the “VWAP Amount” and all accrued interest in respect of each Bond. The VWAP Amount is the arithmetic average of the daily volume weighted average price of the Bonds (excluding interest) traded through the NZX Debt Market on each business day during the period of 20 consecutive business days immediately preceding (but not including) the date on which the Change of Control Event occurred (in usual trading conditions, with a process for this to be determined by an independent adviser if exceptional or unusual circumstances apply). Accordingly, it is possible that the amount Synlait is required to pay to redeem the Bonds following the Change of Control Event may be affected by trading in the Bonds in the period leading up to the date of the Bright Placement.
If there are not less than 50,000,000 Bonds outstanding following the Change of Control Event Redemption Date, or Synlait does not elect to redeem the Outstanding Bonds, the Outstanding Bonds will mature on 17 December 2024 and Synlait will be required to redeem the Bonds on that date.

Synlait anticipates using funds drawn down under the Bank Facilities available to Synlait following completion of the Bank Refinancing to satisfy the redemption amounts payable to Bondholders.

Below is a table of the likely key dates for the Bond redemption process assuming the Bright Placement occurs on 1 October 2024.

	Bond Redemption Event	Indicative Date
	Bright Placement	1 October 2024
	Change of Control Event Notice	1 October 2024
	Expected suspension of trading of	1 October 2024
	the Bonds during the 10 business
	day election period commences
	Holder Election Date	15 October 2024
	Expected suspension of trading	16 October 2024
	of the Bonds ceases
	Change of Control Event	13 November 2024
	Redemption Date
	Maturity Date of Bonds	17 December 2024
	(if not redeemed prior)

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

STATEMENT FROM BRIGHT:

Bright Dairy Holding Limited, as potential majority shareholder pursuant to the Bright Placement, has provided Synlait with the following statement for inclusion in this Notice of Meeting:

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BRIGHT’S STRATEGIC INVESTMENT IN SYNLAIT’S FUTURE

Bright has been the largest shareholder of Synlait since 2010 and is committed to Synlait’s long-term success.

The decision to participate in the proposed equity raise at this premium represents Bright’s recognition of Synlait’s underlying value.

The equity raise was put forth in response to a series of unexpected adverse events, including the COVID-19 pandemic and high-inflation environment which has driven interest rates much higher. Notwithstanding these challenges, Bright is committed to supporting Synlait through this economic cycle and will provide the requisite financial support for its turnaround plans and operational investments for customers.

Bright’s decision to participate in the equity raise will reinforce Bright’s pre-existing commitment to support Synlait’s ongoing turnaround and long-term expansion plans, including through the following:

With an increased shareholding in Synlait, Bright will be better able to leverage its parent company’s investment grade rating, as well as extensive relationships with banks (both Chinese and overseas) which may help Synlait to secure more favourable borrowing terms, if required as part of any future refinancing.
Bright will continue to support Board members and management to strengthen stakeholder relationships, improve profitability and cash management as well as deliver a sustainable capital structure.
Bright will also seek to work with Synlait to further realise revenue growth and cost synergies, capitalising on Bright’s extensive China and overseas operations. This may include Synlait exploring expansion options for Southeast Asia and other major markets through Bright’s networks, dairy industry research capabilities and market reach.
As a significant shareholder, Bright intends to continue to engage and listen carefully to the views of all stakeholders, including customers (as appropriate), farmer suppliers, staff and shareholders to help maximise Synlait’s long-term growth and development potential.

For the sake of clarity and consistent with its intention to help maximise Synlait’s long-term growth and development potential, Bright wishes to confirm it would not propose any sale of Dunsandel, nor would it intend to support any sale of Dunsandel, were any such initiative to be proposed.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

4. a2MC PLACEMENT AND a2MC SETTLEMENT

The details of the a2MC Placement and the a2MC Settlement are set out below. These have been the subject of robust and independent negotiations between Synlait, through the Independent Director committee, and a2MC.

a2MC Placement

a2MC has agreed to subscribe for 76,283,104 fully paid ordinary shares in Synlait at the a2MC Issue Price, each payable in cash in full on issuance in accordance with the terms of the a2MC Commitment Letter. The a2MC Placement will not occur unless:

Ordinary Resolution 1 and Ordinary Resolution 2 as set out in this Notice of Meeting are passed;
the conditions precedent to the a2MC Commitment Letter are satisfied, being:
the Independent Directors unanimously recommending that the shareholders of Synlait vote in favour of Ordinary Resolution 1 and Ordinary Resolution 2 and none of the Independent Directors withdrawing or amending that recommendation;
Ordinary Resolution 1 and Ordinary Resolution 2 as set out in this Notice of Meeting being passed;
Bright entering into the Bright Commitment Letter;
settlement of the Bright Placement occurring contemporaneously with settlement of the a2MC Placement;
the a2MC Settlement Deed becoming unconditional and taking effect in accordance with its terms;
the Independent Report stating that on balance and having regard to all relevant factors, Northington Partners conclude that the merits of the Bright Placement, a2MC Placement and the a2MC Settlement outweigh the negative aspects and are in the best interests of existing Synlait shareholders and stating that, in Northington Partners’ opinion, the terms and conditions of both the Bright Placement, and the a2MC Placement and the a2MC Settlement collectively are fair to shareholders not associated with Bright or a2MC;
this Notice of Meeting including a statement that Bright has confirmed that it intends to vote in favour of Ordinary Resolution 2;
there being no event, matter or information, whether individually or in the aggregate, including any breach of a warranty or obligation by Synlait under the a2MC Commitment Letter, occurring which has, or is likely to have, or will have if or once disclosed to the market, a material adverse effect on the solvency of Synlait or its ability to trade as a going concern or the financial performance or prospects of Synlait’s business following the completion of the a2MC Placement and the Bright Placement;
Synlait providing evidence to a2MC that it has used its reasonable endeavours to obtain the consent of counterparties to certain customer and supplier contracts to the change of control of Synlait that will result from the completion of the Bright Placement;
there being no breach of certain material warranties given by Synlait under the a2MC Commitment Letter; and
Synlait entering into binding documentation in connection with the Bank Refinancing and providing evidence that conditions to completion of the Bank Refinancing have been satisfied or will be satisfied concurrently or substantially concurrently with the occurrence of the settlement of the a2MC Placement and the a2MC Settlement, as further described in this Section 5 ( Other Important Information ) of this Notice of Meeting; and
the Bright Placement, the a2MC Settlement and the Bank Refinancing occur concurrently or substantially concurrently with the a2MC Placement.

a2MC has the right to terminate its obligations under the a2MC Commitment Letter if the offers under the Bright Placement and the a2MC Placement are withdrawn, or if any of the conditions precedent referred to above are not satisfied (or waived, if capable of waiver, by a2MC) or are not reasonably expected to be satisfied (or waived, if capable of waiver, by a2MC), or the a2MC Placement does not complete by 7 October 2024.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

The shares are expected to be issued to a2MC under the a2MC Placement on Tuesday, 1 October 2024.

The a2MC Issue Price reflects a 43% premium to the Synlait closing share price on the NZX Main Board on 15 August 2024 (which was the last undisturbed share price prior to announcement of the a2MC Settlement and a2MC’s support of an equity raise). The aggregate issue price for the a2MC Placement is $32,801,734.72.

a2MC Settlement

While the a2MC Settlement Deed remains conditional, it is without prejudice to the respective positions of a2MC and Synlait in respect of the NPMSA Disputes and associated arbitration proceedings. Unless and until those conditions are satisfied, neither a2MC nor Synlait can rely on the Settlement Deed (or the positions taken by a party in it) for the purposes of the NPMSA Disputes and associated arbitration proceedings.

Key terms of the a2MC Placement

Issuer	Synlait Milk Limited
Subscriber	The a2 Milk Company Limited
	(or, at its direction, a wholly-
	owned subsidiary of The a2
	Milk Company Limited)
Conditions	As above
Number of shares	76,283,104 ordinary shares
Share price	$0.43 per share
Issuance date	Tuesday, 1 October 2024

a2MC Deed Poll

Pursuant to the terms of the a2MC Deed Poll and for the purposes of ASX quotation requirements in respect of the new shares to be issued to a2MC, a2MC has:

undertaken not to sell, assign or otherwise dispose, or transfer the effective control, of the shares the subject of the a2MC Placement for a period of 12 months from the date of allotment of such shares, subject to certain exceptions, including a transfer under a takeover offer, scheme of arrangement or share buyback, a transfer to a related company, a transfer under a security interest in favour of any bona fide lender, a transfer to a wholesale, institutional or sophisticated investor who agrees to be bound by an equivalent transfer restriction under a deed poll for the remainder of the 12 month period or if Synlait issues a cleansing notice at the time of any sale or as a result of a requirement of applicable law; and
authorised Synlait to apply a holding lock, meaning that Computershare, being the share registrar that manages the Synlait share register, will be able to ensure that the shares the subject of the a2MC Placement will not be able to be traded for 12 months from the date of allotment of such shares, subject to certain exceptions summarised above.

SMFL (a wholly-owned subsidiary of Synlait) and A2IN (a wholly-owned subsidiary of a2MC) are parties to the NPMSA, pursuant to which SMFL procures the manufacture and supply of certain infant milk products by Synlait for A2IN and a2MC.

Various disputes have arisen in respect of certain matters under the NPMSA, including:

whether the cancellation by A2IN of its exclusivity obligation under the NPMSA by notice on 15 September 2023 was valid;
whether the obligation on SMFL to procure the supply of a minimum annual volume of product, and certain priority arrangements in favour of a2MC, will cease to apply if the exclusivity obligations under the NPMSA are found to have been validly cancelled;
what, if any, intellectual property under the NPMSA, and related know-how in the products, is owned by a2MC; and
which party is responsible for certain one-off airfreighting costs,

(together, the Exclusivity Disputes ), and:

the pricing of certain products and components of certain products (the Pricing Disputes );
the status of new products developed under the NPMSA (the New Products Dispute ); and
certain other disputes including costs associated with various operational matters and disputed sums (the Other Matters Disputes ), together with the Exclusivity Disputes, the Pricing Disputes and the New Products Dispute (the NPMSA Disputes ).

SMFL and A2IN were involved in arbitration proceedings in respect of the NPMSA Disputes but have entered into the a2MC Settlement Deed to resolve those disputes in full. See the table below for a summary of the key terms of the a2MC Settlement Deed.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

The a2MC Settlement Deed has been entered into, but the settlement remains conditional on:

the passing of Ordinary Resolution 2 as set out in this Notice of Meeting;
completion of the Bright Placement and the a2MC Placement; and

The above conditions will be satisfied if Ordinary Resolution 1 and Ordinary Resolution 2 are passed, the proposed proceeds of approximately $217.8 million are raised upon Bright subscribing for approximately $185 million shares and a2MC subscribing for approximately $32.8 million shares and the other conditions to the Bank Refinancing have been satisfied or will be satisfied concurrently or substantially concurrently with completion of the Bright Placement and the a2MC Placement.

completion of the Bank Refinancing.

Key terms of the a2MC Settlement Deed

Parties	Synlait Milk Limited Synlait Milk Finance Limited The a2 Milk Company Limited A2 Infant Nutrition Limited
Settlement Date	The date the fnal condition is satisfed and the settlement payment is received.
Settlement payment from A2IN to SMFL	The net efect of payments between the parties under the a2MC Settlement Deed (excluding future pricing terms) is a one-of payment from A2IN to SMFL of $24.75 million. This payment includes amounts that had been largely withheld in accordance with the terms of the NPMSA from payment pending resolution of matters in dispute.
Exclusivity Disputes	The parties have agreed that A2IN’s cancellation of its exclusivity obligation under the NPMSA by notice on 15 September 2023 is valid but that exclusivity will not end until 1 January 2025. As a result, a2MC has agreed not to exercise its right to terminate exclusivity following a change of control of Synlait that would occur on completion of the Bright Placement (provided the conditions to the a2MC Settlement are satisfed on or before 7 October 2024 and a2MC’s rights are not otherwise prejudiced).
	The parties have agreed that SMFL’s commitments in the NPMSA to procure the supply of a minimum annual volume of product, and certain priority arrangements in favour of a2MC, shall continue after the end of exclusivity on 1 January 2025.
	The parties have agreed that: • A2IN owns the intellectual property rights for the product specifcations of all fnished products currently manufactured under the NPMSA; and • A2IN and a2MC are free to manufacture, and/or procure the manufacture of the products utilising the product specifcations.
	The dispute regarding airfreight costs has been resolved with SMFL contributing to A2IN transport costs. The net settlement payment noted above refects this contribution by SMFL.
	SMFL has agreed to make available to A2IN a second SAMR registration slot at Dunsandel for a new China label infant formula product under the NPMSA which A2IN intends to utilise. The parties will work together to seek registration from SAMR by December 2029.
Pricing Disputes	The parties have agreed to resolve the various pricing disputes between them as to the application of the controllable and non-controllable costs provisions in the NPMSA.
New Products Dispute	The parties have agreed that the infant milk formula products developed for the United States market are products supplied under the NPMSA, with A2IN contributing to certain Synlait development costs and US FDA registration costs.
Operational Matters	The parties have agreed that, going forward, SMFL will provide A2IN with enhanced access to SMFL’s site, people and information relevant to SMFL’s supply to A2IN in addition to adjustments to manufacturing standards.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

The Board is pleased to have settled these disputes and believes that it is in the best interests of Synlait to resolve this impasse on the agreed terms summarised above. Synlait will receive a payment from A2IN upon the a2MC Settlement taking effect, and will also benefit from improved purchase order deposit payment terms. Although Synlait is receiving a payment and pricing on certain existing products manufactured for A2IN will increase incrementally, the wider settlement arrangements mean that, when taken as a whole, the overall profitability of the products produced for A2IN is expected to be moderately impacted due to additional costs and adjustments to manufacturing standards. Despite this, new business opportunities exist with The a2 Milk Company, in relation to potential long term US IMF market access and the development of an additional China label product subject to US FDA and SAMR approval respectively. A2IN and Synlait will work together to progress longterm FDA approval for a2 Platinum® in the United States, and to develop a potential new China Label registered product, prepare the SAMR registration dossier and seek registration from SAMR by December 2029.

Synlait is conscious that a2MC is likely to continue to attempt to develop its own manufacturing capability, and the agreement to end exclusivity under the NPMSA (which occurs under the a2MC Settlement Deed on 1 January 2025) will allow a2MC to choose what products it requires

Synlait to produce and Synlait will generally be obliged to produce those for a2MC. Synlait will continue to hold the Chinese regulatory SAMR registration, attached to its Dunsandel facility, after the a2MC Settlement takes effect. The registration is for The a2 Milk Company’s Chinese labelled 至初® Infant Formula (stages one, two and three). Synlait expects that in the short term a2MC will likely continue to need Synlait to produce all products, however, with the exception of the China Label products needing to be produced at Synlait’s Dunsandel facility holding the SAMR registration, the cessation of exclusivity will mean a2MC will be able to shift the production of other products away from Synlait. This may happen in the near term and a2MC may relatively quickly develop its own manufacturing capability and seek its own SAMR registration at one or more facilities. The effect of a2MC gaining additional China label slots may be that the existing China label volumes that Synlait currently produces will drop as they will be split across additional product ranges. Synlait considers that its outsourced manufacturing service that it provides to a2MC will continue to be of benefit to a2MC, but has no assurance from a2MC in relation to any continued level of orders. Synlait will carefully monitor the cost – benefit of the NPMSA and in the event that there is a material transition by a2MC away from Synlait manufacturing, Synlait may choose to terminate the NPMSA. Any termination would require a minimum of three years notice and a further supply period of a year.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

5. OTHER IMPORTANT INFORMATION

Impact on shareholding percentage and equity value

By way of further illustrative example only:

While the Bright Placement and the a2MC Placement will result in significant percentage shareholding dilution for shareholders other than Bright and a2MC (the Other Shareholders ), all shareholders will benefit from a higher assumed equity value of their shareholding based on the theoretical share price immediately following the Bright Placement and the a2MC Placement compared to the equity value of their shareholding based on the last market price immediately prior to the Bright Placement and the a2MC Placement as a result of the shares being issued at a premium to current market price. Please see the table below for an illustration of these concepts as they relate to “Other Shareholders” before and immediately after the Bright Placement and the a2MC Placement. Please note the below table is calculated as at 15 August 2024 (which was the last trading day prior to announcement of the a2MC Settlement and a2MC’s support of an equity raise) and does not take into account any changes to the quoted price of Synlait’s shares on either NZX or ASX following that date.

	Pre-Bright	Post-Bright
	Placement	Placement
	and a2MC	and a2MC
	Placement	Placement
Other Shareholders’	41.2%	14.9%
shareholding percentage
(i.e., shareholders other than Bright and a2MC) Other Shareholders’ equity value	approximately $27 million5	approximately $42 million6

If an Other Shareholder holds 100,000 shares:

before the Bright Placement and the a2MC Placement, those 100,000 shares would be worth $30,000 based on a share price of $0.30 and represent 0.05% of Synlait’s shares[7] ; and
upon completion of the Bright Placement and the a2MC Placement, those 100,000 shares would be worth $46,979 based on a share price of $0.47 and represent 0.02% of Synlait’s shares[8] .

Shareholders should also consider the counter-factual that the Bright Placement and the a2MC Placement are not approved, which would put all shareholders’ equity value at risk.

Bank Refinancing

Synlait’s Bank Facilities are in place with its banks, being as at the date of this Notice of Meeting, ANZ New Zealand Bank Limited, Bank of China (New Zealand) Limited, China Construction Bank Corporation New Zealand Branch, The Hongkong and Shanghai Banking Corporation Limited and Cooperatieve Rabobank U.A., New Zealand Branch. The Bank Facilities comprise two main facilities (a seasonal working capital facility and revolving credit facility), with various tranches of lending under the revolving credit facility. A significant portion of the existing Bank Facilities mature on 1 October 2024 (with certain tranches maturing on 1 October 2025). Synlait is proposing to refinance its Bank Facilities with the possibility of new banks entering the syndicate. The Bank Refinancing is expected to be implemented by way of “amend and extend” in respect of Synlait’s Bank Facilities Agreement.

5 Calculated based on Synlait’s share price as at 15 August 2024 (which was the last undisturbed share price prior to announcement of the a2MC Settlement and a2MC’s support of an equity raise).

6 Calculated based on the assumed market capitalisation of Synlait following the Bright Placement and the a2MC Placement of $283 million (being the market capitalisation as at 15 August 2024 of $66 million, plus $217.8 million of equity raised by way of the Bright Placement and the a2MC Placement) and Other Shareholders’ shareholding upon completion of the Bright Placement and the a2MC Placement of 14.9%.

7 Being 100,000 shares multiplied by the Synlait closing share price on the NZX Main Board on 15 August 2024 (which was the last undisturbed share price prior to announcement of the a2MC Settlement and a2MC’s support of an equity raise).

8 Being 100,000 shares multiplied by Synlait’s theoretical share price on the NZX Main Board upon completion of the Bright Placement and the a2MC Placement, based on the assumed market capitalisation of $283 million following the Bright Placement and the a2MC Placement (being the market capitalisation as at 15 August 2024 of $66 million, plus $217.8 million of equity raised by way of the Bright Placement and the a2MC Placement). Please note this illustrative example is calculated as at 15 August 2024 (which was the last trading day prior to announcement of the a2MC Settlement and a2MC’s support of an equity raise) and does not take into account any changes to the quoted price of Synlait’s shares on either NZX or ASX following that date.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

A summary of the key proposed terms of the Bank Refinancing are below. These terms are currently being negotiated with Synlait’s banks and the terms may change. At a minimum, the total size of the refinanced Bank Facilities will be not less than $450 million and having a minimum one year term and with a net leverage ratio (being “Net Senior Debt” at the relevant balance date to EBITDA for the financial year ending on that balance date) of 2.50x or more. Synlait plans to provide an update (via NZX) when the terms of the Bank Refinancing are finalised. In addition, at this stage, there is no certainty that Synlait will be able to complete the Bank Refinancing. If Synlait is unable to complete the Bank Refinancing, the Bright Placement and the a2MC Placement will not proceed and the disputes relating to the a2MC Settlement will remain unresolved. In this situation, Synlait would likely need to cease trading and initiate a formal insolvency process unless it were to become clear that further support would be forthcoming from its existing banks. Further, even if the Board were to form the view in these circumstances that Synlait could continue trading, the existing banks may seek to initiate a formal insolvency process, such as appointing a receiver, were Synlait to default on its obligations to those banks. All tranches of the existing Bank Facilities (other than tranches with a combined limit of approximately $62 million) are due to mature on 1 October 2024 and all amounts outstanding under those tranches must be repaid by Synlait on or before that date if not refinanced.

On 12 July 2024, Synlait undertook a drawdown of the Shareholder Loan which it used to repay $130 million to its banks on 15 July 2024 following approval of that transaction by shareholders at a special shareholders’ meeting on 11 July 2024. The amount outstanding under the Shareholder Loan is $130 million and the obligations of Synlait (and its subsidiaries) in respect of the Shareholder Loan are subordinated to the obligations of Synlait (and its subsidiaries) in respect of the Bank Facilities. The Banks would need to agree to any early repayment of the Shareholder Loan for this to take place, although early repayment is not currently contemplated. For further information in relation to the terms of the Shareholder Loan, shareholders should refer to the Notice of Meeting dated 25 June 2024 in respect of the special meeting of shareholders relating to the Shareholder Loan.

Proposed Bank Refinancing terms

At this stage, Synlait is seeking commitments for the refinanced Bank Facilities of $450 million. The refinanced Bank Facility limits are expected to be seasonally adjusted, with step-ups and step-downs over time to match Synlait’s expected funding needs as a result of its seasonal payments profile.

The refinanced Bank Facilities are expected to have a term of approximately one year, maturing 12 months from closing of the Bank Refinancing. They will replace in full the existing Bank Facilities, and be additional to the $130 million Bright Shareholder Loan described above. The refinanced Bank Facilities and associated hedge counterparties will have the benefit of the guarantees and security that support the existing Bank Facilities.

Interest is proposed to be calculated on a Base Rate (BKBM, or compounded SOFR for USD denominated drawings) plus a margin. Line fees will also be payable.

Indicative feedback from the proposed lenders is that the refinanced Bank Facilities will be subject to the following financial covenants:

Net leverage ratio (being “Net Senior Debt” at the relevant balance date to EBITDA for the financial year ending on that balance date) of a maximum of 2.50x on the balance date for the financial year ending on 31 July 2025.
Working capital ratio (being the aggregate value of inventory (excluding consumables and packaging) and debtors of the obligors (excluding allowance for doubtful debts and debts past 90 days due) to the aggregate of the amount outstanding under the facilities, less any credit balances held on deposit in an account of the obligor held with a lender) must exceed 1.20x for the period from 1 August to 31 March in each year and 1.50x from 1 April to 31 July in each year.
Interest cover ratio of a minimum of 2.50x at each quarter date for the financial year ending on 31 July 2025.
Shareholders’ funds to exceed $500 million at all times.

These financial covenants are not yet confirmed and are subject to finalisation of the refinanced Bank Facilities and approvals of all lenders. Those approvals have not yet been received.

Completion of the Bank Refinancing is expected to be conditional on the completion of the Bright Placement and the a2MC Placement and evidence that Synlait has entered into and is implementing a settlement with a2MC (amongst other matters). Additionally, completion of the Bank Refinancing will be conditional on usual financing conditions precedent including delivery of documents, issuance of legal opinions, payment of refinancing fees and completion of ‘know your customer’ checks.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

All lenders to the Bank Refinancing have confirmed that they have received credit approval, and documentation is expected to be completed during September. It is anticipated that satisfaction of the conditions precedent and flow of funds to implement the Bank Refinancing will occur concurrently on the date of the completion of the Bright Placement and the a2MC Placement.

Please see the specific risk in relation to the Bank Refinancing, including the terms of the Bank Refinancing, in the section titled “Key risks” immediately below.

Key risks

The below paragraphs set out what Synlait considers to be the more significant specific risks relating to the Proposed Transactions. This Notice of Meeting does not set out all of the risks. Some risks relating to the Proposed Transactions may be unknown, and other risks, currently believed to be immaterial, could turn out to be material.

Equity raise provides insufficient capital for the business

Notwithstanding that it is the Board’s view that the Proposed Transactions, alongside the Bank Refinancing, will complete the balance sheet reset required by the business, there is the risk that the equity capital raised from the Bright Placement and the a2MC Placement is insufficient to cover the needs of the Synlait business moving forward, including as a result of previously unidentified historical liabilities or new unforeseen liabilities or capital or other corporate requirements. In that scenario, Synlait may have insufficient equity and/or liquidity to repay its borrowings or debt when due (including the Bonds) and/or meet capital and operational requirements of the business and it would need to re-assess its balance sheet and operations. It may need to dispose of assets and/or access additional equity or debt funding which may not be achievable in the time available or for the amounts required.

Following the Bright Placement and the a2MC Placement, Bright and a2MC will together hold approximately 85% of the shares on issue. The success of any further equity raise, if required, would likely require the further participation of Bright and a2MC (as well as shareholder approvals for any further participation). There is no guarantee that the further support of those major shareholders would be available and/or that the shareholder approvals would be obtained.

Refinancing risk

Synlait does not yet have executed documentation for the Bank Refinancing. Synlait will continue to work on final agreement of those terms and commitments and satisfaction of any conditions precedent ahead of the

Special Shareholders’ Meeting. If it is unable to finalise documentation for the Bank Refinancing, none of the Bright Placement, the a2MC Placement or the a2MC Settlement will be able to occur.

If final documentation for the Bank Refinancing is agreed ahead of the Special Shareholders’ Meeting, any conditions precedent are satisfied and both Ordinary Resolution 1 and Ordinary Resolution 2 are passed, there is a residual risk that monies payable under the Bright Placement or a2MC Placement will not be received by 1 October 2024 due to delays, outside of the parties’ control, in transferring the money. If the funds required to repay the Banks are not received by 1 October 2024 (being the date on which a significant portion of the existing Bank Facilities mature), Synlait will need to request an extension from the Banks for a short period of time to allow for funds to be received and the Proposed Transactions and Bank Refinancing to settle.

Even if the Bright Placement, the a2MC Placement and the Bank Refinancing are completed, Synlait will still have a moderately high debt position, and the fact that the Bank Refinancing is a short-term refinancing with all of the refinanced Bank Facilities expected to have a one year tenor (generally Synlait’s normal practice is to have 50% as one year tenor due to the seasonality of the business), means that Synlait will be exposed to a risk in relation to its ability to subsequently refinance its Bank Facilities next year. Its ability to meet its payment obligations and comply with the covenants in its Bank Facilities and other borrowings will depend on the success of its short term business performance, including its ability to generate sufficient cashflow to satisfy its obligations, which are all subject to some uncertainties and contingencies beyond its control. It may make it difficult for Synlait to refinance all or some of these debt facilities (including the Bank Facilities and Shareholder Loan) in the future and on short notice, and the terms of any replacement debt facilities may be less favourable and may result in increased interest costs and interest margins.

Shareholders’ equity value deteriorates as a result of a decline in Synlait’s market share price

Completion of the Bright Placement and the a2MC Placement is not expected to negatively impact the equity value of Synlait’s shares by way of reducing the theoretical market price per share (see the section titled “Impact on shareholding percentage and equity value” of this Section 5 ( Other Important Information )). However, Synlait notes that the market price of its shares has deteriorated significantly in recent times and there can be no assurance that this will not happen again following completion of the Bright Placement and the a2MC Placement, resulting in a reduction in equity value for Shareholders.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

As a controlling shareholder, Bright may take Synlait in a different direction

For an overview of Bright’s intentions in relation to Synlait’s future, please refer to Bright’s statement in Section 3 ( Bright Placement ) of this Notice of Meeting. Bright’s shareholding in Synlait following the Bright Placement will give it control over Synlait, including over its strategy and plans, business operations, debt position and financial and operating policies. Bright may exert that control in ways that are not always consistent with the interests of other shareholders of Synlait or that are not always consistent with the long-term strategy being implemented by Synlait.

The settlement with a2MC makes Synlait more reliant on a2MC

a2MC is Synlait’s most significant customer and contributor to financial performance. Synlait’s continued strategic partnership with a2MC, and the future success of a2MC, is important to Synlait’s own success. If a2MC reduces its order quantities, or if the existing supply agreement does not continue beyond its current minimum term, it could have a material adverse effect on Synlait’s operations and financial performance.

As referred to in Section 4 ( a2MC Placement and a2MC Settlement ) of this Notice of Meeting, Synlait is conscious that a2MC is likely to continue to attempt to develop its own manufacturing capability, and the agreement to end exclusivity under the NPMSA (which occurs under the a2MC Settlement Deed on 1 January 2025) will allow a2MC to choose what products it requires Synlait to produce and Synlait will generally be obliged to produce those for a2MC. As a result, Synlait will be more reliant on a2MC’s decision making under the NPMSA creating a risk that the costs for Synlait in connection with the NPMSA outweigh the benefits. Synlait may choose to terminate the NPMSA, but termination would require a minimum of three years notice and a further supply period of a year.

New disputes emerge with a2MC

The a2MC Settlement Deed only relates to certain existing disputes between Synlait, SMFL, a2MC and A2IN and not any possible future disputes between the parties. There is a risk that additional disputes between the parties arise following entry into the a2MC Settlement Deed which may have an adverse financial, practical or operational impact on Synlait.

Milk supply

If Synlait does not achieve the targeted balance sheet reset and reversal of cessation notices received from farmers seeking to terminate their milk supply agreements, as referred to in Section 2 ( Letter from the Chair ) of this Notice of Meeting, Synlait may have an insufficient supply of milk to satisfy its obligations to its customers.

Adverse impact on customer and supplier relationships

There are certain material contracts with customers and suppliers which will be able to be terminated by the customer or supplier (as applicable) upon the change of control of Synlait as a result of the Bright Placement. Synlait will use its reasonable endeavours to obtain the consent of the counterparties to those contracts, and is in the process of commencing discussions with each of them. Synlait is party to other agreements, such as certain supply contracts and smaller customer contracts which might be terminated as a result of the Proposed Transactions, but Synlait believes that if termination under any such contract were to occur, either individually or in aggregate, there would not be a material impact on Synlait. Even if no contractual right to terminate exists, the applicable resulting changes from the Proposed Transactions may otherwise result in counterparties to different contracts seeking to terminate or renegotiate, or failing to renew on expiry, their arrangements with Synlait or decreasing their levels of business.

Material uncertainties relating to going concern

Shareholders should refer to Synlait’s half year 2024 financial statements published on 2 April 2024. In the notes to such financial statements, the Directors identify certain material uncertainties which may cast significant doubt over Synlait’s ability to continue to trade as a going concern. Notwithstanding that the Bright Placement, the a2MC Placement and the a2MC Settlement are aimed at addressing these material uncertainties, shareholders should review these for the purposes of making an informed decision as to whether or not to approve the resolutions.

Securities law and continuous disclosure

Synlait is subject to continuous disclosure obligations under the NZX Listing Rules and must disclose to the market, promptly and without delay, any material information it is aware of, subject to certain ‘safe harbours’ under the NZX Listing Rules that allow issuers to not disclose confidential information that a reasonable person would not expect to be disclosed in certain circumstances (such as where that information concerns an incomplete proposal or negotiation, matters of supposition or which are insufficiently definite, information generated for internal management purposes and trade secrets, among other things).

Both the Bright Placement and the a2MC Placement are offers to wholesale investors which can be made without the requirement for any prospectus, product disclosure statement or other disclosure document. As Synlait is not relying on the exclusion to the disclosure obligations under part 3 of the FMCA for offers of financial products of the same class as quoted financial products to issue shares under the Bright Placement and the a2MC Placement, no

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

“cleansing notice” will be required to be issued by Synlait confirming, amongst other things, that it is in compliance with its continuous disclosure obligations under the NZX Listing Rules and that it holds no undisclosed material information (including any information held under a ‘safe harbour’, as described above).

This Notice of Meeting and other announcements made by Synlait, taken as a whole, do not necessarily disclose all material information that would be required to be disclosed if Synlait were to undertake an offer requiring the issuance of a “cleansing notice” as referred to above.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

6. FREQUENTLY ASKED QUESTIONS

Question	Answer	More Information
Resolutions
What am I being asked to consider?	You are being asked to consider whether	Read this Notice
	you support the Bright Placement, the a2MC	of Meeting and the
	Placement, the a2MC Settlement and the	Independent Report in
	Constitution Amendments.	Appendix 2 and seek
		advice if you have any
		questions.
What do the Directors recommend?	The Independent Directors fully support	Read this Notice
	the Bright Placement, the a2MC Placement	of Meeting and the
	and the a2MC Settlement and unanimously	Independent Report in
	recommend that shareholders vote in	Appendix 2 and seek
	favour of Ordinary Resolution 1 and Ordinary	advice if you have any
	Resolution 2. The directors appointed by	questions.
	Bright, being Leon Fung, Sihang Yang, Tao
	Zhang and Yi Zhu, have abstained from
	making a recommendation on Ordinary
	Resolution 1 and Ordinary Resolution 2
	because of Bright Dairy Holding Limited’s
	involvement in the Proposed Transactions.
	All Directors support the Constitution
	Amendments and unanimously recommend
	that shareholders vote in favour of Special
	Resolution 1.
Is there an independent appraiser’s report or	Yes. The Board commissioned an	See the Independent
an independent adviser’s report?	independent report from Northington	Report in Appendix 2 for
	Partners.	more detail.
What is Northington Partners’ conclusion?	Overall, Northington Partners concludes in	See the Independent
	the Independent Report that:	Report in Appendix 2 for
		more detail.
	• on balance and having regard to all
	relevant factors, the merits of the
	Bright Placement, the a2MC Placement
	and the a2MC Settlement outweigh
	the negative aspects and are in the
	best interests of existing Synlait
	shareholders; and
	• in its opinion, the terms and conditions
	of both the Bright Placement, and
	the a2MC Placement and the a2MC
	Settlement collectively are fair to
	Synlait shareholders not associated
	with Bright or a2MC

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

Question	Answer	More Information
How much is being raised from the Bright	Gross proceeds of approximately $217.8	Read this Notice
Placement and the a2MC Placement?	million will be raised if Ordinary Resolution 1	of Meeting and the
	and Ordinary Resolution 2 are approved by	Independent Report in
	shareholders and the Proposed Transactions	Appendix 2 and seek
	are completed.	advice if you have any
		questions.
When is Synlait expected to receive	Tuesday, 1 October, if Ordinary Resolution	Read this Notice
proceeds from the Bright Placement and the	1 and Ordinary Resolution 2 are approved	of Meeting and the
a2MC Placement?	by shareholders, and the conditions to	Independent Report in
	those placements are satisfed or waived (if	Appendix 2 and seek
	capable of waiver).	advice if you have any
		questions.
What will the proceeds of the Bright	The proceeds after costs received by Synlait	Read this Notice
Placement and the a2MC Placement be	will be applied to repay outstanding bank	of Meeting and the
used for?	debt.	Independent Report in
		Appendix 2 and seek
		advice if you have any
		questions.
Where can I view the proposed Constitution	A copy of the Existing Constitution, the	See Section 8
Amendments?	Amended Constitution, and a marked up	(Explanatory Notes) of
	copy of the Existing Constitution showing the	this Notice of Meeting
	Constitution Amendments, may be reviewed	for more detail on the
	on Synlait’s website at: www.synlait.com/	Constitution Amendments.
	investors.
Process
Where will the Special Shareholders’	The Special Shareholders’ Meeting will be	See Section 7 (Notice of
Meeting be held?	held at 9.00am (NZST) on Wednesday, 18	Special Shareholders’
	September 2024 at Synlait’s Dunsandel	Meeting) of this Notice of
	facility and online.	Meeting for more detail.
Is anything else being considered at the	No. Other than the resolutions, there will be	See Section 7 (Notice of
Special Shareholders’ Meeting?	no matters for shareholders to consider or	Special Shareholders’
	vote on.	Meeting) of this Notice of
		Meeting for more detail.
	There will be an opportunity for shareholders
	to ask questions at the Special Shareholders’
	Meeting.
	Shareholders can also submit questions prior
	to the Special Shareholders’ Meeting.
When will the result of the Special	As soon as the results are available, Synlait	Publicly available on
Shareholders’ Meeting be known?	will announce them publicly via the NZX and	Synlait’s listings on the
	ASX, and on the investor section of Synlait’s	NZX, ASX and the Synlait
	website.	website.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

Question	Answer	More Information
How do I vote if I am not able to attend the	You can exercise your right to vote at the	See Section 7 (Notice of
Special Shareholders’ Meeting?	Special Shareholders’ Meeting in two ways.	Special Shareholders’
	Namely: (a) by being present and voting in	Meeting) of this Notice of
	person or online; or (b) by appointing a proxy	Meeting and the Voting/
	to attend and vote in your place. A Voting/	Proxy Form accompanying
	Proxy Form is enclosed with this Notice of	this Notice of Meeting for
	Meeting.	more detail.
How do I vote by proxy?	If you wish to vote by proxy, you must	See Section 7 (Notice of
	complete the Voting/Proxy Form and ensure	Special Shareholders’
	it is received by no later than 9.00am (NZST)	Meeting) of this Notice of
	on Monday, 16 September 2024. You can	Meeting and the Voting/
	also lodge your proxy appointment online.	Proxy Form accompanying
		this Notice of Meeting for
		more detail.
Can I submit a postal vote?	No. Postal votes are not permitted.	See Section 7 (Notice of
		Special Shareholders’
		Meeting) of this Notice of
		Meeting and the Voting/
		Proxy Form accompanying
		this Notice of Meeting for
		more detail.
Why is my vote important?	The Bright Placement, the a2MC Placement	See Section 2 (Letter from
	and the a2MC Settlement each require the	the Chair) of this Notice of
	approval of an ordinary resolution (greater	Meeting.
	than 50% of those shares entitled to vote
	and voting).
	The Constitution Amendments require the
	approval of a special resolution (75% or more
	of those shares entitled to vote and voting).
What happens if only one of the resolutions	Ordinary Resolution 1 and Ordinary	See Sections 3 (Bright
is passed?	Resolution 2 are inter-conditional, such that	Placement) and 4 (a2MC
	both such resolutions must be passed in	Placement and a2MC
	order for them to be efective. This means	Settlement) of this Notice
	that if shareholders approve one ordinary	of Meeting for more detail.
	resolution, but not the other ordinary
	resolution, neither resolution will be
	implemented.
	Special Resolution 1 is conditional on
	Ordinary Resolution 1, such that if Ordinary
	Resolution 1 is not passed Special Resolution
	1 will not be implemented.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

Question	Answer	More Information
Post resolution
What happens if the Proposed Transactions	The Bright Placement and the a2MC	See Sections 3 (Bright
are not approved?	Placement will not complete, and Synlait	Placement) and 4 (a2MC
	will not receive proceeds of approximately	Placement and a2MC
	$217.8 million and the Bank Refnancing will	Settlement) of this Notice
	not become unconditional.	of Meeting for more detail.
	Further, the a2MC Settlement Deed will
	not become efective and the outstanding
	disputes between Synlait and a2MC will not
	be settled.
	In this situation, Synlait would likely need to
	cease trading and initiate a formal insolvency
	process unless it were to become clear
	that further support would be forthcoming
	from its existing banks. Further, even if
	the Board were to form the view in these
	circumstances that Synlait could continue
	trading, the existing banks may seek to
	initiate a formal insolvency process, such
	as appointing a receiver, were Synlait to
	default on its obligations to those banks.
	All tranches of the existing Bank Facilities
	(other than tranches with a combined limit
	of approximately $62 million) are due to
	mature on 1 October 2024 and all amounts
	outstanding under those tranches must be
	repaid by Synlait on or before that date if not
	refnanced.
	If Special Resolution 1 is not passed (or is not
	implemented because Ordinary Resolution 1
	is not passed) the Constitution Amendments
	will not become efective and the Existing
	Constitution will remain in force.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

7. NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

The Special Shareholders’ Meeting of Synlait will be held at:

Location: Synlait’s Dunsandel facility, located at 1028 Heslerton Road, RD13 Rakaia, Canterbury, New Zealand, and online via the Computershare meeting platform at: www.meetnow.global/nz
Date and time: Wednesday, 18 September 2024 at 9.00am (NZST)

The Special Shareholders’ Meeting will be a hybrid meeting to ensure that it is accessible and that shareholders who are not able to attend in person can still participate. Online attendance to the Special Shareholders’ Meeting is via the Computershare meeting platform at: www.meetnow.global/nz

To participate online you will need your shareholder number for verification purposes – your shareholder number can be found on your Voting/Proxy Form.

The business of the Special Shareholders’ Meeting will be to consider and, if thought appropriate, pass the resolutions set out below.

Further information relating to the resolutions is set out in the explanatory notes accompanying this Notice of Meeting in Section 8 ( Explanatory Notes ). Please read and consider the resolutions together with the notes.

Resolutions

Bright Placement – Ordinary Resolution 1

This resolution requires approval as an ordinary resolution, including: (a) as an issue of equity securities which does not fall within an exception provided for in Listing Rule 4.1.2; (b) as a “Material Transaction” with a “Related Party” (as those terms are defined in the NZX Listing Rules) for the purposes of NZX Listing Rule 5.2.1; and (c) under Rule 7(d) of the Takeovers Code, as the allotment of shares will result in Bright Dairy Holding Limited increasing its percentage of voting rights in Synlait which is already in excess of 20%.

a2MC Placement and a2MC Settlement – Ordinary Resolution 2

To consider and, if thought fit, pass the following resolution:

That, subject to Ordinary Resolution 1 being passed: (i) the issuance of 76,283,104 shares to The a2 Milk Company Limited (or, at its direction, a wholly-owned subsidiary of The a2 Milk Company Limited) at an issue price of 43 cents per share; and (ii) the settlement deed dated 16 August 2024 between Synlait, Synlait Milk Finance Limited, A2 Infant Nutrition Limited and The a2 Milk Company Limited becoming effective, in each case contemporaneously (or substantially contemporaneously) with the occurrence of the matters contemplated in Ordinary Resolution 1 and the Bank Refinancing and as described in the Notice of Meeting dated 20 August 2024, be approved for all purposes, including under NZX Listing Rules 4.2.1 and 5.2.1.

To consider and, if thought fit, pass the following resolution:

That, subject to Ordinary Resolution 2 being passed, the issuance of 308,333,333 shares to Bright Dairy Holding Limited at an issue price of 60 cents per share, contemporaneously (or substantially contemporaneously) with the occurrence of the matters contemplated in Ordinary Resolution 2 and the Bank Refinancing, as described in the Notice of Meeting dated 20 August 2024, be approved for all purposes, including under NZX Listing Rules 4.2.1 and 5.2.1 and Rule 7(d) of the Takeovers Code.

This resolution requires approval as an ordinary resolution, including: (a) as an issue of equity securities which does not fall within an exception provided for in Listing Rule 4.1.2; and (b) as a “Material Transaction”, comprised of a related series of transactions, with a “Related Party” (as those terms are defined in the NZX Listing Rules) for the purposes of NZX Listing Rule 5.2.1.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

The Independent Directors fully support the Bright Placement, the a2MC Placement and the a2MC Settlement as outlined in this Notice of Meeting and unanimously recommend that shareholders vote in favour of Ordinary Resolution 1 and Ordinary Resolution 2 at the Special Shareholders’ Meeting (including to approve the allotment of shares under Rule 7(d) of the Takeovers Code). The Independent Directors’ reasons for recommending this approval include that they believe it is the best way to reset Synlait’s balance sheet and provide a platform to return to sustainable growth. The Directors appointed by Bright, being Leon Fung, Sihang Yang, Tao Zhang and Yi Zhu, have abstained from making a recommendation because of Bright Dairy Holding Limited’s involvement in the Proposed Transactions.

Constitution Amendments – Special Resolution 1

To consider and, if thought fit, pass the following resolution:

That, subject to Ordinary Resolution 1 being passed, Synlait Milk Limited’s constitution be amended, with effect from the issuance of 308,333,333 shares to Bright Dairy Holding Limited contemplated by Ordinary Resolution 1, as described in the Notice of Meeting dated 20 August 2024.

This resolution requires approval as a special resolution under section 106(1)(a) of the Companies Act.

Implementation of this resolution is conditional upon Ordinary Resolution 1 (detailed above) also being approved by the shareholders of Synlait.

All Directors support the Constitution Amendments and unanimously recommend that shareholders vote in favour of Special Resolution 1.

Voting Intentions

a2MC has confirmed that it intends to vote in favour of the resolution relating to the Bright Placement, subject to the independent directors not changing or withdrawing their recommendation as expressed above. As the holder of 19.83% of the shares (which equates to approximately 33% of the votes eligible to be cast on Ordinary Resolution 1 as a result of Bright not being able to vote its shareholding on that resolution), a2MC’s vote will be influential in determining the outcome of the resolution to approve the Bright Placement.

Bright has confirmed that it intends to vote in favour of the resolution relating to the a2MC Placement and the a2MC Settlement. As the holder of 39.01% of the shares (which equates to approximately 49% of the votes eligible

to be cast in favour of Ordinary Resolution 2 as a result of a2MC not being able to vote its shareholding in favour of that resolution), Bright’s vote is expected to determine the outcome of the resolution to approve the a2MC Placement and the a2MC Settlement coming into effect.

Conclusion from Independent Report

Synlait has commissioned Northington Partners, as independent appraiser and adviser, to prepare the Independent Report.

In section 1.4 of the Independent Report under the heading “ Consequences of Acceptance or Rejection of Resolution 1 and Resolution 2 ”, Northington Partners concludes that:

on balance and having regard to all relevant factors, the merits of the Bright Placement, a2MC Placement and a2MC Settlement outweigh the negative aspects and are in the best interests of existing Synlait shareholders; and
in its opinion, the terms and conditions of both the Bright Placement, and the a2MC Placement and the a2MC Settlement collectively are fair to shareholders not associated with Bright or a2MC.

Shareholders should also refer to the more detailed summary of Northington Partners’ conclusions in the table titled “ Summary of Conclusions ” at section 1.3 of the Independent Report.

These are only some of the conclusions reached in the Independent Report, and the Independent Directors recommend that you carefully read the Independent Report attached as Appendix 2 to this Notice of Meeting in full.

How to cast your vote

The Voting/Proxy Form included with this Notice of Meeting allows you, or your proxy, to vote either for or against, or abstain from, the resolutions.

You may cast your vote in one of two ways:

1. Attend the special meeting in person or online and vote

You can attend the meeting in person or via the online platform to exercise your vote.

2. Proxy appointment

You can complete the enclosed Voting/Proxy Form and return it in accordance with the instruction on the Voting/ Proxy Form, so that in each case, your vote is received by Computershare Investor Services Limited no later than 9.00am (NZST) on Monday, 16 September 2024.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

Shareholders can elect to lodge their proxy appointment online at www.investorvote.co.nz. Shareholders can either visit the website or use the QR code printed on the Voting/ Proxy Form.

To vote online you must enter your CSN/Securityholder number, post code/Country of Residence and the secure access Control Number that is located on the front of your Voting/Proxy Form. To appoint a proxy, select your preferred voting method and follow the prompts online.

You may appoint the Chair of the Special Shareholders’ Meeting as your proxy if you wish. If you select a proxy to vote on your behalf (including the Chair of the Special Shareholders’ Meeting) and you confer on the proxy a discretion on the Voting/Proxy Form, you acknowledge that the proxy may exercise your right to vote at his or her discretion and may vote as he or she thinks fit or abstain from voting. The Chair intends to vote all discretionary proxies in favour of the resolutions to the extent permitted by law, the NZX Listing Rules, the ASX Listing Rules and the Existing Constitution. Discretionary proxies given to persons disqualified from voting or voting in favour will not be valid. If a person is disqualified from voting or voting in favour, but is appointed as a discretionary proxy, they will be ineligible to vote on (or in favour of) motions from the floor as the discretionary proxies are not valid.

During the Special Shareholders’ Meeting, shareholders participating online can ask questions by clicking on the ‘Ask a question’ box on the online portal.

Synlait reserves the right not to address any questions that it is not required to address or, in the Board’s opinion, are not reasonable to address in the context of the Special Shareholders’ Meeting.

Webcast

If you are unable to attend the meeting, a full replay of the webcast will be available and can be accessed online at the Synlait Investor Centre: www.synlait.com/investors/

Procedural notes

Voting entitlements for the Special Shareholders’ Meeting will be determined as at 5.00pm (NZST) on Monday, 16 September 2024. Shareholders at that time will be the only persons entitled to vote at the Special Shareholders’ Meeting and only the shares registered in those shareholders’ names at that time may be voted at the Special Shareholders’ Meeting.

The resolution will be voted on by way of a poll, in accordance with NZX Listing Rule 6.1.1. Results of the voting will be available after the conclusion of the Special Shareholders’ Meeting and will be notified on the announcement platforms of NZX and ASX, and on the Synlait website’s Investor section.

A proxy does not need to be a shareholder.

By order of the Board

Shareholder questions

Shareholders may submit written questions to be considered at the Special Shareholders’ Meeting. Prior to the Special Shareholders’ Meeting, written questions can be submitted online at www.investorvote.co.nz (after submitting your vote online) or by using the Voting/Proxy Form.

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George Adams Chair

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

8. EXPLANATORY NOTES

The special meeting of shareholders of Synlait is being called for the purpose of considering resolutions to approve the Bright Placement, the a2MC Placement and the a2MC Settlement and the Constitution Amendments.

Material Transactions with a Related Party

NZX Listing Rule 5.2.1 provides that Synlait must not enter into a “Material Transaction” if a “Related Party” (as such terms are defined in the NZX Listing Rules) is, or is likely to, become:

Independent Report

(a) a direct party to the Material Transaction; or

This notice of meeting is accompanied by an independent report from Northington Partners (please refer to the Independent Report in Appendix 2).

The Independent Report is required by NZX Listing Rules 7.8.5(b) and 7.8.8(b) and Rule 18 of the Takeovers Code.

NZX Listing Rule 7.8.5(b) requires an appraisal report to be prepared where more than 50% of the issued shares in each resolution will be acquired by Directors or their “Associated Persons” (as defined in the NZX Listing Rules). NZX Listing Rule 7.8.8(b) also requires an appraisal report to be prepared for notices of meeting to approve a related party transaction under NZX Listing Rule 5.2.1.

The Independent Report is also required by Rule 18 of the Takeovers Code because, as a result of the allotment of shares, Bright will become the holder and controller of an increased percentage of the voting rights in Synlait above 20%. The Takeovers Code requires that, where shareholders are being asked to give their approval under Rule 7(d) of the Takeovers Code, the directors must obtain a report from an independent adviser on the merits of the proposed allotment having regard to the interests of those persons who may vote to approve the allotment, comprising all of the shareholders of Synlait other than Bright and any of its “associates” (as that term is defined in the Takeovers Code).

Bright Placement

Share issues

NZX Listing Rule 4.1.1 generally requires share issues to be approved by ordinary resolution in accordance with NZX Listing Rule 4.2.1 unless an exception in NZX Listing Rule 4.1.2 applies. Approval is being sought for the Bright Placement under NZX Listing Rule 4.2.1 as it is a non pro rata share issue in excess of Synlait’s 15% placement capacity under NZX Listing Rule 4.5.1.

(b) a beneficiary of a guarantee or other transaction which is a Material Transaction,

unless that Material Transaction is approved by an ordinary resolution of Synlait or conditional on such approval.

Under the NZX Listing Rules, a Material Transaction includes a transaction or related series of transactions whereby Synlait issues its own financial products having a market value above 10% of its Average Market Capitalisation.

As at close of business on 15 August 2024 (which was the last trading day prior to announcement of the a2MC Settlement and a2MC’s support of an equity raise), Synlait’s Average Market Capitalisation was approximately $64 million. The gross value of the Bright Placement is approximately $185 million, which exceeds 10% of Synlait’s Average Market Capitalisation. Bright Dairy Holding Limited is the holder of a Relevant Interest in 10% or more of the ordinary shares of Synlait and, as a result, is a Related Party of Synlait. As a result, the Bright Placement will constitute the entry by Synlait into a Material Transaction with a Related Party for the purposes of the NZX Listing Rules.

Accordingly, approval is being sought for the Bright Placement under NZX Listing Rule 5.2.1.

Increased percentage of voting rights in a code company

Under Rule 6 of the Takeovers Code, a person who holds or controls:

(a) no voting rights, or less than 20% of the voting rights, in a code company may not become the holder or controller of an increased percentage of the voting rights in the code company unless, after that event, that person and the person’s associates hold or control not more than 20% of the voting rights in the code company; or

Major transactions

The Bright Placement does not require approval as a “major transaction” of Synlait under section 129 of the Companies Act.

(b) 20% or more of the voting rights in a code company may not become a holder or controller of an increased percentage of the voting rights in the code company.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

There are a number of exceptions to this rule, including where a person becomes the holder or controller of voting rights in a code company by allotment of shares that has been approved by an ordinary resolution pursuant to Rule 7(d) of the Takeovers Code.

Synlait is a code company as it is a listed issuer that has financial products that confer voting rights quoted on a licensed market.

Under the Takeovers Code, a person is an “associate” of another person if:

(a) the persons are acting jointly or in concert; or
(b) the first person acts, or is accustomed to act, in accordance with the wishes of the other person; or
(c) the persons are related companies; or
(d) the persons have a business relationship, personal relationship or an ownership relationship such that they should, under the circumstances be regarded as associates; or

Resolution required

The resolution is being proposed as an ordinary resolution to satisfy the requirements of the NZX Listing Rules and the Takeovers Code. An ordinary resolution is required to be passed by a simple majority of the votes of shareholders entitled to vote and voting on the resolution.

All shareholders will be entitled to vote on the resolution, provided that Bright and any “Associated Person” (as that term is defined in the NZX Listing Rules) of Bright will not be permitted to vote in favour of the resolution as a result of NZX Listing Rule 6.3.1, and Bright and any “associate” (as that term is defined in the Takeovers Code) of Bright will not be permitted to vote on the resolution as a result of Rule 17 of the Takeovers Code.

Bright has warranted to Synlait in the Bright Commitment Letter that it believes to the best of its knowledge that it is not an “associate” or “Associated Person” of a2MC or of any other Synlait shareholder.

a2MC Placement and a2MC Settlement

Share issues

(e) the first person is an associate of a third person who is an associate of the other person (in both cases under any of paragraphs (a) to (d)) and the nature of the relationships between the first person, the third person and the other person (or any of them) is such that, under the circumstances, the first person should be regarded as an associate of the other person.

A director of a company or other body corporate is not an associate of that company or body corporate merely because he or she is a director of that company or body corporate.

As at the close of business on 15 August 2024, Bright’s shareholding percentage was 39.01%. As a result of the proposed Bright Placement, Bright will increase its voting rights in Synlait to 65.25%. Accordingly, approval is being sought for the Bright Placement under Rule 7(d) of the Takeovers Code.

If shareholders approve Ordinary Resolution 1, then they are approving the issue of the shares to Bright under the Bright Placement for the purposes of Rule 7(d) of the Takeovers Code.

The information required under Rule 16 and Schedule 4 of the Takeovers Code is set out in Appendix 1 to this Notice of Meeting.

NZX Listing Rule 4.1.1 generally requires share issues to be approved by ordinary resolution in accordance with NZX Listing Rule 4.2.1 unless an exception in NZX Listing Rule 4.1.2 applies. Approval is being sought for the a2MC Placement under NZX Listing Rule 4.2.1 as it is a non pro rata share issue in excess of Synlait’s 15% placement capacity under NZX Listing Rule 4.5.1.

Material Transactions with a Related Party

NZX Listing Rule 5.2.1 provides that Synlait must not enter into a Material Transaction if a Related Party is, or is likely to, become:

(a) a direct party to the Material Transaction; or
(b) a beneficiary of a guarantee or other transaction which is a Material Transaction,

unless that Material Transaction is approved by an ordinary resolution of Synlait or conditional on such approval.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

As at the close of business on 15 August 2024 (which was the last trading day prior to announcement of the a2MC Settlement and a2MC’s support of an equity raise), Synlait’s Average Market Capitalisation was approximately $64 million. The gross value of the a2MC Placement is approximately $32.8 million, which exceeds 10% of Synlait’s Average Market Capitalisation.

As the a2MC Placement and the a2MC Settlement are each expressed to be conditional upon the other occurring, Synlait has included the coming into effect of the a2MC Settlement Deed as part of the approval sought in Ordinary Resolution 2.

As a2MC is the holder of a Relevant Interest in 10% or more of the ordinary shares of Synlait, it is a Related Party of Synlait. Accordingly, approval is being sought for the a2MC Placement and the a2MC Settlement coming into effect, under NZX Listing Rule 5.2.1 on the basis described above.

Resolution required

The resolution is being proposed as an ordinary resolution to satisfy the requirements of the NZX Listing Rules. An ordinary resolution is required to be passed by a simple majority of the votes of shareholders entitled to vote and voting on the resolution.

All shareholders will be entitled to vote on the resolution, provided that a2MC and any ”Associated Person” (as that term is defined in the NZX Listing Rules) of a2MC will not be permitted to vote in favour of the resolution as a result of NZX Listing Rule 6.3.1.

a2MC has warranted to Synlait in the a2MC Commitment Letter that it believes to the best of its knowledge that it is not an “associate” or “Associated Person” of Bright or of any other Synlait shareholder.

Effect of Ordinary Resolution 1 and/or Ordinary Resolution 2 not being passed

Each of Ordinary Resolution 1 and Ordinary Resolution 2 are conditional on the other, and the Bank Refinancing is conditional on the Bright Placement and the a2MC Placement completing.

The passing of the resolutions provides Synlait with authority to implement the matters contemplated by them. Actual implementation of the matters themselves, as well as the Bank Refinancing, are also inter-conditional, meaning the matters must all occur contemporaneously (or substantially contemporaneously) with each other.

If one resolution is not passed, then the other resolution will not be implemented, and the issuance of shares under the Bright Placement and the a2MC Placement will not take place and the a2MC Settlement Deed and the Bank Refinancing will not become unconditional (i.e., the a2MC Settlement and Bank Refinancing will not take effect). In this situation, Synlait would likely need to cease trading and initiate a formal insolvency process unless it were to become clear that further support would be forthcoming from its existing banks. Further, even if the Board were to form the view in these circumstances that Synlait could continue trading, the existing banks may seek to initiate a formal insolvency process, such as appointing a receiver, were Synlait to default on its obligations to those banks. All tranches of the existing Bank Facilities (other than tranches with a combined limit of approximately $62 million) are due to mature on 1 October 2024 and all amounts outstanding under those tranches must be repaid by Synlait on or before that date if not refinanced.

Constitution Amendments

The Existing Constitution provides Bright with special governance rights whilst it holds between 39.119% and 50% (inclusive) of the shares of Synlait (calculated excluding any shares issued to employees and directors). Those special arrangements are permitted under certain waivers granted by NZ RegCo.

The Board proposes amendments to Synlait’s Existing Constitution to remove: (a) those provisions which cease to apply and are deemed to be deleted as a result of Bright holding more than 50% of the ordinary shares of Synlait following the Bright Placement; and (b) those provisions that will become redundant upon the provisions referred to in limb (a) of this paragraph ceasing to apply and being deemed to be deleted. Such amendments include the deletion of:

(a) Bright’s right to appoint and remove up to four Directors whilst it holds between 39.119% and 50% (inclusive) of the shares;
(b) the exception to the rotation of the Directors appointed by Bright;
(c) the requirement that there are three Independent Directors;
(d) the requirement for the chair of the Board and the chair of the audit committee each to be an Independent Director;

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

(e) the casting vote held by the chair of the Board;
(f) the right of the Board to appoint one Director; and
(g) the ability of the Directors appointed by Bright to cast votes on behalf of other Directors appointed by Bright who are not present at the meeting.

The Constitution Amendments are of an administrative nature only. This is because each of the above deletions will, under the terms of the Existing Constitution, be deemed to have been made upon Bright holding more than 50% of the shares, and so will occur upon completion of the Bright Placement irrespective of the outcome of Special Resolution 1.

Pursuant to the Companies Act, the Constitution Amendments must be approved by special resolution of shareholders (being a resolution approved by a majority of 75% or more of the votes of those shareholders entitled to vote and voting on the question). As the Constitution Amendments do not impose or remove a restriction on the activities of the company or affect the rights attaching to shares, the shareholder minority buy-out rights under the Companies Act do not apply.

A copy of the Existing Constitution, the Amended Constitution (should Special Resolution 1 be passed), and a marked up copy showing the difference between the Existing Constitution and the Amended Constitution, may be reviewed on Synlait’s website at: www.synlait.com/investors.

The Board supports the Constitution Amendments and unanimously recommends that shareholders vote in favour of Special Resolution 1.

If Special Resolution 1 is passed, the waivers previously granted by NZX to Synlait to permit the special governance provisions in the Existing Constitution relating to Bright will, on the Constitution Amendments becoming effective, fall away and Synlait will cease to have a Non-Standard (NS) designation for the purpose of notifying the market of Synlait’s unique governance arrangements.

If Special Resolution 1 is not passed, then the Existing Constitution will continue to apply. However, as outlined in Section 3 ( Bright Placement ) of this Notice of Meeting, certain special governance rights presently afforded to Bright will cease to apply automatically upon issuance of shares under the Bright Placement.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

9. GLOSSARY

The meaning of terms set out in this Notice of Meeting are set out below:

A2IN	A2 Infant Nutrition Limited, a wholly-owned subsidiary of a2MC.
a2MCorThe a2 Milk	The a2 Milk Company Limited and includes, in the context of the a2MC Placement, any
Company	wholly-owned subsidiary it directs to acquire the shares to be issued under the a2MC
	Placement.
a2MC Commitment Letter	the commitment letter dated 20 August 2024 between Synlait and a2MC recording the
	terms and conditions of the a2MC Placement.
a2MC Deed Poll	the deed poll to be executed by a2MC on the Completion Date relating to the shares
	the subject of the a2MC Placement, the form of which is attached to the a2MC
	Commitment Letter.
a2MC Issue Price	43 cents per share.
a2MC Placement	the issuance of 76,283,104 ordinary shares to The a2 Milk Company at the a2MC Issue
	Price each payable in cash in full on issuance with such shares to rank equally with
	existing shares in Synlait Milk Limited.
a2MC Settlement	settlement of the various disputes between Synlait, SMFL, a2MC and A2IN in respect
	of certain disputes that have arisen under or in connection with the NPMSA and
	clarifcation of certain operational matters relating to access and support provided by
	SMFL to A2IN under the NPMSA.
a2MC Settlement Deed	the settlement deed dated 16 August 2024 between Synlait, SMFL, a2MC and A2IN
	recording the terms and conditions of the a2MC Settlement.
Allottee Shares	has the meaning given in Appendix 1 to this Notice of Meeting.
Amended Constitution	the Existing Constitution incorporating the Constitution Amendments.
ASX	ASX Limited and, where the context requires, the Australian Securities Exchange which
	it operates.
Average Market	has the meaning given to that term in the NZX Listing Rules.
Capitalisation
Bank Facilities	the facilities made available by Synlait’s banks under the Bank Facilities Agreement.
Bank Facilities Agreement	the Loan Facilities Agreement originally dated 26 June 2013 as amended from time to
	time between, among others, Synlait and the banks.
Bank Refnancing	the refnancing of Synlait’s Bank Facilities (by way of amendment and extension to
	the Bank Facilities Agreement (as further described in Section 5 (Other Important
	Information)).
banks	Synlait’s lenders under the Bank Facilities Agreement from time to time being, as at the date
	of this document, ANZ New Zealand Bank Limited, Bank of China (New Zealand) Limited,
	China Construction Bank Corporation New Zealand Branch, The Hongkong and Shanghai
	Banking Corporation Limited and Cooperatieve Rabobank U.A., New Zealand Branch.
Board	the board of directors of Synlait Milk Limited.
Bondholder	a person whose name is entered in the register in respect of the Bonds as a holder of a
	Bond.
Bonds	the $180 million subordinated bonds issued by Synlait with the ticker SML010.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

Bright	Bright Dairy Holding Limited and/or its controlling entities, as the context requires.
Bright Deed Poll	the deed poll to be executed by Bright on the Completion Date relating to the shares
	the subject of the Bright Placement, the form of which is attached to the Bright
	Commitment Letter.
Bright Issue Price	60 cents per share.
Bright Placement	the issuance of 308,333,333 ordinary shares to Bright Dairy Holding Limited at the
	Bright Issue Price each payable in cash in full on issuance with such shares to rank
	equally with existing shares in Synlait Milk Limited.
Bright Commitment Letter	the commitment letter dated 20 August 2024 between Synlait and Bright with respect to
	the Bright Placement.
Bright Dairy International	Bright Dairy International Investment Limited, the company that is the lender under the
	Shareholder Loan and a related company of Synlait’s largest shareholder, Bright Dairy
	Holding Limited.
Change of Control Event	has the meaning given in Section 3 (Bright Placement) of this Notice of Meeting.
Notice
Change of Control Event	has the meaning given in Section 3 (Bright Placement) of this Notice of Meeting.
Redemption Date
Change of Control Event	has the meaning given in Section 3 (Bright Placement) of this Notice of Meeting.
Redemption Amount
Companies Act	the Companies Act 1993 (New Zealand).
Completion Date	the date on which the completion of the Bright Placement, the Bank Refnancing, the
	a2MC Placement and the a2MC Settlement take efect, currently scheduled to be 1
	October 2024.
Constitution Amendments	the proposed amendments to the Existing Constitution to remove: (a) those provisions
	in the Existing Constitution which cease to apply and are deemed to be deleted as
	result of Bright holding more than 50% of the ordinary shares of Synlait; and (b) those
	provisions that will become redundant upon the provisions referred to in limb (a) of this
	paragraph ceasing to apply and being deemed to be deleted, in each case as further
	described in Section 8 (Explanatory Notes) of this Notice of Meeting.
Director	a director of Synlait.
Exclusivity Disputes	has the meaning given in Section 4 (a2MC Placement and a2MC Settlement) of this
	Notice of Meeting.
Existing Constitution	the constitution of Synlait as at the date of this Notice of Meeting.
FMCA	the Financial Markets Conduct Act 2013 (New Zealand).
Holder Election Date	has the meaning given in Section 3 (Bright Placement) of this Notice of Meeting.
Independent Director	a Director who is an “Independent Director”, as such term is defned in the NZX Listing
	Rules. The current Independent Directors are George Adams (Chair), Paul McGilvary and
	Paul Washer.
Independent Report	the independent report prepared by Northington Partners under the NZX Listing Rules
	and the Takeovers Code that is included as Appendix 2 to this Notice of Meeting.
Notice of Meeting	this document together with its Appendices.
Northington Partners	Northington Partners Limited.
New Products Dispute	has the meaning given in Section 4 (a2MC Placement and a2MC Settlement) of this
	Notice of Meeting.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

NPMSA	the nutritional powders manufacturing and supply agreement dated 22 August 2016, as
	amended and restated on 18 November 2019, between SMFL and A2IN.
NPMSA Disputes	has the meaning given in Section 4 (a2MC Placement and a2MC Settlement) of this
	Notice of Meeting.
NZ RegCo	NZX Regulation Limited.
NZX	NZX Limited.
NZX Debt Market	the debt security fnancial product market operated by NZX.
NZX Listing Rules	the listing rules of the NZX Main Board and NZX Debt Market operated by NZX.
NZX Main Board	the main board fnancial product market operated by NZX.
Other Matters Disputes	has the meaning given in Section 4 (a2MC Placement and a2MC Settlement) of this
	Notice of Meeting.
Other Shareholders	has the meaning given in Section 5 (Other Important Information) of this Notice of
	Meeting.
Outstanding Bonds	has the meaning given in Section 3 (Bright Placement) of this Notice of Meeting.
Pricing Disputes	has the meaning given in Section 4 (a2MC Placement and a2MC Settlement) of this
	Notice of Meeting.
Proposed Allottee	has the meaning given in Appendix 1 to this Notice of Meeting.
Proposed Transactions	the Bright Placement, the a2MC Placement and the a2MC Settlement, taken together.
Relevant Interest	has the meaning given to that term in the FMCA.
resolutions	the resolutions to be put to shareholders at the Special Shareholders’ Meeting, as
	described in Section 7 (Notice of Special Shareholders’ Meeting) of this Notice of Meeting.
SAMR	the State Administration for Market Regulation.
share	a fully paid ordinary share in the capital of Synlait.
shareholder	each person registered in the share register of Synlait as a holder of shares.
Shareholder Loan	the loan of $130 million advanced to Synlait by Bright Dairy International on 12 July
	2014, and associated security and priority arrangements.
SMFL	Synlait Milk Finance Limited a wholly-owned subsidiary of Synlait.
Special Shareholders’	the special shareholders’ meeting of Synlait convened under this Notice of Meeting
Meeting	(and includes any adjournment of that meeting).
Supervisor	has the meaning given in Section 3 (Bright Placement) of this Notice of Meeting.
Synlait	Synlait Milk Limited, a company incorporated in New Zealand under the Companies Act,
	and includes entities directly or indirectly wholly-owned by Synlait.
Takeovers Code	the Takeovers Code set out in the schedule to the Takeovers Regulations 2000.
US FDA	US Food and Drug Administration.
Voting/Proxy Form	the voting and proxy form accompanying this Notice of Meeting.
VWAP	volume weighted average price.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

APPENDIX 1: REQUIRED INFORMATION – BRIGHT PLACEMENT

(a) Bright Dairy Holding Limited is the proposed allottee of the shares under the Bright Placement (the Proposed Allottee ).
(b) Particulars of the voting securities to be allotted to the Proposed Allottee are as follows:
i. 308,333,333 ordinary shares in Synlait Milk Limited (the Allottee Shares ); and
ii. following the allotment of the Allottee Shares (which will occur simultaneously with the allotment of 76,283,104 voting securities to The a2 Milk Company):
- A. the percentage of the aggregate of all existing voting securities and all voting securities being allotted (being the Allottee Shares and the 76,283,104 voting securities to The a2 Milk Company) that the Allottee Shares represent is 51.12%;
- B. the percentage of all voting securities that will be held or controlled by the Proposed Allottee after completion of the allotment is 65.25%; and
- C. the aggregate of the percentages of all voting securities that will be held or controlled by the Proposed Allottee and the Proposed Allottee’s associates after completion of the allotment is 65.25%.
(c) The issue price for the Allottee Shares is $184,999,999.80 (being 60 cents per share) and is payable upon issuance of the Allottee Shares (expected Tuesday, 1 October 2024).
(d) The reason Synlait is issuing and allotting the Allottee Shares is to raise equity as part of a wider plan by Synlait to reset its balance sheet and provide a platform to return sustainable growth.
(e) The allotment under Ordinary Resolution 1, if approved, will be permitted under Rule 7(d) of the Takeovers Code as an exception to Rule 6 of the Takeovers Code.
(f) There is no agreement or arrangement (whether legally enforceable or not) that has been, or is intended to be, entered into between the Proposed Allottee and any other person (other than between the Proposed Allottee and Synlait in respect of the matters referred to in paragraphs (a) to (e)) relating to the allotment, holding, or control of the Allottee Shares, or to the exercise of voting rights in Synlait. Bright will enter into the Bright Deed Poll, the terms of which are outlined in Section 3 ( Bright Placement ) of this Notice of Meeting, in relation to the Allottee Shares.
(g) The report from an independent adviser that complies with Rule 18 of the Takeovers Code is attached to this Notice of Meeting as Appendix 2.
(h) The Directors make the following statement for the purposes of Rule 19 of the Takeovers Code:
The Independent Directors fully support the proposed placement to Bright Dairy Holding Limited as outlined in this Notice of Meeting and unanimously recommend that shareholders vote in favour of Ordinary Resolution 1 at the Special Shareholders’ Meeting (including to approve the allotment of shares under Rule 7(d) of the Takeovers Code). The Independent Directors’ reasons for recommending this approval include that they believe it is the best way to reset Synlait’s balance sheet and provide a platform to return to sustainable growth. The directors appointed by Bright, being Leon Fung, Sihang Yang, Tao Zhang and Yi Zhu, have abstained from making a recommendation because of Bright Dairy Holding Limited’s involvement in the Proposed Transactions.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

APPENDIX 2: INDEPENDENT REPORT

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

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Synlait Milk Limited

Independent Adviser’s Report and Appraisal Report Prepared in Relation to the Allotment of Shares to Bright Dairy Holding Limited and Allotment of Shares and Disputes Settlement with The a2 Milk Company Limited

20 August 2024

Statement of Independence

Northington Partners Limited confirms that it:

§ Has no conflict of interest that could affect its ability to provide an unbiased report; and
§ Has no direct or indirect pecuniary or other interest in the proposed transaction considered in this report, including any success or contingency fee or remuneration, other than to receive the cash fee for providing this report.

Northington Partners Limited has satisfied the Takeovers Panel, on the basis of the material provided to the Panel, that it is independent under the Takeovers Code for the purposes of preparing this report.

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Table	of Contents
1.0	Executive Summary ..................................................................................................................................... 5
1.1.	Introduction ................................................................................................................................................ 5
1.2.	Regulatory Requirements .......................................................................................................................... 5
1.3.	Summary of our Assessment of the Merits of the Bright Placement, a2MC Placement and a2MC
	Settlement .................................................................................................................................................. 6
1.4.	Consequences of Acceptance or Rejection of Resolution 1 and Resolution 2 .......................................... 9
2.0	Scope of the Report ................................................................................................................................... 11
2.1.	Regulatory Requirements ........................................................................................................................ 11
2.2.	Basis of Assessment and Evaluation ....................................................................................................... 12
3.0	Industry Overview ...................................................................................................................................... 14
3.1.	New Zealand Dairy Industry .................................................................................................................... 14
3.2.	New Zealand Milk Supply Chain .............................................................................................................. 14
3.3.	New Zealand Milk Processing ................................................................................................................. 14
3.4.	Global Dairy Commodity Market .............................................................................................................. 16
3.5.	Global Infant Formula Market .................................................................................................................. 19
4.0	Profile of Synlait ........................................................................................................................................ 24
4.1.	Overview of the Company ....................................................................................................................... 24
4.2.	Dunsandel ................................................................................................................................................ 24
4.3.	North Island Assets .................................................................................................................................. 25
4.4.	Dairyworks ............................................................................................................................................... 27
4.5.	Synlait Farms ........................................................................................................................................... 28
4.6.	Milk Supply .............................................................................................................................................. 28
4.7.	Customer Relationships ........................................................................................................................... 29
4.8.	Financial Overview .................................................................................................................................. 29
4.9.	Ownership and Share Price Performance ............................................................................................... 35
4.10.	Strategy, Key Issues and Outlook ........................................................................................................... 36
4.11.	Summary of Equity Raising and Bank Refinancing ................................................................................. 37
4.12.	Summary of a2MC Settlement ................................................................................................................. 38
5.0	Company Valuation ................................................................................................................................... 40
5.1.	Valuation Approach ................................................................................................................................. 40
5.2.	Valuation Methodology ............................................................................................................................ 40
5.3.	Valuation Summary ................................................................................................................................. 42
5.4.	Key Assumptions ..................................................................................................................................... 43
5.5.	Assessed Future Earnings ....................................................................................................................... 49
5.6.	Synlait Component Valuation .................................................................................................................. 50
5.7.	Synlait Insolvency Valuation .................................................................................................................... 54
6.0	Assessment of the Merits of the Bright Placement, a2MC Placement and a2MC Settlement ............ 58
6.1.	Comparison of the Bright Placement Price Relative to Assessed Value ................................................. 58
6.2.	Impact on Synlait’s Financial Position ..................................................................................................... 58
6.3.	Impact on Synlait Control ......................................................................................................................... 59
6.4.	Alternatives to the Bright Placement ........................................................................................................ 61
6.5.	a2MC Settlement ..................................................................................................................................... 61
6.6.	Advantages and Disadvantages to Non-associated Shareholders ......................................................... 62
6.7.	Likelihood of Bright Placement and a2MC Placement and a2MC Settlement Being Approved .............. 63
6.8.	Voting For or Against the Resolutions ..................................................................................................... 63
Appendix 1. Sources of Information Used in this Report ........................................................................... 64
Appendix 2. Comparable Company and Transaction Evidence ................................................................. 65
Appendix 3. WACC Input Parameters ........................................................................................................... 67
Appendix 4. Declarations, Qualifications and Consents ............................................................................ 68

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Abbreviations and Definitions

a2MC	The a2 Milk Company Limited and its subsidiary companies including A2 Infant Nutrition
	Limited (the counterparty to the NPMSA)
a2MC Placement	The issue of 76,283,104 Synlait shares to The a2 Milk Company at an issue price of
	$0.43 per share
a2MC Settlement	Settlement of the various disputes between Synlait and a2MC in respect of certain
	disputes that have arisen under or in connection with the NPMSA and clarification of
	certain operational matters relating to access and support under the NPMSA
AMF	Anhydrous Milk Fat
Appraisal Report	This report prepared by Northington Partners
Bonds	The unsecured subordinated fixed rate bonds issued by Synlait and listed on NZDX with
	a maturity date of 17 December 2024
Bright	The 39% majority shareholder in Synlait, Bright Dairy Holding Limited
Bright Placement	The issue of 308,333,333 Synlait shares to Bright at an issue price of $0.60 per share
CNCA	Certification and Accreditation Administration of the Peoples Republic of China
Code	The Takeovers Code
Company	Synlait Milk Limited
Dairyworks	Dairyworks Limited
DIRA	Dairy Industry Restructuring Act 2001
Dunsandel	Synlait’s manufacturing site located in Dunsandel, Canterbury
EBITDA	Earnings before interest, tax, depreciation, and amortisation (and impairments)
Equity Raising	The proposed $217.8 million capital raising by Synlait under the Bright Placement and
	a2MC Placement
ERP	Enterprise Resource Planning
FX	Foreign Exchange
Farmgate Milk Price	Farmgate milk price, the price per kg of milk solids paid by Fonterra for milk set in
	accordance with the milk price manual
FSSI	Foodstuffs South Island
FY	In relation to Synlait, financial year ending 31 July
IFRS-16	International Financial Reporting Standard 16 relating to the treatment of leases
IPO	Initial public offering
kgMS	Kilograms of milksolids
kT	Kilotonne (1,000 tonnes)
MT	Metric Tonne
Non-associated Shareholders	Shareholders of Synlait not associated with Bright or a2MC (as the case may be)
Northington Partners	Northington Partners Limited
North Island	Synlait’s North Island assets including Pokeno and RPD as well as its warehouse
	facility in Wiri, Auckland
Notice of Special Meeting	The notice of special meeting of Synlait shareholders and accompanying material in
	relation to the Bright Placement, a2MC Placement and a2MC Settlement
NPMSA	Nutritional Powders Manufacturing and Supply Agreement
NZ	New Zealand
NZDX	The listed debt market operated by NZX
NZX	NZX Limited
OIO	Overseas Investment Office
Pokeno	Synlait’s manufacturing site located in Pokeno, Waikato
PP&E	Property Plant and Equipment
RPD	Synlait’s canning facility at Richard Pearce Drive, Auckland
SAMR	State Administration for Market Regulation

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Settlement Deed	The deed of settlement between a2MC and Synlait recording the terms and conditions
	of the a2MC Settlement dated 16 August 2024
Shareholder Loan	The $130 million loan facility with Bright Dairy International Investment Limited
SMD	Special Milks Dryer
SMP	Skim milk powder
Synlait	Synlait Milk Limited or Synlait Group (as the context requires)
Synlait Group	Synlait and its subsidiaries
WMP	Whole milk powder

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1.0 Executive Summary

1.1. Introduction

Synlait Milk Limited (“ Synlait ” or “ Company ”) is a dairy and nutrition processor which manufactures infant formula, milk-powder based products, liquid milk and other advanced nutritional products. The Company’s shares are held by approximately 6,500 shareholders with a primary listing on the NZX Main Board (and a secondary listing on the ASX). The Company also has $180 million of subordinated bonds listed on the NZDX (“ Bonds ”) maturing on 17 December 2024.

After a period of rapid investment to support geographic, product and customer diversification, Synlait has incurred significant levels of increased debt. Over the last few years, the Company has also experienced considerable earnings volatility with compressed margins for its key nutritional products. This has resulted in current net debt levels increasing to approximately $551 million, relative to expected FY24 EBITDA in the region of $30 million (which, as discussed on page 32 is subject to adjustments for non-recurring items, audit and other end of year adjustments). Even if earnings could be improved in the short term, the current debt level is unsustainable.

In order to meet its short-term debt obligations and provide a more sustainable financial position, Synlait commenced a recapitalisation plan in 2023. The first stage of this process comprised a $130m shareholder loan (“ Shareholder Loan ”) from Bright Dairy International Investment Limited, a related company of Bright Dairy Holding Limited (“ Bright ”). The Shareholder Loan was approved by shareholders in July 2024 and used by Synlait to satisfy its $130 million repayment obligation to its banks on 15 July 2024.

The Shareholder Loan was always envisaged as a first step to provide time to raise new equity to further reduce debt and refinance Synlait’s existing bank facilities. Synlait has now reached agreement with Bright and The a2 Milk Company Limited (The a2 Milk Company Limited and its subsidiary companies including A2 Infant Nutrition Limited (the counterparty to the NPMSA)) (“ a2MC ”) to raise approximately $217.8 million (the “ Equity Raising ”) and has reached agreement with a2MC to settle various disputes (“ a2MC Settlement ”). Synlait shareholders are now being asked to approve two inter-conditional ordinary resolutions relating to the Equity Raising and a2MC Settlement:

Resolution 1 : a $185 million issue of shares to Bright which would increase its shareholding in the Company from 39.01% to 65.25% (“ Bright Placement ”); and
Resolution 2 : a $32.8 million issue of shares to a2MC (or any wholly-owned subsidiary it directs to acquire the shares to be issued) which would maintain its current 19.83% shareholding ( “a2MC Placement” ) in Synlait. As the a2MC Placement and the a2MC Settlement are each conditional on the other occurring, Synlait has included the approval of the a2MC Settlement as part of this resolution.

Synlait and a2MC are party to a Nutritional Powders Manufacturing and Supply Agreement (“ NPMSA ”), pursuant to which Synlait procures the manufacture and supply of certain infant milk products for a2MC. Various disputes have arisen under the NPMSA which the parties were unable to resolve commercially, leading to a formal arbitration process. The parties have now managed to resolve matters prior to a formal arbitration hearing and Synlait and a2MC entered into a Settlement Deed on 16 August 2024 to record the terms of the a2MC Settlement. The a2MC Settlement is conditional on completion of the Equity Raising, as well as completion of the bank refinancing that is being negotiated in parallel with the Equity Raising. On these conditions being satisfied and the oneoff payment referred to below being made to Synlait, the a2MC Settlement resolves those disputes in full. The a2MC settlement includes Synlait’s acceptance of the validity of a2MC’s cancellation of Synlait’s exclusive supply rights for infant milk formula from 1 January 2025, certain product pricing and cost variations under the NPMSA and a one-off payment of $24.75 million from a2MC to Synlait (which largely comprises amounts withheld in accordance with the terms of the NPMSA). Further details of the a2MC Settlement are set out in Section 4.12.

1.2. Regulatory Requirements

Synlait is a “Code Company” for the purposes of the Takeovers Code. As the Bright Placement will result in Bright increasing its voting control of Synlait from 39.01% to 65.25%, the Code requires the directors of Synlait to obtain an Independent Adviser’s Report on the merits of the allotment of shares

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under the Bright Placement. This Independent Adviser’s Report is to be included in, or accompany, the notice of special meeting (“ Notice of Special Meeting ”) pursuant to the Code.

The Bright Placement, and separately the a2MC Placement together with the a2MC Settlement, also constitute “Material Transactions” (or a related series of transactions) with a “related party” under the NZX Listing Rules. These transactions therefore require approval of Synlait's shareholders (other than Bright and its “associated persons” and its “associates”, as those terms are defined in the NZX Listing Rules and the Code respectively) in respect of the Bright Placement, and a2MC and its “associated persons” in respect of the a2MC Placement and a2MC Settlement. Pursuant to the NZX Listing Rules, the Notice of Special Meeting to be sent to shareholders must be accompanied by an Appraisal Report, prepared by an independent adviser to opine on the fairness of the transactions to shareholders not associated with the relevant related party.

As set out in more detail in Section 2.0, this report has been prepared in accordance with the requirements of Rule 18 of the Code and NZX Listing Rule 5.2.1.

1.3. Summary of our Assessment of the Merits of the Bright Placement, a2MC Placement and a2MC Settlement

Our full assessment of the merits of the Bright Placement under the Code and the fairness of the Bright Placement on the one hand, and the a2MC Placement and a2MC Settlement on the other hand are set out in Section 6.0. A summary of our assessment is provided below in Table 1.

Table 1: Summary of Conclusions

Item Key Conclusions	Further Information
Bright Placement Issue Price − We have estimated the value of Synlait’s equity in a range between $0.46 and $0.83 per share, with a mid-point value of $0.64. Our valuation assumes that the Equity Raising is successfully completed and that the Company continues to operate as a going concern. This value range is based on an assessment of the component parts of Synlait’s business and assumes a 100% control position. − Despite using a relatively narrow range for the enterprise value of Synlait, the wide equity value range is an unavoidable consequence of Synlait’s high financial leverage ($551m net debt as of 31 July), where small changes to factors that influence business value have a large impact on equity value. − Given the Bright Placement issue price of $0.60 is within our range and only ~6% below the mid-point of our range, we conclude that the issue price is reasonable. − Without the Equity Raising, there is a high possibility of an insolvency event (administration or receivership). In order to compare the potential value outcome for Non-associated Shareholders under this scenario, we have also estimated the potential value that may be realised by Synlait following a liquidation process. While the potential outcomes in this scenario are highly uncertain and will depend on a range of factors that are difficult to predict, we have estimated a hypothetical insolvency value range of $0.15 - $0.50 per share (approximately 33% – 60% of our going concern value). This outcome relies on a liquidator or receiver being able to generate strong buyer interest for Synlait’s assets and completing the process over a reasonable time period. If these conditions are not satisfied, we believe that our assessed range could significantly overstate the potential insolvency value of Synlait.	Section 5.0 & Section 6.1
Impact on Synlait’s Financial Position − The Equity Raising is critical to Synlait continuing as a going concern. Without it, there is a high possibility of an insolvency event (administration or receivership) due to Synlait’s ongoing debt obligations, including upcoming bank repayment requirements and the maturity of the $180m of outstanding Bonds in December 2024. Due to change of control provisions attached to the Bonds, repayment is expected in November 2024 following the Bright Placement for those that elect to redeem, with the balance being redeemed at maturity in December 2024. − The Equity Raising is also an essential element needed to obtain bank refinancing. The revised banking facilities are expected to provide sufficient liquidity to repay the Bonds when they come due.	Section 6.2

Item
Key Conclusions

Further
Information

Bright
Placement Issue
Price
−
We have estimated the value of Synlait’s equity in a range between $0.46
and $0.83 per share, with a mid-point value of $0.64. Our valuation
assumes that the Equity Raising is successfully completed and that the
Company continues to operate as a going concern. This value range is
based on an assessment of the component parts of Synlait’s business and
assumes a 100% control position.
−
Despite using a relatively narrow range for the enterprise value of Synlait,
the wide equity value range is an unavoidable consequence of Synlait’s high
financial leverage ($551m net debt as of 31 July), where small changes to
factors that influence business value have a large impact on equity value.
−
Given the Bright Placement issue price of $0.60 is within our range and only
~6% below the mid-point of our range, we conclude that the issue price is
reasonable.
−
Without the Equity Raising, there is a high possibility of an insolvency event
(administration or receivership). In order to compare the potential value
outcome for Non-associated Shareholders under this scenario, we have
also estimated the potential value that may be realised by Synlait following a
liquidation process. While the potential outcomes in this scenario are highly
uncertain and will depend on a range of factors that are difficult to predict,
we have estimated a hypothetical insolvency value range of $0.15 - $0.50
per share (approximately 33% – 60% of our going concern value). This
outcome relies on a liquidator or receiver being able to generate strong
buyer interest for Synlait’s assets and completing the process over a
reasonable time period. If these conditions are not satisfied, we believe that
our assessed range could significantly overstate the potential insolvency
value of Synlait.

Section 5.0
&
Section 6.1

Impact on
Synlait’s
Financial
Position
−
The Equity Raising is critical to Synlait continuing as a going concern.
Without it, there is a high possibility of an insolvency event (administration
or receivership) due to Synlait’s ongoing debt obligations, including
upcoming bank repayment requirements and the maturity of the $180m of
outstanding Bonds in December 2024. Due to change of control provisions
attached to the Bonds, repayment is expected in November 2024 following
the Bright Placement for those that elect to redeem, with the balance being
redeemed at maturity in December 2024.
−
The Equity Raising is also an essential element needed to obtain bank
refinancing. The revised banking facilities are expected to provide sufficient
liquidity to repay the Bonds when they come due.

Section 6.2

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Item	Key	Conclusions	Further Information
	−	Despite the Equity Raising being significant relative to Synlait’s current
		market capitalisation, debt levels are still expected to remain high relative to
		earnings following completion of the Equity Raising (and the payment of
		approximately $24.75 million under the a2MC Settlement). Pro forma debt
		at the completion of the transactions will represent 3.7x forecast FY25
		EBITDA, versus our view of an appropriate target level below 3.0x.
	−	However, the material improvement in debt levels, along with the bank
		refinancing which is a condition of the a2MC Placement and a2MC
		Settlement, will provide the company with the necessary headroom to
		explore further avenues for debt reduction and earnings improvement.
Impact on	−	As a result of the Bright Placement, Bright’s special governance rights in	Section 6.3
Control		Synlait’s constitution will cease to apply and it will instead have the rights
		that accrue to any majority shareholder of an NZX listed company under the
		Companies Act.
	−	We consider that due to Bright’s existing constitutional rights, the effective
		impact on governance and key Board decision rights following the Bright
		Placement is not material. This is because Bright already has effective
		Board control and this position is not going to materially change following
		the Bright Placement.
	−	Conversely, the Bright Placement will increase Bright’s ability to exert
		shareholder control over Synlait due to the increase in its voting rights. At
		the current shareholding level (39.01%), Bright can only block special
		resolutions requiring 75% support. When it moves to a 65.25%
		shareholding, Bright will be able to influence all shareholder decisions
		(unilaterally pass ordinary resolutions and block special resolutions) unless
		it is prohibited from voting on the relevant matter under the NZX Listing
		Rules or the Code. However, we note that Bright’s 65.25% shareholding will
		not be sufficient to unilaterally pass special resolutions. Depending on the
		number of the other minority shareholders who participate in the vote,
		approval of special resolutions will likely require a2MC’s support.
	−	Notwithstanding Bright’s existing control over Synlait’s strategy and plans,
		business operations, capital structure, dividend policy and financial and
		operating policies, Bright may apply its higher level of control in ways that
		are not always consistent with the interests of other shareholders or that are
		not always consistent with the long-term strategy being implemented by
		Synlait.
	−	Non-associated Shareholders currently have control of 41.16% of Synlait
		shares, and this level will reduce to 14.91% following completion of the
		Equity Raising. While this represents a significant reduction in voting
		control, we expect that the value impact for Non-associated Shareholders
		will be positive relative to prevailing share prices prior to 15 August. This
		reflects that the Equity Raising is being completed at an average issue price
		significantly higher than the market price for Synlait shares and will
		substantially de-risk the business.
Alternatives to	−	The alternatives for raising the quantum of equity required by Synlait with	Section 6.4
the Equity		the level of certainty and within the necessary timeframes are limited.
Raising
	−	While the Equity Raising could have been structured as a pro-rata rights
		offer, the offer price would have to be at a significant discount (rather than
		the premium under the Bright Placement and a2MC Placement) to
		encourage participation. Irrespective of the discount offered, we believe the
		Company would be unlikely to obtain the level of support required from the
		Non-associated Shareholders and the shortfall would need to have been
		taken up by Bright and a2MC in any event (subject to Takeovers Code
		limitations). The impact for any minority shareholders who did not participate
		would also likely be far worse than under the Equity Raising given the likely
		pricing differential.
	−	Other alternatives to the Equity Raising include the Company soliciting a full
		takeover offer, winding up the business or selling individual assets such as
		North Island and Dairyworks.
	−	Given Bright’s current shareholding, the prospects of a full takeover offer
		are low unless it was from Bright itself or from a third party whose offer was

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Item	Key	Conclusions	Further Information
		acceptable to Bright. Ultimately, Bright’s shareholding controls the prospects
		of a takeover and this will not change as a result of the Bright Placement.
	−	a2MC will also have effective negative voting control over a full takeover
		and can significantly influence any scheme of arrangement requiring 75%
		shareholder approval where there is only one interest class, or block a
		scheme proposed by Bright (or its associates, as defined in the Code), as
		Bright would be prevented from voting in the same interest class as
		shareholders not associated with Bright for the purposes of the 75% voting
		threshold.
	−	We believe it is unlikely that the wind-up of Synlait would deliver higher
		value to Non-associated Shareholders compared to our assessed Going
		Concern Value, particularly in Synlait’s current financial position and with
		the prospect of permanently losing milk supply under current farmer
		cessation notices. Even if a wind-up strategy was pursued, receipt of any
		asset sale proceeds would not occur before Synlait’s upcoming debt
		repayment obligations.
	−	Given the process already undertaken to sell Dairyworks and the North
		Island Asset’s current poor financial performance, we also believe individual
		asset sales are unlikely to deliver the level of proceeds required to reduce
		debt to sustainable levels. Notwithstanding that view, we believe these
		divestments are likely to remain viable options to further reduce debt
		following the Equity Raising.
	−	On balance, we consider that Non-associated Shareholders are more likely
		to receive a higher value outcome under the Equity Raising and subsequent
		a2MC Settlement, despite the shareholding dilution. The outcome from an
		insolvency event is highly uncertain, both in terms of the quantum and
		timing of any proceeds being distributed to shareholders. Shareholders
		would also lose the ability to trade their shares.
Assessment of	−	The a2MC disputes with Synlait in respect of the NPMSA and associated	Section 6.5
the a2MC		arbitration proceedings have created a great deal of uncertainty and
Settlement		distraction for the business. If both resolutions relating to the Bright
		Placement and a2MC Placement / a2MC Settlement are approved and
		Synlait completes its bank refinancing, all current disputes will be resolved
		in full and a2MC will pay Synlait the settlement amount of approximately
		$24.75 million. This includes amounts largely withheld from payment in
		accordance with the terms of the NPMSA pending resolution of matters in
		dispute.
	−	The impact of the a2MC Settlement includes Synlait acknowledging the
		validity of a2MC’s cancellation of Synlait’s supply exclusivity and losing that
		exclusivity from 1 January 2025. However, the change of control triggered
		by the Bright Placement would have given a2MC cause for termination of
		exclusivity in any event. We also note that while loss of exclusivity is likely to
		see a2MC procure infant formula product from other suppliers (including its
		own Mataura Valley facility), our view is that it is unlikely to significantly
		impact on a2MC’s demand for Chinese labelled product, at least in the
		medium term. Synlait’s Dunsandel site will still retain the SAMR registration
		for a2MC China label infant formula (subject to the next review in 2027).
	−	The dispute settlement also provides a2MC with a second SAMR slot at
		Synlait’s Dunsandel manufacturing site for a new China label infant formula
		product, as well as enhanced access to that site, its people and information
		relevant to Synlait’s supply of Advanced Nutrition products to a2MC. In our
		opinion, this could provide a2MC with information which may put it in a
		better position to obtain its own SAMR licence and subsequently move
		away from Synlait as its key manufacturer.
	−	Separate to the dispute settlement, we expect that a2MC is already actively
		exploring opportunities to develop and enhance its own manufacturing
		capabilities. Synlait will also continue to monitor the cost-benefit of
		maintaining the NPMSA with a2MC while exploring new customer
		opportunities to mitigate the impact of a2MC potentially transitioning
		volumes elsewhere.
	−	Settlement of the other disputes largely centres around pricing and cost
		allocation. Synlait expects that the wider settlement arrangements mean

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Item	Key	Conclusions	Further Information
		that, when taken as a whole, the overall profitability of the products
		produced for a2MC is expected to be moderately impacted due to additional
		costs and adjustments to manufacturing standards.
	−	a2MC is Synlait’s most significant customer and contributor to value and the
		continued success of the relationship between a2MC and Synlait benefits
		both parties. We believe that taken collectively, the a2MC Settlement and
		a2MC’s participation in the Equity Raising also demonstrates Synlait’s value
		to a2MC and the perceived value of maintaining a good working relationship
		between the two companies. On balance, we believe that the a2MC
		Settlement is in the best interests of Non-associated Shareholders.

1.4. Consequences of Acceptance or Rejection of Resolution 1 and Resolution 2

The resolutions relating to the Bright Placement and a2MC Placement / a2MC Settlement are conditional on each other. This means that the Bright Placement, the a2MC Placement and the a2MC Settlement will only occur if both resolutions relating to the Bright Placement and the a2MC Placement / a2MC Settlement are approved and implemented, and the bank refinancing is completed.

As Bright can vote on Resolution 2 (a2MC Placement) and has indicated its intention to vote in favour, the chances of it being passed are almost certain due to Bright controlling approximately 49% of the necessary 50% votes required to pass the resolution. The outcome of Resolution 1 is less certain as Bright cannot vote on this resolution and a2MC, which has indicated its intention to vote in favour (subject to the independent directors not changing or withdrawing their voting recommendation to shareholders), only controls approximately 33% of the votes capable of voting. However, based on a2MC’s support and the small level of remaining shares required to vote and likely voting, there is also a high chance Resolution 1 will be supported. For example, based on the level of participation of Non-associated shareholders in relation to the vote on the Shareholder Loan in July of ~69%, only ~15% of those shareholders would be required to support the Bright Placement to meet the 50% approval threshold.

If both resolutions are passed, the bank refinancing takes place and the conditions of the a2MC Settlement conditions are satisfied, we believe:

Synlait’s share price will increase relative to the closing share price on the NZX Main Board on 15 August 2024 (the last undisturbed share price prior to the announcement of the conditional a2MC Settlement) due to the removal of the considerable uncertainty relating to the a2MC dispute and financial position, and reflecting the economic impact of the Equity Raising occurring at a premium to the market price for Synlait shares;
While Synlait’s debt levels will remain relatively high following the Equity Raising, the Company will have the ability to better consider future debt refinancing options without being in a distressed financial position. All else equal, this should allow Synlait to deliver improved performance and the flexibility to consider future asset sales, if required, in a stronger position to deliver higher value for all shareholders; and
Non-associated Shareholders will retain the ability to trade their Synlait shares.

The consequences of not passing one or both resolutions could potentially be dire for Synlait. Without approval of both resolutions allowing the Equity Raising to complete, the bank refinancing will not occur and the Company, or its banking syndicate, is likely to initiate a formal insolvency process. In that scenario, trading of Synlait shares on the NZX Main Board would likely cease (under the NZX Listing Rules, NZX has absolute discretion to suspend trading) and shareholders would lose their ability to realise any remaining value from their investment in the short term. In this instance, the value that Synlait shareholders may obtain is highly uncertain and would be significantly influenced by the competitive interest that could be generated by the receiver or administrator for Synlait’s assets.

The insolvency process would also incur significant cost and could take some time. While we have assessed a hypothetical insolvency value range of $0.15 - $0.50 per share, this could materially overstate possible outcomes, and it is possible that shareholders would receive a lower value for their

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shares. We also acknowledge that the insolvency process could deliver a value outcome above our range, particularly if strong competitive tension can be maintained during the sale process for the Dunsandel plant. We expect that a2MC would be highly motivated to participate in the process, but suggest it is harder to determine the level of interest from other parties and the likely value these parties would attribute to Dunsandel.

On balance and having regard to all relevant factors, we conclude that the merits of the Bright Placement, a2MC Placement and a2MC Settlement outweigh the negative aspects and are in the best interests of existing Synlait shareholders. In our opinion, the terms and conditions of both the Bright Placement, the a2MC Placement and the a2MC Settlement collectively are fair to Nonassociated Shareholders.

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2.0 Scope of the Report

2.1. Regulatory Requirements

2.1.1. Takeovers Code Requirements Synlait is a code company as defined by the Code and is therefore subject to the provisions of the Code.

Rule 6 of the Code prohibits:

a person who holds or controls no voting rights or less than 20% of the voting rights in a code company from holding or controlling an increased percentage of the voting rights in the code company unless, after that event, that person and that person’s associates hold or control in total not more than 20% of the voting rights in the code company; or
a person who holds or controls 20% or more of the voting rights in a code company from holding or controlling an increased percentage of the voting rights in the code company,

unless done in compliance with exceptions to this fundamental rule.

One of the exceptions, set out in Rule 7(d) of the Code, enables a person to become a holder or controller of an increased percentage of voting rights by an allotment of voting securities in the code company if the allotment is approved by an ordinary resolution of the code company (on which neither that person, nor any of its associates, may vote).

The Bright Placement will result in Bright increasing its control of the voting rights in Synlait from 39.01% to 65.25%. Accordingly, the Non-associated Shareholders will vote at the Company’s special meeting of shareholders on the Bright Placement resolution in accordance with the Code. Rule 18 of the Code requires the directors of a code company to obtain an Independent Adviser’s Report on the merits of an allotment under Rule 7(d). This Independent Adviser’s Report is to be included in, or accompany, the notice of meeting pursuant to Rule 16(h).

Synlait requested Northington Partners to prepare an independent adviser’s report setting out, in its opinion, the merits of the Bright Placement for Non-associated Shareholders. Our appointment was approved by the Takeovers Panel on 17 June 2024. We note that the a2MC Placement does not have any direct Takeovers Code implications because under the Equity Raising, a2MC is maintaining voting rights of less than 20% (i.e. only participating to maintain its current shareholding).

2.1.2. Listing Rule Requirements

The Bright Placement, a2MC Placement and a2MC Settlement are subject to rule 5.2.1 of the NZX Listing Rules. Pursuant to those rules, Synlait may not enter into a Material Transaction with a Related Party (i.e. Bright or a2MC) unless that transaction is approved by an ordinary resolution of shareholders not associated with the Related Party or is conditional on such approval.

A “Material Transaction” for the purposes of the NZX Listing Rules includes a transaction, or a related series of transactions, whereby an Issuer “issues its own Financial Products having a market value” of an amount above 10% of the Average Market Capitalisation of the Company. Under the terms of the Bright Placement, Bright is being allotted new Synlait shares with a value of $185 million, representing a value in excess of 255% of Synlait’s Average Market Capitalisation0F[1] Similarly, the a2MC Placement constitutes a Material Transaction under the NZX Listing Rules. The a2MC Placement and the a2MC Settlement are each expressed to be conditional upon the other occurring, and approval of the a2MC Settlement was therefore included by Synlait as part of the resolution relating to the a2MC Placement.

NZX Listing Rule 7.8.8 requires that the notice of special meeting to consider the ordinary resolutions referred to above must be accompanied by an Appraisal Report, prepared by an independent appraiser to opine on the fairness of the transaction to shareholders not associated with the relevant related party. NZX Listing Rule 7.8.5(b) requires that the notice of special meeting to consider the ordinary resolution relating to the Bright Placement is also accompanied by an Appraisal Report.

1 Based on the 20-day volume weighted average price of Synlait shares traded on the NZX up to 20 August, being the last trading day before the announcement of the Equity Raising.

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This report is addressed to the independent directors of Synlait for the benefit of shareholders not associated with Bright or Bright’s representatives on the Synlait board in relation to Resolution 1 and for the benefit of shareholders not associated with a2MC in relation to Resolution 2.

2.1.3. Declarations

Pursuant to Listing Rule 7.10.2, we state that:

(i) In our opinion, the terms and conditions of both the Bright Placement and the a2MC Placement and a2MC Settlement (taken together) are fair to Non-associated Shareholders. The grounds for this opinion are set out in this report;
(ii) We believe that the shareholders entitled to vote on the resolution in relation to the Bright Placement, and the a2MC Placement and a2MC Settlement will be provided with sufficient information to understand all relevant factors and on which to make an informed decision. The two main sources of information are this report and the Notice of Special Meeting;
(iii) We confirm that we have been provided with all of the information that we believe is required for the purposes of preparing this report; and
(iv) The material assumptions on which our opinion has been based are clearly set out in the body of this report.

2.2. Basis of Assessment and Evaluation

The exact meaning of the word “merits” is not prescribed in the Takeovers Code and there is no well accepted, authoritative New Zealand reference that clearly establishes what should be considered when assessing the merits of a transaction. Although the Takeovers Panel has published a guidance note about the role of an Independent Adviser, it has been careful not to limit the scope of the assessment and states that the relevant factors that should be taken into consideration will depend on the features of the proposed transaction as well as the prevailing circumstances of the parties involved. However, the Takeovers Panel suggests that a merits assessment is broader than a valuation assessment and will include other positive and negative aspects of a transaction.

The content required to be included in the Appraisal Report pursuant to the NZX Listing Rules is clearly set out in rule 7.10.2. Among other things, the Appraisal Report must state whether or not the independent appraiser considers that the terms and conditions of the proposed transaction are “ fair ” to the Company’s shareholders other than those shareholders (if any) that may be associated with the related parties to the transaction. Although there is no statutory definition of “ fair ” or any specific guidance provided in the NZX Listing Rules, our assessment of the fairness of the Bright Placement, a2MC Placement and a2MC Settlement are based on a consideration of:

The consequences for the existing shareholders if the respective resolutions are approved or not approved (noting both resolutions must be approved for the Bright Placement and a2MC Placement and a2MC Settlement to occur); and
The overall terms for the Bright Placement and a2MC Placement, including an assessment of the Bright Placement issue price relative to fair value and the impact of the overall a2MC Settlement terms on Synlait’s future performance.

In respect of both the Takeovers Code merits and the NZX Listing Rule fairness assessments, we have evaluated the Bright Placement, a2MC Placement and a2MC Settlement by reviewing the following factors:

The estimated control value range for Synlait and the Bright Placement issue price when compared to that value range;
The estimated value for a minority shareholding in Synlait and the a2MC Placement issue price when compared to that value range;
The financial implications of the Equity Raising for Synlait, particularly with reference to its current borrowings and financial leverage position;
The current and potential future trading conditions for Synlait considering its trading environment and business risks, both with and without the Equity Raising and a2MC Settlement;

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Synlait’s prospects and the potential consequences of not approving the resolutions, including the possible outcomes from an insolvency process as well as the potential to raise sufficient new equity from other sources; and
The impact on control of the Company, and the market price and liquidity of Synlait shares.

This report should not be used for any other purpose and should be read in conjunction with the declarations, qualifications and consents set out in Appendix 4.

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3.0 Industry Overview

3.1. New Zealand Dairy Industry

The New Zealand dairy industry is a cornerstone of the domestic economy and represents approximately one quarter of the country’s exports (NZ$19.6b). Key contributors to New Zealand’s competitive advantage in dairying include:

The country’s relatively temperate climate which provides conducive conditions for grass and feed growth.
Renewable fresh water volumes which are nearly four-times the global average, meaning the country has ample water resources to support irrigation.
High level of suitable land resources with ~40% of the country covered in exotic grassland (land covered with non-native grasses used for pasture including dairy, sheep and beef farming).
A skilled farming workforce and a commitment to research and development of innovative agricultural practices.
Maintenance of liberal trade policies and FTAs with key markets including China (duty-free access to this market in place from January 2024).

The New Zealand milk season runs from June to May each year, with a highly seasonal production profile as a result of New Zealand’s low-cost pasture-based farming systems. This contrasts with high cost feed-based systems in other markets, and provides New Zealand with a significant competitive advantage over most other dairy producers.

New Zealand produces approximately 21 billion litres of milk annually, of which close to 95% is exported to ~130 different countries worldwide.

3.2. New Zealand Milk Supply Chain

Fonterra Co-operative Group Limited (“ Fonterra ”) collects approximately 80% of all milk produced in New Zealand, with the majority collected from its farmer shareholders. However, a growing proportion of the milk pool is now collected by independent processors.

Figure 1 below outlines the key parts of the New Zealand milk supply chain.

Figure 1: New Zealand Dairy Supply Chain

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Sources: MPI, Northington Analysis. Note raw milk supply from Fonterra to independent processors represents DIRA milk allocation primarily to Goodman Fielder, but also new independent processors.

3.3. New Zealand Milk Processing

Independent dairy processors play a growing role in the New Zealand industry, with Fonterra’s share of milk collection reducing from ~95% in 2001 to ~80% today. Since Fonterra was formed and the Dairy Industry Restructuring Act 2001 (“ DIRA ”) was introduced, several independent milk processors have established a meaningful position in the market. These include:

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Synlait: The Company has two main production sites in Dunsandel and Pokeno, capable of producing milk powders, infant formula, and anhydrous milk fat for export, as well as a range of fresh milk products for the domestic market.
Open Country Dairy Limited: Owned by the Talley’s Group and predominantly focused on the efficient production of commodity dairy products, primarily for export markets.
Westland Dairy Company Limited: Westland is a wholly owned subsidiary of Inner Mongolia Yili Industrial Group (“ Yili ”). With its primary processing site in Hokitika, the company focuses on producing milk powder, butter, AMF and lactoferrin products.
Oceania Dairy Limited: A wholly owned subsidiary of Yili, Oceania operates a plant in Glenavy, South Canterbury which is capable of producing 47,000 tonnes of milk powder per annum. Additionally, the plant includes an infant formula blending and canning line, UHT production lines, and produces AMF.
Tatua Co-operative Dairy: A domestically owned co-operative operating from Tatuanui, Waikato.
Miraka Limited: Owned by a group of Māori trusts and incorporations together with a Vietnamese investor, Vietnam Dairy Products. From its facility in Mokai near Taupo, the company produces a range of powders, frozen milk and UHT products.
Olam Food Ingredients New Zealand Limited (“ OFI ”): is a subsidiary of Singapore-based food and agri-business Olam International. The first stage (45,000 tonne) of its Tokoroa facility was commissioned in 2023, producing WMP for the export market.

Despite the increasing share of the milk pool which is processed by independent processors, the market continues to be dominated by Fonterra. The introduction of DIRA was the enabling legislation for the creation of Fonterra via the merger of the New Zealand Dairy Group and Kiwi Co-operative Dairies and seeks to regulate Fonterra’s market position by imposing a number of obligations on the co-operative.

A key element of the DIRA legislation is the determination of the price that Fonterra pays for milk supply (the “ Farmgate Milk Price ”). The Farmgate Milk Price is set by calculating the price a ‘notional producer’ could afford to pay for raw milk and still achieve a reasonable rate of return on invested capital. Given Fonterra’s market position, the price that the majority of independent milk processors pay for milk is typically linked to the Farmgate Milk Price. However, the differences between the ‘notional producer’ and independent processors give rise to risks for an independent processor producing reference products (WMP, SMP and butter/AMF) if they are unable to achieve the same processing efficiencies, product mix, sales phasing, pricing, FX rates, cash costs and operating performance as the ‘notional producer’. Conversely, there are also opportunities to sell higher value non-reference products such as Advanced Nutrition products.

The perishable nature of milk and the need to handle peak seasonal volumes mean dairy processors need to make substantial investments in processing capacity which result in underutilisation in offpeak periods. Given their high fixed cost base, processors are heavily incentivised to maximise capacity utilisation. While recent decades have seen favourable supply-side and demand-side conditions for new entrants into the dairy processing sector, the environment has shifted in recent years and a number of issues have arisen for processers located in certain regions or focused on some production niches.

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Figure 2: New Zealand Dairy Exports ($ billion)

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----- Start of picture text -----

$30
$25
$20
$15
$10
$5
$0
2004 2008 2012 2016 2020 2024F
Infant formula SMP/WMP Butter, AMF & Cream Other
----- End of picture text -----

Source: Ministry for Primary Industries SOPI Dec-2023

Figure 3: Milk Solids Production (billion kgMS)

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----- Start of picture text -----

2.0
1.5
1.0
0.5
-
2003/04 2007/08 2011/12 2015/16 2019/20
Waikato Rest of NI North Canterbury Rest of SI
----- End of picture text -----

Source: LIC Dairy Statistics

In regions like Waikato, competition for milk has intensified amongst domestic processors as new entrants vie for a milk supply pool that is expected to flatten in line with regulatory pressures and the attractiveness of alternative land uses (including horticulture, forestry, and urban development). Figure 3 above shows that production in most regions has been reasonably static for some time.

3.4. Global Dairy Commodity Market

3.4.1. Global Dairy Demand

Milk is a bulky and highly perishable product that needs to be processed soon after collection. Partly reflecting these attributes, only a small proportion (less than 10%) of global milk production is traded, mostly in the form of processed products such as WMP, SMP, Cheese, Butter and UHT liquid milk products. All other milk is consumed as fresh dairy products.

While some large dairy markets are largely self-sufficient in their production (e.g. India), higher incomes and shifting consumer preferences have supported a sustained period of growth in the trade of dairy products. In recent decades, China has been the key import market for products from Oceania in particular.

As summarised in Figure 4 below, dairy consumption in developed countries has remained relatively constant over the past 30 years while consumption in developing countries has increased significantly as a result of population and income growth.

Figure 4: Dairy Product Consumption (million MT)

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----- Start of picture text -----

Developed countries Developing countries
500
400
300
200
100
-
1990 1995 2000 2005 2010 2015 2020
----- End of picture text -----

Source: OECD-FAO Agricultural Outlook

The global average consumption of fresh dairy products per person is projected to grow by about 1%[2] annually over the next decade, primarily driven by rising per-capita income. Although per capita

2 OECD-FAO Agricultural Outlook

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consumption is expected to increase, the slowing rate of global population growth is expected to moderate overall consumption growth during this period.

While China has been a key source of trade growth in dairy products over the past two decades, China’s dairy sector is at an inflection point. Following an extended period of rapid import growth driven by population and income growth, significant growth in domestic production and evolving consumer preferences have shifted market dynamics considerably in recent years.

Figure 5: China Imports of Dairy Commodities (million MT)

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----- Start of picture text -----

2.0
1.6
1.2
0.8
0.4
0.0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
----- End of picture text -----

Source: OECD-FAO Agricultural Outlook, Dairy Commodities include Butter, Cheese, WMP and SMP.

Once considered a luxury product, dairy products have become a staple in Chinese households, driven by shifts in consumer attitudes and increased dietary inclusion of dairy. Fresh milk and dairybased drinks form the largest segment of the dairy market, accounting for 42.5%[3] of dairy consumed in 2021. Fresh and yoghurt-based beverages have been the fastest growing categories and are dominated by Yili, Mengniu Dairy and Bright Food Group.

SMP and WMP continue to be used mostly in the manufacturing sector. WMP is used for either direct recombining for the drinking milk sector, cultured and blended products, bakery trade or manufacturing trade. A small share of dairy products, particularly SMP and whey powder, are used in animal feed.

Figure 6: Dairy Consumption (kg/person)

Figure 7: China Dairy Product Consumption (%)

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----- Start of picture text -----

120 Fresh Processed 2% Milk and Dairy
100 24% Beverages
Milk Powder
80
43%
60 Yoghurt
40
Cheese
20
Butter
0
2003 2023 2003 2023 31%
China OECD
Source: OECD-FAO Agricultural Outlook Source: China Business Industry Research Institute
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While China’s dairy consumption is expected to exceed supply for the next decade, the requirement to import certain products, like WMP, is expected to reduce as domestic milk production increases. Over the 10 years, the Chinese government has implemented several initiatives aimed at reducing reliance on imports. These include the “14[th] Five-Year Plan,” which sought to improve the industrial structure of the dairy industry and established a 70% self-sufficiency target.

The impact of domestic substitution and government intervention was well illustrated in 2023, when surplus raw milk production led to government subsidies to stabilise the domestic processing sector. This resulted in greater production of WMP and higher domestic inventories. “The raw milk price within China has dropped to the lowest levels in over a decade, China is now looking to export WMP (though volumes remain low for now)”[4] . Consequently, demand for imports of whole milk powder (mostly from New Zealand) weakened. As illustrated in Figure 8 below, this dynamic is expected to persist for the coming decade.

3 https://www.china-briefing.com/ China Business Industry Research Institute

4 U.S. Dairy Export Council, International Demand Analysis April 2024

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Figure 8: China Imports of Dairy Products (million MT)

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----- Start of picture text -----

5.00
4.00
1.58
3.00 1.26
1.29
2.00 0.92 1.38 1.62
1.90 0.55
1.76 0.52 0.15 0.16
1.00 0.43 0.300.180.13 0.55 0.300.180.13 0.41 0.15 0.49 0.16 0.330.78 01.08.37 0.700.36 0.580.39
0.00
2022 2032 2022 2032 2022 2032 2022 2032
Butter Cheese Skim milk powder Whole milk powder
China Rest of Asia OECD countries Rest of World
----- End of picture text -----

Source: OECD-FAO Agricultural Outlook, 2023

As China’s demand for dairy commodities moderates, trade in dairy products is anticipated to become more diversified. Import demand from other emerging economies, such as those in Southeast Asia, is expected to rise. This growth is driven by increasing incomes that support shifts towards higher-value foods and livestock products, while land constraints and limited domestic production capacity hinder local industry development.

3.4.2. Global Dairy Commodity Market

Wholesale dairy prices are influenced by a range of factors including global economic conditions, agro-climatic factors and exchange rates. Global economic conditions, including growth in major markets and exchange rate fluctuations, play a crucial role in driving demand and export viability. Regulatory changes and trade policies also significantly impact market dynamics, altering competitive landscapes and therefore affecting prices.

International commodity prices for major dairy products from 2013 to 2024 are summarised below in Figure 9.

Figure 9: Average Wholesale Prices for Select Dairy Products (USD / MT)

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----- Start of picture text -----

$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Butter Cheddar SMP WMP
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Source: Global Dairy Trade

The Global Dairy Trade (“ GDT ”) Price Index measures the average prices of dairy products sold at auctions on the GDT platform – which is owned and managed via a strategic partnership between the European Energy Exchange, Fonterra, and the NZX. The index tracks the movement of prices across various dairy products such as WMP, SMP, butter, cheese, and other milk derivatives, and provides a bellwether for dairy commodity market sentiment.

After reaching a peak in March 2022, international dairy powder prices have fallen steeply (dairy fats including butter and AMF prices have performed better), reflecting the combined effects of weaker global economic conditions and building inventories in key markets like China. Although a weaker NZ Dollar has helped NZ exporters, lower clearing prices have pushed farmgate prices down. Increased input costs, particularly in relation to debt servicing, fertiliser and labour costs have compounded the impact of weakening prices and significantly increased financial stress for New Zealand’s farmers.

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Figure 10: GDT Index vs Farmgate Price ($/kgMS)
1,800 $16
1,600 $14
$12
1,400
$10
1,200
$8
1,000
$6
800 $4
600 $2
2017 2018 2019 2020 2021 2022 2023 2024
GDT Index Farmgate Price (RHS)
$ / kgMS
----- End of picture text -----

Source: GDT, Fonterra

Lower production in response to lower profitability and tighter environmental regulations are expected to offset demand side pressures, with recent GDT auctions suggesting more stable prices as a new equilibrium is found.

3.5. Global Infant Formula Market

The global baby milk and infant formula (“ IMF ”) market is estimated to be worth USD$54 billion[5] , and is forecast to grow to ~USD$70 billion[6] over the next 5-years. Key global markets include China, USA, Indonesia, Russia and Vietnam.

3.5.1. China – Drivers

China holds the top position in the global infant nutrition market, in terms of value and volume for both the domestic market and value of imports. The market experienced significant growth over the past decade, peaking at ~US$24b in 2021[7] . Demand has however moderated since and is estimated at ~US$21b in 2024F[8] , with further reductions expected in the following two years. This downward trend is summarised in Figure 11.

Figure 11: China Infant Formula Market Size (billion USD)

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----- Start of picture text -----

$23.7 $23.8
$22.6
$21.7
$21.1
$20.7
$20.5
2020 2021 2022 2023 2024F 2025F 2026F
----- End of picture text -----

Source: Euromonitor, assumes USD/CNY rate of 7.25

The rapid growth in demand for IMF in China is relatively recent and, similar to other dairy products, key drivers have been population and income growth. Since 2021, China’s infant nutrition market has seen a noticeable slowdown, directly tied to a significant decline in birth rates. From 2017 to 2023, the number of annual births dropped from approximately 18 million to around 9 million (see Figure 12). This is despite the country formally abolishing its decades old one-child policy in 2016. Officials are hopeful for a slight uptick in 2024, supported by an increase in registered marriages, which have historically shown a strong positive correlation with births (see Figure 13). However, the rising cost of living (particularly in large cities), record high youth unemployment, and a weak property sector (where the vast majority of household wealth is stored) is expected to keep pressure on China’s birth rate.

5 Statista Market Insights 6 Statista Market Insights 7 Euromonitor 8 Euromonitor

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Figure 13: China Marriages vs. Births (10k)

Figure 12: China Births (Million) and Birth Rate

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----- Start of picture text -----

2,200
20 18 8%
15 6% 1,800
4%
10 9 1,400
2%
5 0% 1,000
- -2%
2005 2008 2011 2014 2017 2020 2023 600
Births (LHS) 600 800 1000 1200 1400
Natural Pop. Growth Rate % (RHS) Marriages
Births (t+1)
----- End of picture text -----

Source: National Bureau of Statistics of China

Source: National Bureau of Statistics of China, Reuters

Shifting attitudes on child-rearing among younger generations could be cause for longer-term concern. As illustrated in other East Asian states, reversing these trends is extremely challenging.

Figure 14: Fertility Rate (births per woman)

Figure 15: Population Projections – China (Billions)

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----- Start of picture text -----

1.5
2.5
1.4
2 1.3
1.2
1.5 1.1
1.31.2 1
1 0.9
0.8
0.5
1990 1995 2000 2005 2010 2015 2020
Median Lower 95% Upper 95%
China Japan Korea, Rep.
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
----- End of picture text -----

Source: World Bank

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----- Start of picture text -----

Source: United Nations World Population Prospects, 2022
----- End of picture text -----

Fertility rates in South Korea and Japan, which were approximately 1.5 in the late 20[th] century, have steadily declined over the past two decades, reaching 0.8 in Korea and 1.3 in Japan in spite of policy action to boost the birth rate. Long-term, the United Nations World Population Prospects report forecasts China’s population will shrink by over 100 million by 2050.

3.5.2. China – Market Participants

Considering the scale of the market and geographic size of China, the infant formula market is reasonably concentrated with just a handful of dominant local and international brands. Prominent international brands such as Nestlé and Danone compete alongside leading domestic brands including China Feihe and Yili, which together with other domestic brands control ~55%[9] of the market.

The Chinese market was significantly affected by a series of high-profile food safety scandals in the 2000s and early 2010s, most notably the addition of melamine to milk-based products. This resulted in a sharp decline in consumer confidence in domestically manufactured products and the government’s ability to effectively regulate food safety standards. Significant numbers of Chinese parents subsequently switched to buying foreign brands, with some reports suggesting the foreign products commanded over 60% market share in 2015[10] . Brands from New Zealand consistently ranked highly in consumer preference.

Central government has made a concerted effort to rebuild trust, adopting some of the most stringent food safety regulations in the world.

2010 saw the Introduction of the National Food Safety Standard for Infant Formula (GB 10765-2010). This standard introduced guidelines for the nutritional content and safety of infant formula.
Since 2013 there has been a requirement that international manufacturers obtain a General Administration of Customs of China (“ GACC ”) license (previously known as a Certification and Accreditation Administration of the People’s Republic of China licence (“ CNCA ”)) to manufacture infant formula products intended for sale in China.
General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China (“ AQSIQ ”) introduced new restrictions requiring foreign makers of infant

9 Euromonitor

10 Statistia – Brand origin distribution in baby formula market in China 2007-2021

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formula milk powders to register the products, as well as their manufacturing and storage facilities, before the products can be sold in China.

In 2016, the China Food and Drug Administration (“ CFDA ”) announced new measures for manufacturers of infant formula to register brands and recipes with them in order to import products from 1 January 2018:
§ In line with these regulations, all infant formula products imported and sold in China must be produced by manufacturing facilities registered with the GACC and must be registered.
§ Each manufacturing site is also restricted to registering a maximum of three different product series, with each series containing up to three products. This means a registered site can have no more than nine infant formula products registered in total.
§ The registration process involves lengthy application procedures, on-site inspections, product testing, and the approval of labelling and artwork[11] .
§ The regulations still permit the sale of non-registered products via Daigou or CBEC channels. Noting that, Chinese-labelled formula makes up ~85%[12 ] of IMF sales in China.
In March 2018, a restructure of the CFDA was announced. A new structure, the State Administration for Market Regulation (“ SAMR ”) consolidated the regulatory functions of several ministries. SAMR is now responsible for the comprehensive coordination of China’s food safety system, the development of major food safety related laws, policies and regulations.
In 2021, China introduced new national standards for infant formula, which took effect from 2023 following a two-year transition period. These new standards, GB 10765-2021 for infant formula, GB 19766-2021 for older infant formula, and GB 10767-2021 for young children formula replaced the older standards put in place in 2010. The new standard revised the minimum and maximum values of nutrients such as selenium, manganese and choline, mandated lactose content, banned fructose and sucrose and imposed a requirement to reregister products with SAMR.
These new standards are some of the most prescriptive in the world, with industry experts claiming the registration process will require months or years to complete and cost several million dollars.[13 ]

In addition to new regulations, there has been a concerted effort by Chinese authorities to rationalise domestic manufacturers with a view to reducing the number of suppliers. This shift has been encouraged by the government’s “Action Plan for the Promotion of Domestic Infant Milk Powder”.

As a consequence of these regulations and the renewed trust in larger domestic players, there has been a shift towards domestically produced products, with the market share of Chinese players increasing from 19% in 2016 to over 40% in 2023[14] .

Figure 16: Market Share (China Label)

==> picture [194 x 17] intentionally omitted <==

----- Start of picture text -----

Figure 17: NZ’s Rolling 12 Month IFM Exports (million
kg)
----- End of picture text -----

==> picture [402 x 119] intentionally omitted <==

----- Start of picture text -----

Feihe 70
21.0% 60
50
Other
40.9% 40
Yili
10.6% 30
20
Friso
10
8.0%
a2MC Aptamil 0
4.9% Junlebao 7.6% Feb-13 Feb-15 Feb-17 Feb-19 Feb-21 Feb-23
7.0%
Source: a2MC Source: Stats NZ
----- End of picture text -----

Increasing regulatory complexity combined with domestic competition and the plummeting birth rate have seen some foreign brands withdrawn from the market. A notable example is Abbott

11 CRIS Group

12 Source: a2MC annual result presentation

13 Source: https://thechinaproject.com/2022/09/29/chinese-parents-increasingly-trust-and-buy-local-infant-formula-brands/

14 Source: Euromonitor, 2023. Will not tally with footnote 8 as different sources.

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Laboratories’ withdrawal in late 2023. However, the market still offers “pockets of growth” for brands that can achieve good product-market fit. Lactalis Ingredients, a leading global ingredients manufacturer, pointed to the continuation of two trends in the Chinese IMF market – premiumisation and market accessibility[15] .

The premiumisation trend in the Chinese IMF market is well-established with Chinese parents increasingly conscious of the nutritional content of IMF. For over a decade, this has driven demand for premium formulas with differentiated ingredients. Examples include:

Products made from milk containing only the A2 type beta casein protein and no A1 protein have seen a significant rise in popularity in recent years with several companies, including Bellamy’s, Danone’s Aptamil and Yili, entering this growing sub-segment.
Products containing high levels of lactoferrin in their formulations have surged in popularity, with both international and domestic brands looking to capitalise on this trend.
While still relatively niche, organic milk and goat milk formulations have attracted consumer interest in the premium and super-premium segments. China leads the world in organic baby formula consumption, accounting for two-thirds of the market share by value, worth €1.8 billion[16] .

While the premium segment has historically been dominated by foreign brands, there has been increasing competition from the likes of China Feihe, which has been able to differentiate itself by marketing its products as scientifically “designed for Chinese babies”.

Increased competition and a softer market have resulted in brands adopting lower pricing strategies and increasing promotional activities to remain competitive. In the first quarter of 2023, nearly 50% of market value was sold on promotion[17] , noting that this could be due in part to discounting old stock prior to transitioning to products manufactured under the new GB standard.

Table 2: China IMF by Segment

	CAGR	CAGR
Super-premium	39.5%	16.9%
Premium	20.5%	16.3%
Regular	5.0%	-1.2%
Total	11.2%	6.9%

Source: China Feihe IPO Prospectus, 2019

Figure 18: English Label Share

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----- Start of picture text -----

28%
23%
16% 14% 15%
2019 2020 2021 2022 2023
Source: a2MC disclosures.
----- End of picture text -----

Market Accessibility has been another trend identified by Lactalis Ingredients. Urbanisation and growing incomes in lower tier cities and rural areas means these large population bases are increasingly able to consume higher-value products like IMF. a2MC’s announcement regarding its intentions to “grow its cross-border e-commerce and lower tier cities presence” appears to support this view.

3.5.3. China – Distribution

There are four major distribution channels for consumers to purchase IMF: specialty mother and baby stores (“ MBS ”), traditional retailers (i.e. supermarkets and hyper markets), daigou and e-commerce.

Offline channels dominate the market, accounting for around 62%[18] of infant formula sales in China. These channels include:

MBS: These specialised stores offer a wide range of baby products and have historically dominated the category.
Traditional retailers: This category includes supermarkets, hypermarkets, pharmacies, and convenience stores. Data from china-briefing.com suggests this channel accounts for less than 10% of sales.

Online channels make up the remaining 38% of IMF sales.

15 Source: https://www.lactalisingredients.com/news/blog/infant-nutrition-market-in-china-a-rapidly-changing-market/ 16 Source: Armor Proteines (April 2022) 17 Source: Bain Consulting – China Shopper Report 2023 18 Source: Northington estimate

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Daigou: This network of individual shoppers located abroad purchases infant formula on behalf of Chinese residents and ships it to them. Daigou often communicate with customers via online messaging platforms like WeChat and Weibo, and they also operate personal stores on e-commerce platforms. While the channel was crippled by Covid era travel restrictions, the resumption of international studies by Chinese students is expected to support on-going activity.
Cross-border e-commerce (“ CBEC ”) platforms: These are business-to-consumer online platforms, such as Tmall Direct International and JD.com, where international companies sell English label products that comply with the regulations of the country of origin.

Although the majority of infant formula sales are generated through offline channels, increased trust in the authenticity and quality of products sold through CBEC channels, and the emergence of new community-based e-commerce platforms (example Babytree app) are shifting consumer behaviour.

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4.0 Profile of Synlait

4.1. Overview of the Company

This section sets out a summary of Synlait’s business and its key production assets. A history of the Company and its important milestones is included in the Appraisal Report (dated 25 June 2024) prepared in relation to the Shareholder Loan.

Synlait currently operates across eight locations in New Zealand and China, as summarised in Figure 19.

Figure 19: Operating Locations

==> picture [409 x 247] intentionally omitted <==

----- Start of picture text -----

Synlait Auckland
Blending and canning facility and Wiri
Warehouse facility.
Synlait Pokeno
Infant capable advanced
nutrition plant. Synlait China
Business development and
Synlait Palmerston North sale teams in Shanghai
R&D Facility at Massey and Beijing
University
Synlait Dunsandel
The primary
manufacturing facility
and administration Synlait Christchurch
office. Satellite administration office.
Dairyworks
Production facilities
----- End of picture text -----

4.2. Dunsandel

Synlait’s primary manufacturing facility and administration office is located at Dunsandel, Canterbury. First commissioned in 2008, the plant has been expanded over time and now has capacity to process over 800 million litres of fresh milk per year.

Dunsandel has over 900 FTE employees, primarily in manufacturing and warehousing roles but also including quality control and lab testing. In addition to its processing facility, Synlait owns ~580 hectares of farmland surrounding the site.

Table 3: Summary of Dunsandel Plant and Capacity

Facility	Capacity	Commissioned	Output
Dryer 1	45,000 MT	Aug-08	Infant grade WMP & SMP
Dryer 2	45,000 MT	Sep-11	IMF base powder, Infant grade WMP & SMP
Dryer 3	45,000 MT	Sep-15	IMF base powder, Infant grade WMP & SMP
SMD	1,800 MT	Jul-09	Specialty milk powders
AMF	25,000 MT	Sep-08	AMF liquid milk products
Dairy Liquid Packaging	110ML	Mar-19	Milk, cream and long-life products
Lactoferrin 1	20 MT	Apr-14	Lactoferrin
Lactoferrin 2	20 MT	Nov-18	Lactoferrin
Wetmix Kitchen 1	40,000 MT	Sep-11	Infant formula base powder

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Wetmix Kitchen 2	45,000 MT	Nov-17	Infant formula base powder
Blending & Canning	40,000 MT	Jul-14	Infant formula

Dunsandel manufactures three main categories of product from raw milk:

Ingredients:
a. Milk powders: SMP and WMP sold as finished powders for in-market repackaging into consumer packs and as ingredients into other dairy manufacturing processes;
b. Cream products: AMF manufactured and sold in industrial packs.
Advanced Nutrition:
a. Formulated dairy-based infant formula sold either in industrial packs as base powders for blending and packaging into consumer packs or sold in consumer packs for customers including a2MC. These products can contain considerable volumes of ingredients other than raw milk.
b. Other speciality ingredients including lactoferrin, an extremely high-value specialty ingredient used in a range of nutritional food products around the world and recognised for its anti-bacterial and anti-inflammatory properties.
Advanced Liquid Packaging: fresh milk and cream manufactured under Synlait’s 10-year supply contract with Foodstuffs South Island for its private label brands, as well as UHT cream produced for customers including Savencia Group.

Dunsandel is central to Synlait’s production of high-value Advanced Nutrition products. A summary of the key products produced at Dunsandel is presented in Figure 20.

Figure 20: Dunsandel Products by Channel

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----- Start of picture text -----

Advanced Nutrition
Consumer-Ready
Nutritional Base
Nutritional Powders (Early Life Specialty Ingredients
Powders
and Adult)
Ingredients Foodservice Consumer
Whole and
Skim Milk Anhydrous Shelf-Stable UHT Whipping Milk &
Milk Fat Cream Cream
Powders
----- End of picture text -----

4.3. North Island Assets

The Company’s newest dairy facility is located at Pokeno, Waikato. In addition to being able to produce infant grade dairy products, the facility is also provisioned for the production of plant-based Advanced Nutrition and other adult based nutritional products. The Company’s other North Island assets include a blending and canning facility located at a leased location close to Auckland airport and a leased warehouse facility located in Wiri. Synlait North Island has a total of approximately 270 FTE employees across its three sites operating primarily in manufacturing and warehousing roles. North Island also utilises shared services from Dunsandel including lab testing.

In November 2020, Synlait announced that it had entered into a manufacturing supply agreement with a global leader in Advanced Nutrition products. While the plant was largely complete at the time,

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an additional ~$100 million investment for additional processing and packaging customisation was required to satisfy the customer’s requirements for plant-based products.

Table 4: Summary of North Island Plant and Capacity

Facility	Capacity	Commissioned	Output
Pokeno
Dryer	45,000 MT	Sep-19	Infant base formula as well as WMP & SMP
Wetmix Kitchen 1	45,000 MT	Sep-19	Infant formula base powder
Wetmix Kitchen 2	40,000 MT	na	Plant-based nutritional products
Blending & Packaging	23m units	2022	Sachets or pouches of Advanced Nutrition products
Auckland
Blending and Canning	40,000 MT	Nov-17	Infant formula

Synlait has invested a total of approximately $450 million in the North Island since 2018 as part of its strategy to diversify customers, products and geography. While this expansion was at the time supported by strong commercial rationale based on expected growth in demand levels for Advanced Nutrition products (including potential a2MC demand), the Covid-19 disruptions and changing economic circumstances have subsequently resulted in a considerable change in outlook.

Some performance issues and customer demand levels lagging well below expectations have meant that plant utilisation has been extremely low. Consequently, Synlait’s North Island assets have performed poorly and are expected to generate meaningful losses and negative cash flows over the medium term (estimated >$20m EBITDA loss contribution in FY24).

As part of its on-going strategic review, Synlait has considered a range of scenarios and options for the North Island assets, including:

Focus on Advanced Nutrition only: This would avoid commodity ingredients production (which currently have a negative economic contribution) and allow an exclusive focus on processing both milk and non-milk derived Advanced Nutrition products, both of which can sustain positive margins.
Divestment: Either sell the North Island assets on an as-is basis to potential buyers with an interest in Advanced Nutrition or shut down the plant and realise the value of land and buildings as well as plant and equipment on a salvage value basis.
Mothball the plant: We understand that Synlait considered a scenario where the plant is mothballed and then potentially recommissioned as a nutritional ingredients plant upon securing a level of demand which would ensure a sufficient level of capacity utilisation. This alternative is no longer being pursued.

We have reviewed these options and believe the analysis shows that unless Synlait can drive a significant increase in Advanced Nutrition sales volumes from the North Island assets, shutting down this part of the business may be the best value option for Synlait (see Section 5.4.3 for the potential value implications of these scenarios). We believe that continuing to operate under the current state is economically unviable and value decretive, would require considerable additional funding to remain operational in circumstances where Synlait already has substantial capital needs and would involve considerable on-going business risk. The main contributing factors to this conclusion are:

Global market conditions have reduced demand for nutritional products such as infant formula in key markets. Unless the North Island plant can operate at >30% of capacity (vs less than 15% currently), it is unlikely that the North Island operation can make a positive cash earnings contribution. Synlait also currently has surplus capacity at Dunsandel at a lower marginal cost of production, and any immediate increase in demand for dairy-based Advanced Nutrition products would therefore be better serviced from this plant.
While Waikato is New Zealand’s largest milk supply region, there is significant competition for milk supply from more than 15 processing plants in the region, seven of which are independent of Fonterra. Many of these operators have a competitive advantage over

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Pokeno for the cost of milk and are strongly incentivised to maximise utilisation of their own plants.

Considering the level of surplus production capacity across the industry, Pokeno’s current low utilisation and highly bespoke plant configuration, we believe that potential buyer interest for the North Island assets is likely to be limited to market participants for Advanced Nutrition products or be at levels significantly below replacement value. Pokeno was not optimally configured for ingredients manufacturing and while it could run exclusively as a WMP and SMP plant, this would generate negative cash flows due to lack of scale, the high cost of milk supply and not being configured to process cream or AMF (other milk outputs).
Pokeno is located at the centre of New Zealand’s key economic regions (Auckland, Waikato and Bay of Plenty) and port gateways (Auckland Airport, Ports of Auckland and Port of Tauranga), and is therefore a relatively attractive logistical location. With 14,300m[2] of covered dry-storage and office space, the site would likely attract demand for potential industrial uses (freight and logistics) at minimal reconfiguration cost.

As noted above, the Company leases premises at Auckland Airport and Wiri to support its North Island operations. Key terms of the leases are summarised in Table 5 and we note that these obligations would need to be factored into the assessment of strategies to mothball or sell the North Island assets.

Table 5: North Island Lease Commitments

Facility	Description	Current Lease Terms	Expiry
Auckland Airport	~5,110m2warehouse (blending and canning)	~$1m + CPI	2031
Wiri	~18,000m2warehouse (~7,000m2sublet)	~$5m + CPI	2032

4.4. Dairyworks

Synlait acquired Dairyworks in 2020 for approximately $112 million (~7.1x forecast FY20 EBITDA). The acquisition was made to support Synlait’s diversification strategy into the “everyday dairy” category and was funded through bank debt.

Dairyworks predominantly packages and sells cheese and butter products into the supermarket and foodservice channels in New Zealand, with brands that include Rolling Meadow, Alpine and Dairyworks. A considerable portion of its revenue is also generated from private label contracts with Foodstuffs. The core product range is summarised in Table 6.

Table 6: Dairyworks’ Core Product Range

Products	Inputs	Example Product Types	Example Product Types	Sales & Marketing / Distribution	Sales & Marketing / Distribution
Cheese	Bulk cheese	−	1kg, 750g, 250g Blocks	−	Supermarkets
	supply (25kg	−	Cheese Slices	−	Food Service
	Blocks)	−	Grated / Powdered		(including
			Cheese		convenience /
		−	Shaved Cheese		service stations)
		−	Cheese Sticks	−	Export
		−	Cheese and Cracker
			Snacks
		−	Soft Cheeses
Butter	Finished and	−	500g Blocks	−	Supermarkets
	bulk supply	−	227g (half pound) and	−	Food Service
			454g (pound)		(including
		−	New 100g butter sticks		convenience /
					service stations)
				−	Export
Milk	Finished	−	Full Cream Milk	−	Supermarkets
Powder	packaged milk		Powder (400g & 1kg)	−	Food Service
	powder	−	Skim Milk Powder		(including
			(400g & 1kg)		convenience /
					service stations)
				−	Export

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Dairyworks has approximately 280 staff and primarily operates out of its Christchurch processing facilities. It procures bulk dairy products from a range of local and international processors, including Fonterra, and processes those products into finished packaged goods. Its primary customers include New Zealand grocery (Foodstuffs and Woolworths), Woolworths Australia and certain food service businesses.

While Dairyworks has performed well under Synlait ownership (~$21 million EBITDA contribution in FY23 and expected to contribute a meaningful percentage of Synlait’s overall FY24 EBITDA), Synlait announced its intention to divest Dairyworks in June 2023. The Dairyworks business was considered non-core to “Synlait’s diversified growth strategy and does not leverage our core right to win competencies in Advanced Nutrition and Foodservice”. However, following an extensive sale process which generated interest in the business from a number of parties, offers did not materialise at levels acceptable to the Company and the business was formally withdrawn from the market.

4.5. Synlait Farms

Synlait owns large scale irrigated dairy farm properties adjacent to its site in Dunsandel with a total area of approximately 580 hectares. These farms were originally owned by Synlait but sold in 2013 and then bought back in 2020 as a result of disputes over shared water use with the owner. The repurchase provides Synlait with greater control over the water rights for use at the Dunsandel plant and for disposal of factory water onto the properties. It also provides Synlait opportunities to evaluate and trial sustainable farming practices and on-farm research.

Synlait purchased the farms for $25.7 million (approximately $44,000 per hectare). This represented the value as if the farms were not disadvantaged by Synlait’s rights to use and discharge water. Therefore, the purchase price represented a premium to the market value for the properties at the time (i.e. an arms-length third party may pay less than this value due to Synlait’s rights to take and discharge water).

4.6. Milk Supply

Synlait has attracted and maintained its supplier base by building strong long-term relationships with its farmers. The growth in supplier numbers has been supported by offering financial incentives, allowing farmers to supply milk without having to acquire shares in the Company, as well as helping farmers to implement innovative and sustainable farming practices.

A key feature of Synlait’s relationship with farmers is its practice of paying incentive payments over the base milk price for suppliers who participate in special milk programmes such as a1 protein-free, grass fed, and Lead With Pride[TM] . Figure 21 illustrates the impact of these incentive payments on the average milk price paid to farmers since the 2014/15 season. This shows that over the last 9 years, Synlait’s average payout inclusive of incentive payments represents a ~3% premium to Fonterra’s Farmgate Milk Price.

Figure 21: Historical Milk Price Payment ($ per kgMS)

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----- Start of picture text -----

$9.59
$8.49
$0.29
$7.82
$7.30 $0.27
$6.78 $6.58
$6.30 $0.27
$0.25
$0.13 $0.18
$0.14
$4.54
$4.02
$0.06
$0.11
$4.48 $3.91 $6.16 $6.65 $6.40 $7.05 $7.55 $9.30 $8.22
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23
Avg. Base Milk Price Incentives Fonterra Farmgate Milk Price
----- End of picture text -----

Sources: Synlait annual, interim reports and NZX announcements

Synlait’s milk supply pool grew to 285 farms (South Island 220, North Island 65) in the 2022/23 milking season, but dropped to 274 farms (South Island 215, North Island 59) for the most recent season. Cessation notices from farmer suppliers also increased dramatically in May this year

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following publicity over the Company’s financial issues. Synlait announced to the market on 4 June that ‘a significant majority’ of the Company’s farmer supplier base have submitted cessation notices. The cessation notice period is however two-years, meaning that notices received in the year between 1 June 2023 to 31 May 2024 would not take effect until after the completion of another two seasons.

Synlait notes that the retention of milk supply remains a critical priority and that submitting a cessation notice provides farmers with an option, rather than a clear intention to sign with other processors. Rebuilding supplier confidence and securing the withdrawal of these cessation notices is clearly going to be a key element of Synlait’s recovery plan and will be a priority following the Equity Raising.

4.7. Customer Relationships

Synlait has built several key relationships with leading food and Advanced Nutrition brands in both New Zealand and overseas. These customers include a2MC, Nestle, Danone, Friesland Campina, Foodstuffs South Island and a large multinational food and nutrition business. Synlait’s top three customers account for ~55% (FY23) of its revenue.

Synlait has been a key manufacturing partner for a2MC since 2012, producing infant formula under the NPMSA. Synlait holds the SAMR registration for a2MC’s Chinese labelled 至初® Infant Formula (stages one, two and three, to manufacture and export these products to the China market until September 2027. This SAMR registration is held by Synlait and attached to the Dunsandel facility.

In 2020, Synlait announced that it had entered into an agreement to manufacture, blend, and package nutrition products, including plant-based products, at its Pokeno site for a large multinational customer. Commercial production commenced in Q4 FY23 following significant additional investment which included the establishment of a second wetmix kitchen and a sachet line.

4.8. Financial Overview

4.8.1. Key Value Drivers

Synlait has a focus on supplying Advanced Nutrition and dairy ingredients to leading health and nutrition companies internationally. While it operates in the traditional commodity ingredients market similar to other New Zealand processors such as Fonterra and Open Country Dairy, it is also differentiated by its focus on significantly higher value infant formula and adult nutritional products. Table 7 highlights the historical volume and profitability contributions from each of its key channels and the factors which have been impacting on Synlait’s more recent performance.

Table 7: High Level Summary of Synlait’s Key Value Drivers


	Average	Key Earnings Drivers		Factors Impacting Current
	Contribution to			Performance
	Sales Volume /
	Gross Profit
	(FY19 – FY23)
Advanced	20% / 80%	•	Customer volumes	•	Optimising product mix (i.e.
Nutrition		•	Contract pricing arrangements		maximising Advanced Nutrition)
		•	Cost of milk and other ingredients		and plant utilisation
		•	Manufacturing costs	•	Extremely poor utilisation of North
					Island assets and high cost of milk
					(milk premiums, high transport
					costs and high operating costs)
Ingredients	60% / 10%	•	Residual volumes (after satisfying	•	High cost of milk relative to
			Advanced Nutrition, consumer and		competition and the “notional
			foodservice customers)		processor” which largely sets the
		•	Commodity market pricing		national Farmgate Milk Price
		•	Cost of milk	•	Sub-optimal plant performance
		•	FX and ability to generate “lead		and supply chain issues
			bucket” margins	•	Recent unfavourable FX and lead
		•	Processing costs		bucket impacts

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Consumer 20% / 10%

Retail volumes • Underutilisation of liquid milk
• Retail pricing facility • Cheese/milk prices • Low margins on fresh milk and • Processing and packaging costs cream contract

Source: Northington Partners.

The summary in Table 7 shows that while the majority of Synlait’s volumes relate to sales of commodity ingredients such as WMP, SMP and AMF, approximately 80% of its historic profitability is generated from the sale of Advanced Nutrition products. This is predominantly based on infant formula produced for a2MC, but also reflects increasing volumes to new customers including those serviced by the North Island assets.

Since inception, Synlait’s on-going investment in manufacturing facilities has significantly increased production capacity. This relates to both expansion of processing capacity at the Dunsandel plant as well as the establishment of the new plant at Pokeno in 2019. However, as demonstrated in Figure 23, the expansion of processing capacity has coincided with a significant decline in demand for infant Advanced Nutrition products and slower than anticipated increases in demand for other Advanced Nutrition Products. All of these factors have in turn resulted in significant plant underutilisation (Figure 22).

Figure 22: Advanced Nutrition and Ingredient Sales

==> picture [387 x 138] intentionally omitted <==

----- Start of picture text -----

175 35%
150 34 30%
34
19
125 51 53 32 25%
36
100 20%
75 15%
123 126 132
50 93 98 98 109 10%
25 5%
0.0 0%
FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24B
Ingredients Advanced Nutrition % Advanced Nutrition Volumes (RHS)
Advanced Nutrition %
Product Sales (000's MT)
----- End of picture text -----

Source: Synlait, Synlait Annual Reports and Investor Presentations

Generally speaking, Synlait’s production facilities are capable of producing both commodity Ingredients and Advanced Nutrition products, but with manufacturing optimised for the higher value nutrition customers. As discussed in Section 4.3, North Island is also not suited to producing dairy ingredients because of the high cost of milk, transport and energy, as well as the plant configuration focused on non-dairy products. This means that Synlait currently has significant spare capacity (>30kT) without earnings to offset its fixed manufacturing costs.

Figure 23: Estimated Ingredients and Advanced Nutrition Capacity vs Sales Volumes (000’s MT)

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----- Start of picture text -----

200
175
150
125
100
FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24
Dunsandel (ex-liquids) Pokeno Sales Volume
Volume (000's MT)
----- End of picture text -----

Source: Northington Partners’ estimates

Because commodity price fluctuations are a significant driver of both revenue and cost of goods sold, gross profits are a better indication of Synlait’s business performance. Figure 24 and Figure 25

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demonstrate the majority of Synlait’s profitability is generated from Advanced Nutrition sales with peak gross profits between FY18 and FY20 coinciding with a greater percentage of Advanced Nutrition products, driven by increased demand from a2MC. Figure 24 also demonstrates that ingredients are only marginally profitable (and likely to contribute negatively to earnings when an appropriate allowance for indirect costs was included). This reflects Synlait’s positioning to target Advanced Nutrition with a significantly higher cost base (including cost of milk) relative to commodity focussed processors.

Figure 24: Gross Profit by Segment ($m)

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----- Start of picture text -----

$200 $186 $188
$167
$153
$150
$21 $130
$112
$150 $83 $29
$100 $177 $10
$103
$75
$50 $94
$38 $29 $26
$0 $11
($3) ($21)
-$50
FY17 FY18 FY19 FY20 FY21 FY22 FY23
Ingredients Advanced Nutrition Consumer
Gross Profit ($m)
----- End of picture text -----

Source: Synlait. Note: no available split by segment available for FY17 and FY18 when Synlait used different reporting segments.

Synlait’s Advanced Nutrition gross profits since 2021 have also been negatively impacted by the commissioning of the North Island plant and the addition of significant manufacturing overhead which have lead to material increases in costs per unit of production. However, this has generally been isolated at Pokeno with less of an impact on the profitability of Advanced Nutrition at Dunsandel.

Figure 25: Gross Profit per Tonne by Segment ($/MT)

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$4,000 Advanced Nutrition profits
per tonne significantly
impacted by Pokeno plant
under-utilisation
$3,000
$2,000
$1,000
-
1H20 2H20 1H21 2H21 1H22 2H22 1H23 2H23 1H24
($1,000)
Ingredients Advanced Nutrition Consumer Total
Source: Synlait Annual Reports and Investor Presentations
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An additional contributor to Synlait’s recent underperformance is the considerable increase in indirect costs (sales and distribution and administration / head office) over the last 5 years. This has been compounded by implementation of new IT systems, costs of ramping up the North Island operations and higher consultancy costs in relation to litigation and recapitalisation workstreams, as well as broader inflationary pressures. Figure 26 demonstrates an increase in total indirect costs of approximately 200% over a period during which gross profits have largely remained flat.

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Figure 26: Synlait Total Indirect Costs ($m)

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FY17 - FY23
SG&A CAGR
~18%
$74.2
$52.0 $49.5
$49.8
$35.3
$33.6
$28.0
$48.3
$16.6 $20.6 $26.8 $32.3 $36.8 $39.4
FY17 FY18 FY19 FY20 FY21 FY22 FY23
Sales and Distribution Operating Expenses
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Source: Synlait. Note: indirect costs include depreciation.

Synlait’s flat gross profits and increasing indirect costs has culminated in weakening earnings performance. The level of capital employed in the business has at the same time increased significantly as a result of investment in the North Island. Figure 27 demonstrates that Synlait’s historic EBITDA has ranged from as high as $154 million in FY20 to $50 million the following year. We estimate that this has translated to returns on capital employed of 15%-18% in FY18 – FY19 to less than 5% currently. While Synlait has struggled to achieve scale economies with its large, fixed cost base, it is capable of supporting significantly higher volumes which are needed to improve overall earnings.

Figure 27: Synlait Historic EBITDA ($m)

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----- Start of picture text -----

$139 $150 $154 $132
$89 $81
$50
FY17 FY18 FY19 FY20 FY21 FY22 FY23
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Source: Synlait disclosures. Note: FY19-23 EBITDA restated for revised product costing adjustments while FY17-18 EBITDA reflects old costing methodology.

4.8.2. Historical Financial Performance

Synlait’s financial performance for the four years ending 31 July 2023 is summarised in Table 8.

The Company’s recent performance has been highly variable, with the low level of earnings since FY21 expected to continue in FY24. The deterioration in performance has been attributed to a range of factors that include unfavourable market conditions, excess capacity, cost pressures and execution challenges.

Following nearly a decade of profits, the Company reported a loss in FY21 of $28.5 million. This outcome was primarily driven by a dramatic decrease in Advanced Nutrition volumes due to lower Chinese demand for infant formula following the Covid-19 pandemic, as well as a material rebalancing to Ingredients which created operating challenges and resulted in lower overhead recoveries.
As Synlait shifted capacity towards manufacturing Ingredients during FY21, margins in this segment also deteriorated significantly (see Figure 25). The business faced challenges in adjusting to the new product mix, as well as external impacts including butter prices being very high relative to AMF prices. Because Synlait does not produce butter, a sharp increase in global dairy commodity prices meant it was unable to capture price premiums.
In FY22, Synlait reduced Ingredients production and redirected capacity back to Advanced Nutrition products. This shift resulted in improved margins year-on-year in both segments.

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The improvement was driven by significant reductions in costs in real terms, higher manufacturing cost recoveries, favourable FX movements, higher carry-over inventory and optimising product mix in favour of the SMP/AMF lead-bucket.

Ingredients and Advanced Nutrition margins deteriorated in FY2023, partly due to the distraction of a difficult ERP system implementation and other high profile customer projects. This was compounded by much higher costs as a result of ramping up activity at the North Island sites and the UHT cream business.
Synlait’s consumer business has steadily improved profitability over the last few years primarily driven by the performance of Dairyworks.
The Foodservice segment was launched in FY23 following a delayed start. While this part of the business is still young, the Company expects that demand for its UHT cream product will contribute positively in the future.
Synlait continued to face challenges in FY24, impacted by lower plant performance, continued unfavourable FX movements, lower margins resulting from poor cost recoveries at the North Island manufacturing facilities and ongoing inflationary pressures. Synlait’s deteriorating credit position has also significantly impacted on the business.

− Synlait has withdrawn guidance for FY24. It is still working through its year-end processes which are likely to impact the final FY24 results, and it is not yet in a position to update the market. Subject to any impacts arising from the year-end adjustments, EBITDA is expected to be in the region of $30 million prior to non-recurring items. We expect that the outcome for FY24 will be materially impacted by impairment charges for Synlait’s North Island manufacturing facilities and Dairyworks, approximately $80 million of which was recognised in Synlait’s half year results to 31 January 2024.

Table 8: Synlait Financial Performance


	Financial Year Ending		31 July
$ million	2020	2021	2022	2023
Revenue	$1,302.0	$1,367.3	$1,660.6	$1,603.6
Cost of sales	($1,098.3)	($1,300.0)	($1,513.8)	($1,459.6)
Gross profit	$203.7	$67.3	$146.8	$144.0
Other income	$0.4	$3.9	$22.8	$16.3
Share of loss from associates	$0.0	($0.0)	-	-
Sales and distribution expenses	($32.3)	($36.8)	($39.4)	($48.3)
Admin & operating expenses	($49.8)	($52.0)	($49.5)	($74.2)
Impairment / FVLCD	-	-	($12.2)	-
ERP implementation costs	-	-	($3.3)	($6.8)
Earnings before interest and tax	$122.0	($17.7)	$65.1	$31.0
Finance expenses	($19.8)	($20.5)	($18.7)	($32.8)
Finance income	$0.1	$0.0	$0.2	$0.3
Derecognition of financial assets	($1.7)	($1.0)	($2.4)	($5.8)
Net finance costs	($21.4)	($21.5)	($21.0)	($38.3)
Profit before income tax	$100.7	($39.2)	$44.1	($7.3)
Income tax expense	($26.3)	$10.7	($5.6)	$3.0
Net profit after tax	$74.3	($28.5)	$38.5	($4.3)

Source: Synlait Financial Statements

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4.8.3. Historical Financial Position

Table 9 summarises Synlait’s financial position for the last four financial years, as well as at the end of the first six months of FY24 (31 January 2024).

Table 9: Synlait Financial Position

Financial Year Ending 31 July	31 January
$ million 2020 2021 2022 2023	2024
Cash and Cash Equivalents $5.9 $16.0 $14.5 $9.3 Inventories $269.4 $270.9 $232.9 $250.3 Derivatives $36.6 $31.0 $8.2 $22.8 Current Tax Assets ($18.2) $6.2 $6.2 $6.0 Trade and Other Receivables $78.0 $125.2 $107.7 $92.8 Property Plant and Equipment $965.2 $1,027.3 $1,019.9 $997.8 Right of Use Assets $18.5 $14.0 $25.2 $42.2 Intangible Assets $109.5 $127.5 $161.3 $86.6 Assets Held for Sale - - - $177.9	$30.5
	$316.3
	$15.5
	$15.0
	$116.5
	$952.6
	$35.5
	$68.0
	$163.5
Total Assets $1,465.0 $1,618.2 $1,576.0 $1,685.6	$1,713.3
Liabilities Borrowings $529. $492.9 $354.5 $422.7 Liabilities related to Held for Sale Assets - - - $60.6 Lease Liabilities $19.3 $15.0 $31.6 $49.4 Derivatives $19.0 $19.6 $76.5 $26.9 Trade and Other Payables $238.8 $264.1 $323.1 $281.0 Deferred Tax Liabilities $53.9 $59.4 $41.9 $54.7
	$589.8
	$43.2
	$46.5
	$13.6
	$286.6
	$34.8
Total Liabilities $860.5 $851.0 $827.6 $895.2	$1,014.5
Net assets $604.5 $767.1 $748.4 $790.4 Issued Capital $268.5 $464.8 $464.8 $464.8 Reserves and Retained Earnings $336.0 $302.3 $283.6 $325.6	$698.9
	$464.8
	$234.1
Total Equity $604.5 $767.1 $748.4 $790.4	$698.9

Source: Synlait Financial Statements

The main features of Synlait’s financial position are summarised as follows:

Synlait’s investment in Pokeno (mostly prior to FY20) significantly increased the value of property, plant and equipment. This was funded primarily through debt and a $200 million equity raising (placement and share purchase plan) in FY21.
Working capital (inventory and receivables less payables) represents a substantial investment for Synlait and fluctuates significantly during the year due to the seasonality of milk production (peaking September – October). Inventory (raw materials and finished goods) increases until sales volumes match production, generally from April onwards. Year-end (31 July) typically represents a low point in working capital and debt.

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Synlait’s net debt increased to $559 million (excluding $43 million of lease liabilities) as at 31 January 2024 and was $551 million as at 31 July. Relative to recent earnings (including the expected outcome for FY24), this level of debt is unsustainable.

4.8.4. Historical Cash Flows

Table 10 summarises Synlait’s historical cash flows for the four year period from FY20 to FY23.

Table 10: Synlait Summary of Cash Flows


	Financial Year		Ending 31 July
$ million	2020	2021	2022	2023
Operating Cash Flow
Profit/(loss) for the year	$74.3	($28.5)	$38.5	($4.3)
Add Non-cash adjustments	$80.5	$85.6	$82.2	$93.0
(Increase)/decrease in trade and other receivables	$1.8	($45.3)	$17.3	($1.2)
(Increase)/decrease in inventories	($104.5)	($1.6)	$38.0	($69.6)
Increase in trade and other payables	$51.7	$5.6	$57.0	$21.1
Net cash inflow from operating activities	$103.8	$15.9	$232.9	$39.0
Cash flows from investing activities
Net investment in property, plant and equipment	($139.2)	($116.2)	($53.9)	($48.8)
Acquisition of Subsidiaries / JVs	($72.9)	-	-	-
Other Investing Activities	($11.1)	($20.6)	($11.8)	($13.1)
Net cash outflow from investing activities	($223.2)	($136.8)	($65.6)	($62.0)
Cash flows from financing activities
Net Increase / (Decrease) in Borrowings	$132.4	($41.9)	($143.1)	$63.0
Interest paid	($23.0)	($23.1)	($26.1)	($44.3)
Share Capital	-	$196.1	-	-
Net cash inflow / (outflow) from financing activities	$109.4	$131.1	($169.2)	$18.7
Net change in cash and cash equivalents	($10.1)	$10.2	($1.9)	($4.3)

Source: Synlait Financial Statements

4.9. Ownership and Share Price Performance

Synlait’s top five shareholders (as at 1 July 2024) are set out in Table 11. Bright is the largest shareholder, maintaining its 39.0% shareholding since the IPO in 2013. The Company’s next largest shareholder is a2MC who, as discussed above, is also a key customer of Synlait.

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Table 11: Top 5 Shareholders

Shareholder	Shares Held (m) Shareholding Percentage
Bright Dairy Holding Ltd. The A2 Milk Company (NZ) Limited Chester Asset Management Pty Ltd Accident Compensation Corporation New Zealand Funds Management Ltd.	85.27 39.0% 43.35 19.8% 9.30 4.3% 6.82 3.1% 5.62 2.6%

Source: Iress, NZX filings (1 July 2024)

Figure 28 summarises Synlait’s shareholder return performance for the period between listing (23 July 2013) and 19 August 2024, relative to the NZX50 Gross Index (inclusive of dividends).

Although Synlait initially outperformed the market on the back of strong demand for infant formula driven by a2MC, its returns have trailed the broader index since late 2020. The performance since that time has largely paralleled Synlait’s lower earnings outlook, diminished Chinese demand for infant formula, the contract disputes with a2MC which arose during 2023, extremely poor returns from the North Island assets and subsequent debt issues.

Figure 28: Synlait Total Shareholder Return Relative to NZX Gross Index (Rebased to IPO Price)

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1600
1400
1200
1000
800
600
400
200
0
Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Jun-21 Jun-22 Jun-23 Jun-24
SML NZ50G
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Source: IRESS, Northington Partners. Period from 23 July 2013 to 19 August 2024.

4.10. Strategy, Key Issues and Outlook

Synlait’s long-term strategy is unlikely to change materially if the Equity Raising is successfully completed, with an on-going focus on maximising Advanced Nutrition (and increasingly, Foodservice UHT) volumes. This will leverage Synlait’s existing capabilities, quality controls, operational expertise and sustainable milk supply (including through their Lead With Pride[TM] farmer certification programme).

The development and planned growth of the Advanced Nutrition business is centred around expanding Synlait’s product offerings in China and Southeast Asia, supported by accelerating the growth of the Foodservice UHT cream business into the same markets. While Synlait’s immediate outlook will be linked to China’s demand for infant formula and a2MC’s success in that market, Synlait will clearly be seeking to develop new customers and products, including growing adult nutrition and developing new infant formula. Synlait’s success with this strategy will largely revolve around its ability to deliver sustainable and reliable products to these markets. Its execution in this respect should be supported by Bright’s relationships.

While Ingredients is less of a profit driver for Synlait, it can create large swings in financial performance and underpins the Advanced Nutrition channel. Consequently, Synlait will continue its efforts to maximise returns in Ingredients through efficiency improvement and its “lead bucket” strategy. This largely revolves around optimising:

Asset utilisation and plant performance and reliability;

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Product mix to take advantage of the value differentials that often exist between WMP, SMP, AMF and butter relative to how the Farmgate Milk Price is determined;
Manufacturing schedules over the year to maximise plant utilization and the phasing of different products;
Direct contracting with customers (rather than selling through GDT or other markets) and manufacturing products where a premium can be secured because of the composition or functionality of the relevant product; and
A hedging strategy that delivers the same (or better) effective FX rates compared to those that underpin the Farmgate Milk Price.

Effectively dealing with the key issues that have negatively impacted Synlait’s recent performance will be critical to Synlait successfully delivering on its strategy. These include growing volumes and utilization through the North Island assets, sustaining milk supply, improving plant reliability and performance issues, reducing supply chain constraints and improving Ingredients margins.

It is obviously also very important that Synlait completes the Equity Raising and maintains a strong balance sheet. This will reduce the Company’s solvency and credit risks and eliminate the considerable distraction these issues have had on the business.

4.11. Summary of Equity Raising and Bank Refinancing

The Equity Raising comprises two components which will deliver combined gross proceeds of approximately $217.8 million:

the Bright Placement for approximately $185 million at an issue price of $0.60 per share; and
the a2MC Placement for approximately $32.8 million at an issue price of $0.43 per share.

Synlait has not offered the chance for any other shareholders to participate in the Equity Raising for reasons set out in the Notice of Special Meeting under the heading "What is the impact on shareholders and why was a placement to the two major shareholders chosen?". These include the high risks involved with an additional investment in Synlait shares given its current financial situation and the issue price would have needed to be at a significant discount to market price. On the other hand, the two largest shareholders have a detailed understanding of the business, were able to conduct due diligence in an expediated manner and had a willingness to subscribe at a premium to the market price.

The impact of the Equity Raising on the shareholder position is illustrated in Table 12. While Bright and a2MC between them currently own approximately 60% of Synlait’s shares, successful completion of the Equity Raising will result in them controlling approximately 85% of the shares on issue.

Table 12: Synlait Shareholdings Before and After Equity Raising

	Current Shareholdings	Current Shareholdings	Equity	Raising	Post Equity Raising Shareholding	Post Equity Raising Shareholding
	Shares	%	Shares	$m	Shares	%
Bright	85,266,605	39.01%	308,333,333	$185.0	393,599,938	65.25%
a2MC	43,352,509	19.83%	76,283,104	$32.8	119,635,613	19.83%
Non-associated Shareholders	89,962,547	41.16%	-		89,962,547	14.91%
Total	218,581,661	100.0%	384,616,437	$217.8	603,198,098	100.0%

The Equity Raising is part of a wider plan by Synlait to reset its balance sheet and provide a platform to return to sustainable growth for the benefit of all shareholders, as well as Synlait’s farmer suppliers and broader stakeholders. The first phase of that plan was implemented in July, with the drawing of the Shareholder Loan from Bright to repay $130 million of Synlait’s bank borrowings. The proceeds of the Equity Raising will be used to further reduce bank borrowings, which in turn will provide the bank funding headroom which is needed to repay the Bonds.

The Notice of Special Meeting includes further details on the key governance rights that Bright has under Synlait’s constitution before and after the Bright Placement, as well as details on the Bright and a2MC deed polls which restrict both parties from disposing of their shares received as part of the Equity Raising for a period of 12 months from the date of allotment. Section 6 of this report also

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includes important information for shareholders to consider as a consequence of the Bright Placement, its impact on control and potential market for Synlait shares following the Equity Raising.

The Notice of Special Meeting also includes further details on Synlait’s proposed bank refinancing. Synlait’s existing banking arrangements comprise two main facilities (a seasonal working capital facility and revolving credit facility), a significant portion of which are maturing on 1 October 2024. Synlait is seeking to amend and extend its existing facilities with the potential for new banks to join the current banking syndicate.

Completion of the bank refinancing is expected to be conditional on the completion of the Bright Placement and the a2MC Placement and evidence that Synlait has entered into a settlement with a2MC. All lenders to the bank refinancing have confirmed that they have received credit approval, and documentation is expected to be completed during September.

Total facilities are expected at $450 million with a 12-month term. The refinanced bank facility limits are expected to be seasonally adjusted, with step-ups and step-downs over time to match Synlait’s expected funding needs as a result of its seasonal payments profile.

Indicative feedback from the proposed lenders is that the refinanced Bank Facilities will be subject to the following financial covenants:

Maximum net leverage ratio (the ratio of net senior debt to EBITDA) of 2.50x on the balance date for the financial year ending on 31 July 2025.
Minimum interest cover ratio (the ratio of EBITDA to interest expense) of 2.50x at each quarter date for the financial year ending on 31 July 2025.
Working capital ratio (the ratio of inventory and debtors to amounts outstanding under the facilities) must exceed 1.20x for the period from 1 August to 31 March in each year and 1.50x from 1 April to 31 July in each year.
Shareholders’ funds to exceed $500 million at all times.

If Synlait fails to refinance its banking facilities, the Bright Placement, a2MC Placement and a2MC Settlement will not proceed. In this scenario it is likely Synlait will face an insolvency process unless alternative arrangements can be made with Synlait’s banks.

4.12. Summary of a2MC Settlement

Synlait’s Notice of Special Meeting in relation to the Bright Placement, a2MC Placement and a2MC Settlement includes details of the various disputes under the NPMSA between Synlait and a2MC. Settlement of the disputes under the Settlement Deed remains conditional on completion of the Bright Placement and the a2MC Placement and the bank refinancing terms being satisfied.

The key terms of the Settlement Deed include:

A one-off payment from a2MC to Synlait for a net amount of approximately $24.75 million (including amounts that had been largely withheld in accordance with the terms of the NPMSA from payment pending resolution of the disputes);
Cancellation of Synlait’s exclusive supply rights under the NPMSA by notice on 15 September 2023 is valid but that exclusivity will not end until 1 January 2025;
Synlait’s commitments in the NPMSA to procure the supply of a minimum annual volume of product, and certain priority arrangements in favour of a2MC, shall continue after the end of exclusivity;
a2MC owns the intellectual property rights for the product specifications of all finished products manufactured under the NPMSA and is free to manufacture and/or procure the manufacture of those products utilising the product specifications;
Synlait has agreed to make available a second SAMR registration slot at Dunsandel for a new China label infant formula product under the NPMSA which a2MC intends to utilise. Registration is subject to SAMR approval and is to be obtained by December 2029;
The parties have agreed to resolve the various pricing disputes between them as to the application of the controllable and non-controllable costs provisions in the NPMSA;

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A new infant milk formula product being developed for the USA will be included under the NPMSA, with a2MC contributing to certain Synlait development and US FDA registration costs; and
Synlait will provide enhanced access to the Dunsandel facility, people and information relevant to a2MC’s supply in addition to adjustments to manufacturing standards.

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5.0 Company Valuation

5.1. Valuation Approach

Given its recent performance and current financial position, the value of Synlait is subject to considerable uncertainty. This uncertainty reflects a range of factors which are affecting the business, some of which have been brought about because of its recent low level of profitability and heightened debt position. Synlait’s financial problems have and are likely to continue to impact on broader stakeholders, including staff, suppliers, customers and capital providers (banks and shareholders). These issues have or could materialise in a number of ways which make Synlait’s future viability hard to predict, and include:

A significant majority of Synlait’s farmer suppliers have given cessation notices for termination of milk by the end of the 2025/2026 milk season. Without security of milk supply, Synlait’s ability to sustain a profitable business will be questionable.
Synlait’s distressed position has resulted in certain major suppliers declining to advance goods or services on credit, which has meant that Synlait has to prepay for key supplies in advance. This has resulted in significantly increased investment in working capital.
There is a risk that key customers may have lost confidence in Synlait as a supplier of Advanced Nutrition and Ingredients products. This may result in those customers sourcing products from other suppliers or pushing for more favourable purchase terms (i.e. lower pricing or extended payment).
The possibility of reduced staff morale and diminished culture could result in Synlait losing key staff and struggling to retain or attract the quality of employees required. This could lead to reduced operating performance.

Given the Company’s position and the key issues which shareholders should consider when deciding whether or not to support the Equity Raising, we have assessed the value of Synlait under two scenarios:

Going Concern Value: This assumes that the Equity Raising is successfully completed and Synlait has sufficient funding to continue to operate as a going concern business. Under this scenario, we have assessed value based on the revised business plan and strategy that Synlait expects to implement following the completion of the recapitalisation. This scenario therefore assumes that the factors outlined above which are currently impacting the business do not persist.
Insolvency Value: If the Equity Raising does not proceed, we assume that Synlait will face an insolvency scenario, either through voluntary administration or receivership. We have assessed a separate value estimate under this scenario which is predominantly based on an analysis of potential realisation values under a business break-up.

In both cases, our assessed value range represents the estimated full underlying value for 100% of Synlait’s business and therefore incorporates a premium for control.

5.2. Valuation Methodology

The most reliable evidence as to the value of a business or asset is the price at which the business or immediately comparable businesses have been bought and sold in an arm’s length transaction. In the absence of direct market evidence, estimates of value are made using a range of methodologies. In most cases, value is determined as a function of the estimated level of cash returns that the business is expected to generate in the future. The specific approach that is used to estimate this value is dependent on the nature of the business and the expectations regarding future performance.

The two main approaches usually adopted in the valuation of larger assets and companies are summarised as follows:

Earnings Multiple: This method determines value by applying a valuation multiple to the assessed level of maintainable annual earnings (or cash flows), where the multiple is chosen to reflect both the growth prospects and the risk associated with the future performance of the

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business. Depending on the nature of the business, earnings can be appropriately measured at the EBITDA, EBITA, EBIT, or NPAT levels.

Discounted Cash flows: A DCF approach is based on an explicit forecast of the annual cash flows that will be generated over a specified forecast period (typically between 5 and 10 years). The value of cash flows expected beyond the explicit forecast period is incorporated into the valuation process by capitalising an estimate of maintainable cash flows for the terminal period. A DCF model is therefore usually made up of two components:
(i) The present value of the projected cash flows during the forecast period; and
(ii) The present value of all other cash flows projected to occur after the explicit forecast period. This component is commonly referred to as the terminal value.

Given the considerable variability and uncertainty in earnings performance for all of Synlait’s business units, we believe that a range of methodologies is appropriate. We also suggest that the valuation should be based on a sum-of-the-parts approach to better reflect the current position and material differences in the operating performance of the business units. We have therefore assessed a separate value for Dunsandel, the North Island assets, Dairyworks and “other” assets based on the different valuation approaches summarised in Table 13. Rather than incorporate an allocation of the business overhead costs into the values for each business unit, we have assessed a separate value for overheads as well.

Table 13: Synlait Component Valuation Methodology Summary

Asset	Going Concern Valuation Methodology	Insolvency Valuation Methodology
Dunsandel	DCF model and Earnings Multiple	Potential outcome from a competitive sale process, taking account of likely buyer set and limitations of existing contractual arrangements. Assessed with reference to our Going Concern Value, but with adjustments for administration / receivership costs and disposal costs.
North Island Assets (Pokeno and RPD)	DCF model, cross-checked against “alternate use” values assuming the plant is de-commissioned and sold (i.e. repurposed for logistics / industrial property purposes)	Estimated realisation value assuming assets are sold for alternate use and after allowance for associated disposal and holding costs.
Dairyworks	Earnings Multiple, cross-checked against the value of binding and indicative offers received following the recent competitive saleprocess	Largely reflective of our Going Concern value but with adjustments for administration / receivership costs and disposal costs.
Other assets	Farms valued at assessed current “market value”	The Going Concern Value less disposal costs.

For Dunsandel and the North Island Assets, we have primarily relied on a DCF valuation approach. This reflects:

Synlait’s recent and near-term financial performance is not necessarily reflective of expected future earnings. The expected material improvement in medium-term earnings would make reliance on an earnings multiple based approach difficult, given that the implied multiples for comparable businesses or transactions are based on companies that are not experiencing the same issues as Synlait.
A DCF approach allows for more explicit measurement of the impact of key business drivers and value sensitivities for assumptions which are critical in Synlait’s turnaround plan (including variables such as Advanced Nutrition volumes and plant capacity utilisation).
Synlait has prepared detailed budgets for both FY25 and FY26 as part of its business plan, which together with its “Long Range Plan” provide a suitable base case financial projection which can be incorporated into a DCF valuation. We note that the detailed projections (and key assumptions) have been shared with Synlait’s banking syndicate as part of the refinancing process and have therefore been subjected to considerable scrutiny from a range of external parties and advisers. While clearly still subject to a high level of uncertainty, this scrutiny provides some level of comfort that the inputs to the DCF model have been well tested.

While Dairyworks is run as a standalone business, Synlait does not report performance for Dunsandel and the North Island Assets as separate locations or segments. Therefore, although the majority of

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direct cash revenues and costs from the respective sites are relatively straight forward to identify, some group costs (particularly indirect costs) and working capital components are difficult to accurately apportion across the assets. In order to assess performance and cash flows by site, Synlait has applied an allocation framework model which has been externally reviewed and verified as being suitable for location-based profitability and cash flow analysis.

While we have used this cash flow allocation approach in our DCF modelling for Dunsandel and the North Island, we have valued the indirect overhead costs separately within the sum-of-the-parts valuation. This reflects that the allocation methodology for these costs (largely based on the relative levels of FTE employees at each location) potentially distorts the true economic costs of administrating each site. For example, under the approach adopted by Synlait, the current indirect cost per tonne of production at the North Island site is approximately 3 times that of Dunsandel. In our view this outcome simply reflects the North Island Asset’s high FTE overhead and low plant utilisation, and potentially distorts the relative standalone values. Our alternative approach also allows us to better assess the costs a prospective purchaser would ascribe by location under potentially different management or ownership scenarios.

5.2.1. Valuation Date

We have adopted a valuation date of 31 July 2024. This represents the end of Synlait’s financial year and the most recent date for which key balance sheet items are available (including net bank debt and the Company’s working capital position).

Our valuation was finalised on 20 August, prior to the completion of Synlait’s end of year financial reporting and audit process. While some of the balance sheet items relied on in our assessment may therefore change following completion of this report, we do not expect these variances will be material to our valuation outcome.

However, our valuation remains sensitive to any unforeseen events that could occur after the date of this report such as material movements in commodity prices, FX rates, interest rates and the market values for other relevant listed companies. When considering the merits of the placements to Bright and a2MC, or the Equity Raising as a whole, shareholders should therefore take account of the impact of any significant changes to the operating environment (if any) that have occurred after the date of this report.

5.3. Valuation Summary

As summarised in Table 14 below, our Going Concern Enterprise Value range for Synlait based on a sum-of-the-parts approach is between $652 million and $732 million. Approximately 83% of the Going Concern Value is attributable to the cumulative value of Dunsandel and the North Island Assets (“ Synlait Milk ”), and the majority of that value is attributable to Dunsandel.

Our assessment of the component parts of Synlait and value assumptions are set out in greater detail in Section 5.4. Equity value is estimated as Enterprise Value less Synlait’s net debt as at 31 July 2024 of $551 million. This results in a value range of $0.46 - $0.83 per Synlait share.

Table 14: Going Concern Value Summary


Valuation Component	Valuation Range ($m) Low	High	Implied EV/FY25 EBITDA
Dunsandel	$872	$922
North Island	$80	$101
Overheads	($412)	($412)
Total Synlait Milk	$541	$611	10.7x - 12.1x
Dairyworks	$85	$95	3.9x - 4.3x
Synlait farms	$26	$26	nm.
Total Enterprise Value	$652	$732	8.7x - 9.8x
Net Debt	($551)	($551)

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Valuation Component	Valuation Range ($m) Low	High	Implied EV/FY25 EBITDA

Equity Value	$101	$181

Fully Diluted Shares on Issue (m)	218.6	218.6
*Equity Value / Share*	$0.46	$0.83

Source: Northington Partners. EBITDA and multiples presented on a pre-IFRS16 basis (i.e. excluding lease liabilities and including cash lease expenses). The EBITDA multiples for the component parts of Synlait Milk are excluded due to commercial sensitivities and subjectiveness around overhead allocation which has been valued separately.

In relation to our Going Concern Value for Synlait, we note the following:

As discussed in Section 5.1, the Going Concern Value assumes that the Equity Raising is successfully completed and Synlait resolves the issues currently impacting the business. In particular, we assume the Company maintains its current level of milk supply and that the majority of farmer suppliers withdraw their cessation notices.
The Dunsandel valuation incorporates the cash flows to be received from a2MC as part of the Settlement Deed, as well as other improvements in its working capital position following completion of the Equity Raising. Our value is therefore not necessarily representative of the standalone value for Dunsandel because it incorporates the excess working capital that is expected to unwind and contribute to short-term cash flows.
The implied multiple for Synlait Milk of 10.7x – 12.1x should be interpreted with caution. It misrepresents the component EBITDA multiples for the respective business units (Dunsandel, North Island and Overheads) due to the North Island Asset’s negative FY25 EBITDA contribution but positive value. While the separate multiples for each business unit are not disclosed for commercial reasons, the implied multiple for Dunsandel (excluding overheads) is lower than the overall multiple for Synlait Milk.
Our Going Concern Value represents a relatively narrow enterprise value range of approximately ±6% relative to the mid-point of $691 million. However, this translates to an unavoidably wide equity value range of ±29% compared to the mid-point. This outcome simply reflects Synlait’s high level of net debt compared to the assessed Enterprise Value. While the exaggerated impact of leverage leads to a broad range for value per share, it clearly illustrates the equity value sensitivity to elevated debt levels (where relatively small changes in business value have a disproportionate impact on equity value).
Net debt only includes bank borrowings, the Shareholder Loan and the outstanding Bonds as of 31 July. No adjustment is necessary for lease liabilities as the cash lease costs are explicitly included in our DCF cash flow forecasts.
Similarly, no adjustments are necessary for seasonal working capital or the higher working capital currently embedded in the component businesses as we have explicitly incorporated the impact of projected future cash flow fluctuations into the DCF valuation.

5.4. Key Assumptions

5.4.1. DCF Overview

Our DCF framework for Synlait is based on the Company’s most recent budgets and detailed Long Range Plan, with a number of modifications to reflect our assessment of the key input assumptions (volumes, milk supply and margins).

We have explicitly forecast post-tax cash flows for the five years to FY29, with all future cash flows beyond this period incorporated into a terminal value. Cash flows are assessed on an un-levered (predebt) basis with the relative costs of debt and equity incorporated into our assessed required rate of return via the Weighted Average Cost of Capital model. We have used mid-period discounting.

Other adjustments to our cash flows include the inclusion of cash lease costs rather than utilising the IFRS-16 reclassification of cash flows and EBITDA, which means that we do not treat lease payments as a capital or financing payment. As noted above, this also means that no adjustment is made to Enterprise Valuation for IFRS-16 lease liabilities when determining equity value.

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5.4.2. Key Assumptions for Dunsandel Valuation

Dunsandel is Synlait’s largest and most important asset, both by plant capacity and contribution to profitability. It is also of significant strategic value to a2MC as a2MC’s only source of SAMR-registered Chinese labelled infant formula, as well as a key source for English labelled product. Dunsandel is also expected to produce the following products:

commodity milk ingredients;
liquid milk and cream (to service the 10-year Foodstuffs South Island contract until at least 2029); and
UHT products, lactoferrin and other Advanced Nutrition products for the export market.

Table 15 below summarises the key assumptions and variables used to forecast Dunsandel’s future cash flows.

Table 15: Key Assumptions for Dunsandel


Assumption	Discussion
Advanced	Advanced Nutrition
Nutrition and Ingredients - Production and Sales	−	Sales to a2MC currently represent the majority of Dunsandel’s total Advanced Nutrition sales volumes, a significant portion of which is Chinese labelled. As part of the NPMSA, a2MC provides rolling 12-month forecasts of required volumes. a2MC Advanced Nutrition volumes for FY25 are based on current a2MC estimates.
	−	Although Synlait’s exclusivity under the NPMSA with a2MC will end on 1 January 2025, we
		expect that production of both China and English label product for a2MC is likely to continue
		for the foreseeable future. We do however allow for significantly reduced volumes for English
		label from the second half of FY26. This reflects our assumption that a2MC will still want to
		supplement its own English label manufactured product with Synlait production and the
		strategic importance of Synlait’s SAMR registration to a2MC for the China market.
	−	Synlait has agreed to make available to a2MC a second SAMR registration slot at Dunsandel
		for a new China label registered infant formula product, with registration subject to SAMR
		approval and to be obtained from SAMR by December 2029.
	−	Total Advanced Nutrition volumes are expected to reach 40kT over the forecast period
		(relative to a range over the last 5 years of ~30 – 50kT), made up of both existing and new
		customer volumes based on current and future customer leads. This includes an allowance
		for new infant formula sales into South East Asia (not requiring SAMR) and sales of lower
		margin base powder.

While a2MC is likely to continue to develop its own manufacturing capability, including through Mataura Valley Milk in Southland, we consider the probability of a2MC obtaining a new SAMR registration for China labelled product and diverting those volumes away from Synlait to be low over the medium term (and particularly not before Synlait’s current registration expires in September 2027). a2MC’s future decisions around vertically integrating manufacturing will also depend on a range of future variables that are hard to predict. These include the relative cost of third-party supply versus manufacturing directly, competing uses for capital at a2MC and future sales volumes into China. While the loss of a2MC Advanced Nutrition volumes would clearly have a significant impact on Synlait’s future profitability and value, we think it is reasonable to assume that Synlait will retain the a2MC volumes or can successfully transition to new customers with similar volumes and pricing over the forecast period. However, we have performed a sensitivity analysis to reduced Advanced Nutrition volumes in Section 0 to demonstrate the potential value impact.
Lactoferrin production volumes are expected to be maintained at current levels, with USD pricing broadly consistent with rates achieved by Synlait in FY24, noting there has been a material reduction in lactoferrin pricing since FY22/23.

Ingredients

Annual Ingredients sales volumes are forecast to reduce by approximately 30kT over the short term due to lower contracted volumes of milk supply (see below) and higher prioritisation of Advanced Nutrition and UHT cream volumes.
Long term annual Ingredient sales volumes are forecast to be maintained at approximately 90kT.

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Plant Performance	−	Plant performance and reliability were below expectations in FY24. The forecasts assume that these issues are rectified and Dunsandel has a gradual return to performance levels more in line with historical results.
Milk Supply	−	Milk supply is critical to Synlait’s business and the withdrawal of cessation notices by a material
		number of suppliers is a key assumption in our forecast for the going-concern business.
	−	Although the Equity Raising will improve the Company’s creditworthiness and should support
		increased farmer confidence in the business, we have made a temporary allowance for
		additional milk payments over and above Synlait’s existing incentive programs. We expect these
		payments will be needed, in the short term at least, to encourage farmer suppliers to withdraw
		their cessation notices. While margins and profitability will be reduced as a result, we consider
		the payments are necessary to regain farmer confidence and mitigate against potential loss of
		supply.
	−	We have assumed steady state annual milk supply of ~65m kgMS at Dunsandel (~12% lower
		than FY24 levels), reflecting our expectation that some goodwill with farmers has been lost as a
		result of Synlait’s recent financial performance.
	−	Lower milk supply impacts on total Ingredient production levels over the forecast period, as
		noted above in our production and sales assumptions.
Pricing and	−	It is not possible to accurately forecast commodity ingredient prices. However, given that
Gross Margins		commodity prices impact both Synlait’s revenue and cost of goods sold, assumed future
		margins on Dunsandel production are more relevant.
	−	Long-run gross margins for Advanced Nutrition products are forecast to be broadly consistent
		with historical levels at Dunsandel (approximately $2,900 per tonne on a blended basis
		including a range of Advanced Nutrition products). This projection includes an allowance for a
		moderate impact on the overall profitability of products produced for a2MC as a result of the
		wider settlement arrangements with a2MC, when taken as a whole (due to additional costs and
		adjustments to manufacturing standards).
	−	Ingredient margins prior to any allowance for FX impacts are forecast at approximately $290 per
		tonne. This includes provision for the anticipated margin impact of “lead bucket” and contractual
		premiums above GDT (see below).
	−	Gross margins for other products (including liquids and UHT cream products) are forecast at
		approximately $300 per tonne.
FX and Lead	−	Because the majority of milk commodity products are sold in USD, the future NZD/USD
Bucket		exchange rates and hedging strategy can have a significant impact on earnings. Fonterra’s
		Farmgate Milk Price establishes the milk price for other processors (including Synlait) and is set
		using Fonterra’s actual average economic FX conversion rate for a season. Any variation from
		the Fonterra FX rate can therefore significantly impact on Synlait’s relative earnings (positive if
		Synlait’s actual FX rate is lower and negative if Synlait’s actual FX rate is higher).
	−	While Synlait’s FY23 and FY24 performance was negatively impacted by unfavourable FX
		hedging positions relative to Fonterra (approximately $0.015 differential in both years), it is
		unusual for this to occur repeatedly. Over the longer term, Synlait has achieved FX rates on
		average slightly more favourable than Fonterra.
	−	We assume that Synlait will achieve FX rates consistent with Fonterra for both the upcoming
		season and over the longer term. Given that Fonterra has now increased its periodic disclosures
		regarding its FX hedging position, other processors should be in a position to more readily
		benchmark their FX hedging positions for consistency.
	−	The product mix (WMP/SMP/AMF) and price differentials relative to the notional producer and
		Fonterra are assumed to be broadly consistent with those historically achieved by Synlait.
Liquids	−	Long term liquid milk sales volumes are forecast at approximately 31kT, broadly consistent with
		historical volumes.
Foodservice	−	UHT cream sales volumes are assumed to grow to ~13kT relative to 1.7kT achieved by Synlait
		in the first full 6 months of commercial production during 1H FY24 (which implies annualised
		sales of 3.4kT).
Manufacturing	−	Manufacturing costs per tonne on an inflation adjusted basis are assumed to be broadly
Costs		consistent with recent levels.

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Sales and	−	Sales and distribution costs on an inflation adjusted basis are assumed to be broadly consistent
Distribution		with recent levels.
Costs
Working Capital	−	Trade debtor and creditor positions are forecast to revert towards historical levels as normal
		credit terms for key suppliers are re-established following the recapitalisation and the a2MC
		disputes are resolved and the withheld receivables are paid.
	−	Inventory ratios are also expected to normalise as the business improves working capital
		efficiency through time, supported through improved ERP reporting and Company initiatives to
		reduce stock wastage and obsolescence.
Capital	−	Capital expenditure is expected to range between $25m - $30m per annum over the forecast
Expenditure		period, largely representing maintenance capital expenditure.
	−	Terminal year capital expenditure of approximately $30m is assumed relative to depreciation of
		approximately $40m. The lower capital expenditure estimate reflects the assumed levels
		required to maintain the plant at the expected manufacturing volumes, which are lower than
		Dunsandel’s capacity.
Discount Rate	−	We have applied a post-tax WACC of 11% for Dunsandel and included a sensitivity analysis
		around this level. The WACC reflects our assessment of the required return for the business
		when considering its recent performance and the ongoing risk factors (including a2MC volumes,
		SAMR registration renewal in 2027, ongoing volatility in Ingredients).
	−	The WACC assumptions used for Dunsandel are detailed in Appendix 3.
Terminal Value	−	Based on an assumed 2% perpetual growth rate in the terminal year.

5.4.3. Key Assumptions for the North Island Assets Valuation

As discussed in Section 4.8, the North Island business is performing poorly and this performance is the largest contributing factor to Synlait’s current financial issues. The North Island capital expenditure of approximately $450 million has been predominantly funded through debt and the business has accumulated negative earnings since it was established.

We have valued the North Island business using the same DCF framework that was adopted for Dunsandel. Table 16 summarises the key DCF assumptions, which again reflect the base case scenario provided by Synlait but with a number of changes we believe are sensible in the circumstances.

The North Island business is not economically viable in its current form and at current utilisation levels. Significant increases (i.e. more than double) in the current sales volumes are necessary to create more value than what could be realised by simply ceasing operations, selling Pokeno and sub-letting the RPD and Wiri properties. This shut down strategy represents a floor value against which to compare the potential going concern value of the North Island business unit under the Company’s adopted plan.

Table 16: North Island DCF Cash Flow Forecast Assumptions


Assumption	Discussion
Advanced	−	North Island is not economically viable as a commodity ingredients processor relative to the
Nutrition and		“notional producer” which manufactures reference commodity products (the framework used
Ingredients		by Fonterra in determining the Farmgate Milk Price). It is also uncompetitive compared to
Production and Sales		other processors in the Waikato region (particularly Open Country, OFI and Fonterra). This reflects the high cost of milk paid by Synlait, which includes incentive payments and higher
		milk transport costs (due to the spread of farmer suppliers), as well as Pokeno’s high energy
		costs from utilising natural gas and low scale economies. We estimate that the North Island
		milk incentives and higher transport costs alone (compared to the notional producer) would
		erode the entire capital cost allowance under the Farmgate Milk Price (estimated at
		~$0.60/kgMS for the 2023/24 season).
	−	Therefore, while North Island is capable of Ingredients processing and has produced
		commodity milk products in the past, we believe that future production may be entirely
		focussed on non-milk Advanced Nutrition products for both existing and new customers.

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	−	Sales of plant-based Advanced Nutrition products produced at North Island are assumed to
		grow from ~4kT in FY24 to ~13kT in FY29 under our base case scenario. This represents
		~30% of the plant capacity at Pokeno.
Milk Supply	−	We believe that it is possible that an outcome of Synlait’s strategic review may mean that it will
		look to phase out its North Island milk supply as the Pokeno facility transitions to Advanced
		Nutrition volumes only.
	−	On that basis (but noting that this is based on our assumption rather than Synlait’s view) we
		have then assumed that all current milk supply arrangements (~10 million kgMS for the current
		season) are concluded by May 2026 and excess milk in the intervening period is sold to other
		processors at a modest loss (including farmer milk premiums and transport costs to the point of
		sale).
Pricing and	−	Forecast pricing is based on the current terms in place with Synlait’s key North Island customer.
Gross Margins
	−	Based on current sales volumes, North Island is loss making at the gross profit level due to very
		low-capacity utilisation and a large, fixed manufacturing overhead which is not recovered.
	−	Gross profit per tonne of Advanced Nutrition products is forecast to improve to ~$1,400 per
		tonne.
Sales and	−	Assumed sales and distribution costs are ~$1,000per tonne. On an inflation adjusted basis,
Distribution		these projected costs are broadly consistent with recent levels.
Costs
Working Capital	−	Assumed working capital ratios are broadly consistent with Dunsandel levels, but with allowance
		for the different manufacturing profiles (which leads to a relatively higher level of inventory).
	−	Approximately $40m of receivables is assumed to be sold under a new receivables assignment
		facility with banks.
Capital	−	Capital expenditure is forecast to be limited to maintenance expenditure of approximately $5m
Expenditure		per annum (with annual inflation adjustments).
	−	This compares to total plant and equipment depreciation (ex leases) of approximately $15m. We
		consider that current depreciation levels are not consistent with the ongoing capital expenditure
		requirements for the North Island Assets given the nature of the plant and the equipment age.
Discount Rate	−	We have applied a post-tax WACC of 13% (i.e. 2% higher than Dunsandel) based on the
		significant business uncertainty and our assessment of the considerable customer and
		execution risk at Pokeno.
Terminal Value	−	Based on an assumed 2% perpetual growth rate in the terminal year.

Source: Northington Partners.

Given the significant uncertainty regarding the prospects for the North Island Assets, including existing and new customer demand, we have also estimated a value assuming the plants are shut down and sold for alternative purposes such as general manufacturing and/or industrial warehousing. Our key assumptions for estimating the shut-down value are summarised in Table 17, along with the resulting value range.

Table 17: North Island Shut-down Assumptions and Value


	Present Value	Assumptions
	Range ($m)1
Plant Closure Costs	($8) - ($2)	−	Includes redundancy costs, inventory write-offs and lease
			make good costs, offset by income up to closure.
		−	Plant ceases operations in February 2025.
		−	The RPD and Wiri sites are assumed to include lease make-
			good and termination costs of approximately $5m on the basis
			that new tenants are found (termination payment reflecting the
			lease on the new tenancy vs Synlait’s).

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		−	All milk supply arrangements terminated by May 2026. Cost of
			milk until that point based on current supplier agreements and
			cost of transport. Cost offset by assumed proceeds from
			reselling the milk.
Plant and equipment	$31 - $44	−	Our estimate of plant salvage values for transferrable assets
salvage value			(dryer and process plant, canning, packing, materials handling
			and other equipment) net of decommissioning costs are based
			on assumed secondary market values.
		−	The net salvage values compare to the total current
			depreciated value of approximately $200m for transferrable
			assets.
		−	The plant and equipment is assumed to be decommissioned
			and sold by July 2025.
Land & Buildings	$57	−	Estimated value for Pokeno land and buildings of $50m based
			on assumed industrial lease rates consistent with the area
			(~$140/sqm), a valuation capitalisation rate of 6% and a $10m
			allowance for the spare development land.
		−	This value has been cross-checked against an adjacent
			industrial property which sold in 2021.
		−	The value for Pokeno compares to the cost for the land of
			$30m in 2018 and current rateable value of the land and
			buildings of $97.3m.
Total	$80 - $100

1 Present values determined using our assessed WACC for the North Island assets of 13%

The resulting value for the North Island Assets under a shut-down scenario of $80 million - $100 million represents a significant discount to the capital invested (approximately $450 million). We believe that this outcome reasonably reflects North Island’s sub-optimal scale, high operating costs (driven by the cost of milk and plant configuration) and the low level of plant utilisation. In our view, the returns required to justify the investment (over $60 million EBIT at an assumed 10% post-tax target return on capital employed) have never materialised and are unlikely to be generated in the medium term.

The North Island shut-down value is broadly consistent with our DCF Going Concern Value range and therefore supports the adopted value range in Table 14. This also implies that unless Synlait is confident of increasing sales volumes from current levels of ~4kT to over 13kT (approximately 40% capacity utilisation) over the medium term, the closure and sale of North Island may deliver a better commercial outcome.

5.4.4. Overhead Costs

Overhead assumptions for Dunsandel and North Island are broadly consistent with Synlait’s projections, with total general and administration costs (excluding Dairyworks) averaging ~$53 million over the forecast period. This includes an allowance for $8 million of total cost reductions over FY25 and FY26 as part of the Company’s cost saving initiatives.

While these overhead costs support the various business units in the Group, they largely reflect the current fixed cost base of Synlait including finance, human resources, IT and head office costs. Management believes that any sale of component Group assets such as North Island or Dairyworks would be unlikely to result in any significant reduction in these costs over and above the cost saving initiatives noted above.

We have valued the overhead costs using a DCF model using the same discount rate as applied to Dunsandel (i.e. 11%).

5.4.5. Dairyworks

We consider the best estimate of value for Dairyworks should reflect the feedback from the recent sale process undertaken by Synlait. While the offers received for Dairyworks ultimately did not culminate in a transaction, the Company engaged Jarden to carry out a comprehensive sale process and marketed the opportunity to an extensive list of prospective investors.

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We understand that serious interest was expressed by several parties at price levels that translated to an FY24 EBITDA multiple (excluding cash lease costs) considerably lower than Synlait’s purchase multiple (7.1x forecast EBITDA at the time of purchase in 2020).

As the offers for Dairyworks may have included an implicit discount due to Synlait’s known financial distress, we have applied value multiple assumptions that we believe reflect the current market environment (following discussion with management on the sale process and feedback received). Consequently, our Dairyworks valuation range has been assessed as follows:

Assumed maintainable EBITDA multiple range of 4.25x – 4.75x; and
Estimated maintainable EBITDA of ~$20 million (after cash lease costs).

Based on these assumptions, the assessed enterprise value range is $85 - $95 million.

We have cross-checked the valuation range against a simplified DCF model assuming current Company forecasts for FY25 and FY26, nominal growth levels thereafter, approximately $3 million in annual maintenance capital expenditure and a discount rate of ~13%. This modelling supports our earnings multiple value range for Dairyworks.

5.4.6. Other Assets and Net Debt for Valuation Purposes

We have valued Synlait’s farms using the 2020 purchase price of $25.7 million (approximately $44,000 per hectare). This is likely to represent a higher value than current market value given that Synlait is using part of the water consents attached to the land for processing purposes. However, we consider the assessed value appropriately reflects the strategic value of the water use and water and waste discharge rights for the Dunsandel factory. We also assume that any purchaser of Dunsandel would want to retain the water rights.

Net debt for valuation purposes is based on Synlait’s consolidated net borrowings as of 31 July 2024, being our valuation date, based on total debt less cash.

5.5. Assessed Future Earnings

We have assessed an estimate of future maintainable earnings in order to cross-check our component valuation against earnings multiples. Noting that Synlait does not provide site-based estimates for earnings and is not currently intending to provide earnings guidance for FY25, our earnings estimate is based on the FY25 Group EBITDA that is incorporated into our valuation assessment. That is approximately $85 million (on an IFRS-16 basis), which equates to an adjusted EBITDA estimate of ~$75 million net of cash lease payments. This value is materially lower than Synlait’s internal budget for FY25 but is higher than current broker consensus estimates (approximately $78 million on an IFRS-16 basis as at the date of this report).

The significant improvement on estimated FY24 EBITDA (which, as discussed on page 32 is in the region of $30 million) largely reflects the following:

Losses from unfavourable FX movements which affected Ingredients margins in FY24 being avoided in FY25;
Improved overall Advanced Nutrition volumes and margins (including FX impacts), largely driven by improved volumes in the North Island;
Improved volumes at the Liquids plant;
Positive impact from lagged contracts and improved lead bucket performance for Ingredients more than offsetting reduced volumes and assumed temporary increased milk payments;
An expectation that the high levels of inventory price variances experienced in FY24 due to supply chain issues, historic ERP software implementation and other issues do not continue and that Synlait manages working capital more efficiently. This will contribute to improved margins over FY25 and beyond; and
Synlait’s initiatives to reduce costs.

As with FY25, we also note that our FY26 and longer-term forecast assumptions are generally more conservative than Synlait’s current Long Range Plan estimates. This reflects our views on execution risks associated with achieving certain targets, particularly considering Synlait’s recent performance issues. It also reflects our assumption that reduced a2MC volumes will not be replaced with new customer demand as quickly as expected, as well as other more conservative assumptions which we

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think better account for the ongoing uncertainty in the broader market. As a result of our more cautious view, we note that our forecast Group EBITDA does not exceed the historic levels achieved between FY19 – FY20 over the 5-year forecast period of our DCF (in real price terms).

5.6. Synlait Component Valuation

5.6.1. Synlait Group Valuation

As set out in Table 18, our component sum-of-parts valuation for Synlait is between $652 to $732 million. In order to determine the equity value, we have deducted $551 million of net debt (as at 31 July 2024). This results in an equity valuation range of $0.46 - $0.83 per share, with a mid-point of $0.64.

Table 18: Synlait Enterprise and Equity Valuation ($ million)


	Low	Mid	High
Dunsandel	$872	$897	$922
North Island	$80	$90	$101
Synlait Milk Overheads	($412)	($412)	($412)
Dairyworks	$85	$90	$95
Synlait Farms	$26	$26	$26
Enterprise Value	$652	$692	$732
Net Debt	($551)	($551)	($551)
Equity Value	$101	$141	$181
Shares on Issue (million #)	218.6	218.6	218.6
Value Per Share ($)	$0.46	$0.64	$0.83

Source: Northington Partners

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5.6.2. Synlait Value Sensitivities

Given the relative size of Synlait Milk (comprising ~85% of our assessed enterprise value range) and the DCF approach adopted, we have considered the value sensitivity of Synlait Milk to changes to a range of key DCF assumptions. Figure 29 summarises the DCF value sensitivity of Synlait Milk to these key variables in the context of our assessed range of $541 million - $611 million.

Figure 29: Synlait Milk Enterprise Value Sensitivity Analysis ($ million)

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Long-term Advanced Nutrition volume (48kt - 59kt) $491 $665
Long-term Milk Supply volume (59m - 70m kgMS) $511 $610
Ingredients Margin (-20% - +20%) $516 $635
WACC (-1% - +1%) $518 $648
$471 $506 $541 $576 $611 $646 $681
----- End of picture text -----

Source: Northington Partners. Note: Advanced Nutrition volume and WACC sensitivity ranges are for Dunsandel and North Island combined, whereas milk supply and Ingredients margins only apply to Dunsandel.

Our assessed value is very sensitive to changes in all variables, but is particularly sensitive to the assumed volumes for Advanced Nutrition products. Relatively small changes (+/- 10%) to our long-term volume assumption of 53kT leads to a value increase or decrease of approximately $85 million, representing about 15% of our mid-point value of $576 million. As previously discussed, this sensitivity reflects the high margin that is currently generated from these products and reinforces the importance of maintaining the a2MC volumes or finding new customers with the same requirements.

The value sensitivity to relatively small changes to key variables also reinforces the high level of uncertainty attached to our valuation range. Successful execution of Synlait’s recovery strategy will be needed to achieve the assumed outcomes for Advanced Nutrition volumes, milk supply retention and Ingredients margins, and thereby support the assessed value level. Given the issues experienced over the last few years, there is clearly a risk that the Company will not deliver to plan and that the underlying value is not realised.

5.6.3. Implied Valuation Multiples

We have cross-checked our valuation range for both Synlait Milk and Synlait Group against earnings multiples for comparable listed companies and for transactions involving similar ingredients and highvalue nutrition businesses.

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Figure 30 summarises implied EV/FY25 EBITDA multiples for comparable listed companies while Figure 31 provides multiples for the available transaction evidence. Appendix 2 provides details of the companies and transactions used.

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Figure 30: EBITDA Multiples for Comparable Dairy Processing Companies

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----- Start of picture text -----

11.7x
12.0x 9.5x
12.4x Median
9.0x6.0x 10.5x 8.6x 9.7x 9.2x 9.0x 7.2x 9.0x
6.2x
3.0x
- 3.0x
Synlait Synlait Kerry Saputo Bega Inner China Fonterra Savencia
Milk Group Group Cheese Mongolia Mengniu
Yili
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Source: Northington Partners, CapitalIQ (19 August 2024). See Appendix 2 for company details.

Note: Synlait multiples presented on a IFRS-16 basis for comparability. Fonterra Enterprise Value based on Fonterra Shareholders’ Fund unit price rather than Fonterra Co-operative Group share price.

Figure 31: EBITDA Multiples for Comparable Consumer Goods, Nutrition and Ingredients Companies

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----- Start of picture text -----

20.0x
15.0x 17.3x
11.7x
10.0x 9.5x 14.3x 13.1x Median
10.5x 10.2x 9.6x 9.6x
8.6x 8.6x
5.0x
5.3x
4.0x
- 2.2x
Synlait Synlait Abbott Nestle a2MC Danone Reckitt Wilmar H&H Ausnutria China
Milk Group Feihe
----- End of picture text -----

Source: Northington Partners, CapitalIQ (19 August 2024). See Appendix 2 for company details. Note: Synlait multiples presented on a IFRS-16 basis for comparability.

In relation to the evidence above, we note:

The implied multiple for our Going Concern Value for the Group is negatively impacted by the lower multiple applied to Dairyworks (4.25x – 4.75x). We therefore focus on the implied multiple for Synlait Milk which comprises the majority of value and we consider to be more relevant to the selected comparable companies.
The implied trading multiples are based on share market prices and, therefore, do not include a premium that would otherwise be observed in the context of an offer that results in a controlling shareholding (i.e. the Bright Placement).
When comparing Synlait to the comparable companies for valuation benchmarking, we would place more emphasis on the dairy processing businesses. While many of the global consumer and nutrition businesses share similarities (many process infant formula and other Advanced Nutrition products), the majority also own end-market brands with associated goodwill value and higher growth potential. We have therefore placed less reliance on these companies when assessing the reasonableness of our value range.

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Figure 32: Relevant Comparable Transaction Evidence Enterprise Value to Forecast EBITDA Multiples

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15.0x
11.7x
13.5x
9.5x 12.4x
10.0x
10.5x 10.0x Median8.8x
8.6x
7.6x
5.0x 6.3x
4.9x
-
Synlait Synlait Burra Warrnambool Lion-Dairy Goodman Tatura Open Country
Milk Group Foods Cheese (Jan-21) Fielder Milk Dairy
(May-16) (Feb-14) (Mar-15) (Dec-11) (Mar-21)
----- End of picture text -----

Source: Northington Partners, CapitalIQ, company announcements. See Appendix 2 for company details. Note: Synlait multiples presented on a IFRS-16 basis for comparability. Open Country Dairy, Tatura Milk, Bura Foods and Lion Dairy represent LTM EV / EBITDA Multiples.

In relation to the transaction evidence above, we note:

There has been a limited number of directly comparable transactions in the last 5 years. The Open Country Dairy transaction is relevant on the face of it, but Lion Dairy is less so given it owns a portfolio of branded milk, milk-based beverage, yoghurt and juice brands.
Open Country Dairy’s transaction multiple does not necessarily reflect a takeover premium because Talley’s (the majority shareholder at the time) already controlled ~77% of the shares. Because Talley’s reached agreement with Olam International Limited to sell its ~15% shareholding into the takeover offer, it immediately reached the necessary 90% compulsory takeover threshold. Given the uncertain market situation at the time (during covid-19) and the inability to determine Olam’s motivations for sale, we would place less reliance on this transaction.

The implied multiples from the Going Concern Value are within the multiple range for similar comparable companies and towards the upper end of the multiples implied by the transaction evidence. We consider that the comparable company and transaction multiples support our DCF valuation range and note:

The North Island Assets, which contribute negative earnings but have positive value, distort the implied multiple for Synlait Milk. Excluding North Island would reduce the Synlait Milk multiple.
Applying an appropriate control premium to the comparable companies would result in a median multiple above the implied multiple range for Synlait Milk, particularly if North Island was excluded.
There is limited recent and directly comparable transaction evidence to Synlait and we have therefore placed increased emphasis on comparable trading multiples (and the implied multiples if a control premium was applied).
While there are inherent risks in achieving the significant earnings growth projected for FY25 (on which the implied multiples for Synlait are based), we consider this risk is captured within our Going Concern Value range through the risk premium which is included in our assessed discount rate.

5.7. Synlait Insolvency Valuation

If the Equity Raising is not approved, we expect that either Synlait or its banking syndicate will initiate a formal insolvency process. We believe that it is therefore important for shareholders to consider the potential value outcome under this scenario when determining whether or not to support the relevant resolutions.

We have estimated the hypothetical value impacts of a potential liquidation of the Company. This is largely based on our assessed Going Concern Value but with certain adjustments to reflect the distressed position of Synlait without the Equity Raising, the costs of administration / receivership and the time needed to liquidate and return any surplus capital to shareholders.

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Table 19 provides a summary of our assumptions and the potential value outcome from an insolvency process.

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Table 19: Summary of Synlait Insolvency Value

Asset	Discussion	Discussion	Assessed Insolvency Value Range ($m)	Assessed Insolvency Value Range ($m)
			Low	High
Synlait Milk	−	The Insolvency Value reflects our Going Concern Value	$514	$580
(Dunsandel and North		less 5%. This reflects our expectation of reasonably strong
Island combined)		buyer interest in Dunsandel, albeit at value levels below
		intrinsic value to reflect the impacts of an insolvency
		process.
	−	We note that Synlait would retain its SAMR registration in
		an insolvency event but there may be a risk that the
		relevant Chinese authorities could revoke the registration if
		insolvency had a serious impact on product quality or
		standards of the registration.
	−	Questions over continued access to milk supply at a
		reasonable price could be an issue for some bidders.
Dairyworks	−	Value based on recent bidder interest and no change assumed for liquidation scenario.	$85	$95
Synlait Farms	−	Value based on purchase price and no change assumed for liquidation scenario.	$26	$26
Disposal costs and	−	Administrator / receiver, disposal and transaction costs	($40)	($40)
administration fees1
Net sale proceeds			$584	$661
Less borrowings			($551)	($551)
Surplus available for shareholders			$34	$110
Total per Synlait share			$0.15	$0.50

Source: Northington Partners. Note: borrowings assumed at 31 July 2024 level assuming that debt is able to be serviced by business earnings in the period up until sale of the individual assets.

1 Northington Partners’ estimates based on receivership/administration precedents including legal, administrator/receiver, sale and windup costs. Actual costs could be materially higher or lower depending on a range of factors.

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Table 19 shows that under an insolvency scenario, our hypothetical Insolvency Value range is approximately $70 million lower than the Going Concern enterprise value (mid-point). After repayment of bank debt, the Shareholder Loan and Bonds which rank ahead of shareholders, this would result in an equity value range of $0.15 - $0.50 per share.

Under an insolvency scenario, Synlait shareholders are unlikely to have any ability to trade their shares, with any net proceeds only available for distribution to shareholders following the administrator / receiver concluding a liquidation. This means it could be many months before any value is realised.

We note that the impacts of insolvency are very uncertain and that these values could potentially overstate the eventual proceeds to shareholders in the event of a liquidation:

The range is largely predicated on a receiver or administrator maintaining strong buyer interest for the component assets.
In particular, we note that the Insolvency Value for Dunsandel is highly uncertain as it is reliant on continuity of farmer milk supply, retention of the SAMR registration and buyers’ expectations in relation to the continuation of Advanced Nutrition volumes for a2MC.
While a2MC would have a strong interest in Dunsandel to ensure continuity of its own supply, particularly for China label infant formula (which is reliant on the SAMR registration), other bidder interest is highly uncertain. Without strong competitive tension, the value outcome is also highly uncertain.
If the marginal buyer was an Ingredients processor, the perceived value of Dunsandel would reduce significantly due to the much lower margins generated from commodity Ingredients products.

Based on this wide range of uncertainties, we caution shareholders that this valuation range should be used as a guide only. Any ability for a receiver to generate surplus proceeds over and above priority creditor claims that rank ahead of shareholders (primarily the banks, Bondholders, employees and IRD) is only likely to be possible if they can generate strong price tension for Dunsandel from multiple bidders and sell it quickly.

Viewed alternatively, in order for Synlait shareholders to receive net proceeds per share under an insolvency event equivalent to our Going Concern Value range, an administrator or receiver would have to achieve gross proceeds under liquidation which are approximately $0.18 per share higher than our Going Concern Value range (i.e. $0.64 - $1.01 per share). This is mostly due to the costs involved in administration or receivership - our estimate of approximately $40 million of disposal costs and administrator/receiver costs equates to approximately $0.18 per Synlait share. The timeframe required to complete the sale processes and distribute the proceeds is also uncertain. If the process takes longer than expected, the value of the liquidation scenario will reduce in present value terms.

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6.0 Assessment of the Merits of the Bright Placement, a2MC Placement and a2MC Settlement

6.1. Comparison of the Bright Placement Price Relative to Assessed Value

As set out in Section 5.6.1, we have assessed the Going Concern Value for a controlling shareholding in Synlait in the range of $0.46 to $0.83 per share, with a mid-point of $0.64. Our valuation assumes that Synlait is successful in its recapitalisation plans and completion of the bank refinancing. If this is not achieved, we believe that the Company will need to initiate a formal insolvency process, in which case we have estimated an Insolvency Value range of $0.15 to $0.50 per share, with a mid-point of $0.33.

Figure 33 compares the Bright Placement and a2MC Placement issue prices to our assessed Going Concern Value and Insolvency Value.

Figure 33: Comparison of Bright Placement and a2MC issue price to Assessed Going Concern and Insolvency Values

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$0.83
$0.50
$0.60
$0.46 $0.43
$0.15
Going Concern Bright a2MC Insolvency
Value Issue Price Issue Price Value
----- End of picture text -----

Source: Northington Partners

In summary, the Bright Placement issue price of $0.60 per share is within our Going Concern Value range. Based on this comparison, we conclude that the Bright Placement reasonably reflects the control value for Synlait which is only likely to be achieved with the Equity Raising. The issue price for the Bright Placement is also higher than the Insolvency Value for Synlait shares, which represents the possible (and highly uncertain) proceeds per share that may be available for distribution to Synlait shareholders following completion of an insolvency process.

The issue price for the a2MC Placement of $0.43 is below our Going Concern Value range. However, we believe that the issue price for a2MC should reflect a discount to both our value range and the Bright Placement issue price because a2MC holds a minority 19.8% shareholding in Synlait. In this context, the issue price premium for the Bright Placement compared to the a2MC Placement issue price of ~40% is broadly consistent, if not towards the higher end, of premiums observed in the New Zealand market for control transactions. The issue price for the a2MC Placement also represents a 43% premium to the market price for Synlait shares as of 15 August (the undisturbed share price prior to the announcement of the conditional settlement with a2MC) whereas equity placements for minority parcels of shares are usually undertaken at a discount. We therefore conclude that the a2MC Placement issue price is reasonable taking into account all factors outlined in this report.

6.2. Impact on Synlait’s Financial Position

Synlait’s current financial position is unsustainable, with net debt levels of ~$550 million far too high relative to our expectation of FY24 earnings of $30 million.

Table 20 highlights the impact of the Equity Raising and $24.75 million a2MC settlement payment on pro forma debt levels relative to key credit ratios. This is based on our assumed EBITDA for FY25 of $85 million.

We suggest that even after completion of the Equity Raising and the settlement payment under the a2MC Settlement, Synlait’s debt will remain relatively high on a total debt/EBITDA basis (3.7x) and close to expected senior debt covenant levels (2.2x vs 2.5x covenant for FY25). Without further debt reductions or earnings improvements above our earnings estimate for FY25, the projected leverage ratio (debt / EBITDA) will exceed a prudent target level. We suggest a total target below 3.0x is more appropriate and consistent with Synlait’s peers (see Appendix 2).

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Table 20: Synlait Key Debt Levels and Ratios pre and post Equity Raising

$m	FY24F	Impact of Bond Redemption	Impact of Equity Raise & a2MC Settlement Payment	Proforma FY24
Senior Borrowings (net of cash)	$241	+$180	-$238	$183
Shareholder Loan	$130			$130
Bonds	$180	-$180		-
Equity Raise	-		+$21319	-
a2MC Settlement	-		+$25	-
Total Debt	$551	-	-	$313
FY25F EBITDA				$85
Senior Debt / FY25F EBITDA	2.8x			2.2x
Total Debt / FY25F EBITDA	6.5x			3.7x

Source: Northington Partners. Northington Partners’ estimated EBITDA stated on IFRS-16 basis while borrowings exclude IFRS-16 lease liabilities consistent with Synlait’s current bank covenant definition.

New banking facilities are currently expected to be provided for a term of only 12 months. We believe that the short term proposed by banks reflects the ongoing uncertainty and the expectation that if Synlait delivered on a meaningful earnings recovery in FY25, refinancing the renewed facilities at maturity should be more straightforward than the current refinancing process. In order for Synlait to successfully refinance its bank borrowings next year, we note:

While the end of financial year typically represents a low point in debt levels, Synlait is expecting to improve its working capital position (e.g. reduced investment in inventory and receivables) over the course of FY25 which should improve cash flows and debt levels (all else equal and based on current earnings estimates);
Synlait’s bank facilities include an “assignment facility” which allows Synlait to effectively sell certain customer receivables to the banks. Synlait intends to utilise this facility for its key North Island customer which will support lower debt levels;
The new bank facilities will be utilised to redeem the Bonds. While the Shareholder Loan has a technical maturity date of June 2025 it can be extended for a further 12 months and it is unlikely that new bank facilities would be made available to repay the Shareholder Loan until Synlait has delivered improved earnings performance and reduced senior debt levels.
Bright has indicated that with its increased shareholding it will be better able to leverage its parent company’s investment grade rating, as well as extensive relationships with banks (both Chinese and overseas) to assist Synlait to secure more favourable borrowing terms, if required as part of any future refinancing;
Synlait will be in a much better position to re-consider the sale of Dairyworks and / or the North Island Assets to further reduce debt levels, although any sale of Dairyworks would also reduce Group earnings; and
Synlait is expecting to implement cost saving initiatives and will be in a better position to consider customer growth opportunities following completion of the Equity Raising. These initiatives should support an improved earnings outlook assuming there is no further deterioration in Synlait’s key markets.

6.3. Impact on Synlait Control

6.3.1. Board Control

19 Expected net proceeds from $217.8 capital raise.

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As summarised in Section 4.11, Bright will increase its voting control of Synlait from 39.01% to 65.25% following completion of the Equity Raising. This is a principal reason Non-associated Shareholders have the opportunity to vote for or against the allotment of shares to Bright under the Equity Raising.

We suggest that Bright’s existing special constitutional rights mean that the relative impact of the Bright Placement on governance and key decision rights is not material. This view reflects that:

Under Synlait’s current constitution, Bright effectively controls the Board already with the ability to appoint and remove of up to five out of eight directors (including the one Board appointed director). The constitution requires a minimum of three independent directors, who are appointed by the Board. The current Synlait Board is made up of four Bright appointed directors and three independent directors;
Following the Bright Placement, Bright will be able to control the appointment and removal of all directors. The Board will be limited to a maximum of eight directors, including at least two independent directors and a minimum of two directors who must be ordinarily resident in New Zealand (pursuant to the NZX Listing Rules). Bright will have the ability to appoint up to six nonindependent directors, who collectively will have the power to control all Board decisions unless they are restricted from voting on related party matters involving Bright; and
While the minimum number of independent directors reduces from three to two (and Bright’s effective appointment rights may increase from five to six), we do not consider that this materially increases Bright’s Board control over what it can already exercise under Synlait’s existing constitution.

6.3.2. Voting Control

The Bright Placement will increase Bright’s ability to exert shareholder control over Synlait. While Bright currently has the ability to unilaterally block special resolutions (which require the approval of 75% of the votes cast by shareholders), it will have greater ability to influence the outcome of all shareholder decisions following the Bright Placement (where it is entitled to vote) as it will be able to singlehandedly pass or block ordinary resolutions (which require the approval of more than 50% of the votes cast by shareholders). However, we note that Bright’s 65.25% shareholding will not be sufficient to unilaterally pass special resolutions. Depending on the number of the other minority shareholders who participate in the vote, approval of special resolutions will likely require a2MC’s support.

a2MC will also have effective negative voting control over a full takeover and significantly influence any scheme of arrangement requiring 75% shareholder approval where there is only one interest class, or block a scheme proposed by Bright (or its associates, as defined in the Code), as Bright would be prevented from voting in the same interest class as shareholders not associated with Bright for the purposes of the 75% voting threshold.

6.3.3. Shareholding Dilution

Non-associated Shareholders of Bright and a2MC currently have control of 41.16% of Synlait shares, which will reduce to 14.91% following completion of the Equity Raising. Despite the Bright Placement and a2MC Placement issue prices reflecting a premium to Synlait’s current share price, this significant level of share dilution is unavoidable due to the relative size and structure of the Equity Raising. While the Equity Raising could have been structured to allow participation by all existing shareholders in order to potentially avoid dilution, we believe that Synlait’s rationale for not making the offer available to all shareholders (as outlined in the Notice of Special Meeting) is reasonable in the circumstances.

6.3.4. Economic Dilution

We note that while the share dilution under the Equity Raising for Non-associated Shareholders is significant, we expect any potential economic dilution (i.e. reduction in value of Synlait shares) will be low. In fact, the value of Non-associated Shareholders’ shares is more likely to improve, all else equal, due to the following:

The Equity Raising will materially reduce the ongoing insolvency risks for the Company, which in turn should lead to some level of recovery in the share price;
The weighted average issue price under the Equity Raising of approximately $0.57 (reflecting the Bright Placement at $0.60 and a2MC Placement at $0.43) is 72% higher than the VWAP for Synlait shares of $0.33 for the 20 trading days to 19 August 2024. Theoretically, the “ex” price for Synlait shares following allotment of the new shares should be approximately $0.48 per share, reflecting that the issue price for the Equity Raising is at a premium to the current share price; and

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We also expect that following the Equity Raising, resolution of the a2MC disputes and the successful completion of the bank refinancing, the considerable ongoing uncertainty around Synlait’s future will be partly mitigated and investor sentiment for Synlait will improve. This has already been partially reflected in Synlait’s share price increasing by ~30% in the 2 trading days following the announcement by Synlait of its conditional settlement with a2MC on 16 August 2024.

While Synlait’s share price immediately following the Equity Raising will be influenced by a range of market factors, we believe that Non-associated Shareholders should have some confidence that the trading value for Synlait shares is likely to improve compared to the status quo (and assuming the Equity Raising and a2MC Settlement are not completed).

6.4. Alternatives to the Bright Placement

The alternatives for raising the quantum of equity required by Synlait with the level of certainty and within the necessary timeframes are limited. The deleveraging strategy adopted by Synlait also needs to be supported by Bright given its current shareholding and existing Board control.

While the Equity Raising could have been structured as a pro-rata offer to all shareholders, we suggest that the issue price would have needed to be heavily discounted (relative to the prevailing market price) in order to encourage any meaningful participation from other shareholders. Support from retail investors could have been limited at any price, in which case Bright and a2MC would have needed to take up most of the offer anyway through their pro rata participation and any underwrite or shortfall allocation (subject to Takeovers Code limitations).

Other alternatives to the Equity Raising include the Company soliciting a full takeover offer, winding up the business or selling individual assets such as North Island and Dairyworks. In respect of these options, we note:

Given Bright’s current shareholding, the prospects of a full takeover offer are low unless it was from Bright itself or from a third party whose offer was acceptable to Bright. While a takeover has not been contemplated by Synlait, we do not consider that Bright increasing its shareholding from 39.01% to 65.25% will diminish the likelihood of any future takeover (Bright’s ability to determine the outcome of any takeover for Synlait is effectively the same before and after the Bright Placement);
Unless Synlait was to consider the sale of Dunsandel, we believe it is unlikely that the wind-up of Synlait would deliver higher value to Non-associated Shareholders than our assessed Going Concern Value. Furthermore, Bright controls any decision to sell Dunsandel through its current shareholding and ability to veto special resolutions (which would be required for a sale of Dunsandel due to its size). Bright has also stated that it would not propose any sale of Dunsandel, nor would it intend to support any sale of Dunsandel, were any such initiative proposed; and
Given the process already undertaken to sell Dairyworks and the current performance of the North Island Assets, we believe individual asset sales are unlikely to deliver the level of proceeds required to reduce debt to sustainable levels. However, we believe these divestments are likely to remain viable options to further reduce debt following the Bright Placement.

6.5. a2MC Settlement

The a2MC disputes with Synlait in respect of the NPMSA and associated arbitration proceedings have created a great deal of uncertainty and distraction for the business. If both resolutions relating to the Bright Placement and a2MC Placement and a2MC Settlement are approved and Synlait completes its bank refinancing, all current disputes will be resolved in full and a2MC will pay Synlait an amount of approximately $24.75 million. This includes amounts that had been largely withheld in accordance with the terms of the NPMSA.

We believe that the resolution of the a2MC disputes on these terms is in Synlait’s best interests for the following reasons:

The dispute relating to exclusivity effectively becomes a moot point if the Bright Placement is approved, given that a2MC would have exclusivity termination rights following the change in control of Synlait. While loss of exclusivity clearly reflects a weakening of Synlait’s position, we note in Section 5.4.2 our view that it is unlikely to impact on a2MC’s demand for Chinese labelled product, at least in the medium term. Synlait will still retain the SAMR registration for the existing product (subject to the next review in 2027) and we expect that a2MC demand

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could increase given that it has requested a second slot for a new China label a2 formula product;

Synlait expects that the wider settlement arrangements mean that, when taken as a whole, the overall profitability of the products produced for a2MC is expected to be moderately impacted due to additional costs and adjustments to manufacturing standards;
a2MC is Synlait’s most significant customer and contributor to value and the continued success of the relationship between a2MC and Synlait benefits both parties; and
Ongoing arbitration could be costly and time consuming, with unknown outcomes at a time when Synlait needs to focus on rebuilding its profitability.

Part of the dispute settlement includes providing a2MC with enhanced access to Synlait’s Dunsandel manufacturing site, people and information relevant to Synlait’s supply of Advanced Nutrition products to a2MC. This could provide a2MC with information which may put it in a better position to obtain its own SAMR registration and subsequently move away from Synlait as its key manufacturer.

Separate to the dispute settlement, we expect that a2MC is already actively exploring opportunities to develop and enhance its own manufacturing capabilities. Reflecting that risk, Synlait will continue to monitor the cost-benefit of maintaining the NPMSA with a2MC while also exploring new customer opportunities to mitigate the impact of a2MC potentially transitioning volumes elsewhere.

Notwithstanding this issue, we believe a2MC’s participation in the Equity Raising demonstrates Synlait’s value to a2MC and the perceived value of maintaining a good working relationship between the two companies. On balance, we believe that the a2MC Settlement is in Synlait’s best interests.

6.6. Advantages and Disadvantages to Non-associated Shareholders

The Equity Raising is critical for Synlait’s survival. Without it, the Company or its banking syndicate is likely to initiate a formal insolvency process. In that scenario, trading of Synlait shares on the NZX Main Board would likely cease (under the NZX Listing Rules, NZX has absolute discretion to suspend trading) and shareholders would lose their ability to realise any remaining value from their investment in the short term.

While the value that shareholders would ultimately receive under an insolvency process is highly uncertain, our Insolvency Value range of $0.15 to $0.50 reflects 34% - 61% of our Going Concern Value. We acknowledge that the insolvency process could deliver a value outcome above our Insolvency Value range, particularly if strong competitive tension can be maintained during the sale process for the Dunsandel plant. We expect that a2MC would be highly motivated to participate in the process, but suggest it is harder to determine the level of interest from other parties and the likely value these parties would attribute to Dunsandel.

Given the high level of uncertainty over potential value outcomes, we therefore suggest that some of the key advantages of the Equity Raising to Non-associated Shareholders are the ability to preserve the liquidity option from the NZX listing and enhance the value of each shareholder’s shareholding (despite the associated ownership dilution).

Some of the other consequences of the Bright Placement include:

Reduced likelihood of a takeover offer from Bright: in our view, because Bright will increase its shareholding from 39.01% to 65.25% by way of the Bright Placement, it is less likely to make a full takeover offer for the Company as it may consider that it already has sufficient control. Following the completion of the Bright Placement, Bright will not be able to increase its shareholding in Synlait unless it complies with the Code via a number of approaches:
§ By Bright making a full or partial takeover offer;
§ The acquisition of existing shares or allotment of new shares (similar to the Bright Placement) being approved by an ordinary resolution of Non-associated Shareholders; or
§ Through the “creep” provisions of the Code which would allow Bright to increase its voting control by up to 5% in any 12-month period after 12 months following the allotment of shares under the Bright Placement.

While Bright could creep without necessarily having to pay a control premium, the Code provides protections to ensure that any other mechanism for obtaining further control would require Synlait to obtain an independent adviser’s report on the merits of the offer including the assessed control value;

Synlait Milk Limited – Independent Appraisal Report Assessment of the Merits of the Bright Placement, a2MC Placement and a2MC Settlement

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Reduced likelihood of a takeover from other parties: any partial or full takeover offer from a third party would require Bright’s acceptance. However, as noted in Section 6.3, moving from a 39.01% shareholding to 65.25% does not dramatically change the current position in this respect;
Inconsistent interests: Bright will have greater control over Synlait’s strategy and plans, business operations, capital structure, dividend policy and financial and operating policies. Bright may apply this control in ways that are not always consistent with the interests of other shareholders; and
Impact on share liquidity: although shareholders will be diluted by the Equity Raising with respect to their relative ownership percentage, Synlait's free float number of shares does not change because the shares owned by Bright and a2MC are not included in the free float calculation. We therefore do not expect that the Bright Placement (and the a2MC Placement) will materially impact on the liquidity for Synlait shares. Liquidity may in fact improve if the Company’s performance and outlook improves as a result of the recapitalisation.

6.7. Likelihood of Bright Placement and a2MC Placement and a2MC Settlement

Being Approved

The Bright Placement and resolution relating to the a2MC Placement and a2MC Settlement are conditional on each other. This means that approval of the Bright Placement will only occur if the resolution in relation to the a2MC Placement and a2MC Settlement is also approved (and vice versa).

As Bright can vote on the resolution relating to the a2MC Placement and a2MC Settlement and has confirmed that it intends to vote in favour, it is highly likely that the resolution will be approved. This reflects that Bright controls approximately 49% of the shares eligible to vote on the resolution (excluding a2MC’s 19.8%) and a 50% approval threshold is required. Only a small number of shareholders are therefore required to also vote in favour (or not vote at all) for the resolution to be approved.
The outcome of the Bright Placement is less certain. Given that Bright cannot vote on this resolution, a2MC controls approximately 33% of the remaining shares and has confirmed it intends to vote in favour of the Bright Placement. Depending on the level of voting participation from other shareholders, up to approximately 26% of the remaining shares are required to vote in favour for the resolution to pass. This assumes voting participation by 100% of all eligible shareholders, which is highly unlikely. Assuming the level of participation from shareholders other than Bright and a2MC is similar to the turnout for the vote on the Shareholder Loan in July (~69%), approximately 15% of those shareholders are required to support a2MC for the Bright Placement to meet the 50% threshold. We expect that this level of support will be achieved.

6.8. Voting For or Against the Resolutions

Voting for or against both resolutions in respect of the Bright Placement and a2MC Placement and a2MC Settlement is a matter for individual shareholders based on their own views as to business value and future market conditions, risk profile and other factors. Shareholders may need to consider these consequences and consult their own professional adviser if appropriate.

Synlait Milk Limited – Independent Appraisal Report Assessment of the Merits of the Bright Placement, a2MC Placement and a2MC Settlement

Page | 63

Appendix 1. Sources of Information Used in this Report

Other than the information sources referenced directly in the body of the report, this assessment is reliant on the following sources of information:

Synlait’s annual and interim reports and investor presentations.
Discussions with senior personnel of Synlait and its advisers.
Documentation for the Equity Raising and bank refinancing.
Drafts of the Special Notice of Meeting to approve the Bright Placement and a2MC Placement and a2MC Settlement.
Synlait’s FY24 and FY25 budget and Long Range Plan.
Various other documents that we considered necessary for the purposes of our analysis.

Synlait Milk Limited – Independent Appraisal Report Appendix 1: Sources of Information Used in this Report

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Appendix 2. Comparable Company and Transaction Evidence

The tables below summarise selected valuation trading multiples of listed companies that are broadly comparable to Synlait.

Table 21: Listed Australasian and Global Dairy Processing Businesses (NZD)

				EV / EBITDA	EV / EBITDA	EV / EBIT	EV / EBIT	ND /
								FY25F
Company	Country	EV ($m)	Market Cap ($m)	FY24	FY25F	FY24	FY25F	EBITDA
Fonterra	New Zealand	11,409	7,007	5.4x	6.2x	7.8x	10.0x	2.3x
Bega Cheese	Australia	1,970	1,451	10.8x	9.2x	24.0x	17.5x	1.3x
Saputo	Canada	19,473	15,280	11.7x	9.7x	17.6x	14.8x	1.8x
Savencia	France	2,652	1,218	3.2x	3.0x	6.6x	6.0x	1.0x
KerryGroup	Ireland	31,043	27,907	13.5x	12.4x	17.8x	16.0x	1.3x
China Mengniu	HongKong	17,699	10,693	7.9x	7.2x	11.2x	10.2x	2.1x
Yili	China	39,043	35,126	9.2x	9.0x	12.1x	12.1x	0.7x
Average				8.8x	8.1x	13.9x	12.4x	1.5x
Median				9.2x	9.0x	12.1x	12.1x	1.3x

Source: CapitalIQ, Northington Partners’ estimates, 19 August 2024 Note: ND / EBITDA - Estimated EBITDA stated on IFRS-16 basis while borrowings excluded IFRS-16 lease liabilities consistent with Synlait’s current bank covenant definition. Fonterra Enterprise Value based on Fonterra Shareholders’ Fund unit price rather than Fonterra Cooperative Group share price due to the inherent “restricted market discount” in the co-operative shares.

Table 22: Listed Consumer Goods, Nutrition and Ingredient Businesses (NZD)

					EV / EBITDA	EV / EBIT	EV / EBIT	ND /
Company	Country	EV ($m)	Market Cap ($m)	FY24	FY25F	FY24	FY25F	FY25F EBITDA
a2MC	New Zealand	4,851	4,533	15.4x	13.1x	17.9x	14.2x	nm
Ausnutria	HongKong	822	709	4.8x	4.0x	8.8x	7.1x	0.4x
H&H	HongKong	3,020	1,196	5.7x	5.3x	6.7x	6.2x	3.1x
Abbott	United States	333,674	320,613	18.8x	17.3x	21.5x	19.3x	0.7x
Danone	France	89,501	71,055	10.6x	10.2x	13.9x	13.1x	1.9x
Nestle	Switzerland	564,762	450,027	15.0x	14.3x	18.3x	17.4x	2.9x
Reckitt	United Kingdom	80,717	63,372	10.0x	9.6x	11.3x	10.9x	1.9x
Wilmar	Singapore	57,329	24,449	9.0x	8.6x	13.7x	12.8x	4.2x
Average				11.2x	10.3x	14.0x	12.6x	1.5x
Median				10.3x	9.9x	13.8x	13.0x	1.9x

Table 23: Comparable Transaction Multiples

Date	Target	Acquirer	Country of Target	Percent Acquired	EV (NZD, 100% basis)	LTM EV / EBITDA	NTM EV / EBITDA
May-16	Burra Foods Pty. Ltd.	Inner Mongolia Fuyuan FarmingCo.,Ltd.	Australia	79%	427	13.5x1
Feb-14	Warrnambool Cheese And Butter FactoryCompanyHoldings Ltd.	Saputo Inc.	Australia	88%	644	16.7x	12.4x
Dec-11	Tatura Milk Industries Pty. Ltd	Bega Cheese Limited	Australia	30%	-	6.3x2
Mar-21	Open Country Dairy Limited	Talley's Group Limited	New Zealand	15%	646	4.9x
Jan-21	Lion-Dairy & Drinks Pty Ltd	Bega Cheese Limited	Australia	100%	562	10.0x3
Mar-15	Goodman Fielder Limited (nka:Goodman Fielder Pty Ltd.)	First Pacific Company Limited; Wilmar International Limited	Australia	90%	1,976	8.6x	7.6x
	Mean					10.0x	nm.
	Median					9.3x	nm.

Source: CapitalIQ company announcements, Northington Partners’ estimates, 26 July 2024 1,2 Grant Samuel Independent Expert Report (March 2018)

3 Bega Foods Investor Presentation (November 2020)

Synlait Milk Limited – Independent Appraisal Report Appendix 2: Comparable Company and Transaction Evidence

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Synlait Milk Limited – Independent Appraisal Report Appendix 2: Comparable Company and Transaction Evidence

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Appendix 3. WACC Input Parameters

Table 24 summarises the inputs used for deriving the WACC range for Synlait’s Dunsandel business. A further specific equity risk premium of 2% was applied to estimate the WACC for Synlait’s North Island Business. We note that these inputs would not necessarily reflect WACC parameters applied by Synlait for impairment testing or asset valuations for financial reporting.

Table 24: WACC Parameters

Table 24: WACC Parameters
Parameter	WACC Inputs	Description
Leverage	35%	Based on our estimate of the appropriate long-term target
(Wd / Wd + We)		gearing for a company such as Synlait
Risk Free Rate	4.7%	The prevailing 10-year government bond rates in New Zealand
(Rf)		(based on the average between April 2024 and July 2024)
Corporate Tax Rate (T)	28%	The prevailing corporate tax rate in New Zealand
Cost of Equity:
CAPM Model Structure	Simplified Brennan-	Reflects the cost of equity model predominantly used in the
	Lally	New Zealand market.
Unlevered Beta (ßa)	0.65 – 0.75	Represents our assessment of the systematic risk for Synlait
		considering its risk profile relative to the asset betas for a range
		of comparable companies assessed.
Levered Beta	1.00 – 1.15	Unlevered beta range adjusted using (1 + D/E)ßa
(ße)
Equity Market Risk Premium (MRP)	7.0%	Our view of the equity market risk premium is consistent with
		rates widely adopted by valuation practitioners in New Zealand
		(including the New Zealand Commerce Commission)
Equity Risk Premium (Pe)	2.9% - 3.2%	A company specific risk premium has been included to reflect
		the additional uncertainty associated with Advanced Nutrition
		volumes and presumed customer continuity incorporated into
		the DCF model and inherent unsystematic risks not captured in
		the company cash flows
Cost of Equity	13.2% - 14.6%	Based on standard form of the CAPM model for the New
(Ke)		Zealand marketRf(1 – T) +ße(MRP) + Pe
Debt Premium	3.0% - 3.25%	Reflects our assessment of Synlait’s debt margins under non-
		distressed conditions, the credit margins for comparable
		issuers, the margin differential between reference 10-year
		swap rates and government bond yields and debt issuance
		costs (20bp)
Pre-tax Cost of Debt (Kd)	7.7% - 7.9%	Equal to the risk-free rate plus the debt premium
WACC	10.5% - 11.5%	*WACC = Kd Wd * (1 – T) + Ke * We**

Source: Northington Partners’ Analysis

Synlait Milk Limited – Independent Appraisal Report Appendix 3: WACC Input Parameters

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Appendix 4. Declarations, Qualifications and Consents

Declarations

This report is dated 20 August 2024 and has been prepared by Northington Partners at the request of the independent directors of Synlait to fulfil the requirements of the Code and NZX Listing Rules. This report, or any part of it, should not be reproduced or used for any other purpose. Northington Partners specifically disclaims any obligation or liability to any party whatsoever in the event that this report is supplied or applied for any purpose other than that for which it is intended.

Prior drafts of this report were provided to Synlait for review and discussion. Although minor factual changes to the report were made after the release of the first draft, there were no changes to our methodology, analysis, or conclusions.

This report is provided for the benefit of shareholders not associated with Bright or Bright’s representatives on the Synlait board in relation to Resolution 1 and for the benefit of shareholders not associated with a2MC in relation to Resolution 2. Northington Partners consents to the distribution of this report to those people.

Our engagement terms did not contain any term which materially restricted the scope of our work.

Qualifications

Northington Partners provides an independent corporate advisory service to companies operating throughout New Zealand. The company specialises in mergers and acquisitions, capital raising support, expert opinions, financial instrument valuations, and business and share valuations. Northington Partners is retained by a mix of publicly listed companies, substantial privately held companies, and state-owned enterprises.

The individuals responsible for preparing this report are Greg Anderson B.Com, M.Com (Hons), Ph.D and Jonathan Burke B.Com (Hons), BCM. Each individual has a wealth of experience in providing independent advice to clients relating to the value of business assets and equity instruments, as well as the choice of appropriate financial structures and governance issues.

Northington Partners has been responsible for the preparation of numerous independent reports in relation to takeovers, mergers, and a range of other transactions subject to the Takeovers Code and NZX Listing Rules.

Independence

Other than other independent roles with Synlait, Northington Partners has not been previously engaged by Synlait or (to the best of our knowledge) by any other party to the Equity Raising in relation to any matter for the Equity Raising or a2MC Settlement that could affect our independence. None of the Directors or employees of Northington Partners have any other relationship with any of the directors or substantial security holders of the parties involved in the Equity Raising.

This report comprises both an Independent Appraisal Report under the Code and an Appraisal Report for the NZX Listing Rules and along with the Appraisal Report in relation to the Bright Shareholder Loan comprised one engagement with Synlait. The preparation of this report will be Northington Partners’ only involvement in relation to the Equity Raising. Northington Partners will be paid a fixed fee for its services which is in no way contingent on the outcome of our analysis or the content of our report.

Northington Partners does not have any conflict of interest that could affect its ability to provide an unbiased report.

Disclaimer and Restrictions on the Scope of Our Work

In preparing this report, Northington Partners has relied on information provided by Synlait. Northington Partners has not performed anything in the nature of an audit of that information, and does not express any opinion on the reliability, accuracy, or completeness of the information provided to us and upon which we have relied.

Northington Partners has used the provided information on the basis that it is true and accurate in material respects and not misleading by reason of omission or otherwise. Accordingly, neither Northington Partners nor its directors, employees or agents, accept any responsibility or liability for any such information being inaccurate, incomplete, unreliable or not soundly based or for any errors in the analysis, statements and opinions provided in this report resulting directly or indirectly from any such circumstances or from any assumptions upon which this report is based proving unjustified.

We reserve the right, but will be under no obligation, to review or amend our report if any additional information which was in existence on the date of this report was not brought to our attention, or subsequently comes to light.

Synlait Milk Limited – Independent Appraisal Report Appendix 4: Declarations, Qualifications and Consents

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Synlait Milk Limited – Independent Appraisal Report Appendix 4: Declarations, Qualifications and Consents

Page | 69

Indemnity

Synlait has agreed to indemnify Northington Partners (to the maximum extent permitted by law) for all claims, proceedings, damages, losses (including consequential losses), fines, penalties, costs, charges and expenses (including legal fees and disbursements) suffered or incurred by Northington Partners in relation to the preparation of this report, except to the extent resulting from any act or omission of Northington Partners finally determined by a New Zealand Court of competent jurisdiction to constitute negligence or bad faith by Northington Partners.

Synlait has also agreed to promptly fund Northington Partners for its reasonable costs and expenses (including legal fees and expenses) in dealing with such claims or proceedings upon presentation by Northington Partners of the relevant invoices.

Synlait Milk Limited – Independent Appraisal Report Appendix 4: Declarations, Qualifications and Consents

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Registered Office

1028 Heslerton Road Rakaia, RD13 New Zealand

+64 3 373 3000 [email protected] synlait.com

Auditor

PricewaterhouseCoopers PwC Centre Level 4 60 Cashel Street PO Box 13244 Christchurch 8013 New Zealand

Share registrar

Computershare Investor Services Limited Private Bag 92119 Auckland 1142 Level 2 159 Hurstmere Rd Takapuna Auckland 0622 New Zealand

0800 650 034 / +64 9 488 8777 [email protected]

Further information online

Our Annual and Interim Reports, all our core governance documents (including our Existing Constitution, some of our key policies and charters), our investor relations policies and all our announcements can be viewed on our website: www.synlait.com/investors/

Lawyers

Bell Gully Deloitte Centre / Bell Gully Building 1 Queen Street / 40 Lady Elizabeth Lane Auckland / Wellington New Zealand

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B CORP[TM] CERTIFIED

Synlait’s commitment to elevating people and planet to the same level as profit was recognised in June 2020 when it became part of the B Corp[TM] community.

B Corp[TM] is a community of leaders driving a global movement of people using business as a force for good.

Certified B Corporations[TM] consider the impact of their decisions on their workers, customers, suppliers, community, and the environment.

B Corp[TM] resonates strongly with Synlait’s purpose of Doing Milk Differently For A Healthier World.

SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

114

AI assistant

SYNLAIT MILK LIMITED — Proxy Solicitation & Information Statement 2024

65817_rns_2024-08-19_ad38d4e2-1161-40d4-9512-d85770d9b28a.pdf

SYNLAIT MILK LIMITED

NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

You are invited to Synlait Milk Limited’s (Synlait) Special Shareholders’ Meeting on Wednesday, 18 September 2024 at 9.00am (NZST).

KEY DATES AND TIMES (NZST) :

RESOLUTIONS

a2MC Placement and a2MC Settlement – Ordinary Resolution 2

Constitution Amendments – Special Resolution 1

IMPORTANT INFORMATION

Purpose of this Notice of Meeting

Voting/Proxy Form

Sold your shares?

Your decision

Forward looking statements

Additional information available under Synlait’s continuous disclosure obligations

Effect of rounding

Defined terms

Currency

NZ RegCo

Date of this Notice of Meeting

QUERIES:

1. KEY DATES

2. LETTER FROM THE CHAIR

20 August 2024

Dear shareholders

Reset of Synlait’s balance sheet

Importance of the resolutions

Key terms of the Bright Placement

Key terms of the a2MC Placement and the a2MC Settlement

Use of proceeds

Approvals required

Independent Report

Synlait’s long-term strategy

Voting intentions of major shareholders

Recommendation in relation to the Bright Placement, the a2MC Placement and the a2MC Settlement

Recommendation in relation to the Constitution Amendments

3. BRIGHT PLACEMENT

Premium for control

Bright Deed Poll

Impact on Bright’s shareholding and control rights

Change of control under Synlait agreements

Synlait’s listed bonds

STATEMENT FROM BRIGHT:

BRIGHT’S STRATEGIC INVESTMENT IN SYNLAIT’S FUTURE

4. a2MC PLACEMENT AND a2MC SETTLEMENT

a2MC Placement

a2MC Settlement

Key terms of the a2MC Placement

a2MC Deed Poll

Key terms of the a2MC Settlement Deed

5. OTHER IMPORTANT INFORMATION

Impact on shareholding percentage and equity value

Bank Refinancing

Proposed Bank Refinancing terms

Key risks

Equity raise provides insufficient capital for the business

Refinancing risk

Shareholders’ equity value deteriorates as a result of a decline in Synlait’s market share price

As a controlling shareholder, Bright may take Synlait in a different direction

The settlement with a2MC makes Synlait more reliant on a2MC

New disputes emerge with a2MC

Milk supply

Adverse impact on customer and supplier relationships

Material uncertainties relating to going concern

Securities law and continuous disclosure

6. FREQUENTLY ASKED QUESTIONS

7. NOTICE OF SPECIAL SHAREHOLDERS’ MEETING

Resolutions

Bright Placement – Ordinary Resolution 1

a2MC Placement and a2MC Settlement – Ordinary Resolution 2

Constitution Amendments – Special Resolution 1

Voting Intentions

Conclusion from Independent Report

How to cast your vote

2. Proxy appointment

Webcast

Procedural notes

Shareholder questions

SYNLAIT MILK LIMITED Proxy Solicitation & Information Statement 2024