Synlait Milk Limited (NS) Analysis

Overview

About Synlait

At Synlait we combine expert and sustainable farming practices with state-of-the-art manufacturing processes to produce a range of nutritional milk products that provide genuine benefits for human health and wellbeing.

Our purpose Doing Milk Differently For A Healthier World is driven by being different, essential nutrition and sustainability. Our disruptive, innovative spirit combined with resolute determination to do the right thing for planet and people sets us apart from the competition.

Founded in 2000, Synlait is based in Dunsandel, Canterbury and employs more than 1,000 people.

Synlait listed on the NZX in July 2013. This was followed by a compliance listing on the ASX in November 2016. In 2019, Synlait joined the NZX Debt Market, issuing NZ$180 million of unsecured, subordinated, fixed rate bonds.

Our locations

Today we have eight sites based across seven locations in New Zealand and China:

• Auckland: blending and canning facility
• Pokeno: second infant-capable manufacturing facility
• Palmerston North: research and development centre at Massey University
• Christchurch: administration office and Dairyworks
• Dunsandel: fully integrated manufacturing facility and administration office
• Temuka: Talbot Forest Cheese manufacturing
• Shanghai: sales office

Our products

We produce a range of added-value milk powders and nutritional products, such as retail-ready infant formula. Our customers are leading global health and nutrition companies, with established brands and strong retail distribution channels.

In early April 2019 we began manufacturing fresh milk and cream in our newly commissioned Advanced Liquid Dairy Packaging Facility at Dunsandel.

As part of our Everyday Dairy growth strategy, Talbot Forest Cheese joined the Synlait family in August 2019, followed by Dairyworks in April 2020. Talbot Forest Cheese (a speciality cheese manufacturer and distributor) is based at Temuka in South Canterbury and Dairyworks (supply iconic and much-loved New Zealand brands to the consumer and foodservice markets) in Christchurch.

Our farmer suppliers

Synlait has a network of nearly 300 farmer suppliers in two of New Zealand?s major dairy farming regions; Canterbury and Waikato.

Our Synlait journey begins on farm with top quality milk and continues throughout its manufacturing and supply chain process to its customers, and then onto their consumers. As a key part of that journey, Synlait is proud of its certified best-practice dairy farming programme, Lead With Pride(TM) which supports its farmer suppliers to achieve farming excellence.

For more information about Synlait, visit: www.synlait.com

Performance

The following information was extracted from Synlait Milk Limited's full year results, released on 30 September 2024:

During the year, Synlait recognised a total non-cash impairment charge of $114.6 million against its long-term assets. The impairment charge has been driven by a revised view of future demand phasing and continued underutilisation of the North Island facilities.

• Total Group revenue up 2% to $1.64 billion.

• Earnings before interest, taxes, depreciation, and amortisation (EBITDA) was ($4.1 million). Adjusted EBITDA was $45.2 million.

• Net loss after tax was ($182.1 million). Adjusted net loss after tax was ($60.4 million).

• Total Group gross profit down 61% to $56.0 million.

• Operating cashflow down 221% to ($47.2 million).

• Capital expenditure down 53% to $30.5 million.

• Net debt up 33% to $551.6 million.

• Base milk price is $7.83 per kgMS for the 2023 / 2024 season. In addition, an average of $0.28 per kgMS was paid for incentives, taking the total average milk payment to $8.11 per kgMS.

FY24 key achievements

Material progress in FY24 will enable Synlait to focus on further lifting performance and returning to profitability.

• Much-needed balance sheet reset delivered

Two-step plan (shareholder loan and equity raise) delivered underpinned by bank refinancing.

• Synlait and The a2 Milk Company settle disputes

Resolved all disputes subject to arbitration, including those regarding exclusivity, pricing, and other issues.

• North Island strategic review completed

Operations to solely focus on producing Advanced Nutrition products which do not require raw milk.

• Customer growth continues

Expansion into South East Asia in Advanced Nutrition, Foodservice and Consumer business units.

• Retaining milk supply

Balance sheet reset enables competitive advance rates and additional one-off milk price payments.