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 half year results, released on 2 April 2024:

Key financial metrics:

• Revenue up 3% to $793.5 million.
• Earnings before interest, taxes, depreciation, and amortization (EBITDA) was $19.9 million. Adjusted EBITDA was $36.1 million.
• Net loss after tax was ($96.2) million. Adjusted net loss after tax was ($17.4) million.
• Net debt up 8% to $559.0 million.
• Gross profit down 47% to $43.6 million.
• Forecast base milk price for the 2023 / 2024 season is $7.80 per kg/MS up from $7.50 per kg/MS.

The adjusted half-year result was impacted by a less favourable market environment for the ingredients business, unfavourable FX, lower Advanced Nutrition volumes, and higher inventory write-downs, operational expenditure, and financing costs.

Three non-cash items also significantly impacted the HY24 result. We recorded an impairment charge of $50.3 million, which was primarily driven by the underutilisation of our North Island manufacturing facilities. There was a $31.1 million adjustment recorded to write down the net assets of Dairyworks to fair value less costs of disposal to reflect the value of non-binding offers received. Finally, there was a change in the basis of inventory overhead allocation methodology. The change was initially treated and forecasted as a policy change based on external accounting advice received; it was revised to be reflected as a change in estimate based on a technical interpretation of the accounting standards by our auditor, resulting in HY24 NPAT experiencing a non-cash adverse impact of $8.4 million.

A further summary of Synlait’s financial performance can be found in the investor presentation and in the financial statements, released with this announcement.