Synlait Milking Turnaround for All it Can

The recovery in the fortunes of dairy companies on both sides of the Tasman continues with news from NZ-based Synlait Milk of a strong earnings result for the year to July 31.

Synlait joins similar solid rebound results from the industry giant Fonterra and A2 Milk.

Synlait said there had been a “robust” return to profitability after a year of cost-cutting and building up its most profitable business segments.

The company, whose biggest customer is a2 Milk, reported a net profit of $NZ38.5 million compared with a loss of $NZ28.5m a year earlier which was thanks to a sharp drop in infant formula sales.

Synlait said its EBITDA recovered by $NZ92 million to $NZ129.1 million for the year to July 31.

Revenue jumped 21% to $NZ1.6 billion and net debt at July 31 fell 29% to $NZ342 million.

Investors though were not entertained and sent the shares down more than 4% to $A3.03 on a generally up day for the ASX.

CEO Grant Watson said in the release that the company was “well positioned as we enter the second year of our recovery. We have progressed our strategy, structure, capability, and culture and lifted our execution, but there is much more to do.”

“Seeing the outcomes of our financial and strategic reviews come to fruition sooner than expected in the face of a challenging trading environment has been pleasing. Continuing to strengthen our foundations over the next year will ensure we keep improving our financial performance for shareholders and continue making Synlait a great place to work for our team.”

By the end of 2023, Synlait said it will have completed its two-year recovery plan.

Synlait said it intends to finish the 2023 on July 31 next year and start its 2024 year with a similar level of profitability experienced before 2021’s downturn.

However, the company said it was managing several risks, including, but not limited to, China’s SAMR registration timeline (that’s China’s State Administration for Market Regulation), a tight labour market, high inflation, and supply chain pressures.

“All of which could materially impact the company’s current 2023 guidance,” the company said.

In 2021, Synlait appointed Grant Watson as its CEO to replace John Penno, who had been filling in since the departure of Leon Clement and retains the chairman’s role at the company.

The company said it had reviewed its strategy and had completed its executive leadership team structure.

In Tuesday’s statement Dr Penno said 2021-22 had “been an important period of refocusing. We have ensured Synlait has the right team, is focused on the right opportunities, and has the right resources to succeed.”

“While rebuilding revenue, reducing unnecessary costs, releasing working capital, and decreasing capital expenditure, we have focused on building scale and capability in the highest returning segments available to the New Zealand dairy industry.

“Our Ingredients business returned to its historical profitability, and our Nutritionals business returned to growth, while we continued to invest in customer development across all business units,” he said.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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