Synlait reports $4.3m annual loss, expects to improve this year
Tuesday, 26 September 2023
Synlait Milk reported an annual loss in what it says was “an extremely challenging year”, but expects profitability to improve this year.
The Dunsandel, Canterbury-based milk processor turned to a loss of $4.3 million in the year to July 31, from a profit of $38.5m the previous year. The result is at the lower end of Synlait’s guidance that it could report anything from a loss of $5m to a profit of $5m.
“It was an extremely challenging year for Synlait,” said chief executive Grant Watson, who joined the company in January last year. “Some factors were outside our control, and others were within our control.”
Watson cited reductions in customer demand, CO₂ shortages, extreme weather events, the Covid-19 pandemic, and higher costs due to inflation and the company’s new enterprise resource planning system as factors in its poor financial performance.
The company’s net debt rose 21% to $413.5m over the past year. It has $180m of bonds due for repayment in December next year, which it plans to refinance, in part or wholly, with bank debt. The yield on the bonds has spiked to 17.97%, the highest on the market.
Chairperson Simon Robertson said the company will address its balance sheet over the coming year with plans to sell its Dairyworks and Temuka cheese businesses, reduce costs, build on its advanced nutrition and foodservice opportunities and lift its operational performance.
The Dairyworks business has stopped production of yoghurt and spreadable butter to focus on expanding its cheese business, while the Temuka factory remains mothballed, and the company said it was “actively engaged” with several parties on the planned sale.
The company said it would not provide guidance for the coming year, citing uncertainty around broader macroeconomic factors.
“Synlait could still face challenging China market dynamics, softening global conditions more generally, and continued inflationary pressures across its cost base, which could impact future customer demand and the company’s overall profitability,” the company said in a statement.
However, it does expect to report higher earnings before interest, tax, depreciation and amortisation (ebitda) this year as its advanced nutrition volumes grow at its Pokeno factory in Waikato. Ebitda fell 31% to $90.7m in the latest year.
The company said it “remains largely on track” to meet its five-year strategic ambitions out to 2028.
Synlait’s shares gained 1.6% to $1.29 in mid-morning trading on the NZX on Monday. The stock has lost 63% of its value this year.
In the latest year, revenue fell 3% to $1.6 billion.
Revenue from its ingredients business fell 20% to $661m as volumes dropped 18%, advanced nutrition revenue gained 6% to $440m as volumes fell 5%, and consumer revenue increased 6% to $329m as volumes fell 5%.
Synlait recorded $4m of sales from its new Joyhana UHT whipping cream in China, a rival to Fonterra’s product which Synlait said has received positive market feedback and has significant potential for higher sales volumes this year.
Watson spent 10 years at Fonterra where he led the growth of its foodservice business in China, overseeing the successful commercialisation of numerous value-added dairy products – something Synlait hopes to replicate with its own business in the future.
It plans to continue to expand Joyhana within China this year, focusing on bakery, pastry and beverage chains and branching out to selected Southeast Asia markets in the second half of the year.
Synlait is in dispute with its largest customer, specialty milk marketer The a2 Milk Company, which has given Synlait notice of its plans to cancel its exclusive manufacturing and supply agreement for its key infant formula product.
Synlait disputes A2 Milk’s right to cancel the exclusivity arrangements.