Has Synlait been rehabilitated?

Synlait Milk is back in the black. Photo / NZME

After its near-death experience in 2024, Synlait Milk is back in the black.

The company’s first-half earnings before interest, taxes, depreciation, and amortisation (ebitda) came in at $63.1 million – just over the company’s previously advised guidance of $53m to $63m.

The dairy processor also reported a net profit after tax of $4.8m for the six months to January 31, up from a $96.2m net loss in the previous comparable period.

The Herald asked acting chief executive Tim Carter if, after the big losses of 2024, the company had been rehabilitated.

“Given the position that Synlait was in 12 months ago, a result like this is a considerable commercial achievement,” Carter said.

“But we are not getting ahead of ourselves - we have momentum and progress, which is encouraging.

“I think we have gone a long way down the rehabilitation journey but we have work to do - we don’t want to yoyo up and down.”

Carter said the strong result was driven by nutrition - mostly infant formula - and by the addition of new customers.

Yet the under-utilisation of Synlait’s near-new plant at Pōkeno remains the company’s Achilles heel.

Carter said volume through the plant had been encouraging. “But it needs a lot more to be able to be driven positively back into the business.”

Net debt was $391.9m. Synlait is targeting net debt of $250m to $300m by the year’s end.

The company makes infant formula for a2 Milk and supplies products to Abbott Nutrition, but Carter says it has taken on another major customer, which he wouldn’t name due to confidentiality.

Looking out to 2026, Synlait had entered trials to commit to two other potential clients, in line with its plan to diversify its client base.

Synlait has suffered a string of losses. Photo / File

In its result, the once-cash-strapped milk processor said revenue was $916.8m, up 16%.

The forecast base milk price for 2024-25 is $10/kg of milksolids, with additional premium payments available to suppliers without a “cease” notice, taking the total forecast average milk payment for Synlait suppliers to $10.48/kg.

Forsyth Barr senior analyst Matt Montgomerie said it was a strong turnaround.

“If you had asked me what I would have expected six months ago, it wouldn’t have been as strong as what they have delivered today.

“The turnaround is under way.”

Montgomerie said the primary strength was coming out of the nutritional business, which would be a function of a strong performance from a2 Milk - Synlait’s biggest customer - which in turn had been performing strongly in China.

A2 Milk - which owns just under 20% of Synlait - wants to lessen its reliance on Synlait, its sole supplier of formula.

“There are still risks for Synlait in the context of possibly losing volumes from a2 Milk over time as they execute on their strategy, and the diversification that Synlait needs to do to offset that, but it’s a good set of numbers,” Montgomerie said.

However, he said Synlait’s net debt level was disappointing.

“There is still quite a bit of debt on the balance sheet for the size of the company.

“We think the [debt] worries are largely off the table, but there is still a fair bit of work to do to get debt levels down to a sustainable level.”

Synlait - like its far larger competitor Fonterra - is grappling with a high $10/kg of milksolids milk price as milk represents their biggest input cost.

Given the gravity of Synlait’s problems - which necessitated a big capital raise and share placement last year - Montgomerie said the company had done a good job.

“I don’t want to be dismissive of the work that still needs to be done, but to get to this position versus where they were nine months ago is a good outcome.”

Looking ahead, Synlait said financial progress made in the second half of 2025 would be slower than in the first half as Synlait balances several opportunities and risks related to milk stream returns and cost improvements.

Synlait delivered a confident message on milk supply after farmers threatened to leave the company with “cease” notices when it went deeply into the red.

But Montgomerie said the company had delivered a confident message that the fears of losing milk supply were relatively small.

“They have said they are very comfortable with supply for the full year 2026 and that the majority of the South Island farmers are not under ‘cease’ anymore.”

Mohandeep Singh, portfolio manager at Craigs Investment Partners, said now that Synlait looked to be on a more even footing, there was a question of where future growth would come from.

Synlait’s share price dropped after the result but has nevertheless gained about 27% over the last 12 months.

“It [the share price'] has had a solid run on the back of this expected improvement, but the valuation isn’t super cheap anymore so it will come back into the realm of being compared to other investment opportunities in the market.

“On that basis, it isn’t as compelling as it once was,” Singh said.

Harbour Asset Management senior research analyst Oyvinn Rimer said most parties with a financial interest in Synlait will be quite relieved to see the improvements.

“They are doing the basics better, managing the cost base, and manufacturing better, which is what you want to see from a company that has really struggled,” Rimer said.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.