Synlait back in black, paints cautious earnings outlook

Synlait Milk is back in the black after a year of refocusing its business. Photo / NZ Herald

Dairy company Synlait Milk 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 infant formula company a2 Milk, reported a net profit of $38.5 million compared with a loss of $28.5m in the previous year, which was driven by a sharp drop in infant formula sales.

Synlait's EBITDA recovered by $91.8m in the July year to reach $129.1m.

The company's balance sheet returned to normal metrics with a net debt to EBITDA ratio of 2.6 times, enabled by strong operating cashflows and inventory reduction.

Synlait's revenue was up 21 per cent to $1.66 billion.

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

Synlait said it intends to exit full year 2023 and enter 2024 with a similar level of profitability experienced before 2021.

However, the company said it was managing several risks, including, but not limited to, China's SAMR registration timeline, 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.

Last year, Synlait appointed Grant Watson, from Taupo-based Miraka, as its chief executive to replace John Penno, who had been filling in since the departure of Leon Clement.

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

Commercial production is due to start in early 2023 for Synlait Pokeno's multinational customer, which the company has not named.

The company launched a foodservice cream in China under the Joyhanan brand in partnership with Savencia Group.

Penno, speaking as chairman, said the year had been an important period of refocusing for the company.

"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," he said.

"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.

Watson said Synlait was well-positioned as it entered its second year of recovery.

"We have progressed our strategy, structure, capability, and culture and lifted our execution, but there is much more to do," he said.

Tight global milk production and solid demand for dairy resulted in Synlait's forecast average base milk price remaining at $9.50 per kgMS for the current 2022/2023 season.

The company's management of the ingredients business would continue without some of the one-off foreign exchange gains experienced in 2022.

Milk will be diverted to produce higher-margin products in the advanced nutrition and foodservice businesses, it said.

The company's shares last traded at $3.53 - down 3 cents from Friday's close.

Synlait is 20 per cent owned by a2 Milk.