Synlait Milk says its net loss for 2025 has narrowed substantially. Photo / NZME
After a near disastrous financial performance over the past couple of years, Synlait Milk will soon become debt-free following the sale of its state-of-the-art factory at Pōkeno to Chicago-based Abbott for $307 million.
Synlait’s survival went down to the wire last year before the company undertook a major recapitalisation, which resulted in China’s Bright Dairy’s ownership going from 39% to 65.25%.
Today, Synlait reported that its net loss fell to $39.82m in the July 31 year, down from $182.11m a year earlier.
Had it not been for some “unexpected turbulence” in the second half in the form of “manufacturing challenges” at its Dunsandel operations, which cost $43.5m, the company would have turned in a small profit.
New chief executive Richard Wyeth welcomed the end of the company being in survival mode after some “touch and go” moments over the past 12 to 18 months.
“It [the sale] gives us a bit of freedom to move forward, and the next six months is really about earning the right to grow again,” he said.
The manufacturing challenges came down to a number of “micro” issues.
“It wasn’t just one thing. There were a number of things around, engineering, plants, people and process.
“Everyone has those issues from time to time, when all sorts of things can go wrong.
“It’s not one big thing. There’s been a number of one-offs.
“When you make advanced nutrition, as soon as you have one issue the costs climb very quickly, and then you’ve got to help customers catch up,” he said.
Wyeth said the issues did not hinder Synlait’s trade with infant formula marketer a2 Milk, its biggest customer.
For the moment, Synlait is a2 Milk’s sole supplier of infant formula, but that will soon change as a2 is set to become a manufacturer in its own right following the purchase in August of Yashili’s plant, also at Pōkeno, for $282m.
Synlait has registration from China’s SAMR to make China label formula for a2 Milk.
The licence is due to come up for renewal in 2027 and Wyeth said there’s no reason why the arrangement could not continue beyond that time, assuming the process is successful.
Synlait’s production of English label product will most likely be taken up by a2 Milk’s new plant, but it will still have the opportunity to make it for a2 as well.
While Synlait is on track to being debt-free by the end of 2026, Wyeth said the board was likely to be cautious around any future investments.
As CEO he would make a case for a debt equity ratio of 20% to 25% in future.
The sharemarket welcomed the sale news, Synlait’s shares gaining 11.5c to hit 81.5c by mid-afternoon.
Synlait chair George Adams said the sale to Abbott – already a major customer – was a “defining moment” for Synlait.
“The sale will strengthen the company’s financial position, with the proceeds used to significantly reduce debt,” Adams said.
Bright Dairy had stated it would vote in favour of the transaction.
In its result, Synlait said there had been a 55% reduction in net debt from $551.6m to $250.7m.
Improvements in the trading performance in the year were reflected in unadjusted earnings before interest, tax, depreciation and amortisation (ebitda) increasing by $54.8m on 2024.
The ingredients business turned a $13.5m loss to a gross profit of $13.1m.
There was a 29% increase in Synlait’s advanced nutrition business’ gross profit to $95m.
Synlait’s milk price for the season just ended was $10.16/kg of milk solids – matching market leader Fonterra’s.
Forsyth Barr senior analyst Matt Montgomerie said the asset sale to Abbott was more important than Synlait’s result.
“The $307m is a very solid exit,” he said.
“Yes, it’s below asset value - I’d suggest about 0.8 times its asset value - but considering the Pōkeno plant has clearly been a big challenge and has been loss-making, I think the sales process that they have managed to achieve is a very solid outcome.
“It may help to allay any balance sheet concerns and also removes the losses from that plant,” he said.
The plant – commissioned in 2019/20 – has been a millstone for Synlait from the outset as it has never functioned at full capacity and has always turned in a loss.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.