- The quality of milk delivered by New Zealand demonstrates its distinctiveness. Therefore, companies like Synlait Milk are into safeguarding the good quality farming and business of the nation.
- Recently, Synlait Milk Limited reported $1.3 billion growth in its revenue for the FY20; the Company believes that its financial performance was resilient, given the prevalent coronavirus crisis.
- Net profit after tax dropped by 9.0 per cent; Synlait Milk’s management stated that it was mainly because of the last two years investments made towards fulfilling its growth aspirations and acquisitions.
- For FY21, the Company projected growth in the second half of the year when the existing stocks would be over, making way for fresh stocks.
New Zealand’s dairy business is a key industry, which generates a substantial export revenue.
On 28 September 2020, New Zealand's infant formula maker Synlait Milk Limited (NZX:SML) released the financial results for the 12 months ended on 31 July 2020.
The Company reported a 27 per cent to $1.3 billion growth in its revenue for the FY20, but annual net profit dropped by 9.0 per cent to $75.2 million.
The management said that the drop in the revenue was due to investments made in the new facilities and acquisitions done over the last two years.
New Zealand based company, Synlait Milk stated that its earnings before interest, taxes, depreciation, and amortisation (EBITDA) was up 13 per cent to $171.4 million.
Graeme Milne, Synlait Milk’s Chair said in the annual report that looking at it from the perspective of the current situation caused by COVID-19, the Company's financial performance was resilient.
The Company’s FY20 financial result reflected a more robust second-half performance. Its total EBITDA of $171.4 million up 13 per cent and total revenue of $1.3 billion up 27 per cent. Total gross profit stood at $203.7 million, up 9 per cent, but it mentioned NPAT of $75.2 million, which was down 9 per cent mainly due to higher depreciation, and financing costs.
A Glance at Recent Acquisitions
Synlait Milk is a stable and an extremely profitable company with a strong EBITDA growth. The recent results showcased the Company's strength from its core businesses, which is infant formula and lactoferrin.
The Company’s Chair, Milne said that its performance reflects its last two years of investments done to achieve growth ambitions. Also, the Company invested in new facilities.
Last year, Synlait Milk also bought Christchurch-based cheese supplier Dairyworks for $112 million. The Company stated that the price while acquiring Dairyworks indicated 7.5 times of its earnings before interest, tax, depreciation and amortisation across the last 12 months.
Synlait Milk has its 39 per cent stocks owned by China's Bright Dairy. It acquired Dairyworks to increase its market share into everyday dairy products.
Synlait Milk also acquired cheesemaker Talbot Forest last year, which included Talbot Forest's assets such as the property and plants. In August 2019, the Company also took control of its equipment from the Temuka site. The consumer cheese brand called Talbot Forest Cheese also went into Synlait’s kitty.
Graeme Milne, Synlait Milk’s Chair commented that its NPAT performance lowered mainly due to the investments made in the new facilities and acquisitions. However, the Company was well-positioned to grow earnings off its current asset base, Milne continued further.
Source: Synlait’s FY20 results, dated 28 September 2020
Focus on Growing in Capacity
Synlait Milk’s Chief Executive Officer, Leon Clement said in the media release that the Company was focused on creating a viable, varied, and persistent earnings base. The before mentioned is likely to occur from the increased customer base and multiple sites, markets, and product categories.
Clement said that the Company was achieving the above mentioned by taking such decisions that balanced the requirements of the consumers, planet earth and profit.
The Company had been fulfilling the shifting consumer's demand during the crisis period brought upon by the coronavirus pandemic. Clement mentioned that their strategy was to build a distinct and robust company. For Synlait Milk it was more relevant, mostly because of the uncertainty looming ahead.
On complementing the workforce at Synlait Milk, Clement said that the team had delivered robust results in this unprecedented time.
Balance people and planet with profit
- Synlait Milk's total revenue was up 27 per cent to $1.3 billion, and consumer-packaged infant formula sales volumes were up 15 per cent to 49,180 MT.
- It's another product Lactoferrin sales volumes were up 46 per cent to 30 MT with the growth in the capacity.
- Notably, during COVID-19 lockdown, both fresh milk sales and cream sales soared 13 per cent.
- Overall, Dairyworks and Talbot Forest Cheese revenue added a whopping $93 million to the Company’s growth.
On the outlook front, Synlait Milk projected Dairyworks and Talbot Forest Cheese to deliver revenues of around more than $250 million for FY21 and in the future. The Company believes that it has demonstrated its capability to maintain operational continuity since the past few months.
Especially, when it comes to the demand of the products it manufactures, the Company expects consumer-packaged infant formula product volumes to stay alike year-on-year. It expects less demand in the first half of the next year, 2021 because there will be higher than the average stock in the supply chain.
Therefore, the Company believes in returning to growth in the second- half of the next year after the stocks get over.
Further, Synlait Milk expects solid underlying EBITDA and operating cash flows for FY21. It primarily projected the growth to come from a full year of Dairyworks earnings. While the Company believes that the integration of Talbot Forest Cheese would also deliver growth to Synlait Milk, it also anticipates no interruption to its production or demand for its ingredient and lactoferrin business.
The media release of the Company stated that the FY21 projections were very much contingent on the volatile impacts presented by the COVID-19 crisis. The pandemic has been changing consumer behaviour and impacting channel dynamics. The situation has severely disrupted the supply chain, thus, FY21 guidance is subject to change as per the above-mentioned factors.
On 29 September, Synlait Milk last traded at $5.41, decreasing by 3.39% from its last close.
(NOTE: Currency is reported in New Zealand Dollar unless stated otherwise)