The bullwhip effect that led to Synlait Milk’s (NZX:SML) losses

Highlights

  • Synlait announces the biggest loss in years in its annual report.
  • Strategies being drawn to identify the road to recovery.
  • The bullwhip effect from December 2020 cited as the reason for the loss.

Of late, Synlait Milk Limited (NZX:SML) (ASX:SM1) released its annual results of FY21. While the revenue recorded was NZ$1367.3 million, which was 5% up from pcp, the EBITDA took a hit at NZ$37.3 million, down by 78% from pcp and the NPAT was NZ$28.5 million, down by 138% from pcp.

Having been an exceptionally difficult year for the Company, there was a lot of impact from uncertainties that COVID-19-related restrictions brought along. While the nutritional sales were seen down to 34,362 MT, 35% lower than pcp, the ingredient sales were seen up by 29% at 125,914 MT.

Synlait Milk’s fundamentals

Image source: © 2021 Kalkine Media New Zealand Lt; data source: Refinitiv

The bullwhip effect

The Company explained how the result had been the largest financial loss recorded by them after nine profitable back-to-back years.

After The a2 Milk Company’s Forecast volume reduction that occurred in December 2020, things changed drastically for Synlait.

This is because the outlook for demand and inventory levels had to be re-managed. This is something known as the Bull-Whip effect, and corrective measures for the same in Q4 of FY21 will mean the Company is back on track and positioned for growth in the future.

Read now: Synlait Milk gives a nod to new funding arrangements

Related figures

The net debt for the period was down by 9% at NZ$479.4 million, while the operating cash flow was at NZ$15.9 million, down by 85% from pcp. The Capital expenditure was down by NZ$140.4 million, down by 7% from pcp.

Read now: Synlait (NZX:SML) proposes organisational restructure

New CEO announcement

Another announcement made in the annual report was that Grant Watson had been appointed as CEO of the Company.

Bringing years of experience in the industry to the table, Grant has worked with the likes of Miraca, Fonterra and McDonald's in the past, understanding the nitty-gritty of the trade.

Also read: Look at 4 NZX dairy stocks amid dairy price rise

On 27 September 2021, the stock last traded at NZ$3.560, up by 7.88%, at the time of market close.

Bottom Line

The Company has strategised its moves for the future, keeping in mind how uncertainties should keep affecting trade for the upcoming five years.

This new plan of action shall be considerate of all affecting factors and help develop a strategy that actually helps the company recover losses and make gains in the future.

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