Monday, April 22, 2024

Synlait pins hopes on a busier Pōkeno

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Increasing use of the facility is a priority, company tells investors.
Synlait has matched Fonterra’s farm gate milk price for the 2022-23 season, at $8.22/kg milksolids.
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Synlait’s senior management believes that adult nutrition is the next growth opportunity and where a third major multinational partner may be found.

At an investor day held at Synlait’s northern processing plant in Pōkeno, on the Bombay Hills south of Auckland, the company said that increasing use of the comparatively new facility is a priority.

Pōkeno already makes advanced nutrition products for cornerstone shareholder and major customer a2 Milk and for the giant Abbott nutrition and healthcare multinational.

Dairy-base is made for a2 infant formulas and soy-base and hybrid powders for Abbott, but Pōkeno is capable of much more volume.

Adult nutrition offers synergies with infant capability and is a growing demographic. Foodservice, in particular cream products to China and southeast Asia, represent another strong growth opportunity, chief executive Grant Watson said.

The first main product is Joyhana UHT cream, and butter and cream cheeses have been identified as expansion opportunities.

Equity analysts from Forsyth Barr, who attended the investor day, said Fonterra had been making and selling these products for years and achieving Asia Pacific foodservice gross margins of $1000 a tonne.

“Given Fonterra’s superior pricing, strong market position and wider product range, we assume this is a near-best case scenario for Synlait,” they said.

Forsyth Barr said Synlait is obliged to repay $130 million in bank debt by March next year and $180m of retail bonds by December 2024.

Those requirements appear to have become harder to achieve as the dairy processing industry copes with lower market prices and that issue brings out opportunistic offers for the Dairyworks subsidiary sale.

“Should Dairyworks not be sold, Synlait alluded to all options being on the table, including equity raising, alternative debt options, selling key assets, Pōkeno or Dunsandel, and bringing in a strategic investor,” Forsyth Barr said.

Watson said Synlait has maintained its share of New Zealand milk production at 4% over recent years, while total milk output is flat and the number of processors is rising.

It continues to provide a competitive, transparent milk price with a favourable advance rate and no supply share requirement.

Synlait is currently paying an advance rate based on a seasonal forecast of $7/kg of milksolids, a forecast reduced by $1 since it was first issued in May.

In the past month the company’s share price has traded in a band of $1.25 to $1.40, but this is well down from the level around $3.50 last summer.

It is in arbitration with a2 Milk over the recent cancellation of exclusive manufacturing agreements for a2 Platinum infant formula.

That capability will be shifted over time to a2’s plant in Mataura Valley, Southland.

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