Wednesday, December 6, 2023

Synlait results negative across the board

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Second loss in the past three years recorded.
Synlait has matched Fonterra’s farm gate milk price for the 2022-23 season, at $8.22/kg milksolids.
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Synlait Milk’s 2023 financial results were all bad, six out of seven key metrics going downwards and the only increase being debt, which was up 21%.

Losses and reductions were reported in revenue, down 3%, a net loss after tax of $4.3 million, earnings down 3%, gross profit down 2%, operating cash flow down 83% and capital expenditure down 31%.

The loss compared to a profit of $38.5m in FY22 and is the second loss in the past three years.

Synlait also disclosed that is has lost five supply farms to its main Dunsandel processing plant in the South Island and four from the Pōkeno plant in the North Island.

It has 274 supply farms this season in total compared with 283 last season.

Its results presentation did not disclose the major multinational customer for advance nutrition products out of Pōkeno, although there will be an eight-month-postponed investor day at that plant on October 30.

Synlait matched Fonterra’s farmgate milk price for the 2022-23 season, at $8.22/kg milksolids, plus an average incentive payment of 27c for the Lead with Pride scheme.

The forecast payment for the current season is $7 but the company is not prepared to make an earnings guidance for FY24 at this stage.

“Synlait could still face challenging China market dynamics, softening global conditions more generally, and continued inflationary pressures across its cost base, which could impact future customer demand and the company’s overall profitability,” it said in the investor presentation.

However, it does expect advanced nutrition volumes to grow at Pōkeno and earnings performance to improve relative to FY23.

Synlait repeated that it disputes that minority shareholder and long-time customer a2 Milk had the right to cancel its exclusivity agreement concerning the a2 Platinum infant formula base powders.

That issue will go to a disputes procedure and makes no difference to the supply agreement between the two companies at present.

Synlait also holds the licence from China at Dunsandel for Chinese-labelled infant formula, stages 1, 2 and 3, and expects to manufacture those products for a2 Milk for the period of the licence, expiring in September 2027.

Net debt ended FY23 at $413.5m, which was up $71.6m on the previous financial year.

This was due to higher inventory, up 30%, lower operating cash flows and higher interest costs.

Banking facilities have been arranged, led by ANZ with participation by four new banks.

Synlait faces a $130m repayment requirement by March 2024, which it plans to make by selling Dairyworks, the local market products manufacturing division.

The listed company has never paid a dividend and its share price is around $1.30, having fallen about two-thirds from $3.50 over the past year.

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