The 17% revenue gain was not matched by after-tax profit, up 10% to $82.2 million, as overall margins slipped, staff and fixed costs rose as growth projects were developed and the new liquid milk packaging plant at Dunsandel did not perform to expectations.
The consumer-ready infant formula sales rose to 42,907 tonnes, within the company’s guidance of a figure between 41,000 and 45,000.
Total revenue for the year-ended July 31 was $1.024b. Synlait Milk paid an average milk price of $6.58/kg MS during the 2018-19 season. It was made up of a base milk price of $6.40/kg MS and incentive payments of 18c/kg MS.
Key positives for the year were the ongoing infant formula growth, strong efficiency gains and an expansion in lactoferrin capacity and sales, chairman Graeme Milne and chief executive Leon Clement said.
The high-value lactoferrin sales were up 33% to 21 tonnes and powders and cream were up 15% at 106,800/t. Total sales were 149,730/t, a 16% lift.
Though the crucial infant formula margin was higher, total margins slipped by $26/t to $1268/t despite the overall similar product mix.
As well as higher staff expenses the costs of the Lead With Pride programme for milk suppliers were higher and there was a revised pricing agreement with major customer A2 Milk, chief financial officer Nigel Greenwood said.
The advanced liquid dairy unit at Dunsandel, built at a cost of $134m, made a $3.5m loss because of commissioning challenges, Clement said.
The company is working to stabilise its performance.
There is also uncertainty round the new $260m Pokeno processing plant in northern Waikato, for which Synlait has signed up 56 suppliers.
Construction continues as planned but Synlait is in dispute with a neighbouring landowner over covenants on the property. A Supreme Court oral hearing will be held on October 21.
Milne acknowledged the issue has negatively affected Synlait’s share price. The company has made a “reasonable settlement offer” and remains comfortable with its legal position as it works to either a settlement or a court outcome.
Directors believe the legal exposure is not substantial and have determined no provision is required in the annual accounts and the auditors agree.
Synlait said a fourth dry store will be built at Dunsandel to streamline logistics, move all off-site South Island storage back to Dunsandel and support future growth. The $30m project should be completed by September next year.
Milne and Clement said the 2020 financial year is expected to continue the strong momentum of the latest second-half trading period, in which 24,932/t of consumer-ready infant formula was sold. There will also be a full year of the liquid milk packaging plant and the expanded lactoferrin plant, first sales of long-life milk products and a contribution from the Pokeno plant.
Synlait is confident the new Pokeno plant will be commissioned and take in its first milk later this month, Clement said.