Synlait looks to accelerate infant formula business coming off record FY17

By Mary Ellen Shoup

- Last updated on GMT

Synlait aims to expand its infant formula business through entry into new markets and increased production capacity. ©iStock/Magone
Synlait aims to expand its infant formula business through entry into new markets and increased production capacity. ©iStock/Magone

Related tags Infant formula

Ownership of the entire value chain and increased demand for higher-margin products in the infant formula market drove Synlait’s FY17 profit margins up 39%, according to managing director and CEO, John Penno.

The New Zealand company reported its strongest annual fiscal performance with a net profit after tax of NZ$38.2m (US$28.1m) and a revenue increase of NZ$759m (US$558m) for the full year ending July 31, 2017.

“We own and control every step in our value chain, right from differentiating the milk supply behind the farm gate through to managing market access for our customers,”​ Penno said.

“Our attention is on accelerating our infant formula business, and preparing to launch into new high returning dairy categories. We are also working to reinvigorate our ingredients business, and add value by systematically moving our milk products into consumer packaged formats.”

Opportunities in infant formula

Synlait experienced double-digit growth of its infant formula business with profits increasing NZ$10m (US$7.4m) for FY17, and the company has its eye on registering its infant formula in new markets including the US and China.

“We will continue to grow both top and bottom lines at pace. We see considerable opportunities to solidify our current ingredient and infant formula positions, and to enter new categories,”​ Synlait chairman, Graeme Milne, said.

Synlait is looking to taking advantage of the strong market growth of infant formula in China where volume sales are projected to increase at a CAGR of 5.4% between 2016 and 2021 driven by a rising middle class and an emerging “two-child”​ policy, according to Mintel research.

Mintel also found that 65% of survey respondents aged 20 to 39, who use infant milk formula products, claim they have purchased foreign brands over a recent six-month period compared to one-third (33%) who have used infant formula from local brands.

The company is expected to clear its infant formula brands with the China Food and Drug Administration before Jan. 1, 2018.

However, the company has faced a delay in gaining approval from the US FDA​ to sell and distribute its Grass Fed infant formula brand in the US.

“We continue to be excited about the potential of our partnership with Munchkin Inc. and their range of Grass Fed infant formula products,”​ Penno said.

“Once we’ve completed the United States Food and Drug Administration (FDA) registration, it will be one of a very small number of imported infant formulas in that market.”

Operations expansion

The company has plans to acquire a second site for infant formula production in Auckland, New Zealand, to double blending and consumer packaging capacity. Synlait will also make a “substantial investment”​ to double the capacity of its wetmix kitchens in Dunsandel.

“We are also investing in three high specification sachet packaging lines in Dunsandel. In the same way we offer our customers finished infant formula in retail-ready packaging, we will offer a range of modern sachet formats,” ​Penno said.

“Investing in Synlait Auckland and our wetmix facility at Synlait Dunsandel will relieve any capacity constraints for the second half of FY18.”

The company stated that its investment in production facilities will bring more production options and improved quality to its customers.

“These plans will allow us to keep up with medium- to long-term infant formula demand, as well as signal new high-returning product categories we intend to move into in the coming years,”​ Penno added. 

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