Synlait doubles profit and takes over cheese company

By Jim Cornall

- Last updated on GMT

The company said top line revenue increased from NZ$759m (US$502m) to NZ$879m (US$581m).
The company said top line revenue increased from NZ$759m (US$502m) to NZ$879m (US$581m).
Synlait has reported a net after tax profit of NZ$74.6m (US$49.3m) for the year ending July 31, 2018, almost double the NPAT of NZ$39.5m (US$26.1m) announced for the same period last year.

The company said an increase in finished infant formula sales helped to drive the profit, which was enabled by investments in the blending and consumer packaging space.

Graeme Milne, chairman, said, “In November 2017 we completed our second Dunsandel wetmix kitchen, and the same month commissioned our Auckland blending and consumer packaging facility. Both these projects have allowed us to increase our finished infant formula capacity.”

Synlait also announced it has entered into a conditional agreement to acquire selected Talbot Forest Cheese assets. This includes property, plant and equipment at a new 12,000 MT Temuka site, the consumer cheese brand (Talbot Forest Cheese) and customer relationships.

Synlait’s new CEO, Leon Clement, said, “The proposed acquisition builds on our existing portfolio of high-quality, flexible dairy manufacturing capabilities that can be tailored to meet customer needs.”

The company said top line revenue increased from NZ$759m (US$502m) to NZ$879m (US$581m).

Milk price

Synlait’s final average total milk price for FY18 has been announced at NZ$6.78 (US$4.48) per kilogram of milk solids (kgMS). This includes a base milk price of NZ$6.65 (US$4.40) per kgMS and seasonal and average value-added incentive payments of NZ$0.13 (US$0.09) per kgMS.

The forecast milk price for the current 2018/19 season is now NZ$6.75 (US$4.46) kgMS, which Synlait said is in response to declining commodity prices.

Synlait’s Lead With Pride program also received a boost under the new sustainability strategy by introducing greenhouse gas (GHG) emissions targets, as well as an extra incentive offered for those whose farms are palm kernel expeller (PKE) free.

Director of sustainability and brand, Hamish Reid, said, “We want to achieve on-farm reduction of GHGs by 35% per kgMS, reduce water consumption by 20% per kgMS and reduce nitrogen loss by 45% by 2028.”

Ingredients and formula

Synlait’s ingredients business continues to focus on added value sectors and clients globally, with an emphasis on tailor-made production and customer service.

Improving year on year margin performance of Synlait’s ingredients business also reflects greater plant throughput and these ongoing improvements will result in further operational efficiency gains in FY19, the company said.

Synlait’s partnership with The a2 Milk Company (a2MC) has continued to grow and an extended supply agreement signed in July provides Synlait with a minimum five-year term through to July 2023. Synlait will continue as the exclusive manufacturer of the a2MC’s infant formula for the Australia/New Zealand and China markets.

Synlait has been working to secure product registration in China for New Hope’s Akara and Bright Dairy’s Pure Canterbury brands. Both applications have been lodged with the State Administration for Market Regulation (SAMR – the replacement organization for the China Food and Drug Administration) and it is expected these will be granted in due course.

The Munchkin Grass Fed infant formula registration is also currently progressing through the regulatory process with the U.S. Food and Drug Administration (FDA).

Everyday Dairy

In FY18 Synlait announced its intention to move into a new category – Everyday Dairy.

Earlier in the year Synlait announced a partnership with Foodstuffs South Island (FSSI) to supply the cooperative with all of its private label fresh milk and cream from April 2019.

Synlait’s construction of the Advanced Liquid Dairy Packaging facility in Dunsandel, which will produce the fresh milk and cream, remains on track.

The Talbot Forest Cheese assets acquisition will form a part of the expansion into Everyday Dairy.

“We will be able to manufacture a variety of cheese products that complement our existing product portfolio, whilst at the same time further diversifying our revenue streams,” ​Clement said.

“The proposed acquisition contributes to our intention to grow within the Everyday Dairy category in New Zealand and overseas.”

The investment is expected to be in the range of NZ$30m-$40m (US$19.8m-US$26.5m), which reflects incentives for various conditions to be met.

The proposed acquisition is structured in two parts and settlement is expected in August 2019, once aspects of the conditional agreement have been met. The initial ten-month period includes a commercial loan facility from Synlait for Talbot to complete a capital works program and satisfy the conditions set out in the agreement.

Subject to the conditions being met, Synlait will assume management and operational control of Talbot on August 1, 2019.

Further investment

Synlait began capital projects in FY18, by completing its second wetmix kitchen in Dunsandel, and commissioned the Auckland blending and consumer packaging facility, Milne said.

“This has allowed us to increase our finished infant formula capacity.”

Synlait also purchased 28 hectares of land in Pokeno in February. Shortly afterwards the build of a new infant-capable manufacturing facility began on the Waikato site, and work began to recruit milk suppliers in the area.

“This is a NZ$280m (US$185m) commitment, but it will allow us to keep up with customer demand, whilst also eliminating our single-site risk,”​ Milne said.

Synlait Pokeno is scheduled to commission for the 2019/20 milk season.

In FY18 Synlait also announced an NZ$18m (US$12m) expansion to its Dunsandel lactoferrin facility, which will double its lactoferrin capacity, as well as improve throughput.

R&D developments

In March Synlait opened its Research and Development Centre in Palmerston North. The venture is a partnership with Massey University and FoodPilot, which is a part of the New Zealand Food Innovation Network.

“We’ve doubled our commitment to research and development, and we expect this to grow to 1.5% of revenue in the coming year,”​ Clement said.

“This would bring us in line with leading global food companies and with the opportunities we have to innovate throughout our manufacturing process, our R+D teams have an influential role in the future of Synlait and our product offerings.”

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