Synlait appoints new CEO and proposes governance changes

By Jim Cornall

- Last updated on GMT

Grant Watson will join Synlait as the company’s next CEO in January 2022. Pic: Synlait
Grant Watson will join Synlait as the company’s next CEO in January 2022. Pic: Synlait

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Synlait Milk Limited has published its financial result for the 12 months ending July 31, 2021, which showed a 78% drop in EBITDA.

The company also announced the appointment of Grant Watson as the company’s next CEO.

Synlait CEO John Penno said, “Today’s financial result illustrates that the last financial year has been very challenging for Synlait. We have always had the enormous advantage of starting fresh some 13 years ago as a small part of a large, successful, and well-established global industry. Our strategy fundamentally plays to this competitive advantage and is driven by our purpose: Doing Milk Differently For A Healthier World. We have fallen short of delivering on this advantage. The opportunity to pause, learn, change, and then double down on delivering the potential Synlait’s board and management firmly believe is there is being approached with fresh energy and is our number one priority. Today marks the start of a new chapter as we set out a clear plan to return to robust profitability.”

“During the last quarter of FY21, the board and management team built a clear and accurate picture of Synlait’s current performance in the context of change over the last five years. We have begun to execute a plan to rebuild. We have reviewed and remain confident in our strategy. However, execution clearly needs to improve. We have aligned structure to strategy, appointed a CEO, and are proposing governance changes to shareholders. We have reset our banking arrangements. We are making changes to release cash from inventory and improve working capital management.  We have built a plan to return to robust profitability.”

Watson, currently CEO of dairy company Miraka, will join the Synlait team in January 2022. He also spent 10 years at Fonterra where he held roles including director of global foodservice, acting director of sales Fonterra Brands New Zealand, managing director of Tip Top, and director of Route and Foodservice Fonterra Brands New Zealand.

Synlait chair Graeme Milne said, “Grant has a track record of materially transforming and accelerating businesses by setting clear strategies, surrounding himself with diverse and talented people, and relentlessly driving execution to deliver strong sustainable results.”

“Prior to Miraka, Grant led the significant growth of Fonterra’s Global Foodservice business and has overseen the successful commercialization of numerous value-added dairy products. This is a key part of Synlait’s strategy going forward and we look forward to benefiting from his skills and experience.”

Watson said, “I have watched the Synlait story with interest for many years and am excited to join the team in 2022. I’m a passionate New Zealander and believe our country has an important role to play in taking our high-quality products to the world. I look forward to continuing this journey with the Synlait team.”

He will be joined by Robert Stowell, who has been appointed CFO after acting in the role for the last five months.

Proposed governance changes

Milne stated his intention to retire by rotation at Synlait’s annual meeting to be held on December 1. He will then be appointed as a board advisor for one year.

Penno will be appointed chair upon Milne’s retirement. As Penno is a board appointed director the board will seek ratification from shareholders at the annual meeting via a change to Synlait’s constitution, which will be amended to remove the requirement for the chair to be an independent director. This will be a temporary measure as the board said it is aware it is best practice to have an independent chair.

Synlait FY21 financial performance

The company saw revenue rise 5% to NZ$1.367bn (US$960m), however, EBITDA was down 78% to NZ$37.3m (US$26.1m). NPAT was down 138%, and nutritionals sales dropped 35% to 34,362 MT. Ingredient sales were up 29% to 125,914 MT. Dairyworks’ revenue was NZ$229m (US$160m).

Synlait said it expects its Net Profit After Tax result to return to profitability in FY22 based on: a return to normal trading conditions and tighter management of its Ingredient business; improved infant base powder volumes; a growing contribution from its Liquids and Consumer Foods business units; and targeted and significant cost savings from Synlait, Dairyworks and Talbot Forest Cheese.

FY22 will also include a one-off gain on sale of approximately NZ$17m (US$12m) from the sale and leaseback of the land and building at Synlait Auckland.

Synlait’s performance will build into FY23 as its new multinational customer at Synlait Pokeno ramps up, and its Liquids and Consumer Foods businesses continue to grow.

Planned reductions in inventory at Synlait and Dairyworks will generate operating cashflows in excess of earnings. The company said this will enable it to complete its capital expenditure program and reduce debt over the next two years.

By the end of FY23, the recovery plan is intended to see Synlait return to similar levels of profitability, operating cash flows, and debt ratios as the years leading into FY21.