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Synlait Milk almost doubles annual profit on high value product growth

Wednesday 19th September 2018

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Synlait Milk, the best performing stock on the benchmark NZX index this year, almost doubled annual profit and lifted its margins while outlining plans for further expansion into value-added dairy products.

Profit surged 89 percent to $74.6 million in the year ended July 31, while revenue rose 16 percent to $879 million, the milk processor said. Gross profit per metric tonne lifted to $1,294 from $792 as it increased its volume of consumer packaged infant formula to 28 percent of sales from 13 percent.

Over the decade since it was formed, Synlait has been foregoing dividend payments in favour of investing in new plant, which has allowed it to increase production of a diverse range of higher value dairy products.

In the latest year it has been working on new and expanded plants in Dunsandel, Auckland and Pokeno as well as a research and development centre in Palmerston North. Today it announced that it has inked an agreement to buy the Talbot Forest Cheese Temuka plant for between $30 million and $40 million as part of its expansion into everyday dairy products, an estimated $2 billion market in New Zealand.

"This has been a milestone year for Synlait as we grew both in capability and capacity," said chair Graeme Milne. "We’re stepping up in terms of our performance and we’re looking ahead at where we want to be."

The Temuka specialised cheese manufacturing facility, commissioned in September 2017, can produce 12,000 metric tonnes a year and will allow Synlait to manufacture a variety of products to meet demand in local and international markets, the company said. As part of the purchase, Synlait will provide an $18 million loan facility to allow Talbot to complete capital works ahead of settlement in August next year.

Synlait's expansion has seen total net debt increase by $32.3 million to $114.9 million as it channeled $103.8 million into growth projects financed through a combination of operating cash flow and debt. Despite the extra spending, the company has maintained a ratio of net debt to earnings before interest, tax, depreciation and amortisation of 0.8x, from 0.9x the year earlier, which it said leaves the balance sheet "well equipped to fund further growth".

Its shares have soared 78 percent so far this year. The stock gained 0.8 percent to $12.88 at today's open.

The milk processor said it expects to pay its farmer suppliers $6.75 per kilogram of milk solids for the 2018/19 season, down from its opening price forecast for $7/kgMS. It said it lowered its expectation due to declining commodity prices, mitigated to some extent by a weakening New Zealand dollar, and noted its forecast anticipates an improvement in commodity prices in the medium term.

Synlait confirmed its average milk price for the 2017/18 season was $6.78/kg, which consists of a $6.65/kgMS average base price and a seasonal and average value-added incentive payment of 13 cents/kgMS.

(BusinessDesk)

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