Synlait posts $6.3m maiden profit, likely to seek more capital

Powdered dairy products exporter Synlait Milk has turned in a maiden profit of $6.3 million for the year to July 31 and expects to seek fresh capital from its two shareholders as it pursues "further strongly profitable opportunities".

The Dunsandel-based company added a further 20 supplier farms during the year and processed 498 million litres of milk, compared to 343 million litres the year before.

It added a third drying unit, allowing it to manufacture higher-value nutritional products.

After failing to attract New Zealand investors to a $150 million initial public offering in 2009, Synlait Milk is now 51%-owned by the Chinese firm Bright Dairy, with the remainder held by Synlait Ltd, a vehicle representing the company's founders.

"Operating cash flow at just under $30 million is pleasing and planned to continue to grow in the year ahead," chairman Graeme Milne says.

"In order to maintain a prudent capital structure, it is likely that Synlait Milk will approach our two shareholders ... within the next 12 months for further equity."

These include adding consumer packaging capability, although Synlait Milk continues to see its future as a supplier to rather than competitor of leading brand owners.

Total revenues for the year increased 26% to $377 million and the $6.3 million profit compared to a $3.1 million loss the previous year.

Lower prices for milk during the year under review affected selling prices, but also saw the total cost of milk bought fall from $49.4 million a year earlier to $39.6 million in the last year.

Chief executive John Penno says the company had faced more challenges than it expected implementing a bespoke operational and reporting system, although "most of the problems" had been ironed out by year's end.

There are several areas identified "for business improvement by doing simple things better," he says.

"The development of the company's new adult and infant nutritionals business holds exciting prospects for the future. However, it has been its value added and consumer-ready milk powders business that delivered the strong financial result last year.

"We remain committed to our strategy of developing our value-added and nutritional milk powder business, and building a reputation for quality and technical excellence.

"Current performance confirms our view that the margins provided in these demanding market segments will be critical to Synlait Milk's future," he says.

"The company is now positioned at the premium end of the highest value milk protein markets." 

(BusinessDesk)