It must have felt like salt being rubbed into their financial wounds for Fonterra’s farmer-shareholders, when Synlait Milk this week reported its net profit soared 89% to $74.6m. Fonterra’s mob saw their co-op notch up a loss of $196m, and with prices at GDT auctions trending down, they may also have to accept a trim to the forecast milk price.
Where Fonterra talks of slimming its portfolio, Synlait is still investing in expansion.
In the latest year Synlait has been working on new and expanded plants in Dunsandel, Auckland and Pokeno as well as a research and development centre in Palmerston North.
The company told shareholders it is buying the Talbot Forest Cheese Temuka plant for between $30m and $40m as part of its expansion into everyday dairy products, an estimated $2 billion market in NZ. The Temuka specialised cheese manufacturing unit, commissioned in September 2017, can produce 12,000 metric tonnes a year.
Chairman Graeme Milne reports it has been a milestone year for Synlait.
“We’re stepping up in terms of our performance and we’re looking ahead at where we want to be.”
Meanwhile Fonterra is reviewing investments, major assets and partnerships, starting with the company’s troubled investment in China’s Beingmate baby food company.
Interim CEO Miles Hurrell, in an email to Fonterra’s farmer-shareholders, says the review is likely to put a spotlight on things need to be changed.
“….. for example, we recognise that too high a proportion of our investments are targeting a return over the longer term and we need more cash being delivered in the shorter term”.
For Synlait revenue rose 16% to $879m with gross profit per metric tonne lifting to $1,294 from $792 as it increased its volume of consumer packaged infant formula to 28% of sales from 13%. Over the decade since it was formed, Synlait has been foregoing dividend payments in favour of investing in new plants, which has allowed it to increase production of a diverse range of higher-value dairy products.
With the expansion total net debt has risen by $32.3m to $114.9m as it channeled $103.8 million into growth projects.
Chief executive Leon Clement, who took over from founder John Penno last month, indicated profitability may not grow at the same rate in the coming year, as the company forecast infant formula sales would lift to between 41,000 and 45,000 metric tonnes, compared with 35,580 metric tonnes in 2018 and 18,776 metric tonnes in 2017.