The grass on the far side of the fence will look much greener for Fonterra farmers

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.

2 thoughts on “The grass on the far side of the fence will look much greener for Fonterra farmers

  1. Now this article takes us back to basics, Synlait sticks to it’s knitting and they are on the up. I used to audit some of the local dairy companies ( this gives you an idea of my age), they were doing very well by being dairy companies, not gamblers.

    Like

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