NPAT for the first half of 2017 was NZ$10.6m (US$7.7m).
Synlait managing director and CEO, John Penno, attributed the earnings growth to increases in manufacture and sales of its highest margin products, as well as improved margins and earlier sales of ingredients products.
“The growth trajectory of canned infant formula has continued with total consumer packaged volumes almost tripling from the same period last year and up 36% on the second half of last year,” Penno said.
He added the relationship with The a2 Milk Company continues to strengthen, with Synlait remaining their exclusive manufacturer for the Australian, New Zealand and Chinese markets.
“We have also renegotiated our supply agreements with New Hope Nutritionals and with Bright Dairy, which provides for four-fold volume growth over a five-year period. However, we don’t expect this to impact sales until FY19,” he added.
Investing throughout NZ
In the first half year of 2018, Synlait has invested NZ$34.5m (US$25m) in capital expenditure throughout New Zealand.
The major components of this were the Synlait Auckland blending and canning facility (NZ$11.2m/US$8.1m) and the new wetmix kitchen at Synlait Dunsandel (NZ$18.4m/US$13.3m).
Synlait also established a new research and development center in Palmerston North.
Synlait said its cash flow generation of NZ$204.3m (US$148m) for the 12 months ended January 31, 2018 has fully funded the capital expenditure program and has enabled the reduction of debt to low levels.
Expansion goals
Total net debt for H1 FY18 was NZ$49.7m (US$36m), a reduction from NZ$147m (US$106m)at the same time in FY17.
Synlait’s chairman, Graeme Milne, said it leaves the company well placed to fund its expansion plans.
“At Synlait Dunsandel, we expect to spend NZ$125m (US$90.5m) on an advanced liquid dairy packaging facility, and at Synlait Pokeno, we will spend NZ$260m (US$188m) to establish our new nutritional powder manufacturing facility,” Milne said.
Synlait entered into an agreement to buy land in Pokeno in February and is now proceeding to settlement, in accordance with the agreement, following satisfaction of all of the conditions.
Penno said Synlait was ready to begin to develop new categories and focus on developing opportunities in “everyday dairy.”
R&D investment
Synlait’s R&D outlay grew from NZ$2.25m (US$1.63m) in FY16 to NZ$4.75m (US$3.4m) in FY17 and is forecast at NZ$7m (US$5.1m) in FY18.
“While our research and development investment is dwarfed by other companies, the highly targeted nature of our efforts are matched to the significant market opportunities we’ve identified. We will realize the value many times over with the returns we achieve,” Penno said.
“It’s all part of the strategy designed to gain access to the highest returning categories, products, markets and customer segments in dairy.”
New team members
Synlait has also appointed three new members to its senior leadership team.
Dr Suzan Horst will be director of quality, regulatory and laboratory services, Deborah Marris is general counsel and head of commercial, and Hamish Reid is chief sustainability officer and general manager of brand.