Synlait reveals $98m offer for expansion plans TIM CRONSHAW
Last updated 13:20, September 19 2016
ROSS SETFORD
The Synlait Dairy factory in Canterbury.
Canterbury milk processor Synlait is intending to raise $98 million for a $300m expansion programme over the next three years to include a second site.
The company wants to increase its infant formula manufacturing and expand its packaging and value added cream manufacturing facilities. This will include investing in a second site outside of its Dunsandel plant.
Over the next year Synlait will buy land for the new manufacturing base to avoid "single site risk", although building was expected to be several years away. The site was "almost certain" to be in New Zealand and investigations would include the North Island.
Dean Kozanic
Synlait infrastructure is set to be expanded.
Chairman Graeme Milne said the offer was expected to provide Synlait with enough funding and "headroom" to support its programme and to repay bank debt.
He said Synlait's largest shareholder of Chinese company Bright, holding 39 per cent, supported the offer and would maintain but not increase its shareholding. United States company Munchkin, with under 4 per cent of the total share base, would also take up share rights.
Just over 32.5 million new shares will be offered at $3 a new share at a ratio of two new shares for every nine existing shares. Shareholders have until October 11 to subscribe to the share offer and it will also be opened to institutional investors from September 21.
Synlait announced on Monday that its after-tax profit had more than tripled to $34.4m for the financial year ending July.
Driven by an almost four-fold increase in canned infant formula volumes and growth in powder and cream product volumes, Synlait said the positive result set the foundation for its next phase of growth.
"Synlait is a growth company. Our FY16 performance highlights the progress we've made since our IPO in 2013 towards our aspiration of making more from milk," Milne said. Ad Feedback
"We are continuing this momentum with an accelerated pro-rata entitlement offer to eligible shareholders to raise approximately $98 million in support of our next growth phase. Investing in further capital projects to expand our capability and capacity will put us in a strong position to pursue customer, product and market development opportunities in the coming years," said Milne.
Year on year revenue increased $98.8m from $448.1m the last financial year to $546.9m.
"Operating cash flow of $103.9m in FY16 allowed us to reduce net debt by 18 per cent to $213.9m. As a result, our leverage ratio has improved to 2.5 times," said managing director and chief executive John Penno.
Synlait's third large scale spray dryer was commissioned this financial year to support growth in canned infant formula volumes.
Penno said strong customer demand had continued to grow for infant formula ingredients and finished products and underlying the "noise" about changing Chinese regulations was more strong growth coming from China.
Over the past five year its infant formula sales had doubled to 900,000 tonnes and the relaxation of its single child policy would bring about more infant formula demand, he said.
He said several sites were under investigation for a second manufacturing base and the eventual location would have to be next to farmers who could provide specialty milk.
The nationwide search would almost certainly result in a New Zealand investment, he said.
Synlait would offer the shares in a dual listing on NZX and the Australian stock exchange before the end of the year to bring in institutional and mum and dad investors.
The company spent $274m on its Dunsandel site the last three years which had contributed to a 13.4 per cent return on overall investment and since listing in 2013 the company says it has delivered a total shareholder return of 65 per cent.
Synlait had revised its forecast milk price from $4.50 a kilogram of milksolids to $5/kg for the 2016/17 season after modest increases to dairy commodity prices. The company confirmed its total milk price of $4.02/kg for the 2015/16 season.
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