Results

NPAT half year profit of $37.3 million - Re-confirmed guidance for canned infant formula volumes of 41,000 – 45,000 MT - Manufacturing efficiencies have supported improved production and sales volumes - Key growth projects including Synlait Pokeno and our Advanced Liquid Dairy Packaging Facility remain on track - New growth opportunities in liquid milk, Talbot Forest Cheese and lactoferrin expansion - New purpose ‘Doing Milk Differently for a Healthier World’ establishedSOLID HALF-YEAR EARNINGS PERFORMANCEOur HY19 NPAT of $37.3 million is 9.6% lower than the $41.3 million achieved in HY18. This remains a solid result for the first half of the year, with increased sales volumes achieved across our powders and cream and lactoferrin businesses. The higher sales volumes were achieved due to our ability to increase production volumes off the same asset base, a very pleasing result and representative of the efficiencies we are developing in manufacturing through our Integrated Work Systems (IWS) programme. While our sales volumes of fully finished infant formula were slightly ahead of HY18, these were delivered at lower margins. This is a result of the new pricing agreement entered into with The a2 Milk Company™ last July, as well as not having the benefit of the higher margin sales to our China based customers that we enjoyed in HY18. These brands are awaiting State Administration for Market Regulation (SAMR) registration.The HY19 result also benefited from the increased efficiencies of our manufacturing plant. We processed 12.4% more milk than in HY18 into 90,466 Metric Tonnes (MT) of product, a 10.5% increase on FY18. This also reflected higher sales volumes of our powder and cream products at 56,116 MT (HY18 46,111 MT) and a higher closing finished goods inventory (HY19 – 44,344 MT vs HY18 35,040 MT)INVESTING FOR OUR NEXT PHASE OF GROWTHThe first half of FY19 has been characterised by the significant investments we have made to our manufacturing base across all our key categories. This is part of our focus on supporting the growth of our customers and diversifying our business. Nearly $200 million of capital expenditure was invested in the six months to 31 January 2019 as we progressed our four major growth projects.Second infant processing facility at PokenoThe build of our new infant-capable manufacturing facility in Pokeno continues to be on track for commissioning for the 2019 / 2020 milk season. This is a $280 million investment which will allow us to meet customer demand, whilst also eliminating our single-site risk.At the same time, we are recruiting new milk suppliers in the area. We remain on track for the start of the 2019 / 2020 milk season and are encouraged by the warm welcome we’ve received from Waikato dairy farmers.Accessing the Everyday Dairy market through our Advanced Liquid Dairy Packaging facility and the conditional acquisition of Talbot Forest CheeseThe build of the Advanced Liquid Dairy Packaging facility in Dunsandel was announced in early FY18 in conjunction with the Foodstuffs South Island (FSSI) supply agreement. The facility will cost $125 million and gives Synlait the foundation to explore other liquid milk product opportunities which will utilise the innovation and flexibility offered by the plant. We are on track for completing the new facility and we’re excited by the discussions we are having with current and prospective customers.At the end of 2018 Synlait entered into a conditional agreement to acquire selected Talbot Forest Cheese assets. The acquisition, which is expected to be in the range of $35 - $40 million, will help us optimise our value chain and supports our growth strategy. The agreement is structured in two parts and settlement is expected 1 August 2019, once aspects of the conditional agreement have been met. Synlait will then assume management and operational control of Talbot Forest Cheese, allowing us to manufacture a variety of cheese products that complement our existing product portfolio. The acquisition allows us to optimise our manufacturing assets (especially during peak seasonal flows), access new profit pools, and aligns with our approach to run high-quality, flexible dairy manufacturing capabilities that can be tailored to meet customer needs.Lactoferrin capacity expansion completeWe’ve also just completed our $18 million expansion to our Dunsandel lactoferrin facility which has doubled our lactoferrin manufacturing capacity. This project was completed on time and on budget. We’re already noticing growing demand for lactoferrin through external sales and in formulations with our infant formula customers. Our plant is producing extremely high quality lactoferrin, and we remain excited about the potential for this business as we look to drive capacity increases in an attractive current market pricing environment.