SYNLAIT MILK HALF YEAR RESULT FOR THE SIX MONTHS ENDED 31 JANUARY 2021 CHAIR AND CEO LETTER
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SYNLAIT MILK HALF YEAR RESULT FOR THE SIX MONTHS ENDED 31 JANUARY 2021
CHAIR AND CEO LETTER
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PAGE 02 CHAIR AND CEO LETTER
FINANCIAL PERFORMANCE
664.2 M 18,085 MT
19% 16%
$
REVENUE CONSUMER-PACKAGED INFANT
FORMULA SALES
Infant Formula Base Powder production down 61%
47.7 M 13.6 MT
29% 16%
$
EBITDA LACTOFERRIN PRODUCTION
6.4 M 112.6 M
76%
$ $
NPAT DAIRYWORKS REVENUE
Comparisons are for the six months ended 31 January 2020 (HY20) unless stated otherwise.PAGE 03 HALF
CHAIRYEAR
ANDREVIEW
CEO LETTER
2021
CHAIR AND CEO REVIEW
Nau mai | Welcome execution of our strategy. second year. The continuation of this
Our first half was challenging, and we uncertainty was one of several factors
continue to find ourselves in a period We will need time to get through this, that resulted in the withdraw of our
of significant uncertainty and volatility but we remain confident about our FY21 guidance earlier this month.
as Synlait faces into several headwinds. future. Our investment phase is
This is impacting our short-term complete. We have the capacity, The knock-on effects of this demand
operations and will impact our full year capability, and customer base to change continue to play out in real
2021 financial result (FY21). generate significant value. COVID-19 time. While sales of consumer-
hit us late, but we will emerge from packaged infant formula fell 16% to
We cannot control COVID-19 but we the pandemic a stronger, more 18,085 MT, a larger impact was felt
can control our response. This includes sustainable Synlait. in our manufacturing recoveries with
how we execute on our strategy. A infant formula base powder (IFB)
strategy which was already positioning COVID-19 impacts now being felt with production dropping by 61% as we
Synlait well for a sustainable, diverse, our strategic partner reset our outputs and inventory levels
and recurring revenue base that comes The revised demand forecast received to a new forward outlook. We continue
from multiple customers, sites, markets, from our cornerstone customer and to take a conservative view on the
and categories in the future. shareholder, The a2 Milk Company™, recovery. While we remain highly
in December 2020 was significant confident it will occur, the timing and
Our focus is now to mitigate the and sudden. It provided evidence rate of recovery remains uncertain.
impact COVID-19 has had on our that the delayed impacts of COVID-19
key customers as we manage costs on consumer behaviour, channel Despite this challenge, The a2 Milk
and capacity and pull forward value dynamics and supply chain disruptions Company™ remains a strong strategic
creation initiatives to accelerate the are real as the pandemic enters its partner. We are committed to supporting
Synlait CEO Leon Clement (left)
Synlait Chair Graeme Milne (right)PAGE 04 CHAIR AND CEO LETTER
them to restabilise local supply chains execution of our strategy. Progress is customer. Staff shift levels have also
and protect market access in the critical encouraging. been reduced at Synlait Auckland and
China infant nutrition market. Dunsandel.
Our short-term focus: mitigating
Another factor contributing to this COVID-19 – cost and capacity Value chain cost savings:
uncertainty is our ingredients business. changes ~$11 million annualised
The suddenness of the drop in infant Since our December 2020 downgrade
nutrition demand, combined with approximately $22 million worth of Dry Store 4 will be complemented by
rapidly rising Global Dairy Trade prices, cost savings have been captured. a 30-wagon rail siding in May. This
foreign exchange, and a changing These are in the following areas: extends Synlait’s highly integrated
product mix, creates volatility. It means manufacturing facility from farm-to-
we have not been able to rely on our Operational cost savings: can to farm-to-port with containerised
ingredients business to absorb this ~$10.8 million goods sent via rail between Synlait
impact as much as we would have liked. Dunsandel and Lyttelton Port. This
An organisational restructure reduced project generates a permanent
Finally, the pandemic continues to slow salary costs by $1.9 million and ensures annualised EBITDA savings of $8
the arrival and departure of goods in our capabilities are better aligned with million from FY22 onwards.
and out of ports globally. While this strategy. Year-to-date discretionary
is a timing issue, we expect delays to spending reduced $3.5 million. The We have not lost sight of waste
continue for some time and this will focus on cost control continues to help reduction and yield improvement
likely impact our FY21 result further. offset unavoidable spend. initiatives either which have an
annualised benefit of $3 million.
We continue to move forward Reviewing our production approach
Our focus is now on mitigating the generated savings of $5.4 million Our long-term focus: pulling forward
short-term impact by managing costs and sees Synlait Pokeno manufacture value and accelerating strategy
and capacity and pulling forward value ingredients only as it focuses on execution
creation initiatives to accelerate the preparing for our new multinational Having completed a phase of
Milk reception bay,
Synlait DunsandelPAGE 05 CHAIR AND CEO LETTER
significant investment to create new For The Planet, World Class Value Outlook Board and management have Ngā manaakitanga.
growth opportunities, we are now well Chain and Building A Healthier Synlait) As signalled earlier this month, Synlait considered the above factors and
placed to focus on delivery. It therefore remains the same and continues to is continuing to experience significant how they will impact Synlait’s FY21
makes sense to refine and focus our serve us well. uncertainty and volatility within its profitability. There is still a range
growth strategy. Our purpose and business. This is due to: of scenarios contributing to the
ambition remain the same, but our Despite the short-term challenges, the company’s profitability, and our current Graeme Milne ONZM
strategic focus has narrowed from five fundamentals of our purpose, ambition • Ongoing uncertainty in The a2 Milk outlook suggests a broadly breakeven Synlait Chair
growth pathways to two value add and strategy remain the same – and Company’s expected demand for FY21 NPAT result.
growth pathways. These are: the opportunities ahead are exciting. the remainder of FY21 and FY22.
Our team is mobilising around new Synlait does not currently have While all banking covenant ratios
• Nutrition, Food Service and opportunities that generate growth, sufficient confidence to forecast were met during HY21, Synlait has
Leon Clement
Ingredients have a business-to- value, and efficiencies. Examples when this recovery will occur. The proactively engaged with its banking
Synlait CEO
business focus. They consolidate include a differentiated ingredient resulting impact of this on Synlait’s syndicate to increase its leverage
our Food Service and Infant offering which commercialises our business is two-fold: demand for ratios to manage any risk at the end of
Nutrition categories and include Lead With Pride™ programme, the consumer-packaged infant formula FY21. The company’s FY21 business
opportunities our new multinational launch of functional creams and Synlait remains uncertain, which in turn plan is fully funded by its current
customer will bring to Synlait. We branded consumer products, and the impacts forward infant base powder banking syndicate.
have also acknowledged the role on-boarding of our new multinational production and asset use.
our ingredients business plays in customer at Synlait Pokeno which Thank you
optimising our assets. supports our diversification as our • Synlait’s ingredients business. The Thanks to our employees, suppliers,
infant nutrition business recovers. sudden drop in consumer-packaged and customers for your commitment,
• Consumer Foods has a business- infant formula demand, combined energy, and engagement. Thanks
to-consumer focus. It will pursue We also see opportunities to keep with rapidly rising Global Dairy also to our shareholders for your
branded opportunities. Dairyworks reducing waste and improving yields Trade prices, foreign exchange, and loyalty, and belief in Synlait’s purpose,
is our mainstay as we build a and efficiencies as we work to keep a changing product mix, creates ambition, and strategy. Despite the
product portfolio to support New capturing more value from the milk volatility which limits returns. adversity, we remain committed to
Zealand and Australian consumers we collect. And, the good thing is we being open and honest with you.
and explore further offshore growth. have already completed a large part of • Our expectation is that global Our belief and commitment to Doing
the investment required to tap these shipping delays will continue and Milk Differently For A Healthier World
Our enabling strategy (Net Positive opportunities. further impact the FY21 result. remains unchanged.You can also read
