The annual loss was well telegraphed by Synlait, the Kiwi dairy group and supplier to a2milk, but not so news of a new CEO and that seems to have helped the shares rise yesterday to their highest level since early August.
In addition to this significant change, Synlait says it will reshuffle its board in an attempt to give it a new, better-founded direction.
Current chief executive, John Penno revealed yesterday the company had appointed Grant Watson, the current CEO of Maori dairy company Miraka, and a former Fonterra executive.
Investors took the bait and pushed Synlait’s share price up more than 7% to a close of $3.45.
A clean break and big rejig is clearly needed after the terrible year the company has seen as its fortunes sank with the A2Milk share price and its adherence to the daigou marketing channel into China.
Revenue fell 5% on the prior corresponding period to $NZ1,367.3 million; earnings before interest, tax, depreciation and amortisation (EBITDA) down 78% to $NZ37.3 million produced a net loss after tax of $NZ28.5 million versus a $NZ103 million net profit in 2029-20.
It was in fact the company’s largest ever financial loss after 9 years of profitability.
Synlait said the 2021 financial year was “very challenging” and that the board and management team have now “begun to execute a plan to rebuild”. In fact the company’s experienced mirrored that of A2M.
The company said consumer-packaged infant formula volumes declined as demand subsided while liquids volumes normalised after a strong 2019-20.
In its strategic review conducted late in the financial year, the board and management found three key areas of concern impacting Synlait’s performance. Those included:
- new business areas had been slower to develop than planned;
- cost structures were allowed to grow at a faster rate than earnings; and
- suboptimal use of capital.
Synlait chair Graeme Milne blamed the weak result mostly on a lack of sales diversification.
“Our financial result for the 12 months to 31 July 2021 (FY21) unfortunately reaffirmed our over-reliance on one product, one customer and one market.” (ie a2Milk).
“While we have invested significantly in our diversification strategy, we did not anticipate the impact COVID 19 would have on the a2 Milk Company, our key customer, and consequently, our own financial performance.
“While this is an extremely disappointing financial result, we continued to execute our strategy and are planning a strong recovery,” Mr Milne said.
Looking to 2021-22, Synlait says it is expecting demand for consumer-packaged infant formula to stabilise in FY2022, combined with a return to normality in global shipping to help reduce inventory levels this year.
“FY22 will also include a one-off gain on sale of approximately $17 million from the sale and leaseback of the land and building at Synlait Auckland.
“Synlait’s performance will build into FY23 as its new multinational customer at Synlait Pokeno ramps up, and its Liquids and Consumer Foods businesses continue to grow.
“Planned reductions in inventory at Synlait and Dairyworks will generate operating cashflows in excess of earnings. These strong cashflows will enable Synlait to complete its capital expenditure programme and reduce debt to comfortable levels over the next two years.
“By the end of FY23, the recovery plan will have seen Synlait return to similar levels of profitability, operating cash flows, and debt ratios as the years leading into FY21,” the company said in Monday’s release to the exchanges.
But it has to work out the continuing nature of its links to A2Milk and its products and its own independence.
The latest financial year showed that when A2Milk ‘sneezed’ because of the way closing international borders shut off the ‘daigou’ sales and distribution channels in Australia and China, Synlait caught a nasty cold.
