Synlait Milk (ASX:SM1) forecasts robust profitability this year

NZ milk powder maker Synlait Milk (ASX:SM1) faced its most challenging year yet after profits fell more than 100 per cent as the Covid-19 pandemic hit. 

Net profit after tax reached $28.5 million for the year ending 31 July 2021, down 138 per cent from the prior year. Synlait’s consumer-packaged infant formula declined, after its partner a2 Milk  (ASX:A2M) faced a large volume reduction in December, which meant inventory levels and demand had to be reset. As a result, there were lower overhead recoveries. 

The rising milk price also impacted profits, being the second highest milk price Synlait has paid. This led the manufacturing of unplanned ingredient products without the support of developed sales channels. Global shipping constraints also left the closing inventory balance for ingredients at historically high levels.

Revenue for Synlait was up 5 per cent to $1.4 million in FY21 while earnings before interest, taxes, depreciation and amortisation was down 78 per cent to $37.3 million.

Like many milk companies, Synlait was hit hard by the Covid-19 pandemic. Grant Watson from dairy company, Miraka will join the Synlait team in January next year and leave his current role as CEO for Mirake. 

“Grant has a track record of materially transforming and accelerating businesses by setting clear strategies, surrounding himself with diverse and talented people, and relentlessly driving execution to deliver strong sustainable results,” said Synlait Chair Graeme Milne.

The board change comes after Graeme Milne stated his intention to retire but due to Synlait’s recent challenges the board is keen to maintain Graeme’s knowledge given his 17 years with Synlait. When Grant starts as CEO, Graeme will retire as chair and be appointed as a board advisor for one year. John Penno will be appointed chair when Graeme retires.

Synlait expects its net profit after tax result to return to “robust profitability” in FY22 based on a return to normal trading conditions and tighter management of its ingredient business. 

Shares in Synlait Milk (ASX:SM1) are trading 6.4 per cent higher at $3.42.