What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
In a letter to shareholders following the announcement of its disappointing 2023 annual results, the company has decided not to provide earnings guidance for the current financial year.
Chair Simon Robertson told shareholders that in the 2024 financial year, which ends July 31, 2024, Synlait could still face challenging China market dynamics, softening global conditions more generally, and continued inflationary pressures across its cost base.
These factors could impact future customer demand and the company's overall profitability, warns Robertson.
Synlait does however expect Advanced Nutrition volumes to continue to grow the Pokeno site this year and Robertson expects the company's overall earnings before interest, taxes, depreciation, and amortization (EBITDA) performance to improve in FY 24, compared to FY 23.
"While Synlait is confident in its strategy to right-size its cost base to current activities and its near-term Advanced Nutrition and Foodservice growth opportunities, the uncertainty of broader macroeconomic factors means the company will not provide guidance at this time," says Robertson.
"Synlait is committed to its refreshed strategy to create a more focused company and remains largely on track to meet its five-year (FY28) strategic ambitions."
Synlait reported a loss of $4.3m last financial year, 111% down on the previous year. Total group revenue was down 3% to $1.6 billion.
EBITDA was down 31% to $90.7m, operating cashflow down 83% to $39m and net debt rose 21% to $413.5m.
Synlait chief executive Grant Watson noted that it was an extremely challenging year for Synlait.
Watson says various factors contributed to the poor financial performance, including material reductions in customer demand, CO2 shortages, extreme weather events, the Covid-19 pandemic, inflationary impacts on cost base, and costs associated with the launch and stabilisation of its enterprise resource planning (ERP) system.
“Some factors were outside our control, and others were within our control.”
Watson says the company is focused on getting the basics right, lifting its performance, and returning to profitability.
“We look ahead to a new and exciting era in Synlait,” he says.
Over the next 12 months, Synlait plans to sell its Dairyworks and Temuka cheese assets to reduce debt, right size its cost base to current activities and near-term growth opportunities; deliver and build on our current and prospective Advanced Nutrition and Foodservice customer opportunities and lift operational performance.
