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.
Synlait Milk chairman Graeme Milne told shareholders at its annual meeting last week that the financial year ending July 2016 will see strong growth in nutritional sales volumes and showcase the benefits of a value added strategy.
Milne says the focus for the current financial year is on developing nutritional and infant formula products with key customers.
"With the successful commissioning of our third large-scale spray dryer in September and current increases in the sales volume of consumer packaged infant formula, I stand by my previous statement that our profitability will be in advance of anything achieved to date," he told shareholders.
Milne discussed global factors behind the decreases in international dairy market pricing; he says global dairy prices have decreased further since July this year to unsustainably low levels from a New Zealand farming perspective.
"It's important to understand our profitability is not directly affected by international dairy prices," he says.
"It impacts our revenue, but the value we create by differentiating milk inside the farmgate and throughout the manufacturing process creates a margin for our business that is essentially independent of the global pricing of commodities," says Milne.
"This margin is most evident in our nutritional products. The highlight in this category now is consumer packaged infant formula, which we expect to increase fourfold in volume in FY16."
Synlait Milk managing director and chief executive officer Dr John Penno pointed to the completion of Synlait's growth initiative programme as a key milestone in the business' strategy to make more from milk.
"We're now geared up to achieve our strategy. With one of the largest and highest specification infant formula production sites globally, we've created an integrated supply chain from source to our customers," says Penno.
"We will continue to partner with leaders in the infant formula industry, developing strong customer relationships that support our growth targets in FY16 and the future."
Penno invited shareholders to focus on the volume of nutritional sales as a key performance indicator for Synlait in FY16.
"Our total sales volume is set to grow from FY15's 97,800 MT to 122,500 MT in FY16. More than half of that growth will be the result of increased nutritional sales in consumer packaged infant formula, which carries a significant benefit in gross margin."
During the meeting all resolutions put to shareholders were passed. This included the re-election of Milne as a director; director fees will remain the same.
