Synlait Farms look to improve returns

03:17, Mar 28 2013

Canterbury corporate dairy farmer Synlait Farms has told investors it plans to raise equity to help buy new farms and reduce debt.

From today, Synlait Farms shares are able to trade on the Unlisted share market but are yet to debut on the exchange.

Synlait Farms, with 70 staff, owns and manages 13 farms around mid-Canterbury consisting of 3942 irrigated hectares and 12,970 cows.

It supplies milk to its sister-company Synlait Milk, owned 49 per cent by Synlait Ltd, with the controlling 51 per cent stake held by China's second-largest dairy company, the part state-owned Bright Dairy & Food Co.

In an investor presentation released through the Unlisted market, Synlait Farms said the focus was now on improving returns from the existing farm portfolio.

Synlait Farms had sufficient water consents to irrigate the existing farms, with consents ranging in tenure from 10 to 35 years. It also had a shareholding and loan in Central Plains Water and agreements with CPL related to Te Pirita Irrigation Ltd.

These arrangements provide access to enough water from the Rakaia River to irrigate up to an additional 3000 hectares of land in the Te Pirita region.

The company intended to pursue growth opportunities through development of the surplus water rights at Te Pirita and the acquisition of complementary farms.

It was committed to pursuing a process to raise equity to reduce debt, fund growth and create liquidity for shareholders over time, it added.

The presentation said Canterbury was becoming the leading dairying region in New Zealand, representing 16 per cent of New Zealand's milk supply. The region's milk supply had grown about 40 per cent since the 2009 season.

There was also significant investment in milk processing with further investment expected to support land with irrigation infrastructure. The region saw consistent production as it was less reliant on summer rainfall compared with other regions, and further investment in irrigation was likely over time.

Land was relatively cheaper than the Waikato on a per kilogram of milksolids basis.

Competitors for milk included Synlait Milk, Fonterra, Westland Milk Products with a potential new entrant Yili announcing plans to invest. Inner Mongolia Yili Industrial Group (Yili), China's largest dairy producer by market value, is reported to be planning to buy Oceania Dairy assets in South Canterbury.

Synlait Farms reported net profits before tax of $11.6 million for the 12 months to May 31, 2011 and $3.6m for the May 2012 year. Operating cash flows for the two subsequent years were $18.5m and $14.4m. The milk price for 2011/12 was around $6 per kilogram of milk solids.

The outlook for the 2013 season included a milk price forecast of $5.40 per kilogram of milk solids. Operating cash flow for the May 2013 year would be down from 2012 proportionate to the milk price decline, to about $11m.

Synlait Milk and Synlait Farms have several shareholders in common. In 2000 Synlait was founded by dairy farmers Ben Dingle, Juliet Maclean and agri-scientist John Penno to develop dairy farms in mid Canterbury.

The founders control Synlait Farms. Dingle and Maclean hold 17.4 per cent each and Penno 15.25 per cent and the rest is held by smaller shareholders.

Synlait Farms said an example farm was Dunsandel 1, a 322-hectare property including 30ha of leased land, with a manager and four permanent staff. With pivot irrigation the farm's 1,200 cows had produced 479,000 kilograms of milksolids - almost 400 kilograms of milksolids, in the 2011-12 season.

The farm with five farm houses and a 50-bale rotary dairy had a valuation of $11.7m.

The average tenure of Synlait Farm farm managers was about six years.


The Press