Synlait serves up its first profit

19:02, Dec 04 2012
FAIR PLAY: Synlait chief executive John Penno says Fonterra should have no reason to resist an independent price-setting mechanism.

Canterbury milk processor Synlait Milk has announced its first profit, earning $6.3 million after tax in the year to July.

The company's fourth year of operation garnered $377m in revenue, just over a quarter more than the previous year.

About 1.6 per cent of that revenue was profit for the company, which is 51-per-cent-owned by Chinese company Bright Dairy.

Synlait Milk chief executive John Penno said it was a high- turnover, low-margin business, but he was pleased with the performance.

That also meant any incremental profitability gains through added-value products would make a significant difference. Eighty per cent of the company's expenses were paying farmers for milk, he said.

The value of milk powder had dropped during the year, but the company had managed to increase its revenue and its volumes regardless, he said.


Specialised powders made to order for customers and ready-for- sale products were the biggest earners, he said.

They had grown from about 40 per cent of the company's production volume for the 2011 fiscal year to 60 per cent in the year to July.

Produced volumes jumped by almost half to 81,398 metric tonnes a year with the commissioning of a specialised infant formula plant.

Synlait was committed to creating a "solid business platform" from made-to-order and ready-for-sale business, and staying away from the commodity market, which was dominated by bigger players, Penno said.

"The company is now positioned at the premium end of the highest-value milk-protein markets."

A reputation for quality and excellence was a necessity for the higher margins that the company saw as critical to its future, he said.

"We were very pleased to achieve a solid profit while providing a very competitive milk price to our milk-supply partners."

Farmer suppliers were paid an average milk price of $6.22 for each kilogram of milk solids, with almost 500 million litres of milk processed during the year.

That was a 45 per cent boost on the 343 million litres put through in the previous year, with 40 more farms contracted to the company in the 12 months to July.

In comparison, dairy titan Fonterra made a final milk payout of $6.08/kg milksolids for the same period.

Its total payout, including milk payment and dividend, was $6.40.

Penno said there were plans for a consumer packaging plant at Synlait's Dunsandel site as well as additional processing investment in the longer term when it was needed.

The Press