Synlait Milk Ltd. · NZX:SML
Synlait Milk — FY2015 Earnings Presentation
32 slides from Synlait Milk's earnings presentation, Sep 22, 2015
Slide 1: FY15 Annual Results Presentation
FY15 AN [VAI L. RESULTS PRESENTATION 22 SEPTEMBER 2015 synlait
Slide 2: Integrated supply chain solution: The Formula
WE'VE TRANSFORMED OUR BUSINESS TO CREATE AN INTEGRATED SUPPLY CHAIN SOLUTION WITH UNCOMPROMISED QUALITY AT EVERY STEP FROM ELITE FARMING TO STATE OF THE ART PROCESSING AND PACKAGING AT SOURCE - IT'S AN UNBROKEN CHAIN THAT WE CONTROL FROM START TO FINISH. WE CALL IT THE FORMULA. SOURCE MILK SUPPLIERS
Slide 3: Disclaimer
DISCLAIM PR This presentation, dated 22 September 2015, provides additional comment on our media release and annual report of the same date. As such, it should be read in conjunction with, and subject to, the explanations and views of our future outlook on market conditions, earings and activities g
Slide 4: Poised for growth in earnings
POISED FOR GROWTH IN EARNINGS Underlying earnings of $12.2m, in line with market guidance, however down on last years $19.6m Prior year had significant product mix benefits leading to a one-off before tax upside of $24.1m Significant improvement of our performance in ingredient and nutritional produ
Slide 5: Financial Review
FINANCIAL REVIEW
Slide 6: Overview
OVERVIEW Net Profit / (loss) after taxation ° Underlying earnings' after taxation $12.2 m, down $ millions 38% os * Favourable one off product mix benefit in FY14 of $24.1m 0 19.6 * Improved gross profit contribution for both ingredient (up $9.8 m) and nutritional (up $17.8 m) product 16 ranges. Nut
Slide 7: Sales
SALES INCREASING PRODUCT AND GEOGRAPHICAL DIVERSIFICATION * More focus on streaming milk to nutritional products, * Lower reliance on China, more balanced geographical sales up 57% diversification Sales volume by product category Sales revenue by geographic region 120,000 97,803 100,000 93,644 80,00
Slide 8: Milk Supply
MILK SUPPLY 6.6% YEAR ON YEAR INCREASE IN CONTRACTED SUPPLY VOLUMES . millions kgMS Overall milk supply up 7.4% to 53.6 million kgMS on oo last year Increased contracted milk supply by 6.6% year on 60 year to 51.0 million kgMS - Replaced milk supply from Waimate region with 40 farms closer to Dunsan
Slide 9: Value inside the farm gate
VALUE INSIDE THE FARM GATE DIVERSITY OF PREMIUMS! CREATES VALUE FOR MILK SUPPLIERS $°000's Milk premiums paid « Milk premiums offered to our suppliers link back to seo0 customer opportunities : sor * Movement away from regular colostrum to Immuron 3,000 : Colostrum supply + Year on year growthin cer
Slide 10: Annual milk price
ANNUAL MILK PRIC 8 CENT PREMIUM TO ESTIMATED FGMP sy kahts Five year Synlait milk price trend + Final base milk price of $4.48 kgMS, reflective of low 0 9.00 commodity prices 8.31 7.76 ° Estimated to be $0.08 / kgMS higher than last announced industry farm gate milk price (FGMP) 700 ° Plus additiona
Slide 11: Profitability
PROFITABILITY Sanitions Underlying net profit after tax (NPAT) 25 20 15 0:3 (6.1) (0.4) | | 2.3 10 | (3.5) 5 0 FY14 Gross profit Net overheads Share of associates — Interest expense Tax FY16 underlying underlying NPAT NPAT © SYNLAIT 2015 11
Slide 12: Gross Profit
GROSS PROFIT STRONG PERFORMANCE IN NUTRITIONALS * Ingredients gross profit up on sales volumes (951 MT), price premiums ($60 / MT) and estimated favourable v0 performance against notional producer metrics. Offset by marginally higher manufacturing costs ¢ Nutritionals gross margin up on sales volume
Slide 13: Gross profit per metric tonne
G ») ROSS ROFIT / ME ¢ FY14 included one off product mix benefit not repeated in FY15 (benefit $257/MT) ° FY15 performance impacted by: Lactoferrin sales 8 MT below expectations, this would have added a further $41 / MT to gross profit $0.08 / kgMS milk price premium above estimated industry FGMP of
Slide 14: Overheads
OVERHEADS SLIGHT REDUCTION DUE TO STRONG COST MANAGEMENT ° Domestic freight savings of $1.7m resulting from new fully integrated warehouse ° Savings of $1.0m in export documentation fees * Largely offset by higher payroll costs of $(2.0)m to support expanding business growth into the future and othe
Slide 15: Earnings from associate: New Hope
FA 25% shareholding investment in New Hope RNINGS F Nutritionals Owner and distributer of Akara and Akarola infant formula brands in China Initial losses expected as brand presence is established in China ($0.4m share of loss to date) Exclusive manufacturing and supply agreement generates nutritiona
Slide 16: Net Operating Assets
NET OPERATING ASSETS RETURN ON OPERATING ASSETS HAS IMPROVED SLIGHTLY * Increase in net operating assets driven by capital $m spend and asset revaluation 600 * Other movements largely related to CAPEX accrual soo m0 +168 . . . . : 4101.7 — (primarily retentions on build of dryer three, quality — tes
Slide 17: Net Debt
NET DEBI INCREASING DEBT TO FUND EXPANSION CAPITAL EXPENDITURE . Cashflow from operating activities strained due to higher than usual advance payments to farmers Investment in dryer three, quality testing laboratory and administration building Other investments include plant upgrades and New Hope Nu
Slide 18: Equity
FQUITY MARK TO MARKET REVALUATION OF DERIVATIVES IMPACTS $34.1 MILLION . . Retained earnings movement from FY15 Asset revaluation of $16.8m results in after tax equity impact of $12.3m Of the derivative $34.1m impacts: ° $29.3m relates to foreign exchange year end mark to market adjustments and are
Slide 19: Bank Facility Update
BANK FACILITY UPDAT MATURITY PROFILE SIGNIFICANTLY IMPROVED * Completed renegotiation of Bank Facilities Agreement with syndicate which resulted in the following outcomes: * Decrease in Working Capital facility requirements - set at $35 million for FY16. Lower due to benefits of Mitsui & Co (NZ) Ltd
Slide 20: Strategic Update
ST RAT EGIC U PDAT
Slide 21: Increasing our focus
INCREASING OUR FOCUS * Strategy to partner with leaders in the infant formula industry, differentiating our products to create meaningful value for our customers and end consumers in: * Finished infant formula * Ingredient milk powders ° Infant base powders ° Synlait Lactoferrin * Sales volumes to m
Slide 22: Investment in capability
INVESTM * Commissioned lactoferrin plant in April 2014. Following some initial challenges secured cornerstone customer * Commissioned drystore in April 2014 that enables full containerisation of finished products for export * Commissioned blending and consumer packaging facility in July 2014. Produc
Slide 23: Sophisticated milk supply
SOPHISTICATED MILK SUPPLY * Secured 173 contracted milk suppliers for FY16, * Lead With Pride™ building momentum delivering a forecast 57.1m kgMS. Up 6.1m kgMS on * 16 farms are certified and at least a further 12 FY15 farms expect to certify by year end ° In FY16 over 50% of our milk supply will at
Slide 24: Building a great team
BUILDING A GR FAI More than doubled our staff over the last two years This period of building capability to support our growth initiatives is coming to a close with the teams focused on increasing performance We have enjoyed a step change in productivity as the team moved into the new office complex
Slide 25: Simplifying and improving our business
SIMPL . BUSIN FYING AN ESS D IM The last two years focused on building our customer base, manufacturing capacity and the capability of our team The next two years will be focused on achieving operational excellence and building infant formula volumes with our brand partners Product rationalisation h
Slide 26: FY16 Outlook
FY16 OUTLOOK
Slide 27: Accelerating our financial performance
ACCELERATING OUR FINANCIAL PERFORMANCE - Business now geared up to achieve our strategy * Total sales volumes set to grow from 97,800 MT in FY15 to an estimated 122,500 MT in FY16 * Experiencing strong growth in our infant formula business. While expecting only some growth in our base powder busines
Slide 28: Supplementary Information
SU P| ENTA RY INFO RMATION
Slide 29: Underlying earnings reconciliation
NDERLYING EARNING EF CONCILIATION —— 12months 12 months $ million to July 2014 to July 2015 Underlying Net Profit after tax reflects the underlying performance of the business for the relevant period after excluding from Net Profit after tax unrealised foreign exchange gains or losses arising from t
Slide 30: FX Hedging
FX HEDGING * The management of foreign exchange (FX) is one of our key risks and is therefore subject to a very robust Board approved policy * The primary measure of our performance in the management of this policy is the comparison between our annual average USD:NZD exchange rate compared to the an
Slide 31: Unrealised FX losses (inventory financing)
UNREALISED FX LOSSES (INVENTORY FINANCING)
Slide 32: Thank you
THANK YOU Visit our Investor Centre at www.synlait.com for more information. Media or investor queries can be directed to: Dan Walraven Communications Advisor Synlait Milk Limited P: +64 3 373 3069 E: daniel.walraven@synlait.com © SYNLAIT 2015