Synlait Milk Ltd. · NZX:SML
Synlait Milk — H1 FY2020 Earnings Presentation
36 slides from Synlait Milk's earnings presentation, Mar 19, 2020
Slide 1: The Road Ahead: Synlait Half Year Results Investor Presentation
THE ROAD AHEAD SYNLAIT HALF YEAR RESULTS INVESTOR PRESENTATION 19 March 2020
Slide 2: Today's Agenda
TODAY’S AGENDA • COVID-19 update • Our six months in review • Our financial performance • Outlook • Appendices 2 Synlait, Dunsandel
Slide 3: COVID-19 Update
COVID-19 UPDATE Actively mitigating foreseeable risk INCIDENT ASSESSMENT TEAM REVIEWING SITUATION DAILY. FOCUSED ON MANAGING: Supply chain • No significant operational impact to date • Witnessing pressure on broader supply chain, particularly container space availability and shipping schedules. Mana
Slide 4: Our Six Months in Review
OUR SIX MONTHS IN REVIEW 4 Advanced Dairy Liquid Packaging Facility
Slide 5: Half Year Financials at a Glance
HALF YEAR FINANCIALS AT A GLANCE $559 M $26.2 M Revenue up 19% Net profit after tax (NPAT) down 30% reflecting higher depreciation and interest costs as we invest for growth* $67.6 M $7.25 KGMS EBITDA in line with HY19 Forecast base milk price for the 2019 / 2020 season announced in January Next upd
Slide 6: The First Half Has Not Been Without Its Challenges
THE FIRST HALF HAS NOT BEEN WITHOUT ITS CHALLENGES Challenges Approach Uncertainty remains regarding land at Synlait Pokeno • Supreme Court hearing next month (April 2020) • Remain comfortable with legal position Customer pipeline is exciting, but new, • Well progressed on material customer opportun
Slide 7: Strong Progress Made Towards Long-Term Strategy in the Half Year
STRONG PROGRESS MADE TOWARDS LONG-TERM STRATEGY IN THE HALF YEAR DOING MILK DIFFERENTLY OUR GROWTH Sports Everyday Infant Foodservice Next Big Nutrition Dairy Nutrition Thing STRATEGY LONG TERM FOCUS MEDIUM TERM FOCUS CURRENT FOCUS MEDIUM TERM FOCUS LONG TERM FOCUS HY20 • Watching brief, need to • I
Slide 8: What Makes Us Different
WHAT MAKES US DIFFERENT Our unique capabilities underpin our sustainable competitive advantage ESTABLISHED BUILDING Differentiated Developed an integrated Navigated complex Built in quality testing Focus on research, Creating a sustainable milk supply manufacturing chain regulatory environments stan
Slide 9: Infant Nutrition
INFANT NUTRITION Our core business is growing PERFORMANCE • Sales of consumer packaged infant formula increased 22% to 21,571 MT. The a2 Milk Company’s growth contribution has not changed, short-term channel demand changes and inventory planning means Synlait’s growth does not always match in-market
Slide 10: Everyday Dairy
EVERYDAY DAIRY Through the Dairyworks acquisition we have established a material position in a complementary category that will diversify Synlait DAIRYWORKS PROVIDES SYNLAIT WITH ... ... an immediately sustainable earnings stream … diversification reducing site, customer, … flexibility to optimise s
Slide 11: Net Positive for the Planet
NET POSITIVE FOR THE PLANET This represents the stand we are taking for the planet • 12-month nitrogen loss trial recently completed • Investigating alternative fuel options to reduce coal reliance • Bio-diesel fuel trial completed with our logistics partner • Synlait now ranks third out of all pack
Slide 12: Build a Healthier Synlait
BUILD A HEALTHIER SYNLAIT This is about strengthening our company LIVE OUR PURPOSE Ratio of engaged to actively disengaged staff • Whakapuāwai, an environmental programme connecting, our people, our 6 farmers, and our community through the planting of native trees, opened by 5 Prime Minister Jacinda
Slide 13: World Class Value Chain
WORLD CLASS VALUE CHAIN This is what creates value for our customers MANUFACTURING EXCELLENCE SAFE FOOD AND MARKET ACCESS HEALTHIER FARMING PRACTICES AND WORLD CLASS SUPPLY CHAIN MANAGEMENT AND PLANNING • Received infant formula registration from • On track to have approx. 125 farms Lead General Adm
Slide 14: Our Financial Performance
OUR FINANCIAL PERFORMANCE 14 Synlait’s dedicated laboratory at Dunsandel
Slide 15: Results at a Glance
RESULTS AT A GLANCE • Net profit after tax down 30% reflecting higher depreciation and interest $ millions Net Profit After Tax costs as we invest for growth 90 82.2 80 74.6 • Sales of consumer packaged infant formula increased 22% to 21,571 MT, albeit at lower margins as previously signalled 70 60
Slide 16: Sales Volume and Inventory
SALES VOLUME AND INVENTORY $ millions Sales volume and revenue (000) Total revenue up 19% to $559 million (HY19: $471 million), driven by increased 600 80 consumer packaged infant formula sales and a lift in commodity prices 70 500 60 400 CONSUMER PACKAGED INFANT FORMULA 56,116 50 46,259 300 44,435
Slide 17: Production Volume
PRODUCTION VOLUME MILK PRODUCTION (000) MT Production volumes KgMS • Milk processed up 8.5% to 46.7 million kgMS (HY19: 43.1 million kgMS) 120 50 46.7 • Total production (excluding liquid milk, lactoferrin and cheese) increased 43.1 45 4%. Driven by a 25.9% uplift in production of consumer packaged
Slide 18: Gross Profit Performance
GROSS PROFIT PERFORMANCE $ millions Gross profit GROSS PROFIT PERFORMANCE 200 186.3 175 166.5 • Gross profit has reduced to $82.9 million (HY19 $85.9 million) 150 100.4 125 112.1 81.3 • Driven by increased sales of consumer packaged infant formula, offset by an increase in overhead costs (explained
Slide 19: Overheads
OVERHEADS $ millions Overheads • Overhead costs increased 27% to $37.1 million (HY19: $29.2 million) 70 driven by a: 62.1 60 54.2 • $3.2 million increase in employee costs reflecting ongoing investment in 50 44.5 people. This continues to be Synlait’s largest driver reflecting continued 32.9 40 29.7
Slide 20: Operating Cash Flow
OPERATING CASH FLOW $ millions Operating cash flow • Synlait typically experiences seasonality in cash flows due to the milk 200 production curve 150 • Operating cash flow was down 61% to $12.2 million in HY20 (HY19: $31.5 million) 100 23.4 105.2 • Reduction primarily due to inventory build during H
Slide 21: Net Debt
NET DEBT $ millions Net debt • Net debt increased $159.7 million to $447.4 million in HY20 (HY19: $287.6 million) 500 447.4 450 • Continued significant investment in major growth projects 400 and operational projects continued with $220.0 million of 350 333.6 capital expenditure: 300 287.6 250 • Sec
Slide 22: Outlook
OUTLOOK Syntait |22 (OG) syniait, Pokeno
Slide 23: Second Half Returns
SECOND HALF RETURNS We are on track to deliver … (000) Consumer-packaged infant formula sales (MT) On track to deliver stronger sales of consumer packaged infant formula and 50 35,580 42,907 lactoferrin in the second half of FY20. This is driven by the seasonality of our business. Historically: 40 •
Slide 24: Full Year Outlook
FULL YEAR OUTLOOK … NPAT guidance range of $70 million to $85 million $ millions EBITDA • FY20 EBITDA is expected to be stronger than FY19 due to higher sales 200 180 of consumer packaged infant formula and lactoferrin offset by increased 152.1 160 operational costs 140 138.6 120 • Synlait has a str
Slide 25: Core Business Performing Well, Continues to Support Growth Story
CORE BUSINESS PERFORMING WELL, CONTINUES TO SUPPORT GROWTH STORY • Establishing a scalable infant nutrition business that leverages Synlait’s differentiated value chain is a core focus and remains a significant contributor to Synlait’s growth strategy • Core business growth continues driven by incre
Slide 26: Cyclical ROCE Profile: Building in Front of the Curve
CYCLICAL ROCE PROFILE: BUILDING IN FRONT OF THE CURVE Synlait is nearing completion of its fourth major $ millions Net operating assets and ROCE ROCE (Pre-tax) investment cycle, having invested $470 million in 1,200 36% growth projects over the past 24 months 1,100 23% Building ‘in front of the curv
Slide 27: Capability Gives Synlait Choice, But Market and Customer Opportunities Must Align
THIS CAPABILITY GIVES SYNLAIT CHOICE, BUT MARKET AND CUSTOMER OPPORTUNITIES MUST ALIGN OUR APPROACH TO BUSINESS DEVELOPMENT: ACTIVELY CREATING OPPORTUNITIES POTENTIAL MARKETS POTENTIAL CUSTOMERS We assess: We assess: Strategic fit Size Growth Strategic fit Partnership fit Brand fit DISCOVERY Long-te
Slide 28: Pokeno: How We Are Thinking About Utilisation
POKENO: HOW WE ARE THINKING ABOUT UTILISATION Short-and-long term drivers of return (000) Pokeno utilisation (illustrative only) SHORT-TERM (FY20 - FY21) DRIVERS OF RETURNS 45 40 100% 1. Full year of revenue to offset full year of costs Illustrative 35 only 80% 30 2. Benefits of operating leverage a
Slide 29: Synlait Guidance Update
SYNLAIT GUIDANCE UPDATE Synlait remains comfortable with its FY20 earnings guidance range, which was updated in February 2020. Synlait expects FY20 earnings guidance to be between $70 million and $85 million net profit after tax. Notwithstanding that, Synlait still anticipates strong growth in consu
Slide 30: Key Takeaways from Today
KEY TAKEAWAYS FROM TODAY 1. Core business performing well, continues to support growth story 2. Confident of maintaining previous margins under extended The a2 Milk Company agreement 3. Customer pipeline remains strong, with material opportunities well progressed 4. Dairyworks provides a great base
Slide 31: Appendices
APPENDICES 31 Dunsandel milk reception bay
Slide 32: Gross Profit by Category
GROSS PROFIT BY CATEGORY Sales volume (MT) Gross profit ($m) GP/MT H1 2019 FY 2019 H1 2020 H1 2019 FY 2019 H1 2020 H1 2019 FY 2019 H1 2020 Powders and Cream 56,116 106,802 46,259 69.6 142.2 59.6 959 969 899 Consumer Packaged Powders 17,684 42,907 21,571 14.0 34.3 17.8 789 800 824 Lactoferrin 6 21 8
Slide 33: Banking Facilities, Covenants and Bond Issue
BANKING FACILITIES, COVENANTS AND BOND ISSUE SYNLAIT CURRENTLY HAS FOUR SYNDICATED BANK WE HAVE FIVE KEY COVENANTS IN PLACE WITH FACILITIES IN PLACE WITH ANZ AND BNZ. OUR SYNDICATED BANKS. 1. Working capital facility (multi-currency) – facility limit of $250 million These are: and reviewed annually
Slide 34: Pokeno Update
POKENO UPDATE Timeline of the process to date February 2018 Synlait announced the conditional purchase of 28 hectares of land in Pokeno to establish our second nutritional powder manufacturing site. It was the vendor’s responsibility to have the covenants removed November 2018 High Court removed cov
Slide 35: Disclaimer
DISCLAIMER This presentation is intended to constitute a summary of certain information about Synlait comply with: (i) the financial or other reporting requirements of any regulatory body or any Milk Limited (“Synlait”) or in connection with its half year 2020 financial results. It should applicable
Slide 36: Investors / Media Contacts
INVESTORS MEDIA Hannah Lynch Linda Chalmers Corporate Affairs Manager Senior Communications Advisor – External +64 21 252 8990 +64 21 951 347 hannah.lynch@Synlait.com linda.chalmers@synlait.com 36 Mt Hutt, Canterbury, New Zealand