Release Date: March 23, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Synlait Milk Ltd (ASX:SM1, Financial) returned to profitability in the first half of FY25, with an EBITDA of $63.1 million, exceeding the guidance range.
- Revenue increased by 16% to $916.8 million, driven by advanced nutrition demand, high commodity prices, and improved foreign exchange performance.
- The company reduced its net debt by 29%, largely due to equity placement supported by BrightDairy and the a2 Milk Company.
- Advanced nutrition business experienced significant growth, with revenue up by 20% and gross profit rising by 80%.
- The company has made substantial improvements in operating cash flows and reduced capital expenditure to optimize current assets.
Negative Points
- The food service category, particularly UHT cream to China, saw a profit reduction of $1.4 million year-on-year due to high fat pricing.
- The second half of FY25 is expected to face slower progress compared to the first half, with headwinds related to milk stream returns and foreign exchange.
- The North Island asset has been a drag on performance, although improvements have been made.
- Lactoferrin remains a negative contributor at the gross profit level, despite some improvements.
- Inventory provisions increased significantly, indicating potential challenges in managing stock levels and stream returns.
Q & A Highlights
Q: Could you explain the changes in the net debt target range from $200-$250 million to $250-$300 million?
A: Andy Liu, CFO: The previous range did not include the shareholder loan, which is now included in the $250-$300 million range. This adjustment clarifies the debt measurement compared to senior debt.
Q: Regarding the second half EBITDA outlook, will the absolute dollar value be less than the first half?
A: Tim Carter, CEO: The second half progress will be slower due to headwinds, but the full year will show significant improvement. Do not simply double the first half EBITDA for projections.
Q: What was the benefit from FX and stream returns in the first half EBITDA compared to the prior year?
A: Andy Liu, CFO: The FX impact was around $14-$15 million, primarily related to the ingredients business.
Q: Can you discuss the performance of the North Island plant in the first half?
A: Tim Carter, CEO: The North Island asset has improved by roughly 30% compared to the first half, aligning with budget expectations for FY25.
Q: How sustainable is the 28% volume growth in advanced nutrition, and how much is driven by new customers?
A: Tim Carter, CEO: The growth is solid, with new customer demand growing at a good rate. The outlook for advanced nutrition base powder is promising, with new customers being qualified.
Q: What is the status of milk supply for FY27, and how does it relate to debt refinancing?
A: Tim Carter, CEO: We are comfortable with FY27 milk supply, with most farmers not under cease. Positive momentum and bank meetings indicate confidence in our position.
Q: Can you provide more details on the manufacturing cost reductions?
A: Andy Liu, CFO: Manufacturing cost reductions are driven by volume increases and cost optimization, with an absolute value reduction of $2.6 million.
Q: How has the lactoferrin market impacted gross profit?
A: Tim Carter, CEO: Lactoferrin pricing has stabilized, contributing to a stable gross profit without significant changes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
