By Paul McBeth
June 22 (BusinessDesk) - Synlait Milk, the milk processor that turned to a Chinese investor after failing to attract
local equity capital, narrowed its annual loss last year, even as surging raw milk prices eroded its gross margin.
The Canterbury-based company made a net loss of $3.1 million in the 12 months ended July 31 last year, smaller than the
loss of $11.7 million a year earlier, according to financial statements lodged with the Companies Office.
The milk processor lifted revenue 28 percent to $298.9 million, though its gross profit shrank 11 percent to $21.1
million in a year when international milk prices reached record highs. Synlait Milk paid its suppliers $7.76 per
kilogram of milk solids in the 2010/11 season, up from $6.31 per kg/ms a year earlier That exceeds Fonterra Cooperative
Group's $7.60 payment and Open Country Dairy's $7.56.
"While New Zealand's competitive milk pricing environment means the company is yet to achieve a profit, we remain
committed to our strategy of quickly moving into specialty and nutritional powders," chief executive John Penno said in
his report. "The margins provided in these demanding market segments will be critical to Synlait Milk's future."
Last month, Synlait Milk signed a deal with ASX-listed biopharmaceutical company Immuron for a small volume of
high-value 'hyperimmune colostrum'.
Penno said the company's growth aspirations will need "substantial ongoing investment." Synlait Milk's annual wage bill
doubled to $7.6 million.
The milk processor opened a $100 million infant milk formula plant last year in a bid to develop high-end products to
sell into China after Bright Dairy and Food bought a 51 percent stake in the company for $82 million.
Penno said Synlait Milk achieved price premiums consistently in the latest financial year due to broadening its
manufacturing capability and lifting its quality performance.
The milk processor was granted a waiver to a breach of its banking covenants by ANZ National Bank and Bank of New
Zealand in June last year. As at July 31, its bank debt was $85.1 million. Interest and facility fees fell to $5.1
million from $9.1 million in 2010.
"The company recognises the need to maintain a balance between the higher returns that might be possible with greater
gearing and the advantages and security afforded by a sound capital position," the company said.
Chairman Graeme Milne said Bright Dairy's investment gave Synlait Milk the opportunity to get a foothold in Asian
markets, and its board representatives have "contributed strongly to the direction and strategies" of the company.
Bright Dairy partnered with Synlait Milk after the Canterbury company failed to attract investors keen on an initial
public offering, in what was the Chinese firm's first international investment.