• EBITDA: $63.1 million, above the guidance range provided in January 2025.
• Net Debt: Reduced by 29% to $392 million.
• Revenue: Increased by 16% to $916.8 million.
• Base Milk Price: Forecasted at $10 per kilogram of milk solids.
• Advanced Nutrition Revenue: Increased by 20% to $45 million.
• Advanced Nutrition Gross Profit: Increased by 80% to $59 million.
• Ingredients Revenue: Increased by 17%, up by $49 million.
• Ingredients Gross Profit: Increased to $14.3 million from $1.4 million year on year.
• Consumer Business Gross Profit: Increased by $2.2 million despite a slight decrease in sales.
• Food Service Volumes: Increased by nearly 115% compared to half year '24.
• Operating Cash Flow: Best performance since half year '21, with a $43 million lift in trading performance.
• CapEx: Limited to $12.7 million, the lowest level since 2017.
• Sales Growth in New Zealand: 23% increase.
• Sales Growth in Australia: 28% increase.

• Warning! GuruFocus has detected 8 Warning Signs with ASX:SM1.

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) 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.