DELIVER.
INVEST.
CLARIFY.
OUR YEAR IN REVIEW
ANNUAL REPORT 2019
DOING MILK DIFFERENTLY
Faye Goh, Chemistry Supervisor
Bruce Turpie, Synlait Milk Supplier
FOR A HEALTHIER WORLD
Riki Davis, Maintenance Technician
Tess Martin, Training Manager - Operations
IS TAKING US
TO A NEW LEVEL
Palletiser in Dry Store 1 at Synlait Dunsandel
CONTENTS
Our year in review
Highlights
Chair review
CEO review
CFO review
Key performance indicators
Milk price
Our board
Our executive team
Pg 2
Pg 4
Pg 6
Pg 10
Pg 16
Pg 25
Pg 26
Pg 28
Pg 29
Update on our Sustainability Strategy
Pg 30
– Environment
– People
– Enterprise
Corporate governance report
Financial statements
Auditors report
Statutory information
Directory
Pg 42
Pg 54
Pg 107
Pg 111
Pg 119
OUR YEAR
IN REVIEW
1
Synlait Milk Limited Annual Report 2019 OUR YEAR IN REVIEW
DELIVER.
DELIVERING RESULTS
• Revenue exceeded $1 billion
for the first time, increasing
17% to $1,024.3 million
• Net profit increased 10% to
• Operating cashflow increased
$82.2 million
39% to $136.7 million
• Sales volumes increased
21,093 Metric Tonnes (MT)
or 16% to 149,730*
• Consumer packaged infant
formula sales continue to
grow, up 21% to 42,907 MT
• Average milk price of $6.58
per kgMS for the 2018/2019
season, made up of a base
milk price of $6.40 and an
additional $0.18 in incentive
payments
INVEST.
INVESTING FOR THE FUTURE
• $18.9 million expansion to
• $260 million infant-
lactoferrin facility completed
on time and within budget,
doubling manufacturing
capacity
capable manufacturing
facility in Pokeno close to
commissioning. Welcomed
56 milk suppliers and 77
employees
• $134 million advanced liquid
dairy packaging facility at
Dunsandel designed, built
and commissioned within
18 months
CLARIFY.
CLARIFYING OUR DIRECTION
• Talbot Forest Cheese
• $32 million investment to
acquisition completed on
1 August 2019
build Dry Store 4 announced.
This additional 30,000m2
warehouse at Dunsandel
will unlock further supply
chain efficiencies and enable
greater traceability, deliver
meaningful sustainability
benefits, and result in shorter
lead-times for customers
• 218 capable, experienced and
high-energy people hired to
help run these facilities
• Launched our new purpose
and brand identity: Doing
milk differently for a
healthier world
• Delivered on our promise to
• Defined our formula for
clarify Synlait’s focus, strategy
and purpose for shareholders
and staff
success: 2 + Zero. Doubling
our business with a net
positive impact
• New strategy has eight clear
strategic paths to grow and
enable our business
• This now underpins
everything we do and will
take Synlait to the next
phase of growth
*Excluding liquid milk
2
3
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 INVESTED FOR GROWTH
CAPEX
$333.6m
218
NEW SYNLAIT EMPLOYEES
DOUBLED LACTOFERRIN CAPACITY
WITH COMPLETION OF NEW FACILITY
43 NEW LEAD WITH PRIDE™ FARMS1
49%
63
SOUTH ISLAND
FARMS NOW
CERTIFIED1
FARMS SIGNED UP
TO PALM KERNEL
EXPELLER (PKE)
FREE INCENTIVES1
TURNED ON NEW ZEALAND’S FIRST
LARGE-SCALE ELECTRODE BOILER
HIGHLIGHTS
MOVED INTO EVERYDAY DAIRY
CLARIFIED OUR DIRECTION
New purpose, ambition and strategy cemented:
Heart, Head and Hands
THE GROWTH STORY CONTINUES
REVENUE EXCEEDED
$1b
FOR THE FIRST TIME
Commissioned our advanced liquid dairy
packaging facility
Talbot Forest Cheese acquisition2
NPAT FY19
$82.2m
1 Reporting consistent with 1 June 2018 - 31 May 2019 dairy season
2 Completed on 1 August 2019 (post balance date)
4
5
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 CHAIR
REVIEW
CHAIR REVIEW
Graeme Milne ONZM
A VERY WARM WELCOME TO THIS,
THE FIRST REPORT OF OUR SECOND
DECADE IN OPERATION.
May I extend that welcome to all stakeholders, whether
recent shareholders, or those who joined Synlait in the early
2000s when we were originally a dairy farming company, with
aspirations at the time to: Make More From Milk. Welcome also
to those who have a stake in our company whether as staff,
suppliers, customers, advisors, or compatriots in the industry.
During the past 11 years we have made our growth ambition
clear. We always strive to be aspirational, and different, in order
to shift perceptions and drive value. This year we exceeded
$1 billion in revenue for the first time.
at Dunsandel. Our team increased from 682 in FY18 to 900 in
FY19. That is a massive increase in talent and required a huge
effort from our existing team to recruit, on-board, train and
integrate the significant increase in staff numbers in one year.
Consequently, operating costs increased by 15% year-on-year.
Despite the operating cost investments, operating cashflow
at $136.7 million was well up on last year’s $98.4 million,
demonstrating the impressive ability we have to keep growing
our business. Net debt increased from $114.9 million to $333.6
million as we invested heavily in new plant and equipment.
Even so, our balance sheet remains strong, and we retain
significant headroom within our banking facility covenants.
Investing for growth
The financial performance outlined above reflects that we are
nearing the end of our second major growth phase, having
Our new CEO, Leon Clement, joined us in August 2018 and
spent $309.3 million on capital expenditure in FY19. This is in
has taken the opportunity to clarify the vision we have for the
addition to the $67.7 million spent in the second half of 2018.
future as we enter our second decade. Our strategy has been
refined but retains our company’s essential DNA, which has
been succinctly captured in our restated purpose: Doing milk
differently for a healthier world.
AREAS OF FOCUS FOR THE BOARD
Our current business can be fairly described as essentially
focused around one sector, one market and one customer, that
being infant formula for China via The a2 Milk CompanyTM. We
see this as a great strength, but also a potential vulnerability,
hence our investments have been balanced to both increase
our capabilities in infant nutrition while we look to enter other
Continuing our strong financial performance
profitable categories.
Our full year 2019 result (FY19) was positive and in line with
consumer packaged infant formula sales guidance. More detail
on our financial performance is available in the CFO review on
page 16. However, at a top line, revenue exceeded $1 billion, a
17% increase on the previous year. This growth was despite an
overall drop in the value of the farm gate milk price during the
year, which reduced revenues by more than $30 million on a
like-for-like product mix. Underlying revenue growth therefore
exceeded 20%.
Net after tax profit increased 10% to $82.2 million on the prior
year, and reflected an increase in high margin sales, but also an
increase in operating and capital costs necessary as we invest
for future growth.
One example of this significant investment is our head count
Our major project at Pokeno gives us a new location, reducing
single site risk and providing us with a third infant capable
dryer. Synlait Pokeno remains on track, and we have welcomed
56 new milk suppliers to the company, representing a 20%
increase in our total milk collection in one year. We thank those
suppliers for putting their faith in shifting to Synlait in what can
be only described as a competitive market for raw milk.
In terms of entering new categories, the completion of our
$134 million investment in the advanced liquid dairy packaging
facility at Dunsandel was a significant achievement. The plant
supplied its first product on schedule to our first customer,
Foodstuffs South Island, in early April. While focused on fresh
milk in customer brands at present, the plant is capable of
producing a variety of products in a variety of packaging
to ensure we have right capabilities to run the facilities we are
formats which will be developed and launched over the next
building, such as the advanced liquid dairy packaging facility
few years.
6
7
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 CHAIR REVIEW
Graeme Milne ONZM
The list of achievements and milestones this year is extensive
This year to provide a greater degree of transparency, we
and is detailed further in Leon’s CEO review on page 10.
have provided a summary of how we are tracking against our
Highlights include successfully doubling our lactoferrin
sustainability strategy on page 30. The Board are committed
production capacity in light of very strong international demand,
to supporting the business to provide investors with the
negotiating to buy Talbot Forest Cheese (and completing the
opportunity to monitor our performance through a non-
purchase on 1 August 2019), and installing a new pilot plant for
financial lens. Therefore, I am pleased to let you know we
product development at our research and development centre
will soon enhance our sustainability reporting. This will detail
at Massey University in Palmerston North.
our environmental impact across our value chain, capture our
Leading sustainable change in a fast-changing world
Turning to the international market in which Synlait operates,
we see a degree of turbulence and change. At a macro scale
progress so far and provide further clarity on the path which we
intend to travel.
Steady leadership transition
we are monitoring the U.S. approach to trade negotiations,
Leon, as our new CEO for almost the full 2019 financial year,
but at this stage are unharmed by it. The dairy sector is
has certainly hit the ground running. The many moving parts
experiencing overall good demand, but there are important
of our dynamic organisation have been quickly assimilated
trends emerging.
Our business is currently solely B2B and we maintain a very
close relationship with a relatively small number of high value
customers in each of our categories.
by Leon to such an extent that he was able to lead the Board,
along with the whole company, through a comprehensive
strategic review. The renewed and refocused purpose, ambition
statement and strategic pillars are clarifying for all and driving
the company forward at quite a pace.
OUR CUSTOMERS TELL US, AND
WE CONCUR, THAT THE WORLD
NEEDS HIGH QUALITY NUTRITION
FOR AN INCREASINGLY AFFLUENT
POPULATION, BUT THIS MUST BE
PRODUCED WITH UNQUESTIONABLE
SAFETY, DEMONSTRATED
COMMITMENT TO SUSTAINABILITY,
UNCHALLENGED ANIMAL WELFARE
STANDARDS, AND WITH A POSITIVE
IMPACT ON OUR RELEVANT
COMMUNITIES.
It’s a tall order but one which we are responding to
enthusiastically at Synlait. Our Lead With Pride™ programme on
BOARD UPDATE
This year an external review of the Board’s capability and
performance was conducted with a view to ensuring it has the
skills and experience required to lead the company into the
future. Several useful recommendations have already been
adopted. Key among them was to ensure we have a succession
plan that meets our needs for top performing governance. To
that end we will start to bring new talent onto the Board and
establish a pattern of a new replacement director, if not each
year, then every other year.
Our indicative succession plan is that Bill Roest will step down
at the end of his current term in 2020, and as indicated at
the Annual Meeting last year, I will step down at the end of
my current term in 2021. At this year’s annual meeting on
Wednesday 27 November in Christchurch, Sam Knowles will
retire and seek re-election from shareholders. There will also
be a resolution to align our Constitution with the updated NZX
Listing Rules, which came into effect earlier this year.
farm is an industry exemplar. It focusses milk suppliers on the
Additionally, with a view to ensuring best practice we have
best standards of milk quality, animal welfare, environmental
sustainability and staff and community well-being. Our health
and safety performance within Synlait is a continual focus
and with a Total Recordable Injury Frequency Rate (TRIFR)
of 13.7 (a 28% reduction year-on-year), we are making good
added environmental responsibilities to our People and
Governance Committee. Sam Knowles has taken on the
responsibility of Chair for our new People, Environment and
Governance Committee, with Hon. Ruth Richardson stepping
down as Chair. Ruth has served as Chair since the formation
progress. Our sustainability targets are aspirational and publicly
of this Committee and has provided excellent guidance and
announced. We are proud of the stance we have taken on
our environmental commitments. Product quality is of the
utmost importance as we sell ‘trust’ within every consumer
pack. Synlait has a comprehensive product quality system,
externally accredited and regularly audited by customers and
independent authorities.
counsel through the many challenges we have faced as a
dynamic and fast-growing company. May I thank Ruth on behalf
of you all for such a magnificent contribution.
I ALSO WISH TO THANK OUR
SENIOR LEADERSHIP TEAM, AND
ALL STAFF FOR ANOTHER INSPIRING
RESULT. THE ENVIRONMENT
YOU WORK IN IS FAST-PACED
AND OUTCOME-FOCUSSED. THE
EFFORT REQUIRED IS DAUNTING,
BUT THE SENSE OF ACHIEVEMENT
IS PALPABLE. OUR TEAM ARE
UNQUESTIONABLY MOTIVATED
TO BE: DOING MILK DIFFERENTLY
FOR A HEALTHIER WORLD.
OUTLOOK
With a continuing growth agenda and clear strategies to enter
new categories, we expect to invest at a rate which at least
matches the pattern we have established in our first 11 years.
Our aspirations are for a return on capital employed (ROCE)
of approximately 20% and we do not expect to be paying
dividends in the foreseeable future.
Our share price finished FY19 at $10.05 and was a disappointing
8% down on the previous year’s finish at $10.88. We do
acknowledge that the covenant issue at Pokeno, which was
disclosed during the year, has had a negative effect on our
share price, and we are working to resolve the situation and
limit its impact as soon as is practicable.
Finally, based on the diversification of our business, and the
way we create value, we are changing the way we provide
guidance. We expect our FY20 profits to continue to grow, with
the rate of profitability increasing at least at a similar rate to that
of FY19 over FY18. Our expected earnings growth will be driven
by continued momentum in consumer packaged infant formula,
a full year of operation of the advanced liquid dairy and
lactoferrin facilities, the first sales of long-life products, and the
progression of our Everyday Dairy strategy. There will also be a
contribution from Synlait Pokeno, which will be commissioned
shortly.
Thank you for your continued support of Synlait.
Graeme Milne
CHAIR
8
9
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 CEO
REVIEW
DELIVER. INVEST. CLARIFY.
Our year in review
Kia ora
Here at Synlait we are committed to doing milk differently for
a healthier world.
Our financial results have been characterised by ongoing
growth in our infant nutrition volume (up 21% to 42,907 Metric
Tonnes (MT)). As our core business, this continues to grow,
and I’m pleased with how our teams came together to meet
Our new purpose and brand identity is less than one year old,
customer demand.
but it has quickly helped shape the choices we make, and
clarify the vision we have for the future.
We are a growth company, harnessing New Zealand’s natural
capital, and combining expert farming with state-of-the-art
processing. Maintaining this momentum and clarifying our
future have been our top priorities.
As I reflect on my first year at Synlait, and our performance,
three things stand out for me: firstly we’ve delivered a strong
financial result, supported our customers to grow and create
value, while improving our operational efficiency; secondly,
we’ve invested in our future, with new facilities and people
capability that position us well for continued growth; and finally,
we’ve clarified and focussed our direction with a new purpose,
ambition and strategy that aligns our people and stakeholders
to a common goal that will help us write the next chapter in
this exciting Synlait story. In summary, we’ve delivered a strong
result, invested in our future and clarified our direction.
DELIVERING RESULTS
Group financial results at a glance:
• Revenue exceeded $1 billion for the first time and increased
17% to $1,024.3 million
• Net profit increased 10% to $82.2 million
• Operating cashflow increased 39% to $136.7 million
• Sales volumes1 increased 21,093 MT or 16% to 149,730 MT
• Consumer packaged infant formula sales continued to grow
up 21% to 42,907 MT
• Average milk price of $6.58 per kgMS for the 2018/2019
season, made up of a base milk price of $6.40 and an
additional $0.18 in incentive payments
A strong financial result was delivered because we have
continued to support our customers to grow and create value,
while improving our own operational efficiencies. This has
allowed us to invest in growth and set ourselves up for the
future.
1Excluding fresh milk
Our margins per MT have softened year-on-year, largely a
function of customer mix, the renegotiation of our supply
agreement with The a2 Milk CompanyTM, and increases in fixed
overheads as we prepare to bring new assets online. Our new
advanced liquid dairy packaging facility also incurred some
additional commissioning costs that impacted our cost line.
We are looking to stabilise its performance during the coming
months.
However, we have continued the strong efficiency gains we
signalled at half year (processing 8.7% more milk in FY19 vs.
FY18), and expanded lactoferrin capacity and resulting sales.
These factors have combined to improve our total gross profit
by 12% across the business. Our expenditure has lifted in line
with this growth – but importantly, much of this increased
investment is also in areas of the business that support
future growth opportunities. Notably, our operating cashflow
increased 39% to $136.7 million, reflecting the strong underlying
performance of the business and ability to fund our investment
programme.
As an integrated manufacturing business, our customer
relationships are critical to our business success. Throughout
the past year we have continued to evolve our customer base.
We continue to build on the strategic partnership we have with
The a2 Milk Company™, working closely to grow our respective
businesses. Over the past six months, we also cemented
our partnership with Foodstuffs South Island for the supply
of private label milk and cream. Synlait Dunsandel is now
supplying the private label daily fresh milk needs to 39 stores
and three distribution centres throughout the South Island. We
have also delivered on our supply commitment for lactoferrin
for a major international customer.
No year is without its challenges and we were disappointed
when the U.S. Food and Drug administration (FDA) registration
process required to launch Munchkin’s Grass Fed™ infant
formula in the U.S. was put on hold. Our relationship and supply
agreement with Munchkin remain in place and we still supply
other markets, including New Zealand and Australia, where
GrassFed™ is sold.
10
11
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 CEO REVIEW
Leon Clement
We have a strong track record at navigating complex regulatory
environments and continue to meet the strict criteria of several
product quality and safety accreditations. In July, Dunsandel
received FSSC 2200 certification, our first global food safety
certificate. This is an extremely important achievement which is
valued by several of our key customers.
We also received General Administration of Customs of the
People's Republic of China (GACC) general dairy registration
for our Auckland facility.
Our Akara and Pure Canterbury formulation registrations have
been accepted subject to a site audit, with Synlait continuing to
work through the registration process for e-Akara. Uncertainty
remains around the China infant registration process with
the State Administration for Market Regulation (SAMR). We
acknowledge these have taken longer than anticipated.
As I mentioned above, our result was underpinned by
some strong operational efficiency gains. This progress
was supported by impressive improvements created by our
Integrated Work Systems (IWS) programme.
During FY19, 8.7% more milk was processed and stops on
Dunsandel’s consumer packaging line reduced by 95%,
increasing throughput by 22% over an 18-month period. These
are impressive achievements that have created immediate
value for our customers.
tools and processes that allow us to gain greater visibility and
transparency of events. It has resulted in a significant increase
in reported events and greater engagement from all aspects of
the business in the proactive identification of hazards and risks.
We have also reduced injury rates (TRIFR) by 28% over the past
year. We still have plenty of room for improvement here as we
strive towards our ambition of zero workplace injuries for all our
people.
The above achievements demonstrate that Synlait is an
action-based organisation which is growing fast. It’s our people
that make these things happen, which is why it’s important
to support our team and build the right culture to support
our growth. Harnessing a more diverse range of people and
perspectives is critical to our future success – and to help our
people balance the demands of their work and home lives,
we’ve launched two new people-focussed policies.
Tāwariwari, encourages workplace flexibility, essential in
today’s world. We want to attract and retain top talent, but know
staff need flexibility to pick their place or time of work. We’re
now offering this.
Mātua, is our parental leave policy. We’re topping up the
government-paid leave to full salary for 22 weeks. To make it
easier to return to work, we’ll also contribute up to 20 hours
child care per week until the government’s child care subsidy
kicks in. This policy will enable us to attract and keep talent, as
well as build greater diversity.
WE ALSO MADE STRONG PROGRESS
ON OUR SUSTAINABILITY AGENDA.
These policies give our people options to balance their work
and personal lives. More information can be found in the
sustainability section on page 38.
Earlier this year, we delivered on our pledge not to build any
additional coal infrastructure by commissioning New Zealand's
first large-scale electrode boiler at Dunsandel. This was a key
sustainability milestone for our team as we aim to radically
reduce our carbon footprint over the long-term.
Culture and community are also critical to building a healthier
place for our people to work. Recently we’ve launched
Whakapuāwai, our latest sustainability commitment, which
gives our people a unique opportunity to engage with
their communities, our farmers and iwi to make a personal
contribution to environmental restoration with native trees.
More information on Whakapuāwai is in the sustainability
section on page 39, but I wanted to reinforce how important
this initiative is to us. We can’t solve environmental challenges
on our own, but through Whakapuāwai we can lead by example
and hopefully inspire others to follow.
Working with some of New Zealand’s best farmers and doing
the right thing is rewarding – a record 43 farmers were Lead
With Pride™ certified in FY19, reaffirming our commitment to
healthier farming practice. We also saw 63 farmers take up our
palm kernel expeller (PKE) free incentive. We are working with
our farmers to achieve these targets while maintaining farm
profitability, but the record response suggests our farmers are
willing to take on these challenges, which is great to see.
For the 2018/2019 season we paid an average milk price
of $6.58 per kgMS for the 2018/2019 season, made up of a
base milk price of $6.40 and an additional $0.18 in incentive
payments. We believe this is a competitive payment, reflective
of the value our contracted farmers bring to our business. In
an effort to improve transparency around how we pay our milk
suppliers for their milk we have included an additional table in
this year’s annual report, which you can find on page 26.
We are a fast-paced and rapidly growing organisation that
undertakes complex work, which means our teams can be
exposed to a range of risks. To support this, we have launched
INVESTING FOR THE FUTURE
We have grown profits and improved operational efficiencies
while making significant capital and people investments to set
us up for future growth. The strong balance sheet that emerged
at the end of FY18 has provided a range of new opportunities
for investment that have been progressed during this past year.
THE PACE AND QUALITY AT WHICH
OUR TEAM DELIVERED OUR FOUR
MAJOR GROWTH PROJECTS,
WHILE CONTINUING TO SUPPORT
OUR CURRENT CUSTOMERS TO
GROW, AND IMPROVING EXISTING
OPERATIONAL EFFICIENCIES, IS
TRULY IMPRESSIVE.
The build of our new $260 million infant-capable manufacturing
facility in Pokeno is close to being commissioned. We were
excited to welcome 56 new North Island farms to the Synlait
family, which means we have met our volume targets, and the
77 new Synlait employees who bring the capabilities required
to run this facility.
Following our update to the market last month, a date for
the Supreme Court oral hearing has been set for Monday
21 October 2019.
Pokeno is a world class facility being run by an engaged and
highly capable team, backed by some of the Waikato’s best
farmers, and commissioning is on-track for this month. We look
forward to updating you on this significant milestone.
We acknowledge this issue has created uncertainty for
shareholders and milk suppliers but are committed to ensuring
a reasonable outcome is reached. Synlait has made a
reasonable settlement offer and we are working towards one of
two outcomes which we believe are in the best interests of all,
a reasonable settlement offer, or a court outcome.
We are comfortable that our legal exposure is not substantial.
Synlait determined, and the auditors agreed, that no provision
is required under the accounting standards in its financial
statements.
A full update on the timeline in respect of Pokeno and next
steps can be found in the corresponding Investor Presentation.
Our investment didn’t stop at Pokeno, we also completed a
$18.9 million expansion to our lactoferrin facility at Dunsandel
on time and on budget. This has doubled our manufacturing
capacity and is beginning to pay off with demand continuing
to grow for this high-quality specialised product. We have
developed strong capability in designing, building and running
our lactoferrin facilities which provide a high-quality infant
grade specification that meets China’s national standards.
Dunsandel is now also home to our new $134 million advanced
liquid dairy packaging facility, which began supplying liquid milk
to Foodstuffs South Island in April. This plant was designed,
built and commissioned within 18 months of signing the supply
contract - an impressive achievement. It included a $4 million
investment to install New Zealand’s first large scale electrode
boiler. This facility allows Synlait to explore other milk product
opportunities and develop new domestic and international
partnerships. It also provides us with long-life liquid processing
capability.
Progress was also made to develop our research and
development capabilities as we build our new product
development team in Palmerston North. Again, we’ve invested
in people to ensure Synlait has the right technical expertise to
enable product and customer development.
This is already showing results, with the team supporting the
liquid milk plant by trialling product pipelines in high-returning,
fast-growing categories such as long-life dairy beverages and
liquid nutritional formulations. Since the pilot plant ‘Syndi’ was
commissioned in October, 39 new products have already been
tested, and four trials conducted.
Talbot Forest Cheese joined the Synlait family in August, again
enhancing and complementing our existing categories. This
will help optimise our manufacturing assets, access new profit
pools, and it aligns with our approach to run a high-quality,
flexible dairy manufacturing plant that enables us to tailor
products to meet customer needs.
As part of our strategy to build a world class value chain, our
latest investment for the future is Dry Store 4 – an additional
30,000sqm warehouse at Synlait Dunsandel, which will
streamline logistic activities while bringing offsite South
Island storage back to this site, supporting future growth and
generating strong supply chain efficiencies. It will also enable
greater control over our inventories, traceability and value add
services, and improve our sustainability footprint and result in
shorter lead times for our customers.
The project is expected to cost $32 million and delivers a
strong investment return based on the planned efficiency gains.
The warehouse will create 20 new jobs and is expected to be
completed in September 2020. Total usable warehouse space
at Dunsandel will increase to 55,000sqm on completion.
Not only have we built new facilities, but we have bought in
capable, experienced and high-energy people to run them.
Building strong teams across all our Synlait sites, and ensuring
we have the right balance of skills has been critical.
In what was a record year for new employees, with 218 people
joining Synlait, our People, Performance and Culture team must
be acknowledged for the excellent job done to hire extremely
capable people, aligned with our culture, who are supporting us
to keep delivering in a uniquely Synlait way.
12
13
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 CEO REVIEW
Leon Clement
CLARIFYING OUR DIRECTION: HEART,
HEAD AND HANDS
Our purpose is driven by three elements: being different,
essential nutrition and sustainability.
Last year, soon after starting with the Synlait team, I spoke
about wanting to work with our people to clarify and focus our
direction, while making sure we continue to deliver in a truly
Synlait way.
Synlait was born different, it’s in our DNA. We’re not trying to
be different for different’s sake. We’re different because we
believe that to be the best, we must think and act differently –
and we’re applying this attitude to all parts of our business, not
We’re a growth company, it’s a fast and dynamic place to work
just our approach to milk.
with a strong team spirit, so it is important we have a framework
to keep us on the right path for success. A framework that
helps provide clarity for our people on why we exist, what we
are aiming for, and where and how we will achieve it. We call
this framework Heart, Head and Hands, and it communicates
Our Purpose, Ambition and Strategy.
HEART. OUR PURPOSE. TŌ TĀTOU ARONGA
Heart represents our purpose: Doing milk differently for a
healthier world. This is the reason we exist. It’s why we get up
in the morning and feel excited about coming to work. It is
shaped by who we are, what we
stand for, and what we do.
Sports Nutrition
Everyday Dairy
HANDS
OUR STRATEGY
What role will you play?
HEAD
OUR AMBITION
How can you contribute?
2
2B IN REVENUE
DOUBLING OUR BUSINESS
1B TO 2B IN 5 YEARS
We are a 21st century milk nutrition company. We believe
in the nutritional benefits of milk and we are committed to
delivering this nutrition to our customers. We know, tomorrow’s
milk nutrition might be different from today’s, so we need to
stay agile and open to nutritional alternatives, explore whether
they make sense economically, and how they compare
environmentally. If they stack up, we should be in the game.
People and planet underpin all that we do. Sustainability isn’t
just a catchphrase here. It’s core to what we do every day. Our
investments, and the choices we make, must be net positive for
the planet and help all to thrive. We continually look for ways to
improve, not just for Synlait – but all New Zealanders and the
dairy industry as a whole
HEAD. OUR AMBITION. TŌ TĀTOU HAO NUI
If our Heart is our ‘why’, our Head is where we set goals for
‘what’ we are trying to achieve – our ambition, the overarching
goal that connects us to our strategy. Our ambition is a
simple formula for success: 2 + Zero.
Our aspirational goal is to achieve $2 billion in
revenue – that’s doubling the size of Synlait.
Infant Nutrition
The + part of our equation
talks to people and planet.
Our ambition is to have a net
Foodservice
positive impact on our
communities, and to
create a positive place
to grow with 100%
Next Big Thing
engagement across
our teams.
HEART
OUR PURPOSE
How do you connect?
NET +VE IMPACT ON
PLANET AND COMMUNITIES
+VE PLACE TO GROW WITH
100% ENGAGEMENT
DOING MILK
DIFFERENTLY FOR A
HEALTHIER WORLD
ZERO
ZERO INJURIES
ZERO DEFECTS
ZERO LOSSES
Net Positive for
the Planet
A healthier
Synlait
World Class
Value Chain
The Zero focuses on a fundamental part of our business –
keeping our people safe, our focus on quality, and reducing all
forms of loss across the business. Zero injuries, Zero defects
and Zero losses. We believe this is possible.
Our enabling strategy allows us to strengthen our business
and grow it in a coordinated way. This is supported by three
pillars: Net Positive for the Planet, Building a Healthier Synlait
and World Class Value Chain.
Yes, 2 + Zero is ambitious, but it’s simple and easy to help our
teams find a place to make a meaningful contribution and it’s
We’ve already taken a stand on Net Positive for the Planet.
We have a plan and we are delivering on our sustainability
exciting to think about what we can achieve together.
targets launched last year and as mentioned above. Our plan
HANDS. OUR STRATEGY. TŌ TĀTOU RAUTAKI
Our Hands is where we take action against an aligned heart
(purpose) and head (ambition). This is our strategy. It is made
up of two parts: our growth strategy (doing milk differently)
and our enabling strategy (for a healthier world). It’s our map to
achieving 2 + Zero.
Our growth strategy is made up of five key complementary
opportunities designed to build on our success, diversify our
business and optimise the milk coming into our factories.
Infant Nutrition is our core business. It is critical we look after
this business. We will continue to deepen the partnerships we
have with our existing customers, and build new customer,
product and market combinations that support our goals.
Everyday Dairy represents a significant opportunity for us to
capture more of the value in the dairy market – both in New
Zealand and in export markets. We’ve started with our new
partnership with Foodstuffs South Island, and we will look to
our investment in Talbot Forest Cheese to expand further.
Foodservice is a natural extension for us. The market is large
and growing, with strong demand for New Zealand provenance
in Asia. In addition, the natural product portfolio utilises the
extra dairy fat we don’t use in infant nutrition.
Sports Nutrition is a growing and attractive market which is
getting traction particularly in Asia. It matches our skill set and
broader asset base.
The Next Big Thing. As I said earlier, Synlait was born
disruptive. We would rather disrupt ourselves than be
has us looking to lead agriculture’s response to climate change,
eliminate water degradation, and lead stewardship for animals,
biodiversity and soil.
Building a Healthier Synlait is about strengthening our
company. It’s about building systems that support our people,
making sure that we’re all safe and establishing a culture
of kotahitanga or unity, strengthening our capabilities and
continuing to manage our risks. Again, as mentioned above,
2019 has seen us make some clear progress in this space.
World Class Value Chain is core to our reputation. It covers
healthier farming practices, safe food and market access,
manufacturing excellence, building a world class supply chain,
and transparency. Our teams are doing great work in this space
because we are constantly asking ourselves: how can we think
differently and be better than the rest?
WHERE WE’LL BE IN 12 MONTHS.
It’s been an absolute privilege to be part of the Synlait team
over the past year. I’ve been warmly welcomed into the
company by staff, milk suppliers, passionate investors and
many more. Thank you. The responsibility and challenge of my
role is not lost on me – you all believe in the Synlait story, and
you are eager to help us write the next chapter.
I’m looking forward over the next 12 months to making some
solid steps forward on our new purpose, ambition and strategy.
We need to consolidate the new investments we have made.
We will continue to strengthen the business for people, for
planet and for the company. We have some exciting new
opportunities in the mix. It’s fast-paced. It’s dynamic. We like it
that way. Doing milk differently for a healthier world.
disrupted. We’re chasing the Next Big Thing. We want to know
what trends our customers are chasing, what technology can
Ngā manaakitanga
help our farmers, and how we can connect more effectively
with our suppliers.
We see this growth strategy serving us over the medium to
long term – but we’re also realistic about how we prioritise our
activity. We’ve been clear with our teams what we Must Do
(Infant Nutrition), what we Can Do (Everyday and Foodservice),
and what we Want To Do (Sports and the Next Big Thing) as
resource and opportunities come available.
Leon Clement
CEO
14
15
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 CFO
REVIEW
CFO REVIEW
Nigel Greenwood
OVERVIEW
The Group exceeded $1 billion of revenue for the first time
in FY19 with revenues of $1,024.3 million. Reported after tax
earnings were a profit of $82.2 million, a 10% increase from
FY18 at $74.6 million. This increase is primarily due to an uplift
in consumer packaged infant formula sales year-on-year, offset
by a slight decrease in gross margin per metric tonne (MT), and
increased overhead expenditure in areas of the business that
support future growth opportunities aligned to our strategy.
In addition, our focus on improving our plant utilisation has
enabled us to process 8.7% more milk than last year, which
resulted in total powder production increasing from 139,485 MT
last year to 146,299 MT in FY19.
FINANCIAL PERFORMANCE
Sales
Revenue in FY19 at $1,024.3 million is $145.3 million or 17%
higher than FY18 ($879.0 million), with total sales volume
of 149,730 MT (excluding fresh milk, which is discussed in a
separate section below) 16% above last year’s 128,637 MT.
This revenue growth was driven by a 21% increase in high
value consumer packaged infant formula sales, a 15% increase
in powders and cream sales, and a 33% increase in lactoferrin
sales. Sales of consumer packaged infant formula were in
line with the 41,000 - 45,000 MT guidance we provided.
Our product mix was broadly similar to FY18, with the uplift
in total sales enabled by manufacturing efficiencies which
have delivered through our Integrated Work Systems (IWS)
FY18), resulting in an overall 8.7% or 5.3 million kgMS increase
in milk processed in FY19. Again, this was enabled by the
impressive manufacturing efficiencies we are achieving through
implementation of the IWS programme, which is increasing
facility production capacities and validating the investment
management has made.
Average reference commodity prices were relatively steady
in the 2018/2019 milk season, decreasing by 6% compared to
the 2017/2018 season, as displayed in the chart below. This
equates to an average U.S. dollar (USD) commodity price of
$3,001 USD per MT, $179 USD per MT below the 2017/2018
price of $3,180 USD per MT. This has contributed to a $0.25
reduction in the Group’s average base milk price, which has
gone from $6.65 to $6.40.
Weighted average dairy commodity prices
4000
3500
3000
3000
2500
2000
1500
1000
7
1
t
p
e
S
7
1
v
o
N
8
1
n
a
J
8
1
r
a
M
8
1
y
a
M
8
1
l
u
J
8
1
t
p
e
S
8
1
v
o
N
9
1
n
a
J
9
1
r
a
M
9
1
y
a
M
9
1
l
u
J
Gross profit per metric tonne
programme. We also had a net upside in milk purchased from
Our total gross profit per MT (excluding fresh milk) of $1,268 is
other suppliers around the edges of the season to produce
marginally ($26) down on last year’s $1,294 per MT. The overall
additional lactoferrin.
Sales (metric tonnes)
Powders and cream
Consumer packaged
Lactoferrin
Total
FY19
106,802
42,907
21
93,042
35,580
16
149,730
128,637
15%
21%
33%
16%
We received 64.2 million kilograms of milk solids (kgMS) from
our contracted suppliers, 0.6 million kgMS more than FY18.
We also purchased an additional net 1.9 million KgMS over
the edges of the season (vs. net sales of 2.9 million KgMS in
product mix in FY19 was comparable to the prior year, however
continued investment in people to support key growth projects,
higher Lead With Pride™ supplier engagement costs, a revised
FY18
Growth %
pricing agreement with The a2 Milk Company™, and changes to
customer mix with China brands sales not repeating in FY19, all
impacted the gross profit per MT year-on-year.
Gross profit per MT for powders and cream decreased $(96)
from FY18, reflecting the impact of factors outlined above. The
proportion of base infant formula sales to ingredient product
sales (including product internally transferred to blending and
consumer packaging) remained comparable. We sold 6,901 MT
of external bulk infant formula in FY19, up 44% from 4,789 MT
in FY18.
16
17
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019
CFO REVIEW
Nigel Greenwood
Consumer packaged gross profit per MT improved $23,
Lactoferrin margin per MT has materially increased over FY18
EBITDA
Foreign exchange
generated from higher utilisation of our consumer packaging
due to a favourable market pricing environment. Lactoferrin
facilities in Dunsandel and Auckland.
production volume also increased following the facility
upgrades which were completed in November (up 33%), and
overall contributed $13.3 million of gross profit in FY19 (FY18:
$4.4 million).
Gross profit by category
Volume
Gross profit
GP/MT
Powders and Cream
106,802
93,042
13,761
142.2
134.4
Full
FY19
Full
FY18
Var
Full
FY19
Full
FY18
Consumer Packaged Powders
42,907
35,580
7,327
21
16
5
34.3
13.3
27.6
4.4
Consumer Packaged Liquids
(3.5)
0.0
149,730 128,637
21,093
189.8
166.5
Lactoferrin
Subtotal
Full
FY19
969
800
Full
FY18
1,065
777
Var
(96)
23
646,099 285,757 360,342
1,268
1,294
(26)
Var
7.7
6.7
8.9
23.4
(3.5)
Grand total
186.3
166.5
19.9
1Gross profit per MT includes both external sales volumes and internal transfers of bulk infant formula to blending and consumer packaging.
Fresh milk
Overhead expenditure
This year we commissioned our advanced liquid dairy
Overhead expenses for FY19 at $62.1 million were up $7.9
packaging facility at Dunsandel supplying Foodstuffs South
million from $54.2 million in FY18. Notable increases in these
Island. The plant was commissioned in early April, and in the
overhead costs include employee costs of $4.5 million and rent
four months following, the facility produced 8,840,469 litres.
of $1.2 million.
Gross profit from fresh milk was ($3.5 million) reflecting some
initial commissioning challenges and low fixed overhead
recoveries. In FY20 we expect to stabilise performance and
bring it back in line with expectations.
Milk price
Raw milk remains Synlait’s most significant cost when
determining gross profit. Our average total milk price for the
2018/2019 season was $6.58 per kgMS compared to our
2017/2018 average total milk price of $6.78 per kgMS.
As previously signalled, increases in overhead expenditure
reflect continued investment in research and development,
business development and leadership capability as we hire
capable, experienced and high-energy people to help run
the new facilities that we are bringing on-line and enter new
categories.
Share of profit / (loss) from associates
In late January 2015 (FY15) we acquired a 25% shareholding
in New Hope Nutritionals for $2.2 million, which owns and
The 2018/2019 average total milk price was made up of the
distributes the Akara and e-Akara infant formula brands in
final base milk price of $6.40 per kgMS (2017/2018 base milk
the China market. Synlait has an exclusive manufacturing and
price $6.65 per kgMS), and $0.18 per kgMS incentive payment
supply agreement for these brands with New Hope Nutritionals,
for the average milk supplier (2017/2018 $0.13 per kgMS).
which was renegotiated in FY18 and extended for five years,
Value added premiums are higher in 2018/2019 as more milk
locking in a three-fold increase in volume. In the year to 31 July
suppliers joined our dairy farming best practice Lead With
2019 our share of the losses of this company was $0.5 million
Pride™ programme. This resulted in our contracted suppliers
(FY18 profit of $0.4 million). We are still to receive final brand
receiving a total of $11.5 million in additional value added
registration from the SAMR. The Akara formulation registration
premiums in the 2018/2019 season, compared to $8.1 million
has been accepted subject to a site audit and we continue to
in 2017/2018.
work through the registration process for e-Akara.
Earnings before interest, tax, depreciation and amortisation
The management of foreign exchange exposure is one of the
(EBITDA) at $152.1 million increased 10% on the FY18 result of
key risks of the business with many product sales being to
$138.6 million driven by the increased sales volumes and a
overseas markets creating a primarily USD exposure risk. Our
comparable product mix.
$ million
Profit before tax
Add back: net finance cost
EBIT
Add back: depreciation and amortisation
EBITDA
Net financing costs
foreign exchange policy seeks to achieve the lowest annual
average New Zealand Dollar (NZD)/USD exchange rate for
the year. In FY19 we achieved a net annual average NZD/USD
exchange rate of 0.6792 (FY18: 0.7047).
Earnings per share and return on capital employed
Our reported basic and diluted earnings per share (EPS) for
FY19 was 45.89 cents against 41.60 cents in FY18. The Group
also generated a pre-tax return on average capital employed of
18.3% in FY19 compared with 22.7% in FY18.
FY19
$115.1
$9.4
$124.5
$27.6
$152.1
FY18
$103.8
$9.3
$113.1
$25.5
$138.6
Net financing costs at $9.4 million increased 1.1% over FY18’s
$9.3 million.
Gross term debt interest
Less capitalised interest
Net term funding interest
Working capital funding interest
Interest received
Loss on derecognition of
financial assets
Net short-term funding interest
Net finance costs
FY19
(9.4)
7.5
(1.9)
(6.9)
1.2
(1.8)
(7.5)
(9.4)
FY18
(6.7)
0.7
(6.0)
(3.0)
1.0
(1.3)
(3.3)
(9.3)
Var.
(2.7)
6.8
4.1
(3.9)
0.2
(0.5)
(4.2)
(0.1)
FINANCIAL POSITION
Overview
IN FY19 SYNLAIT INVESTED FOR
THE FUTURE, WITH NEW FACILITIES
AND PEOPLE CAPABILITIES THAT
WILL POSITION US WELL FOR
CONTINUED GROWTH. $315.1
MILLION OF CAPITAL EXPENDITURE
WAS INVESTED INTO OUR FOUR
MAJOR GROWTH PROJECTS
($333.6 MILLION IN TOTAL).
Gross interest on term debt has increased by $2.7 million to
$9.4 million in FY19 due to higher average term debt balance
Our reported net profit after tax of $82.2 million, offset by the
movement in reserves, has increased total equity to $492.4
over the year compared to FY18. Capitalised interest increased
million at 31 July 2019 from $424.7 million.
to $7.5 million from $0.7 million in FY18 due to the build of the
nutritional spray dryer at Synlait Pokeno and the advanced
Trade and other receivables
liquid dairy packaging facility at Dunsandel. The substantial
At $61.9 million, trade and other receivables have increased by
increase in capitalised interest has reduced net term funding
$14.8 million on FY18 ($47.1 million). This is primarily due to a
interest by $4.1 million to $1.9 million.
significant increase in sales made in July year-on-year.
Working capital funding interest has increased by $3.9 million
Inventories
due to higher average balance over the year compared to FY18,
reflecting a return to normal working capital funding levels
following excess cash on hand in FY18.
Loss on derecognition of financial assets is the financing cost
associated with our receivables financing programme. The
increase in these costs’ year-on-year reflects the increased
utilisation of these facilities, with the year-end balance
increasing to $109 million from $69 million in FY18
Inventory on hand has increased to $164.8 million (FY18:
$145.4 million), predominately due to an increase in raw
materials on hand of $40.1 million or 11,307 MT (FY18: $22.8
million or 6,737 MT). Higher raw materials balances reflect an
expected increase in infant formula production volumes in
FY20, increased plant utilisation in Synlait’s Auckland consumer
packaging facility, and the imminent commencement of
operations of the Synlait Pokeno dryer.
18
19
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 CFO REVIEW
Nigel Greenwood
Finished goods inventory has remained relatively stable at
During FY19 we commissioned the upgrade of our lactoferrin
Trade and other payables
$124.8 million (FY18: $122.6 million). On-hand tonnage of
facility. Total spend in FY19 was $12.2 million (FY18 - $6.7)
finished goods has reduced to 23,318 MT (FY18: 26,726 MT)
for total project spend of $18.9 million. In the year we also
due to product mix and inventory management efficiencies,
commenced construction on the capacity upgrade of our milk
with FY19 inventory holdings consisting of proportionally higher
separation plant. Total spend on the project in FY19 was $6.5
Trade and other payables at $216.0 million is up $63.8 million
on last year’s balance of $152.2 million. This variance reflects
three items:
With net debt of $333.6 million, our gearing (net debt / net debt
+ equity) is 39.2% (FY18: 20.9%) and our leverage (net debt /
EBITDA) is 2.19x (FY18: 0.83x).
Derivatives
high-value items.
Both raw material and finished goods inventories were
reviewed for impairment resulting in a stock impairment
provision totalling $0.3 million (FY18: $2.1 million) – all of which
related to finished goods. This reduction was achieved from an
increased focus on turnaround time for impaired stock on hand.
million.
$ million
Synlait Pokeno – spray dryer
Synlait Pokeno – land
Impaired finished goods were written down to net realisable
Advanced liquid dairy packaging facility
value. In addition, we had onerous contracts of $0.5 million
Lactoferrin
FY19
181.1
27.5
87.8
12.2
6.5
-
-
315.1
18.5
333.6
FY18
12.7
-
45.8
6.7
-
25.2
13.4
103.8
9.4
113.2
Separator capacity upgrade
Wetmix kitchen
Auckland consumer packaging
Total growth capital expenditure
Other capital expenditure
Total
Other investments
Other investments include our 16.7% shareholding in Primary
Collaboration of New Zealand (PCNZ) at a cost of $110,000.
This is a wholly foreign owned enterprise (WFOE), with a
shared office based in Shanghai, China. It was established
with the support of New Zealand Trade and Enterprise. Other
shareholders of PCNZ include a number of New Zealand
primary industry related companies.
We also acquired a 25% shareholding in New Hope Nutritionals
in late January 2015 at an initial cost of $2.2 million.
Accumulated losses of $2.2 million reduced the carrying value
of our investment to nil at 31 July 2019. This company owns
and markets the Akara and e-Akara infant formula brands in
the China market, which are exclusively manufactured by the
Group.
(FY18: $1.3 million); the reduction from prior year is a result of
favourable exchange rate movements and Global Dairy Trade
auctions.
Property, plant and equipment
Property, plant and equipment at $845.2 million increased
$307.5 million from FY17 at $537.7 million. The year-over-
year increase is a consequence of total capital expenditure
of $333.6 million less depreciation of $25.7 million and net
disposals of $0.4 million. The capital expenditure primarily
relates to our four major growth initiative projects with $315.1
million of total spend in FY19.
In December 2017, on the back of entering into an exclusive
supply agreement with Foodstuffs South Island for its private
label fresh milk and cream, the Group announced that it would
construct and commission an advanced liquid dairy packaging
facility at Dunsandel. FY19 spend was $87.8 million (FY18 -
$45.8 million) for total project spend of $133.6 million (including
$4 million for the electrode boiler upgrade). The fresh milk line
was commissioned in early April 2019 while the UHT line will be
commissioned in the first half of FY20.
IN FEBRUARY 2018, THE GROUP
ANNOUNCED THE CONDITIONAL
PURCHASE OF 28 HECTARES OF
LAND IN POKENO TO ESTABLISH
ITS SECOND NUTRITIONAL POWDER
MANUFACTURING SITE.
The construction of the nutritional spray dryer is budgeted to
cost $251.5 million (excluding the cost of the land). Total spend
on the project in FY19 was $181.1 million (FY18 - $12.7 million) for
total spend to date of $193.8 million (excluding land).
• Revenue in advance has increased $15.3 million year-
As at 31 July 2019 we held USD$471.3 million in foreign
on-year to $37.3 million (FY18: 22.0 million), reflecting
exchange contracts as detailed in note 15 of the Annual
increased orders from The a2 Milk Company™ received in
Financial Statements. These have been placed across a
the second half of FY19 to be fulfilled in FY20.
24-month future period, in accordance with our Treasury Policy.
• Growth initiative capital expenditure accruals have
Given the continued depreciation in the NZD/USD exchange
increased $12.5 million from $4.3 million in FY18 to $16.8
rate, we have mark to market unrealised losses associated
million in FY19. The majority of the FY19 accrual relates to
with these contracts at year-end of $21.0 million after tax, a
the advanced liquid dairy packaging facility.
movement of $14.1 million after tax year-on-year. As our foreign
•
The balance of the increase relates to capital expenditure
(as the Pokeno build nears conclusion), raw materials to
satisfy consumer packaged infant formula demand in the
first half of FY20, and employee entitlements.
Contingent liability
exchange contracts fully hedge against future USD receipts and
payments, this unrealised loss is recognised in other reserves
in equity rather than through the income statement. The impact
of these foreign exchange contracts will play out in the periods
in which they mature and they will form part of our annual
average NZD/USD exchange rate in those periods.
The Group has included a contingent liability note in the annual
financial statements relating to the Pokeno land covenant issue.
There are a range of possible outcomes in this dispute meaning
the Group is not able to reliably estimate the potential liability.
For further information please refer to the Contingent Liability
note in the financial statements on page 104.
We also have in place a nominal balance of $79.5 million
of interest rate swap agreements at year-end (FY18: $108.5
million) at various weighted average interest rates, generating
an unrealised mark to market loss of $5.1 million after tax due to
the fall in interest rates since these contracts were entered into,
a $1.1 million after tax movement year-on-year.
Total net debt
We continue to use dairy commodity derivatives to support
Total net debt at year end, including both current and term debt
the management of the risk of movement in dairy commodity
facilities less cash on hand was $333.6 million, an increase of
prices. Dairy commodity derivatives with a nominal balance of
$218.7 million over the FY18 balance of $114.9 million.
NZD$5.3 million were in place at year end (FY18: USD$15.3)
with no material unrealised mark to market.
Year-on-year there was a $15.3 million reduction in the cash
flow hedge reserve from ($10.8) million in FY18 to ($26.1)
million in FY19. The cash flow hedge reserve relates solely to
derivatives and the year-on-year movement is explained by the
movement in foreign exchange contacts as detailed above.
Operating cash flows
Operating cash flows at $136.7 million were $38.3 million up on
FY18 at $98.4 million. The primary reason for this increase was
the increase in cash received from customers proportional to
cash paid for milk and other purchases.
$ million
Current debt
Term debt
Cash on hand
Loan facility fees
Total net debt
FY19
$99.6
$249.5
($16.0)
$0.5
$333.6
FY18
$49.3
$97.1
($32.1)
$0.6
$114.9
Cash spent on investing activities of $337.4 million (FY18:
$119.4 million) during the financial period was offset by cash
from operating activities of $136.7 million (FY18: $98.4 million),
resulting in a free cash outflow of $200.7 million from operating
and investing activities. This together with cash outflows from
interest paid of $18.1 million (FY18: $11.2 million) accounts for
the movement in net debt. Operating cash flows are discussed
further below.
20
21
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 CFO REVIEW
Nigel Greenwood
Bank facilities and covenants
The Group has in place three syndicated bank facilities with
ANZ and BNZ:
1. Working capital facility – reviewed annually in August with
a year-end facility limit of NZD $225.0 million. This is a dual
currency (NZD & USD) facility
2. Revolving credit facility A – matures 1 August 2021. A $150
million facility limit with amortisation of $30 million on 1
August 2020
3. Revolving credit facility B - matures 1 August 2023 with a
fixed facility limit of $100 million.
Subsequent to reporting date, we have entered into an
additional revolving facility for $60 million which commenced
on 30 August 2019 and matures 1 August 2020.
We have four bank covenants in place within our syndicated
bank facility agreement. These are:
1.
Interest cover ratio - EBITDA to interest expense of no less
than 3.00x based on full year forecast result (FY19: 16.14x)
2. Minimum shareholders’ funds – exceeds $295.5 million
(FY19: $497.8 million)
3. Working capital ratio – at all times exceeds 1.50x (FY19:
2.69x)
4. Leverage ratio – no more than 3.5x (FY19: 2.19x)
The company was compliant with our bank covenants at all
times during the financial period.
Note that all unrealised gains or losses associated with our
derivatives held at year end within equity, and intangible assets,
are excluded when determining our compliance with our
minimum shareholder’s funds bank covenant calculation.
Facility amendments post balance date
Subsequent to reporting date, the Group has renewed its
facility arrangements with our bank syndicate as noted above.
Nigel Greenwood
CHIEF FINANCIAL OFFICER
22
Synlait Milk Limited Annual Report 2019
23
Synlait Milk Limited Annual Report 2019 KEY PERFORMANCE INDICATORS
Key financial metrics1
Income statement
Revenue
Gross profit
EBITDA2
EBIT2
NPAT
Revenue per MT (USD)3
Gross profit per MT (NZD)3
EBIT per MT (NZD)3
Net cash from / (used in) operating activities
Balance sheet
Net operating assets4
Return on net operating assets
Net return on capital employed (pre-tax)
Debt / debt + equity (excl. derivatives)
Net debt / EBITDA
Earnings per share
FY15
FY16
FY17
FY18
FY19
448.1
546.9
759.0
56.1
40.9
26.9
11.0
102.1
83.7
62.9
35.7
112.1
88.8
67.6
39.5
3,610
3,316
3,659
573
275
16.4
877
540
104.4
792
478
115.2
879.0
166.5
138.6
113.1
74.6
4,815
1,294
879
98.4
323.2
455.2
423.5
493.3
8.5%
7.3%
58.1%
6.4
8.35
16.2%
14.5%
48.7%
15.4%
14.8%
18.7%
24.7%
22.7%
20.9%
2.5
0.9
0.8
23.50
22.82
41.60
1,024.3
186.3
152.1
124.5
82.2
4,602
1,268
855
136.7
633.9
22.1%
18.3%
39.2%
2.2
45.89
Average FX conversion rate (NZD:USD)
0.7880
0.7058
0.6814
0.7047
0.6792
Base milk price (kgMS)
Total milk price (kgMS)5
Key operational metrics
Sales (MT)
Powders and cream
Consumer packaged
Specialty ingredients
Total sales (MT)3
Production (net production)
Powders and cream
Consumer packaged
Lactoferrin
Total production (MT)3
4.48
4.54
3.91
4.02
6.16
6.30
6.65
6.78
6.40
6.58
93,491
100,393
122,606
93,042
4,305
15,999
18,776
35,580
7
10
11
16
106,802
42,907
21
97,803
116,402
141,393
128,637
149,730
96,649
104,703
115,991
102,833
5,021
16,043
19,403
36,651
12
8
12
12
103,131
43,168
23
101,681
120,754
135,407
139,496
146,322
Milk purchases (kgMS in thousands)
Milk purchased from contracted supply
51,049
54,125
63,255
63,639
Milk purchased (sold) from other suppliers
2,549
3,573
1,700
(2,853)
Total milk purchases (kgMS in thousands)
53,598
57,698
64,954
60,785
64,189
1,877
66,066
1 The group uses several non-GAAP measures when discussing financial performance. Management believes these measures provide useful insights on
the performance of the business, to analyse trends and to assist stakeholders in making informed decisions.
2 EBIT is calculated by excluding financing costs and income tax, with EBITDA also excluding depreciation and amortisation accordingly. A reconciliation of
EBIT and EBITDA is provided in the CFO Review on page 19.
3 Fresh milk in FY19 excluded (part year in FY19)
4 Net operating assets includes current assets, PPE and Intangible assets. It excludes capital work in progress, derivatives, goodwill, trade payables and
tax liabilities.
5 Total milk price for Synlait Milk suppliers on standard milk supply contract, includes value and seasonal premiums. This is a milk season reflective payment
that runs 1 June to 31 May.
24
Refilling the scoop conveyor at the consumer packaging facility. Synlait Dunsandel
25
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019
MILK PRICE
IN AN EFFORT TO IMPROVE
TRANSPARENCY AROUND
THE WAY WE PAY OUR FARMERS
FOR THEIR MILK, WE HAVE
INCLUDED AN ADDITIONAL
TABLE IN THIS YEAR’S
ANNUAL REPORT.
MILK PRICE
This table illustrates how we take the milk supplied to Synlait by
The information in this table represents payments made in
our contracted farmers, value the components within the milk
the milk season which runs 1 June to 31 May as opposed to
and ultimately pay out through the average base milk price.
the financial year. For the recently completed 2018/2019 milk
The table also highlights the incentive payments made to our
season we paid out a base milk price of $6.40 with an average
farmers additional to the average base milk price.
additional incentive payment of $0.18 per kgMS.
kgMS collected
Average fat %
Average protein %
Average lactose %
Volume of components collected
Fat
Protein
Lactose
Component value2
Fat
Protein
Lactose
Component value ratio
Fat
Protein
Lactose
Total $ paid per component
Fat
Protein
Lactose
Volume charge
Average base milk price3
2016/17
2017/18
2018/191
63,249,602
63,616,077
63,438,694
4.90
3.92
5.06
4.86
3.89
4.99
4.91
3.92
4.99
35,123,275
28,126,327
36,292,742
35,289,377
28,327,076
36,221,310
35,270,506
28,168,188
35,894,766
$4.70
$6.56
$1.87
1
1.397
0.398
$6.97
$4.63
$2.03
1
0.664
0.291
$7.36
$4.18
$1.53
1
0.567
0.208
$164,998,609
$245,903,402
$259,645,339
$184,528,391
$131,063,290
$67,823,876
$73,377,129
$117,657,713
$54,987,988
($27,732,308)
($27,289,173)
($26,283,402)
$6.16
$6.65
$6.40
Total incentive payment
Average incentive payment per kgMS
Total average Synlait payment per kgMS4
$8,908,367
$8,127,045
$11,530,895
$0.14
$6.30
$0.13
$6.78
$0.18
$6.58
1 2018/2019 milk price has not fully been paid out at the time of annual report release, these figures represent what has been paid and
accrued to be paid
2 Rounded to two decimal places
3 Amount paid for components + volume charge / kgMS collected = base milk price
4 Base milk price + average incentive payment
26
Synlait Milk Limited Annual Report 2019
Bruce Turpie, Synlait Milk Supplier
27
Synlait Milk Limited Annual Report 2019
OUR DIRECTORS
OUR EXECUTIVE TEAM
OUR BOARD OF DIRECTORS IS
COMMITTED TO BUILDING A
WORLD-CLASS NUTRITIONAL
BUSINESS AND ENHANCING
SHAREHOLDER VALUE.
OUR LEADERSHIP TEAM IS HIGHLY
SKILLED AND COMMITTED TO
OUR PURPOSE OF DOING MILK
DIFFERENTLY FOR A HEALTHIER
WORLD.
Leon Clement
CHIEF EXECUTIVE OFFICER
Graeme Milne ONZM
Bill Roest
Dr. John Penno
Boyd Williams
Chris France
Deborah Marris
Hamish Reid
CHAIR (INDEPENDENT)
INDEPENDENT DIRECTOR
BOARD APPOINTED DIRECTOR
DIRECTOR, PEOPLE, CULTURE
DIRECTOR, STRATEGY AND
DIRECTOR, LEGAL, RISK AND
DIRECTOR, SUSTAINABILITY
AND PERFORMANCE
TRANSFORMATION
GOVERNANCE
AND BRAND
Min Ben
Qikai (Albert) Lu
Hon. Ruth Richardson
Martijn Jager
Nigel Greenwood
Dr. Suzan Horst
BRIGHT DAIRY APPOINTED DIRECTOR
BRIGHT DAIRY APPOINTED DIRECTOR
BRIGHT DAIRY APPOINTED DIRECTOR
DIRECTOR, SALES AND BUSINESS
CHIEF FINANCIAL OFFICER
DIRECTOR, QUALITY REGULATORY
DEVELOPMENT
AND LABORATORY SERVICES
Antony Moess
GENERAL MANAGER,
MANUFACTURING
Sam Knowles
Sihang Yang
INDEPENDENT DIRECTOR
BRIGHT DAIRY APPOINTED DIRECTOR
Callam Weetman
Matthew Foster
Rob Stowell
Roger Schwarzenbach
GENERAL MANAGER, SALES
GENERAL MANAGER,
GENERAL MANAGER, SUPPLY CHAIN
GENERAL MANAGER, INNOVATION
STRATEGIC PROJECTS
AND TECHNICAL SERVICES
28
29
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 UPDATE ON OUR
SUSTAINABILITY
STRATEGY
UPDATE ON OUR SUSTAINABILITY STRATEGY
We are a young and agile company, driven by pioneering
thinking, and motivated to achieve our authentic purpose:
Doing milk differently for a healthier world. Through our
business strategy we have identified five areas that embody the
idea of ‘doing milk differently’: Infant Nutrition, Everyday Dairy,
Foodservices, Sports Nutrition and the Next Big Thing. These
are being enabled by our three strategies that illustrate our
commitment to a healthier world: Net Positive for the Planet,
Build a Healthier Synlait and World Class Value Chain.
These are the principles that guide our continued growth and
the foundations upon which our sustainability strategy, with
its three pillars of Environment, People and Enterprise, were
formed. Together, they underscore that sustainability is not a
‘silo’ within our business but a series of integrated, company-
wide principles.
Over the course of the year, we have been systematically
defining and implementing SIPs. To date, we have developed
SIPs on Climate Change, Transparency, Community and Water.
More will be rolled out in coming months. These detailed
roadmaps for action will both change the way we operate and
hasten the transformation of our business. We are committed
and working towards the launch of a Sustainability Report.
This section of the annual report is a concise snapshot of
our actions in these areas.
AS SYNLAIT ENTERS ITS SECOND
DECADE, AND AS THE SCOPE
OF OUR BUSINESS WIDENS, WE
ARE CONTINUING TO IMPLEMENT
STRATEGIES THAT SHOW HOW THE
ENVIRONMENTALLY AND SOCIALLY
SUSTAINABLE PROVISION OF MILK
NUTRITION PRODUCTS CAN BE
ACHIEVED IN NEW ZEALAND.
OUR SUSTAINABILITY STRATEGY HAS BEEN BUILT
UPON THE THREE ENABLING PATHWAYS OF EIGHT
OVERALL STRATEGIC PATHWAYS. CASCADING
FROM THESE THREE PATHWAYS ARE OUR ELEVEN
SUSTAINABLE INNOVATION PLATFORMS (SIPS).
NET POSITIVE FOR
THE PLANET
CIRCULAR
ECONOMY
WELFARE
ENVIRONMENT
WATER
CLIMATE
DOING MILK
DIFFERENTLY FOR A
HEALTHIER WORLD
SUSTAINABLE
SUPPLY
CULTURE AND
COMMUNITY
PEOPLE
ENTERPRISE
SAFE FOOD
WORLD CLASS
VALUE CHAIN
TRANSPARENCY
CAPABILITY
A HEALTHIER
SYNLAIT
SAFE
WORKPLACE
HEALTHY
FARMING
30
31
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 NET POSITIVE FOR THE PLANET
ENVIRONMENT
CLIMATE
Taking action on the climate crisis is an absolute necessity. We
recognise New Zealand’s commitment to the Paris Agreement
and, as a significant emitter, we are committed to making a
meaningful contribution towards that target. While we can’t
solve big environmental issues alone, we can take care of
our own backyard and inspire others to meet similarly high
sustainability targets.
To provide us with a baseline against which we can measure
our climate initiatives, we have undertaken our first Greenhouse
Gas (GHG) Inventory. The externally audited report shows
that in the period from 1 August 2017 – 31 July 2018 our GHG
emissions total was 912,731 tCO2e.
Our inventory profile highlights the use of coal (108,301 tCO2e)
and sea freight (30,162 tCO2e) as the two largest sources of off-
farm GHG emissions, with electricity third (6,923 tCO2e).
Our on-farm emissions totalled 755,583 tCO2e – further broken
down into a quantum of carbon dioxide, 119,758 (CO2-tCO2e);
methane 442,268 (CH4-tCO2e); and nitrous oxide, 193,559
(N20-tCO2e).
OUR AIM IS TO HAVE A
NET-POSITIVE IMPACT
ON THE PLANET.
ACHIEVING THIS MEANS TAKING
STOCK OF OUR CURRENT
ENVIRONMENTAL FOOTPRINT
AND THEN COMMITTING TO AND
IMPLEMENTING ON-FARM AND OFF-
FARM INITIATIVES THAT REDUCE
GREENHOUSE GAS EMISSIONS,
ELIMINATE WATER DEGRADATION,
REMOVE WASTE AND IMPROVE THE
WELFARE OF THE ANIMALS AND
ECOSYSTEMS WE DEPEND UPON.
ON-FARM ACTION
OFF-FARM ACTION
OUR GOAL:
35% REDUCTION IN GHG PER
KILOGRAM OF MILK SOLIDS BY 2028,
VERSUS 2017/2018 BASE YEAR
OUR GOAL:
50% REDUCTION IN TOTAL GHG PER
KILOGRAM OF PRODUCT BY 2028,
VERSUS 2017/2018 BASE YEAR
OUR FY18 BASE YEAR
PERFORMANCE: 11.87 KGCO2E PER
KILOGRAM OF MILK SOLIDS
OUR FY18 BASE YEAR
PERFORMANCE: 1.13 KGCO2E PER
KILOGRAM OF PRODUCT
We have been providing 100% of our farmers with their own
Our 17% total of off-farm emissions places us among a group
unique GHG emissions profile since the 2017-2018 season. This
of large emitters, primarily because of the energy intensive
information has provided us with a baseline to understand and
nature of our manufacturing processes and supply chain.
Our sustainability strategy is re-imagining all aspects of our
business for a low-emissions future, and a key part of this is the
commitment to build no new coal-fired manufacturing facilities.
See page 35 for information on the large-scale electrode boiler
that was commissioned in March 2019 at our Dunsandel site.
We also continue to work on strategies that will address the
footprint of our existing coal infrastructure at Dunsandel.
improve our performance.
Farms supplying Synlait represent approximately 83% of our
total GHGs. In the past there has been a consensus view that
little can be done to reduce on-farm emissions; however,
we think that breakthrough technology paired with best-
practice farm management can result in substantial emissions
reductions.
As an example of this, we have introduced a GHG reduction
incentive payment into Lead With PrideTM, our internationally
accredited ISO 17065 dairy farm assurance system. Lead With
PrideTM certified farmers are industry leaders committed to
best practice farming standards. (See page 41 for a profile on
Lead With PrideTM initiatives.) To achieve the incentive payment,
farmers must create comprehensive farm-specific GHG
management plans that demonstrate clear knowledge of GHG
sources along with mitigation strategies. These are presented
for evaluation at each farm’s annual audit.
Breakdown of FY18 GHG emissions by scope,
according to the GHG protocol
Breakdown of on-farm emissions by type
Breakdown of off-farm emissions by source
13% Scope 1
1% Scope 2
86% Scope 3
26% N20
16% CO2
58% CH4
4% Other
19% Sea freight
4% Electricity
4% Diesel trucks
69% Coal
33
32
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 NET POSITIVE FOR THE PLANET
ENVIRONMENT
OFF-FARM ACTION
OUR GOALS:
20% REDUCTION IN WATER USE PER
KILOGRAM OF PRODUCT BY 2028;
20% IMPROVEMENT IN THE QUALITY
OF WASTE WATER.
We’re setting out to reduce the volume of water we use through
all aspects of our manufacturing process while improving the
quality of the waste water that leaves our factory.
At Dunsandel, water usage is measured at site level and in
some specific areas but there is an insufficient number of
meters to monitor the contribution of each manufacturing
process or facility. Our site services team is currently installing
water meters in key areas to enable precise monitoring.
WATER
As a nation, we cherish connections to lakes, rivers and the
sea. These are our places of sport, recreation and cultural
importance. New Zealanders have rightly become increasingly
concerned about the degradation of waterways and have
spoken strongly about the industrial and commercial use of
water.
Our aim is to cease degradation of waterways and protect our
reputation as a progressive, sustainably focussed company.
Our water strategy is an integral part of our social licence
to operate. We are currently in the process of determining
baseline figures for all of our water usage and having them
UPCOMING SIPS: WELFARE AND
independently reviewed. These will be released in our
CIRCULAR ECONOMY
Sustainability Report which we are currently working towards.
ON-FARM ACTION
OUR GOALS:
20% REDUCTION IN WATER USE PER
KILOGRAM OF MILK SOLIDS BY 2028;
45% REDUCTION IN NITROGEN LOSS
TO WATERWAYS PER KILOGRAM
OF MILK SOLIDS BY 2028.
In addition to using less water, we are seeking to eliminate our
contribution to the degradation of waterways in the catchment
areas of our operations.
Part of our role is to help farmers gain a better understanding
of water-related issues and provide the tools and guidance
they need to make improvements. One way we are doing this
is by providing farmers access to environmental advisers who
provide customised guidance on the ways water usage can
be reduced (for example, by changing irrigation practices or
modernising equipment) and nitrogen loss limited (through
fertiliser and feed management, beneficial soil strategies,
irrigation and effluent management).
Our Welfare SIP is comprised of animal welfare,
biodiversity and soil health. The overarching goal is
to work alongside farmers to boost farming systems
towards becoming regenerative.
Our Circular Economy SIP aims to move away from
a ‘linear’ economy (‘take, make, waste’), a one-
way street from resource to rubbish, to a ‘circular’
economy where product lifecycles no longer have a
beginning, middle, and end. In a circular economy,
materials are reintroduced back into a useful cycle
rather than being disposed of. In 2019, we purchased
a licence for EcodEx, an ISO 14040 certified Life Cycle
Analysis software tool, which we will use to evaluate
environmental impacts associated with products,
processes and activities, from the extraction of raw
materials to end of life.
Our Welfare and Circular Economy strategies are
currently being defined and will be reported next year.
PROFILE 1
A NEW ELECTRODE BOILER
FOR DUNSANDEL
Traditionally, dairy processors have relied on coal as a cost-
effective way to create the large volumes of process heat
(energy used in the form of steam or hot water in industrial
processing or manufacturing) required to turn fresh milk
into powder. Process heat is also used to pasteurise and
sterilise milk, to clean production lines, and help form product
packaging. By not commissioning any new coal-fired boilers,
we can make large gains against our goal of halving off-farm
greenhouse gas emissions by 2028.
HOW IT WORKS
The characteristics and suitability of diesel, gas and biomass
boilers were analysed before an electrode boiler was chosen
for our advanced liquid dairy packaging facility at Dunsandel.
The electrode boiler is 99% efficient and up to 30% more
efficient than coal boilers, so stood out as the best option.
Within the boiler, electricity flows through electrodes
submerged in water, releasing steam as contact with liquid is
made. This is a very energy-efficient way to create process
heat at scale. It is also ‘on demand’ – that is, able to heat water
from cold in less than five minutes or from standby in about
one minute. Further advantages are that variable amounts of
steam can be produced as required and maintenance on the
electrodes is minimal.
The electrode boiler output capacity is initially six megawatts,
although there is potential for this to be increased to 12
megawatts following upgrades to the Dunsandel electricity
network.
LOWER EMISSIONS
The electrode boiler, including the electrical supply
infrastructure and running costs (at 2018 rates), requires a
significantly greater investment than coal. Increased costs of
carbon over the next 10 years were anticipated in the business
case. However, compared to a coal alternative, the carbon
equivalent (CO2-e) saving of the electrode boiler is 13,714
tCO2e per annum. We estimate that after a 10-year period, the
electrode boiler’s emissions savings will be roughly equivalent
to 9,600 houses.
We are currently working to further transition away from coal as
a fuel for process heat. Several other promising initiatives will
be reported upon in 2020.
Synlait Dunsandel commissioned
New Zealand’s first large-scale
electrode boiler to provide
process heat to the advanced
liquid dairy packaging facility
34
35
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019
A HEALTHIER SYNLAIT
PEOPLE
OUR COMMITMENT TO
SUSTAINABILITY EXTENDS
THROUGHOUT OUR TEAM MEMBERS
AND THE WIDER COMMUNITY. BY
INVESTING IN OUR PEOPLE AND
BUILDING MEANING INTO STAFF
ROLES, WE CAN CREATE A LEGACY
OF COMMITTED LEADERS WHO
WILL HELP US TRANSFORM OUR
INDUSTRY FOR THE BETTER.
HEALTH, SAFETY AND WELLBEING
Everything starts with care of our people. Zero injuries, zero
defects and zero losses; to build a world-class organisation
delivering on its purpose through culture, excellence and
adaptability – these are the principles at the heart of our
workplace ambitions.
As a rapidly growing organisation undertaking complex
work, our team members can be exposed to a range of risks.
‘Everyone Home Safe, Every Day’ is our bottom line, and we
have developed health, safety and wellbeing practices that
ensure that this is a business-wide commitment. Our five-
year strategy focuses on leadership, risk management, event
response and safety culture. The launch of MySafety, a platform
to allow team members to report events and gain visibility
of corrective actions and outcomes, has resulted in a 75%
increase in reported events that has helped us hone health and
safety systems.
AS A RESULT, OUR TOTAL
RECORDABLE INJURY FREQUENCY
RATE (TRIFR) IN 2019 IMPROVED BY
28% TO 13.7. OUR TRIFR TARGET FOR
2020 IS NINE.
Engagement in health and safety is also being improved
through wellbeing-enhancing initiatives which are intended to
enhance mental and emotional, social, spiritual and physical
wellbeing. By encouraging appropriate rest and activity, along
with providing nutritional information and guidance, we are
championing better physical and mental health. This year’s ‘Eat
well, live well’ event in June 2019 saw team members come
together to cook and enjoy kai while learning about healthy
eating, nutrition and food labelling.
This year we also made available confidential wellness
assessments to all staff members. Carried out by an
occupational health nurse, the assessments focussed on blood
pressure, blood sugar levels, cholesterol, Kessler 10 scores and
cardiovascular risk. For every 20 registrations received, we
donated $100 to the New Zealand Heart Foundation as part of
the Big Heart Appeal.
CAPABILITY
FUTURE LEADERS
TALENT ATTRACTION AND DEVELOPMENT
As a fast-growing and ambitious company, we are committed
to attracting and retaining executives who show a synergy with
A dedicated and capable team is critical to our performance.
our mission and way of working. Through our three-year Future
We build our workforce capability in several ways.
Leaders training programme we are also committed to training
our own executives. Future Leaders is suited to ambitious
graduates who aspire to be at the forefront of a leading New
Zealand company. Participants rotate through key roles to
gain a foundational understanding of Synlait’s processes and
workflows and, upon completion, are assigned a first leadership
role with ongoing mentorship provided by senior leaders. The
first Future Leaders cohort is now on assignment in various
business areas.
More than 800 of our people
attended our staff conference at
Horncastle Arena, Christchurch
In FY19, our workforce increased by 218 employees. With
such fast growth it is important that we bring people on
board effectively. We do this through Synlait 101 – a three-day
orientation programme that all staff complete in their first week.
Synlait 101 includes information on who we are and what we do,
which are presented by leaders from across the business, and
a visit to a Lead With PrideTM dairy farm, which is a first for many
people.
In July, more than 800 of our people attended our staff
conference at Horncastle Area in Christchurch – an excellent
opportunity to connect with Synlait’s purpose, ambition and
strategy en masse.
Perform and Grow is our performance management process.
It’s how we lead and encourage leadership and talent
development within our teams. Perform and Grow’s scheduled
conversations between team leaders and staff clarify
expectations, drive engagement, develop personal capability
and deliver performance. The programme begins with an
initial meeting in August to establish coaching objectives,
accountability and performance goals, with monthly check-ins
throughout the year.
Our focus on employee engagement in recent years continues
to show positive results. We use Gallup’s Q12 survey tool,
benchmarking our performance against Australia, New Zealand
and Oceania. In 2019 the ratio of engagement was 3.6:1
(engaged staff to actively disengaged staff).
36
37
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 A HEALTHIER SYNLAIT
PEOPLE
DIVERSITY AND INCLUSION
There’s a pure and simple business case for diversity:
companies that are more diverse are more successful.
After finalising our Diversity and Inclusion Policy last year – a
tool to achieving sustainable commercial success and creating
a high performing, values-driven culture – we have set out to
achieve three main goals.
GOAL 1:
WORKFORCE DIVERSITY
SYNLAIT HAS IN PLACE STRATEGIES
TO SUPPORT THE EMPLOYMENT,
DEVELOPMENT AND RETENTION OF
MORE WOMEN AND MĀORI.
GOAL 2:
DIVERSITY THROUGH LEADERSHIP
SYNLAIT WILL EMPOWER AND EQUIP
ITS PEOPLE LEADERS TO RECRUIT,
DEVELOP AND RETAIN A DIVERSE
AND COMPETENT WORKFORCE.
GOAL 3:
WORKFORCE INCLUSION
SYNLAIT WILL FOSTER A CULTURE
THAT ENCOURAGES FLEXIBILITY
AND FAIRNESS TO ENABLE ALL
EMPLOYEES TO REALISE THEIR
POTENTIAL AND INCREASE TENURE.
OUR GOALS ARE MEASURED
THROUGH THE FOLLOWING
ASPIRATIONS:
• REDUCE THE GENDER PAY GAP TO
≤ 5% OVER FIVE YEARS
• ACHIEVE A 40-50% MIX OF WOMEN
IN LEADERSHIP POSITIONS (TEAM
LEADS, SUPERVISORS, SPECIALISTS
AND ABOVE)
• NIL REGRETTED LOSSES OF HIGH
POTENTIAL WOMEN
IN SEPTEMBER 2019, TWO KEY
WORKPLACE POLICIES WERE
INTRODUCED: MĀTUA, OUR
PARENTAL LEAVE POLICY, AND
TĀWARIWARI, OUR FLEXIBLE
WORKING POLICY.
Mātua enables parents to take the time off work required to
raise children – and encourages them to return to work in
conditions that mutually benefit their families and the business.
A feature of Mātua includes Synlait topping up government-
paid leave to full salary for 22 weeks (extended to 26 weeks in
July 2020) for the primary caregiver. Partners are offered two
weeks paid leave.
Tāwariwari defines ways that we can support and enable
flexible working where there is benefit (net neutral or net
positive) to both the employee and the business, (and where
we can ensure there is no reduction to performance and
productivity).
PROFILE 2
GIVING BACK TO THE COMMUNITY
THROUGH WHAKAPUĀWAI
Whakapuāwai, the name given to the key initiatives of our
THERE ARE THREE ASPECTS TO WHAKAPUĀWAI:
Firstly, we are extensively landscaping and planting thousands
of native trees and shrubs on 15 hectares of grazing land
behind our Dunsandel operation. While the early planting
programme requires plants sourced from local nurseries, within
a couple of years the plants will come from our own nursery.
In time, it will contain a wetland, along with walking tracks,
Community SIP means “to cause to blossom, develop, flourish,
exercise zones and meeting areas.
prosper, thrive”. Whakapuāwai is our commitment to restoring
and regenerating ecosystems, waterways and wetlands, flora
and fauna. It’s also about drawing people and groups together
to improve water quality, habitat for biodiversity and mahinga
kai, the things that sustain and nourish the people of Ngāi Tahu
and bring wellbeing, such as clean water, clean air, clean soil,
and sufficient shelter.
For Synlait staff, Whakapuāwai is an opportunity to engage
with their communities and make a personal contribution to
environmental restoration. We are giving our employees one
paid day per year to volunteer on a Whakapuāwai initiative – a
way of making tangible Synlait’s core purpose of: Doing milk
differently for a healthier world. At this year’s staff conference,
each team member was given a native tree which they will now
have the opportunity to plant in the new landscape – a physical
symbol of the connection we all have with the land.
Our Whakapuāwai vision for Synlait Dunsandel
Secondly, we are working with farmers to identify areas on
farms that would benefit from restoration of natural ecosystems.
In time, plants from our own nursery will be used to regenerate
these areas. Milk suppliers were also given a tree during our
annual supplier conference.
Thirdly, we are forming partnerships to identify and restore
community areas of shared value. As an example, Te Waihora
(Lake Ellesmere) is a catchment area that has been significantly
degraded as a result of changes in surrounding land use.
That part of Canterbury was once a large wetland, home to
thousands of species of animals and plants, and a critical
source of food for Ngāi Tahu. We’re now on a pathway to
forming a partnership with our local hapū, Ngāi Te Ruahikihiki,
to work on restoration projects, starting with extensive planting
and wetland restoration around Muriwai (Cooper’s Lagoon). We
hope the improvements to this small piece of land will become
an exemplar for restoration that land owners all around Te
Waihora will follow.
38
39
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019
WORLD CLASS VALUE CHAIN
ENTERPRISE
to ‘Quality by Design’ – that is, you cannot inspect quality into a
product, you have to build it into the process. ‘Right First Time’
manufacturing is the best guarantee for satisfied customers
and shareholders. To support this, our people receive all the
relevant food safety and quality training required so they can
perform their roles with care and confidence.
At Synlait we continue to meet the strict criteria of several
product quality and safety standards at the applicable sites,
including: FSSC 22000 System; Ministry for Primary Industries’
registered Risk Management Programme; US Food and Drug
Administration facilities registration, HACCP Certification from
China; Halal accreditation through FIANZ, APHSNZ and NZIDT;
Kosher through Orthodox Union; and ISO 17025:2015 laboratory
rating from IANZ.
Synlait’s regulatory teams in China and Dunsandel are
working in line with the Chinese infant formula regulations to
register more of the brands we manufacture with the State
Administration for Market Regulation (SAMR).
TRANSPARENCY
Synlait is in the early stages of aligning with and seeking
accreditation from respected third-party organisations. These
initiatives will assure investors, customers and consumers
of the sustainable credentials of our business and frame our
performance against rigorous global standards.
We are actively pursuing B Corp certification. B Corp
businesses balance purpose and profit. Becoming B Corp-
certified requires a B Impact Assessment score of 80 – this is a
high bar, and we are improving our processes and practices in
order to enter the full verification process as soon as possible.
The assessment comprehensively covers the impact of a
business on all stakeholders, including workers, suppliers and
community, and, of course, the environment. Our ambition is to
become New Zealand’s first NZX listed B Corp.
AS DEMAND FOR OUR PRODUCTS
RAPIDLY INCREASES, WE
ARE CONTINUING TO BUILD
REPUTATIONAL CURRENCY BY
INVESTING IN ACCREDITATIONS
THAT WILL PROVIDE COMPETITIVE
ADVANTAGE, DIFFERENTIATE AND
ADD VALUE TO OUR PRODUCTS,
AND REINFORCE THE LOCAL AND
INTERNATIONAL CREDIBILITY
OF OUR SUPPLIERS AND
MANUFACTURING PROCESSES.
SAFE FOOD
We are dedicated to manufacturing nutritional products that
provide genuine benefits for human health and wellbeing.
Our commitment to the highest of standards of quality and
safety is integral to this outcome. We have invested heavily in
a food safety strategy that mandates rigorous testing to prove
the absence of microbial and chemical contaminants, and
every can of finished infant formula is x-rayed to confirm the
absence of foreign matter. End-product testing is incredibly
Finally, we began the engagement process with Science Based
There are no two ways about it, Lead With Pride™ is a
Targets Initiative, a partnership of climate organisations that
challenging programme – but the response to our commitments
helps companies determine emissions reduction targets in
from milk suppliers, customers and investors has been
line with the level of decarbonisation required to keep global
extremely supportive. Today, nearly 50% of our South Island
temperature increase below 1.5°C.
SUSTAINABLE SUPPLY
farms are part of Lead With Pride™ with 43 new farms certified
this year. It’s also transformational. Lead With Pride™ farmers do
more than ensure quality of milk production, they take a holistic
approach to all aspects of farming. The integrity of production
and superior quality of milk enables our international health and
nutrition customers to differentiate themselves with confidence.
Lead With Pride™ is not a static programme. Following the
We are currently defining our SIP for this area of
launch of our ambitious sustainability strategy in 2018, we
our business. Our goal is to promote sustainability
have worked with farmers on strategies to further reduce
throughout our supply chain and to collaborate
their environmental impact. We have collected information to
with suppliers that demonstrate strong social and
establish and communicate to our farmers their unique GHG
environmental performance. Our strategy will be
emissions profile. We have also added a financial incentive for
disclosed in next year’s annual report.
farmers who understand, measure and mitigate on-farm GHG
As an aside, some key suppliers have begun investing
in production facilities more proximate to our
operations. These initiatives will both benefit the local
economy and reduce the environmental footprint of
emissions. Finally, we have introduced an incentive payment for
maintaining a palm kernel expeller (PKE) free farm. At the end
of last year’s season, 63 PKE-free Lead With Pride™ farms had
received this payment.
transporting products. In advance of our Sustainable
Synlait farms belong to one of three categories: Gold, Gold
Supply SIP, we have also begun to integrate
| Plus or Gold | Elite. Gold represents good practice but is
sustainability criteria into some tenders. Environmental
non-certified. Gold | Plus and Gold | Elite certified suppliers
and health and safety KPIs accounted for 7% of one of
meet additional standards under the four Lead With Pride™
our most recent tenders.
PROFILE 3
HEALTHY FARMING AND
LEAD WITH PRIDETM
Doing the right thing is rewarding – that’s one takeaway from
Lead With Pride™, our on-farm certification programme that
continues to go from strength to strength in recognising and
financially rewarding suppliers who achieve dairy farming best
pillars – they are ISO/IEC 17065 certified and receive incentive
payments for their milk. Farms can apply to Gold | Elite status
after maintaining Gold | Plus for a minimum of 12 months (Gold
| Elite incentives are up to $0.25/kgMS versus $0.20/kgMS for
Gold | Plus).
WITH SYNLAIT POKENO DUE TO
COMMISSION EARLY IN FY20, WE
HAVE BROUGHT TOGETHER A NEW
GROUP OF MILK SUPPLIERS IN THE
GREATER WAIKATO REGION. WITH
SO MUCH MOMENTUM BUILDING
AROUND OUR LEAD WITH PRIDE™
PROGRAMME, WE ACTIVELY TARGET
FARMERS WHO MEET THE REQUIRED
STANDARD, OR WHO ARE CAPABLE
OF ACHIEVING CERTIFICATION IN
THE NEAR FUTURE.
important for compliance and trust, but we are also committed
We have also engaged Sustainalytics, an Environment, Social
practice.
and Governance (ESG) research provider, to undertake
an assessment of our sustainability performance, and
consequently received our first ESG risk rating score in
February 2019. Since then, we have established a roadmap
to improve our performance over time.
In July 2019, we completed CDP’s climate change
questionnaire, which will be published by the end of the
year. CDP is a worldwide organisation that aims to make
environmental reporting and risk management a business norm,
and drive disclosure, insight and action towards a sustainable
economy.
Several years ago, Synlait recognised the need to ensure
that milk suppliers, who were facing environmental and other
challenges, had access to a leadership programme which
provided a pathway to excellence. Lead With Pride™ was the
result – an industry exemplar launched in April 2013 that was
the first programme of its kind in Australasia. Internationally
recognised with an ISO/IEC 17065 standard, Lead With Pride™
encourages and rewards suppliers who prove excellence
in dairy farming, as evaluated against four pillars: Social
Responsibility, Environment, Animal Health and Welfare, and
Milk Quality.
40
41
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019
OUR
CORPORATE
GOVERNANCE
REPORT
OUR CORPORATE GOVERNANCE REPORT
GOOD CORPORATE GOVERNANCE
IS TOP OF MIND FOR SYNLAIT’S
DIRECTORS. IT IS A CRITICAL STEP
IN PROTECTING THE INTERESTS OF
OUR SHAREHOLDERS, CUSTOMERS
AND OTHER STAKEHOLDERS.
WE STRIVE TO KEEP UP TO DATE
WITH NEW DEVELOPMENTS, AS
APPROPRIATE FOR OUR BUSINESS.
Synlait’s shares are quoted on the NZX Main Board, and on the
ASX. Synlait transitioned to the new NZX Listing Rules dated
1 January 2019 on 8 March 2019. During the year to 31 July
Breaches of the Code of Ethics and/or the Synlait Standards
Policy are treated seriously.
The Code of Ethics, Synlait Standards Policy, Whistleblower
Policy Securities Trading Policy, Continuous Disclosure Policy
and Related Parties Transaction Policy are available on both our
company intranet and our website: www.synlait.com/investors/
In FY19, Synlait did not meet the requirements of Principle 1 in
its entirety. While Synlait is satisfied that it had robust standards
of ethical behavior that are accessible by all employees,
including on our intranet, and all new employees were informed
about the requirement to comply with the Code of Ethics and
Synlait Standards, we did not provide ongoing training to our
employees on our standards of ethical behavior as required
by the Code. Going forward we will develop regular internal
training about the ethical standards we require our employees
2019 we complied with the NZX Corporate Governance Code
to meet.
dated 1 January 2019 (Code), except where set out below. Our
Corporate Governance Statement is current as at 31 July 2019.
PRINCIPLE 1: CODE OF ETHICAL BEHAVIOUR
‘Directors should set high standards of ethical behaviour,
model this behaviour and hold management accountable for
these standards being followed throughout the organisation’.
Standards of Ethical Behaviour
Synlait’s reputation matters to it. Synlait is committed to
maintaining the highest standards of honesty, integrity and
ethical conduct. This commitment is embodied in our Code of
Ethics, Synlait Standards Policy and Whistleblower Policy. Our
Securities Trading Policy, Continuous Disclosure Policy, Conflict
of Interests Policy and Related Parties Transaction Policy further
reflect these guiding principles.
Securities Trading Policy
Synlait’s Securities Trading Policy and Guidelines apply
to all Directors, officers and employees of Synlait and our
subsidiaries. Primarily the Policy and Guidelines exist to help
Directors, officers and employees navigate insider trading laws,
by reinforcing to them that insider trading is prohibited and
providing assistance in understanding what material information
is and therefore what might amount to insider trading.
PRINCIPLE 2: BOARD COMPOSITION AND
PERFORMANCE
‘To ensure an effective board, there should be a balance of
independence, skills, knowledge, experience and perspectives’.
Board Charter
Synlait’s Board of Directors’ Charter, available on our
Our Code of Ethics is subject to annual review. Together with
website www.synlait.com/investors/, sets out the roles and
the Synlait Standards it outlines in detail the expectations
responsibilities of the Board and its office holders, as well as
Synlait has of people working with us. They include
requirements to comply with all laws, as well as applicable
other key information about the operation of the Board. The
Board delegates responsibility for implementing Synlait’s
internal rules, policies and procedures, deal fairly, not engage
strategic direction and managing Synlait’s day-to-day
in bribery and corruption, be circumspect with gifts, meals and
operations to the Chief Executive Officer. This delegation is
entertainment. They also record that Synlait will not tolerate
enacted in our Delegated Authorities Policy which all staff have
discrimination, bullying or harassment.
access to.
To support the Code of Ethics and Synlait Standards Policy and
Our Directors
other associated policies, we introduced our Whistleblower
Policy in May 2019. It is important that everyone at Synlait
feels able to raise concerns about conduct. This policy gives
those concerned about behaviour a process for raising those
concerns, and assurance that their confidentiality will be
Our current Board is shown on page 29 of this report and
profiled on our website: www.synlait.com/people/. Their
interests (as required to be disclosed under the Companies
Act 1993) and other relevant information about our Directors
is disclosed in the Statutory Information Section of this report
protected where possible. To facilitate the reporting process
starting on page 111.
for people who may not want to discuss their concerns with a
Synlait manager, we have provided access to an independent
provider accessible by a number of means.
It is important that all newly appointed Directors understand
Synlait’s expectations of them, and the entitlements that they
42
43
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 OUR CORPORATE GOVERNANCE REPORT
will receive as a Director of Synlait. Synlait requires that all newly appointed Directors enter into agreements with Synlait outlining
Dairy appointed directors on the Board consistent with the
We are pleased to report that we tracked well against our goals
their terms of appointment. We have the same requirement for Directors of Synlait’s subsidiaries.
Attendance at board and Committee meetings in the year to 31 July 2019 was as follows:
Director
Bill Roest
Graeme Milne ONZM
Dr. John Penno
Min Ben
Qikai Lu
Hon. Ruth Richardson
Sam Knowles
Sihang Yang
Board meetings attended
Audit and Risk Committee
People, Environment and
Governance Committee
6/6
6/6
6/6
2/6
5/6
6/6
6/6
3/6
5/5
5/5
N/A
N/A
4/5
N/A
N/A
N/A
3/3
3/3
N/A
0/3
N/A
3/3
3/3
N/A
Nominations and appointment of Directors
Synlait’s People, Environment and Governance Committee
oversees nominations to the Board, on behalf of the Board. It is
charged with ensuring that there is a Board succession plan in
place, so that an appropriate mix of skills, experience, expertise
and diversity is maintained on the Board at all times. The Board
•
•
Directors must be ordinarily a resident in New Zealand and
be of the standing and experience appropriate for a listed
company Director;
There must be at least three Independent Directors;
The Chair, and the Chair of the Audit and Risk Committee,
is also actively involved in considering Board candidates.
must be Independent Directors;
The Board’s current succession plan requires that due
•
The Chair of the Board has a casting vote, except where
regard be given to leadership skills, industry knowledge,
two Independent Directors form a quorum at a meeting of
maintenance of the current level of breadth and depth of skills
the Board;
and experience across the Board, any explicit skills gaps to
be filled, forthcoming significant matters, creating stability and
maintaining diversity when considering new appointments.
• Bright Dairy, and its associated persons, are not entitled to
vote on any ordinary resolution of shareholders to appoint
a Director, or any ordinary resolution to re-elect a Director
Our Constitution, as approved by NZX Regulation and
retiring by rotation or any ordinary resolution to remove a
adopted by our shareholders, and the NZX Listing Rules,
Director;
include detailed requirements for the makeup of our Board,
and the Director appointment process. The Constitution was
prepared in reliance on waivers from NZX Regulation granted
on 24 June 2013 and amended on 30 October 2018. Those
waivers address Director appointment, Board composition and
operation. The full waivers are on our website: www.synlait.
com/investors/
The minimum number of Directors on Synlait’s Board at any
time is three, and the maximum at any time is eight. At all
times, at least two Directors must be ordinarily resident in
New Zealand.
•
The Board must appoint either a managing Director or a
Board Appointed Director. The Managing Director cannot
be a Bright Dairy appointed Director and is prohibited from
voting or being part of the quorum on matters relating to
his/her remuneration, removal and any matter relating to
the appointment of a new managing Director. Currently
we have a Board appointed Director, Dr. John Penno;
• At each annual meeting one third of the Independent
Directors (being the Directors longest in office since last
elected) must retire and will be eligible for re-election by
the shareholders. The requirement to retire by rotation
proportion of the total shares in Synlait owned by Bright
in FY19. Our representation of women in leadership (team
Dairy. Also, all remaining Bright Dairy Directors must retire
leads, Supervisor, Specialists and above) increased to 37% and
at the next annual meeting as part of the Director rotation
the gender pay gap reduced by 3% to 13%.
process, irrespective of whether they have been the
longest in office; and
Information collected about our Senior Leadership Team (as
opposed to the Directors and officers reported on in paragraph
•
The Directors are not permitted to appoint alternate
17 of the Statutory Information section of this report) in
Directors. However, a Bright Dairy Director may appoint
furtherance of our work under our Diversity and Inclusion Policy
another Bright Dairy Director to exercise their voting rights
is as follows. Corresponding information for FY18 is in brackets:
at a Board meeting if they cannot attend that meeting. The
quorum for a Board meeting must include two Independent
Gender
Directors.
Diversity and Inclusion Policy
Synlait is committed to a culture that promotes and values
diversity and inclusion (balance and belonging). This is essential
to driving sustainable commercial success and creating a high
performing value driven culture within our organisation.
In September 2018, Synlait adopted its first Diversity and
Inclusion Policy. Our Diversity and Inclusion Policy requires
the Board to promote a culture of diversity and inclusiveness.
Female
2 (2)
Ethnicity
New Zealand
(based on
birth place)
8 (9)
Male
11 (12)
Asia
0 (0)
Total % Female
13 (14)
18 (14)
Other
5 (5)
Domicile
New Zealand
Other
(based on
current
residence)
Language
spoken
13 (14)
0 (0)
English only
Two
languages
Three or
more
It does so by putting in place appropriate strategies and
SLT
9 (10)
1 (1)
3 (3)
measurable objectives. Management must report to the Board
on diversity initiatives and progress against the strategies and
measurable objectives.
As we adopted our Diversity and Inclusion Policy in September
2018, we did not meet the requirements of Principle 2 of the
The Board conducts an annual assessment of our Diversity and
Code (Recommendation 2.5) from 1 August 2018 until the Board
Inclusion policy, our objectives set under that policy, and the
approved the policy on 18 September 2018. Prior to Board
progress made towards achieving them.
We aim to achieve three main goals:
approval, Synlait had been aiming for a diverse and inclusive
workplace, and this policy and the strategies and measurable
objectives developed under that policy formalized that process.
Workforce Diversity – employ, develop and retain more women
and Maori.
Director training
Diversity through Leadership - empower and equip our people
leaders to recruit, develop and retain a diverse and competent
workforce.
Workforce inclusion - foster a culture that encourages flexibility
and fairness, to enable all employees to realise their potential,
and thereby increase employee retention.
Our success will be measured against the following statistics:
It is important that our Board stays up to date with market
developments, and has a good understanding of Synlait’s
business and industry. Each year our Board is involved in two
strategy workshops with management to agree Synlait’s vision
and strategy.
In May 2019, the Board spent a week together to focus on
Synlait’s Customers, Categories and Communities. They
started in the Waikato by visiting a new farm supplier and the
new Pokeno processing site. They also visited our research
• Reduction of the gender pay gap to ≤ 5% in the 5 years
and development centre at Massey University and spent time
•
40-50% of Leadership positions (Team Leads, Supervisor,
with Massey University staff considering current food pilots and
developments in innovation and agricultural technology. They
then travelled to Christchurch to meet with staff and customers.
They attended focus sessions on specific significant Synlait
projects so as to inform their decision making on those projects
and met key stakeholders in those projects.
This training was in addition to any governance training
undertaken by the Directors independently of Synlait.
While Bright Dairy Limited continues to hold 37% -50% of
does not apply to the Bright Dairy Directors, or to Directors
Specialists and above) held by women
our shares (excluding shares issued under employee share
appointed by the Board or the Managing Director or Board
schemes or shares issued to Directors):
Appointed Director.
• Bright Dairy has the right to appoint four Directors. All those
- On Bright Dairy holding less than 37% of the ordinary
Directors must have appropriate skills and experience
shares in Synlait (excluding shares issued under employee
to ensure that Synlait has a suitable mix of skills and
share schemes or shares issued to Directors), Bright Dairy
experience on the Board. Additionally, one of those
directors must resign so as to keep the proportion of Bright
• No regretted losses of high potential female employees
To assist in achieving these goals, we have adopted Mātua (a
parental leave policy), Tāwariwari, (a flexible working policy),
introduced un-conscious bias training and have regular
reporting to the Board on candidates’ diversity.
44
45
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019
OUR CORPORATE GOVERNANCE REPORT
Our People, Environment and Governance Committee is
Synlait’s Chair, Graeme Milne, is an Independent Director as
This Committee ensures that the Board is aware of matters
elsewhere in this report. Others include monitoring corporate
responsible for identifying and recommending ongoing
required by our Constitution.
governance training for the Board.
Assessment of Director, Board and Committee performance
Our Board Chair conducts an annual review of the Board and
each Director, as required by our Board’s Charter.
The People, Environment and Governance Committee puts in
place processes to review the performance of the Board, and
the performance of individual Directors, including that of the
Chair and Committee Chairs, and the managing Director on a
regular basis, including an external review at least every three
years.
An external review of the Board was conducted in the year
to 31 July 2019. The review was designed to assist the Board
reflect on its capability and performance, and to provide an
independent lens to help them decide on key actions. The
Board evaluation provided insights into areas of strength, as
well as development themes. The Board has adopted various
recommendations in the report and continues to consider other
recommendations.
Independent Directors
Synlait has a waiver from NZX in relation to its Board
composition. The composition of our Board reflects that
PRINCIPLE 3: BOARD COMMITTEES
‘The board should use committees where this will enhance
its effectiveness in key areas, while still retaining board
responsibility’.
Synlait has two Board Committees: the Audit and Risk
Committee and the (now called) People, Environment and
Governance Committee. These Committees meet regularly.
Minutes are taken at each Committee meeting and the Chair
of each Committee reports back to the Board at each Board
meeting, and makes appropriate recommendations.
To acknowledge the significance of sustainability and the
environment in Synlait’s strategy, the Board has recently
decided to extend the roles and responsibilities of what
was previously the People and Governance Committee to
include matters relating to the environment. The Committee
is now known as the People, Environment and Governance
Committee.
Synlait considers that we have an appropriate range of
Committees for our size.
Audit and Risk Committee
a single shareholder, Bright Dairy, owns over 37% of our
Our Audit and Risk Committee operates under a Charter
shares. Arrangements relating to Director appointment, Board
updated in September 2018. The Committee is required to
composition and operation are recorded in our constitution
review its performance against its Charter, and the Charter
and are the subject of an NZX Regulation waiver which is on
itself, at least once per year. The Charter is on our website:
our website: www.synlait.com/investors/. Among other things,
www.synlait.com/investors/
the Bright Dairy representation on the Board is balanced by
requirements that:
The members of the Audit and Risk Committee members are
nominated by the Board, and a majority of their number, and
• one of the Bright Dairy Directors is a New Zealand resident
the Chair, must be Independent Directors. At least one member
with such standing and commercial and governance as is
of the Risk and Audit Committee must have accounting or
appropriate for a listed company;
related financial experience.
•
there are three Independent Directors; and
During FY19 the members of our Audit and Risk Committee
•
there is either a managing Director or a Board appointed
Director. We currently have a Board appointed Director.
Principle 2 of the Code (Recommendation 2.8) recommends
that a majority of our Board should be Independent. Synlait
does not comply with this principle as three of our eight Board
members are Independent.
Synlait has considered whether its Independent Directors are
independent against the definition in the NZX Listing Rules and
were Bill Roest, Graeme Milne and Lu Qikai (Albert). The
Committee is chaired by Director Bill Roest, an Independent
Director who is a member of the Chartered Accountants
Australia and New Zealand and a fellow of the Association of
Chartered Certified Accountants (UK). Bill is not the Chair of
the Board, and has never worked for our independent auditor,
Deloitte. Qikai Lu has considerable financial and business
experience, and has previously been a public accountant with
one of the ‘big four’ chartered accounting firms in China. None
of the members of our Audit and Risk Committee are executive
the commentary to Recommendation 2.4 in the Code and is
Directors.
satisfied that our Independent Directors are Independent. Their
interests in shares in Synlait, and other relevant information
is disclosed in the Statutory Information section of this report
starting on page 111.
that may significantly affect the financial condition or affairs
governance, monitoring compliance with Synlait’s Code of
of Synlait’s business, and it prepares any reports required by
Ethics and Synlait Standards Policy, putting in place workplace
law or regulation or the NZX Listing Rules, or requested by the
policies so as to ensure compliance with all relevant laws and
Board. This Committee reviews the interim financial statements,
putting in place procedures to deal with complaints from staff.
annual financial statements and preliminary announcements
The People, Environment and Governance Committee now also
before their release. It oversees risk management at Synlait,
plays a vital role in setting and monitoring compliance with our
legislative and other compliance (including with internal
sustainability strategies and policies.
policies), tax management, treasury management and sales
management Its role with respect to Synlait’s auditors, both
external and internal, is discussed on pages 51-52.
Given its smaller size, and its low Director turnover, Synlait
does not have a separate nominations Committee. The People,
Environment and Governance Committee fulfils this role for
The Chief Executive Officer, Chief Financial Officer, Director
Synlait’s Board, as noted in more detail on page 44. The Board
Legal, Risk and Governance and Company Secretary have a
is also actively involved in considering possible candidates for
standing invitation to attend meetings of this Committee. Other
the Board.
members of Synlait’s management team may attend on specific
invitation only.
Takeover Protocols
People, Environment and Governance Committee
Synlait has a Takeovers Policy setting out the procedure to
be followed if there is a takeover offer for Synlait. That policy
The People, Environment and Governance Committee
records that the Board may establish an Independent Takeover
(previously the People and Governance Committee) operates
Committee, including Synlait’s Independent Directors to
under a written Charter which can be found on our website:
manage the process.
www.synlait.com/investors/. The majority of the Committee’s
members are Independent, and the Board appoints the Chair of
PRINCIPLE 4: REPORTING AND DISCLOSURE
the Committee. At least one of the Committee’s members must
have experience with a listed company. Sam Knowles became
Chair of this Committee in June 2019 taking over from Hon.
Ruth Richardson. Other members are Graeme Milne, the Hon.
Ruth Richardson, Bill Roest and Min Ben.
The Chief Executive Officer, Director, People, Culture and
Performance, Director, Legal, Risk and Governance and
Company Secretary have a standing invitation to attend
meetings of this Committee. Other members of Synlait’s
management team may attend on specific invitation only.
The People, Environment and Governance Committee performs
key remuneration functions for Synlait, including recommending
to the Board the remuneration and compensation of the
Chief Executive Officer. It oversees, and approves the Chief
Executive Officer’s recommendations for, compensation of the
Executive Leadership Team, reviews and agrees the Strategic
Remuneration Policy and agrees remuneration adjustments
for Synlait’s staff. Additionally, the People, Environment and
Governance Committee conducts an annual audit to check that
Synlait’s policies for remuneration are both being complied
with, and in line with best practice for similar organisations.
Additionally, the People, Environment and Governance
Committee fulfils various roles in respect of the governance of
Synlait on behalf of the Board. Some of those are described
‘The board should demand integrity in financial and non-
financial reporting, and in the timeliness and balance of
corporate disclosures’.
As a result of its listings on the NZX and the ASX, Synlait
is required comply with strict reporting and disclosure
requirements so as to keep its shareholders, customers and
other stakeholders informed as to its activities.
Continuous Disclosure
We have a Continuous Disclosure Policy that explains how
we comply with our continuous disclosure obligations. It can
be found on our website: www.synlait.com/investors/. All staff
are required to be familiar with the Policy and our procedures
so that they can identify a potential need for disclosure. All
Directors and members of the Senior Leadership Team are
primarily responsible for compliance with the disclosure
obligations and implementing the policy effectively.
The Policy outlines the sort of information that might be
“Material Information” and requires that information is
communicated to nominated disclosure contacts as soon as it
becomes known. They are the Chief Executive Officer, the Chief
Financial Officer or the Director, Legal, Risk and Governance.
The disclosure contacts are responsible for assessing whether
disclosure is required to be made.
46
47
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 OUR CORPORATE GOVERNANCE REPORT
Documents available on Synlait’s website
PRINCIPLE 5 - REMUNERATION
Long Term Incentive scheme
PRINCIPLE 6 - RISK MANAGEMENT
As is disclosed elsewhere in this report, Synlait publishes our
key Charters, Policies and Standards on our website: www.
synlait.com/investors/
Financial Reporting
The Board has a rigorous process to ensure the quality and
integrity of our financial statements.
At each Board meeting the full Board is presented with a
detailed Business Performance Report (BPR), which looks at
the financial performance of the organisation and identifies any
risks, issues and opportunities, and attempts to quantify the
upsides and downsides should any of these items eventuate.
The BPR also measures against actuals, and explain the
reasons for any variances – including whether these are timing
differences or permanent variances.
Synlait’s full and half year financial statements were prepared
in accordance with relevant financial standards. The full year
financial statements are set out on pages 54 to 106 of this report.
Synlait is committed to ensuring the integrity and timeliness in
its financial reporting, and is committed to providing information
to shareholders in a timely manner.
The Audit and Risk Committee oversees the integrity of
external financial reporting, including the accuracy and
timeliness of financial statements. This Committee is charged
with reviewing in significant detail the financial statements
and accompanying materials. After approval by the Audit and
Risk Committee, the complete set of financial statements and
annual report is submitted for approval to the full Board, based
on the recommendation of the Audit and Risk Committee. Each
Director is obliged to form a view on the quality, accuracy and
integrity of the financial statements and annual report and give
their approval (or not) in accordance with the Financial Markets
Conduct Act 2013 and Companies Act 1993.
On our website, we have our previous financial statements
readily available for our shareholders (www.synlait.com/
investors/annual-interim-reports/), including all our analyst
briefings and investor presentations (www.synlait.com/
investors/presentations/).
Non-financial disclosure
Our annual report has traditionally been focused on reporting
against financial measures. In FY19, we established our
sustainable framework and related Sustainable Innovation
Platforms (SIPs) which align to our new purpose and strategy.
We also established baseline information in relation to some of
our goals. For further information, please refer to the Update on
our Sustainability Strategy from page 30.
At this time, Synlait does not have a formal environmental,
social and governance (ESG) reporting framework. However, it
is in development and will be progressed during FY20, with a
view to enhancing our non-financial reporting.
‘The remuneration of directors and executives should be
transparent, fair and reasonable’.
Director remuneration
The People, Environment and Governance Committee
is responsible for reviewing the structure of Directors’
remuneration. It obtains independent advice on appropriate
remuneration and recommends to the Board the remuneration
to be proposed for shareholder approval at the annual
meeting. Current Directors’ remuneration is set out in the
statutory information section of this report on page 114, and
was recommended to shareholders following a report prepared
by Ernst & Young in August 2018, which can be found on our
website: www.synlait.com/investors/. The remuneration was
approved by the shareholders on 27 November 2018.
Remuneration Policy
Synlait’s Strategic Remuneration Policy sets out the
remuneration principles applying to remuneration of our
Directors and employees and is designed to ensure that Synlait
meets the strategic policy objective of attracting, rewarding and
retaining staff with the requisite skills and capabilities to ensure
our successful business outcomes.
The People, Environment and Governance Committee oversees
the implementation of our Strategic Remuneration Policy,
including recommending to the Board remuneration for the
CEO and other business leaders, and budget parameters for
the annual pay review.
Employee fixed remuneration comprises a base salary,
Employer Kiwisaver contributions (for participating employees),
and medical insurance. Remuneration is reviewed yearly
for eligible employees, with any changes based on market
movement, position in the salary range, and performance. We
provide employees with health insurance membership under
the Southern Cross Wellbeing One policy. This is a broad
surgical and healthcare plan which includes cover for cancer
care, unlimited surgical treatment and consultations, diagnostic
imaging, tests and recovery within six months of related eligible
surgical treatment or cancer care. Families of employees are
also able to join the scheme at reduced rates.
Synlait does not offer bonuses or other short term incentives.
Synlait operates a Long-Term Incentive Scheme (LTI Scheme)
and a small group of selected senior employees are invited to
join that scheme each year. Any benefits from the LTI Scheme
are in addition to the salary and other benefits agreed with
the employee. The terms of that LTI Scheme set out the
performance criteria to be met for the award of shares to
relevant employees under the LTI Scheme.
The Executive Leadership Team participated in the LTI Scheme
‘Directors should have a sound understanding of the material
in the year to 31 July 2019. The LTI Scheme provides for the
risks faced by the issuer and how to manage them. The
issue of shares in Synlait to participants, if specified goals are
board should regularly verify that the issuer has appropriate
met. The LTI scheme is an annual scheme with performance
processes that identify and manage potential and material
share rights (PSRs) granted to Board-approved participants in
risks’.
July each year the LTI Scheme operates. The number of PSRs
granted to participants is set at one quarter of their base salary
divided by the volume weighted average price of our shares
over the period beginning ten trading days before the first
day of the first financial year of the assessment period and
ending ten trading days on and from that date. PSRs are non-
transferable and have no voting or other share rights and are
otherwise subject to the rules of the LTI Scheme and individual
award agreements.
Risk Management Framework and Reporting
At Synlait, risk is everyone’s responsibility. Risk management
is explicitly tied to the achievement of our objectives, and is
part of everything we do. In November 2018 we refreshed our
Enterprise Risk Management Framework which, in addition to
providing a framework to ensure all material risks are identified,
understood and managed, promotes a focus on risk-aware
decision making at all levels.
Each PSR will be converted into one ordinary share in Synlait
Our framework is built off ISO31000 guidelines and includes
within 20 working days of the Board determining that specified
the following core components:
performance hurdles have been met during the assessment
period of three financial years following the date of the
grant. This is provided however that the employee remained
employed by Synlait at the end of the assessment period. No
• Synlait’s Risk Management Policy, with supporting
standards and procedures which promote a consistent
approach to managing risk.
cash consideration is payable by the employee on the grant
• Clear roles and responsibilities, including for the Board and
of PSRs, or on the issue of fully paid ordinary shares following
SLT.
vesting of PSRs.
There are two performance hurdles required to be met,
relating to total shareholder return (TSR) and earnings per
share (EPS). Vesting of half of the total award is dependent
on the TSR target being met, and the remaining half, the
EPS target being met. The degree of vesting in each case is
determined by a progressive vesting scale. If our TSR is greater
than or equal to the 75th percentile of a peer group over the
assessment period, a minimum of 50% of the PSRs will vest.
The peer group comprises the S&P/NZX 50 index companies
on the first day of the assessment period. If our EPS over the
assessment period equals the Board approved EPS target plus
10%, then a minimum of 50% of the PSR will vest. For either
• Our key risks are split into operational and strategic risks.
As a growth organisation, Synlait has a healthy strategic risk
appetite. This is reflected in our Risk Management Policy.
We also recognise four principles which guide all risk-related
activities and decision making:
• Nothing we do is worth getting hurt for.
• We do not accept activities, behaviours or decisions which
create uncontrolled risk to the consumers of our products.
• We do not accept activities, behaviours or decisions which
knowingly constitute a legal or regulatory breach.
performance hurdle to be met, our TSR must be positive over
• We do not accept uncontrolled risks that could result in a
the assessment period.
significant loss of revenue, profitability and/or earnings.
Vesting of annual awards is monitored to ensure that the
Our Audit and Risk Committee has been appointed by the
value vested in any one year does not exceed 5% of market
Board to review and make recommendations to the Board on
capitalisation, as required by NZX Listing Rules.
the effectiveness of our risk framework. Directors regularly
Chief Executive Officer Remuneration
In the year to 31 July 2019, Leon Clement’s remuneration
comprised of a base salary of $880,035, a 3% employer
KiwiSaver contribution, and medical insurance.
Also, Leon was invited to join Synlait’s FY19 LTI scheme and
was awarded 20,352 performance share rights as a part of that
Scheme. More information about that LTI Scheme is set out
above.
receive and review reports on our material risks as part of a
comprehensive risk management process. This includes:
• Review of Synlait’s risk profile, including significant changes
and progress on managing these risks, as part of each
Audit and Risk Committee meeting.
• A summary of this profile, including material risks and
significant changes is provided to each Board meeting.
48
49
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 OUR CORPORATE GOVERNANCE REPORT
•
The risk profile is the culmination of regular management
To ensure consistency and appropriate focus, we categorise
processes to identify, assess, action, monitor and review
risks as either:
risks that arise in the pursuit of delivering our strategic
objectives.
• Strategic – that is, risks faced by Synlait because of the
strategic objectives and/or decisions taken; or
• Operational – that is, risks faced in the pursuit of delivering
on the objectives.
Examples of the material risk areas being actively managed include:
Risk type
Area of risk
Why is this important to us?
How are we managing this?
Strategic
Delivering on
sustainability
We’ve made bold commitments
and set challenging targets.
Ensuring we remain focused on
delivery is not only critical for
our planet, but for our reputation
with all our stakeholders.
Synlait is committed to enhancing its sustainability reporting.
As part of our Sustainability Framework, eleven Sustainable
Innovation Platforms (SIPs) have been identified.
Within each of these, detailed targets and implementation
plans are developed and closely tracked by Management,
with regular reporting to the Board via the People,
Environment and Governance Committee.
Strategic
Changes in
consumer
preferences
We believe strongly in the
nutritional value of bovine milk.
We also recognise and closely
monitor global trends to ensure
we’re setting ourselves up to
meet future demands.
• Active monitoring of changes in the global nutrition
market across multiple functions including category
management, research and development, technical and
regulatory.
• Regular engagement in market research and analysis to
understand consumer and/or market preferences.
Operational
Food safety
and quality
Operational Market access
Providing safe and quality
nutrition is the core of what we
do. We take this responsibility
seriously, and our risk
management practices ensure
food safety and quality is top of
mind in all we do.
Like all involved in the trade of
goods, we rely on stable access
to global markets. We recognise
and monitor our responsibilities,
while also engaging with
industry and government to
navigate a dynamic market
access environment.
We have a comprehensive quality management system in
place which includes:
• Strict operational controls throughout our value chain;
• Thorough testing programmes, including raw milk,
ingredients, finished product and across our processing
environment.
• Training for all staff commensurate to their position; and
• Regular internal and external audits to verify controls and
drive a focus on continuous improvement.
Our Regulatory and Corporate Affairs teams proactively
manage this risk through:
• Regular scanning of the regulatory environment for
trends, changes and areas of potential risk for Synlait
• Maintaining strong relationships with local and
international networks to calibrate or strengthen our
understanding of potential changes and their impact;;
• Regular engagement with key New Zealand international
industry groups - including DCANZ, DairyNZ and the
Infant Nutrition Council - to promote the interests of
Synlait and New Zealand dairy; and
• Regular and meaningful engagement with relevant
Ministers, officials and advisors to build understanding
of Synlait’s business, our interests and shared
commitments.
Operational
Talent
management
Attracting and developing world-
class talent is a critical success
factor in ensuring we continue to
deliver on our objectives.
We have a holistic focus on talent management, including:
• Implementation of our Future Leaders programme, which
aims to attract and develop leaders in line with our
purpose, ambition and strategy;
• Investment in best-in-class systems to support a highly
effective talent acquisition process;
• planning and talent review processes embedded in
regular Management reviews; and
• Comprehensive workforce
• Continued focus on our Perform and Grow framework,
ensuring every employee is engaged in regular
development activities.
Operational Cyber security
and data
protection
The availability, reliability and
integrity of all our systems
and data is a critical not only
for our day-to-day operations,
but in maintaining the highest
level of trust with all our key
stakeholders.
• We actively monitor and review effectiveness of our core
systems and data controls;
• We engage independent experts to review and
strengthen our controls across both our IT and OT
environments; and
• We regularly test our response capabilities to identify
further continuous improvement opportunities.
Health and Safety Risks
Synlait has identified five critical health and safety risks in
its business. They are hazardous gases, working at heights,
material handling equipment, working in confined spaces and
State Highway One (traffic). We have projects actively seeking
to reduce the likelihood and consequence of an event linked
to those critical risk being fatal or seriously harming any person
(employee or contractors).
We measure proactive and reactive measures of Health, Safety
and Wellness (HSW). These include our Total Recordable Injury
Frequency Rate (TRIFR), Near Miss and New Hazard frequency
rates, and Injury Severity frequency rate. Over the course of
FY19, Synlait’s TRIFR by 28%.
More information on our health and safety initiatives is included
on page 36.
We continue to work with NZTA on the risk that State Highway
PRINCIPLE 7 – AUDITORS
One poses to our employees and others arriving at an leaving
our Dunsandel site. This year we also launched a wellbeing
plan that aligns to National Wellness Campaigns (examples are
Mental Health month, Heart Foundation Appeal and Cancer
Society events). We have adopted Te Whare Tapa Whā model
and will focus on 3 core pillars Nourish, Rest and Movement.
Employee engagement is vital in the management of HSW. For
this reason, we have eleven Health and Safety Committees
across the business that provide honest feedback on our
operational risks. In the year ended 31 July 2019, we introduced
“Wellness Assessments” company-wide - these involve both
physical and mental health assessments by Occupational
Health Nurses and included assessment against the Kessler
10 screening tool. This is a globally recognized measure of
distress based on anxiety and depression symptoms that an
individual has experienced in the most recent 4 week period.
When benched marked against Australian data, the results
achieved by Synlait staff compared favourably.
‘The board should ensure the quality and independence of the
external audit process’.
The Audit and Risk Committee plays a key role in Synlait’s
audit process. It is responsible for recommending the
appointment of the external auditors to the Board, overseeing
the independence of the external auditors, and overseeing
the work of the external auditors; as well as reviewing policies
for the provision of non-audit services by the external auditor
(including the framework for pre-approval of any such services).
Currently, our external auditors are Deloitte. Deloitte attends
Synlait’s Annual Meeting of Shareholders where the lead audit
partner is available to answer questions from shareholders. The
Committee meets regularly with our external auditor, Deloitte,
(including meeting without management present). Annually
the Audit and Risk Committee reviews and assesses Deloitte’s
performance through an internal questionnaire. The results, key
themes and recommendations are reported to the Board.
50
51
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 The investor section of Synlait’s website contains the below
At the annual meeting held on 28 November 2018 shareholders were asked to vote on five matters. The following table details the
information:
resolution, whether the resolution was passed and the voting results:
OUR CORPORATE GOVERNANCE REPORT
Deloitte confirms their independence from the Company to the
Audit and Risk Committee in March and September each year.
Non-audit services performed by Deloitte are closely examined
by management and the Chair of the Audit and Risk Committee
prior to engaging Deloitte for these additional services, so as to
ensure that they do not compromise Deloitte’s independence.
In the year to 31 July 2019 we our total payments to Deloitte
were as follows:
Audit and Assurance Work
$307,000
•
a live share price feed (for the NZX and ASX), historical
pricing and trading data;
•
announcements and news releases, copies of the annual
and interim reports and investor presentations;
•
key corporate governance documents such as Charters
and policies, including Synlait’s constitution;
Taxation Compliance and accounting advice1
$69,000
•
notice of meetings, results of meetings and other relevant
Percentage (non-audit/audit)
22%
meeting materials;
1 Various engagements including income tax return review, GST review,
fringe benefit tax review, high-level review of tax governance processes,
and ad hoc review work. These services are compliance in nature and are
not inconsistent with Deloitte’s role as auditor. Deloitte’s ongoing role as
provider of tax compliance services was approved by the Audit and Risk
Committee.
Synlait appointed a Senior Internal Auditor in January 2019
to perform key risk and business process focused internal
audit reviews across Synlait’s operations as part of an annual
programme of work agreed with the Audit and Risk Committee.
The Audit and Risk Committee is responsible for reviewing the
activities, resources and organisational structure of the internal
audit function.
•
key dates in the investor schedule, such as annual meeting,
full and interim reporting dates
share registry information; and
the analyst and media policy.
•
•
In addition to the above, key business information is also
available on our website, including the names and biographies
of the Board and senior management team, our history, and an
overview of our current business operations.
The information on our website is reviewed regularly and
updated as necessary.
Communicating with Synlait
PRINCIPLE 8 - SHAREHOLDER RIGHTS AND RELATIONS
Instructions on how to reach the investor relations team and
‘The board should respect the rights of shareholders and
foster relationships with shareholders that encourage them to
engage with the issuer’.
It is important that we communicate with our shareholders so
as to keep them informed. It is equally important that they can
communicate with us, and exercise their shareholder voice.
Website
company secretary are available in the on the Investor Centre
on our website. Shareholders can direct questions or requests
for information to Directors or management by contacting
Hannah Lynch, our Corporate Affairs Manager, at Hannah.
Lynch@synlait.com or +64 21 25 28990. We aim to respond to
all shareholder communications in a timely manner.
Shareholders can elect to receive and send Synlait
communications in the manner which suits them best –
We aim to ensure investors understand all our activities by
either electronically or via mail. Through our share registry,
communicating regularly with them, using clear and balanced
Computershare, shareholders can amend their communication
information. Our website is just one of our key information
preferences at any time.
channels, which include:
• NZX and ASX websites (announcements);
the investor and news sections of our website, synlait.com;
social media channels (LinkedIn and Facebook);
annual and interim reports; and
our annual meeting.
•
•
•
•
52
Right to vote
Synlait’s constitution and the NZX Listing Rules afford
shareholders the right to vote on certain matters affecting
Synlait. Our shareholders can vote at any meeting of
shareholders in person or by using a representative. On a vote
by show of hands, each shareholder attending in person or
by their representative has one vote. If a poll is taken, each
shareholder attending in person or by their representative has
one vote per fully paid up share they hold. Postal votes are not
permitted unless the Board notifies shareholders otherwise.
More information on voting is n our constitution on our website:
www.synlait.com/investors/
Resolution
That the Board be authorised to fix the auditor’s
fees and expenses for the FY19 year
Passed/Not
passed
Passed
Votes
for
135,894,656
(99.90%)
Votes
against
139,120
(0.10%)
Total
Abstain
136,033,776
9,278
That Graeme Milne be re-elected as a Director.
Passed
63,441,200
(96.03%)
2,625,760
(3.97%)
66,066,960
69,976,094
That the annual fee for each Director be $85,000,
except for the annual fees of each of the two
Committee Chairs, which will be $97,000, and the
Chairman of the Board, which will be $169,000. All
of these increases apply from 1 April 2019.
That Synlait Milk Limited’s constitution be amended,
with effect from the close of the Annual Meeting, as
set out in Appendix One to the notice of the Annual
Meeting.
That John Penno be re-elected as a Director, and, if
Resolution 4 is passed, that John Penno is elected
as the Board Appointed Director.
Notice of annual meeting
Passed
134,267,065
(98.91%)
1,478,521
(1.09%)
135,745,586
297,468
Passed
135,937,736
(99.94%)
80,768
(0.06%)
136,018,504
24,550
Passed
135,681,930
(99.74%)
353,974
(0.26%)
136,035,904
7,150
Synlait’s last annual meeting was held on Thursday 28 November 2018. The notice of the meeting was released to the market on
30 October 2018. An audio recording of the meeting is available in the investor centre on the company’s website
Our 2019 meeting will be held on Wednesday 27 November at Tait Communications in Christchurch. A Notice of Meeting will be
issued shortly. Shareholders are invited to attend and participate in the meeting which is chaired by the Chair of the Board. A
webcast of the meeting will be made available to shareholders.
53
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019 OUR
FINANCIAL
STATEMENTS
SYNLAIT MILK LIMITED FINANCIAL STATEMENTS
for the year ended 31 July 2019
CONTENTS
PAGE
Directors’ responsibility statement
Financial statements
Income statement
Statement of comprehensive income
Statement of changes in equity
Statement of financial position
Statement of cash flows
Notes to the Financial Statements
Performance
1 Revenue recognition and segment information
2 Expenses
3 Reconciliation of profit after income tax to net cash inflow from operating activities
Working capital
4 Trade and other receivables
5
Inventories
6 Current assets – Other current assets
7 Trade and other payables
Long term assets
8 Property, plant and equipment
9
Intangible assets
Debt and equity
10 Finance income and expenses
11 Loans and borrowings
12 Share capital
13 Share based payments
14 Reserves and retained earnings
Financial risk management
15 Financial risk management
16 Financial instruments
Other
17
Income tax
18 Business combinations
19 Other investments
20 Related party transactions
21 Contingencies
22 Commitments
23 Events occurring after the reporting period
24 Other accounting policies
Auditor’s report
56
57
58
59
60
61
62
64
65
66
67
68
69
72
73
73
74
75
77
80
81
82
83
84
85
86
87
93
97
98
101
102
103
104
105
106
106
107
54
Synlait Milk Limited Financial Statements for the year ended 31 July 2019
55
Synlait Milk Limited Financial Statements for the year ended 31 July 2019
DIRECTORS’ DECLARATION
31 July 2019
INCOME STATEMENT
For the year ended 31 July 2019
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors are pleased to present the Annual Report and financial statements for Synlait Milk Limited and its subsidiaries, Synlait
Milk Finance Limited, The New Zealand Dairy Company Limited, Eighty Nine Richard Pearse Drive Limited, and Synlait Business
Consulting (Shanghai) Limited (together “the Group”) as set out on pages 54-106 for the year ended 31 July 2019.
The Directors are responsible for ensuring that the financial statements present fairly the financial position of the Group as at 31 July
2019 and the financial performance and cash flows for the year ended on that date.
The Directors consider that the financial statements of the Group have been prepared using appropriate accounting policies,
consistently applied and supported by reasonable judgements and estimates and that all relevant financial reporting and accounting
standards have been followed.
The Directors believe that proper accounting records have been kept which enable, with reasonable accuracy, the determination of
the financial position of the Group and facilitate compliance of the financial statements with the Financial Markets Conduct Act 2013.
For and on behalf of the Board.
Revenue
Cost of sales
Gross profit
Other income
Share of (loss)/profit from associates
Sales and distribution expenses
Administrative and operating expenses
Earnings before net finance costs and income tax
Finance expenses
Finance income
Loss on derecognition of financial assets
Net finance costs
Profit before income tax
Income tax expense
Net profit after tax for the year
Earnings per share
Basic and diluted earnings per share (cents)
2019
$’000
1,024,305
(837,976)
186,329
898
(580)
(26,836)
(35,303)
124,508
(8,819)
1,232
(1,842)
(9,429)
115,079
(32,840)
82,239
2018
$’000
879,001
(712,533)
166,468
430
426
(20,603)
(33,636)
113,085
(8,969)
1,023
(1,329)
(9,275)
103,810
(29,257)
74,553
45.89
41.60
Notes
1
2
1
19
2
2
10
10
4, 10
10
17
12
Graeme Milne
CHAIRMAN
11 September 2019
Willem Jan (Bill) Roest
INDEPENDENT DIRECTOR
11 September 2019
56
57
The accompanying notes form part of and are to be read in conjunction with these financial statements.
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019 STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 July 2019
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 July 2019
Profit for the period
Items that may be reclassified subsequently to profit and loss
Effective portion of changes in fair value of cash flow hedges
Income tax on other comprehensive income
Total items that may be reclassified subsequently to profit and loss
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Notes
15
17
2019
$’000
82,239
(21,323)
5,971
(15,352)
(15,352)
66,887
2018
$’000
74,553
(38,081)
10,663
(27,418)
(27,418)
47,135
Group
Share capital
Notes
$’000
268,074
Equity as at 1 August 2017
Profit or loss for the year
Other comprehensive income
Effective portion of changes in fair
value of cash flow hedges
Movement in time value hedge
reserve
Income tax on other comprehensive
income
Total other comprehensive income
Employee benefits reserve
13, 14, 17
Total contributions by and
distributions to owners
Equity as at 31 July 2018
Profit or loss for the year
Other comprehensive income
Effective portion of changes in fair
value of cash flow hedges
Movement in time value hedge
reserve
Income tax on other comprehensive
income
Total other comprehensive income
Employee benefits reserve
13, 14, 17
Total contributions by and
distributions to owners
Equity as at 31 July 2019
–
–
–
–
–
–
–
268,074
–
–
–
–
–
–
–
Employee
benefits
reserve
$’000
36
–
–
–
–
–
894
894
930
–
–
–
–
–
728
728
Cash flow
hedge
reserve
$’000
16,622
–
(38,006)
(75)
10,663
(27,418)
–
–
Retained
earnings
Total equity
$’000
91,983
74,553
–
–
–
–
–
–
$’000
376,715
74,553
(38,006)
(75)
10,663
(27,418)
894
894
(10,796)
166,536
424,744
–
82,239
82,239
(21,410)
87
5,971
(15,352)
–
–
–
–
–
–
–
–
(21,410)
87
5,971
(15,352)
728
728
268,074
1,658
(26,148)
248,775
492,359
The accompanying notes form part of and are to be read in conjunction with these financial statements.
The accompanying notes form part of and are to be read in conjunction with these financial statements.
58
59
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019 STATEMENT OF FINANCIAL POSITION
As at 31 July 2019
STATEMENT OF CASH FLOWS
For the year ended 31 July 2019
Current assets
Cash and cash equivalents
Trade and other receivables
Intangible assets
Goods and services tax refundable
Income accruals and prepayments
Inventories
Derivative financial instruments
Other current assets
Total current assets
Non‑current assets
Property, plant and equipment
Intangible assets
Goodwill
Other investments
Derivative financial instruments
Total non‑current assets
Total assets
Current liabilities
Loans and borrowings
Trade and other payables
Current tax liabilities
Derivative financial instruments
Total current liabilities
Non‑current liabilities
Loans and borrowings
Deferred tax liabilities
Derivative financial instruments
Total non‑current liabilities
Total liabilities
Equity
Share capital
Reserves
Retained earnings
Total equity attributable to equity holders of the Group
Total equity and liabilities
Notes
4
9
5
15, 16
6, 18
8
9
9
19
15, 16
11
7
15, 16
11
17
15, 16
12
14
14
2019
$’000
16,007
61,933
3,686
3,689
9,554
2018
$’000
32,129
47,145
2,951
6,536
4,340
164,849
145,404
2,358
20,500
2,906
1,375
282,576
242,786
Cash flows from operating activities
Cash receipts from customers
Cash paid for milk purchased
Cash paid to other creditors and employees
Goods and services tax refunds/(payments)
Income tax payments
Net cash inflow from operating activities
Cash flows from investing activities
Interest received
Acquisition of property, plant and equipment
Other investments – Talbot
845,202
537,669
Proceeds from sale of property, plant and equipment
Acquisition of intangible assets
Net cash outflow from investing activities
Cash flows from financing activities
Drawdown/(repayments) of borrowings
Net movement in working capital facility
Interest paid
Net cash inflow/(outflow) from financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at end of year
16,428
3,643
110
45
865,428
1,148,004
99,626
216,020
29,220
27,960
8,100
3,643
690
793
550,895
793,681
49,321
152,198
27,391
7,783
372,826
236,693
249,482
22,651
10,686
282,819
655,645
268,074
(24,490)
248,775
492,359
1,148,004
97,065
24,364
10,814
132,243
368,936
268,074
(9,866)
166,537
424,745
793,681
Notes
2019
$’000
2018
$’000
1,025,311
(461,369)
(403,420)
2,846
(26,670)
136,698
3
893,618
(423,095)
(356,763)
(1,456)
(13,914)
98,390
1,232
1,023
(309,314)
(110,416)
(18,000)
(147)
(11,127)
–
(168)
(9,873)
(337,356)
(119,434)
152,300
50,305
(18,069)
184,536
(16,122)
32,129
16,007
13,700
(23,126)
(11,228)
(20,654)
(41,698)
73,827
32,129
The accompanying notes form part of and are to be read in conjunction with these financial statements.
The accompanying notes form part of and are to be read in conjunction with these financial statements.
The accompanying notes form part of and are to be read in conjunction with these financial statements.
60
61
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019 NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 July 2019
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 July 2019
REPORTING ENTITY
The consolidated financial statements (“financial statements”)
presented are those of the Group, including Synlait Milk Limited
and its subsidiaries Synlait Milk Finance Limited, The New Zealand
Dairy Company Limited, Eighty Nine Richard Pearse Drive Limited
and Synlait Business Consulting (Shanghai) Limited.
Synlait Milk Limited is primarily involved in the manufacture and
sale of dairy products.
The parent company, Synlait Milk Limited, is a profit oriented
entity, domiciled in New Zealand, registered under the Companies
Act 1993 and listed on the New Zealand Stock Exchange and
the Australian Securities Exchange. Synlait Milk Limited is a
FMC reporting entity under the Financial Market Conducts Act
2013 and its financial statements comply with that Act.
Use of accounting estimates and judgements
The preparation of these financial statements in conformity with
NZ IFRS requires management to make judgements, estimates
and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income
and expenses. Actual results may differ from these estimates
and assumptions.
Estimates and assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised and in any future periods affected.
Key sources of estimation uncertainty and key judgements
relate to assessment of impairment of inventory and the
derecognition of financial assets. The individual notes in the
financial statements provide additional information.
BASIS OF PREPARATION
BASIS OF CONSOLIDATION
The Group’s financial statements consolidate the financial
statements of Synlait Milk Limited and its subsidiaries,
accounted for using the acquisition method, and the results
of its associates, accounted for using the equity method.
Intercompany transactions and balances between group
companies are eliminated upon consolidation.
SIGNIFICANT ACCOUNTING POLICIES
Accounting policies, accounting estimates and
judgements that summarise the measurement basis used
and are relevant to the understanding of the financial
statements are provided throughout the accompanying
notes and are designated by a shaded area.
The accounting policies adopted have been applied
consistently throughout the periods presented in these
financial statements, except for the change in accounting
policy relating to the adoption of NZ IFRS 9 (2014) and
NZ IFRS 15.
The financial statements of the Group have been prepared
in accordance with Generally Accepted Accounting Practice.
They comply with New Zealand equivalents to International
Financial Reporting Standards (‘NZ IFRS’) and other applicable
Financial Reporting Standards, as applicable for profit oriented
entities. The consolidated financial statements also comply with
International Financial Reporting Standards (‘IFRS’).
Certain comparative figures have been reclassified during the
year for consistency with the current year presentation. These
classifications had no effect on the reported results of operations.
The financial statements were authorised for issue by the
directors on 11 September 2019.
Basis of Measurement
These financial statements have been prepared on the
historical cost basis except for certain items as identified in
specific accounting policies.
Functional and presentation currency
Items included in the financial statements of the Group
are measured using the currency of the primary economic
environment in which the entity operates (‘the functional
currency’). The financial statements are presented in New
Zealand Dollars ($), which is the Company’s functional currency
and are rounded to the nearest thousand ($000).
Transactions and balances
Transactions in foreign currencies are translated to the
functional currency at the exchange rates at the dates of the
transactions. Monetary assets and liabilities denominated in
foreign currencies at the reporting date are retranslated to the
functional currency at the exchange rate at that date.
Standards, amendments and interpretations to existing
NZ IFRS 15 ‘Revenue from Contracts with Customers’
standards that are not yet effective
Certain new standards, amendments and interpretations to
(effective from periods beginning on or after 1 January 2018)
NZ IFRS 15 establishes a single comprehensive revenue
existing standards have been published that are mandatory for
recognition model that applies to revenue arising from
the Group’s accounting periods beginning on or after 1 January
contracts with customers across all industries. The Group
2019. The Group has not early adopted these standards,
adopted NZ IFRS 15 from 1 August 2018 and applied the new
amendments and interpretations.
standard on a modified retrospective basis, which means no
NZ IFRS 16 ‘Leases’ (effective 1 January 2019)
NZ IFRS 16 removes the current dual accounting treatment of
leases and will apply a single on-balance sheet accounting
treatment for all leases by recognising a right-of-use asset and
a lease liability, similar to current finance lease accounting.
The right-of-use asset is initially and subsequently measured
at cost (subject to certain exceptions) less accumulated
depreciation and impairment losses, adjusted for any
remeasurement of the lease liability. The lease liability is initially
adjustments are required for comparative periods.
NZ IFRS 15 establishes the core principle that an entity should
recognise revenue to depict the transfer of promised goods
or services in an amount reflecting the consideration the
entity expects to be entitled to in exchange for those goods
or services. To apply this principle, an entity should apply the
following five step model:
–
Identify the contract;
measured at the present value of future lease payments. The
–
Identify the performance obligations in the contract;
lease liability is subsequently adjusted for interest and lease
payments, as well as the impact of other lease modifications
and adjustments. This standard will be effective from the
–
Determine the transaction price;
–
Allocate the transaction price to the performance
Group’s 2020 financial year and NZ IFRS 16 will supersede the
obligations; and
current lease guidance including NZ IAS 17 “Leases”.
–
Recognise revenue when (or as) each performance
Based on analysis undertaken by the Group, the directors do
obligation is satisfied.
not anticipate that the implementation of NZ IFRS 16 will have
a significant impact on the Group’s financial statements. The
Group will apply NZ IFRS 16 using the modified retrospective
(full simplified) approach, which means no adjustments will be
required for comparatives.
There are no other standards that are not yet effective and
Under NZ IFRS 15 an entity shall recognise revenue when a
performance obligation is satisfied, which is a move to a control
based revenue recognition approach as revenue recognition
occurs when control of the goods or services underlying the
particular performance obligation is transferred to the customer.
NZ IFRS 15 prescribes more extensive disclosure requirements
that are expected to have a material impact on the entity in the
and guidance on specific scenarios. In line with management
current or future reporting periods and on foreseeable future
expectation, the new standard has not had a material impact for
transactions.
the Group.
Changes in Accounting Policies
During the period the Group adopted the following new
standards:
NZ IFRS 9 (2014) ‘Financial Instruments’ (effective from
periods beginning on or after 1 January 2018)
NZ IFRS 9 establishes the principles for hedge accounting
measurement, classification and impairment of financial assets.
The Group has previously adopted NZ IFRS 9 (2013) effective
from 1 August 2014. NZ IFRS 9 (2014) is the final replacement
of NZ IAS 39 “Financial Instruments: Recognition and
Measurement” and consolidates previous issuances of NZ IFRS
9. The Group adopted NZ IFRS 9 (2014) from 1 August 2018 and
applied the new standard on a retrospective basis. The Group
adopted the simplified approach to recognise lifetime expected
credit losses for financial assets as required or permitted by NZ
IFRS 9 (2014). In line with management expectation, the new
standard has not had a material impact for the Group.
62
63
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 1
REVENUE RECOGNITION AND SEGMENT INFORMATION
SALES OF GOODS
The Group manufactures and sells a range of fresh milk and milk powder related products to customers.
Revenue from contracts with customers is recognised when the control of the goods has been transferred to customers,
being at the point when the goods are delivered. Delivery of goods is completed (i.e. the performance obligation is fulfilled)
when the goods have been delivered pursuant to the terms of the specific contract agreed with the customer and the risks
associated with ownership have been transferred to the customer.
Revenue is measured according to the contracted price agreed with customers, which represents fair value of the
consideration received or receivable, net of returns, discounts and allowances. Revenue is only recognised to the extent that
it is highly probable that a significant reversal will not occur. The payment terms vary depending on the individual contracts.
No deemed financing components are present as there are no significant timing differences between the payment terms
and revenue recognition.
PERFORMANCE
Dairy products
Other sundry income
Total income
2019
$’000
2018
$’000
1,024,305
879,001
898
430
1,025,203
879,431
DESCRIPTION OF SEGMENTS
The Group operates in one industry, being the manufacture and sale of fresh milk and milk powder related products.
The Board makes resource allocation decisions based on expected cash flows and results of the Group’s operations as a
whole and the Group therefore has one segment.
The Group operates in one principal geographical area being New Zealand. Although the Group sells to many different countries,
it is understood that a significant proportion of both infant nutritional and ingredients sales are ultimately consumed in China.
Revenues of approximately 66% (2018: 69%) are derived from the top three external customers.
The proportion of sales revenue by geographical area is summarised below:
China
Rest of Asia
Middle East and Africa
New Zealand
Australia
Rest of World
Total
2019
9%
25%
7%
31%
25%
3%
100%
2018
8%
24%
9%
30%
26%
3%
100%
This section covers the Group’s financial performance and includes the following notes:
1 Revenue recognition and segment information
2 Expenses
3 Reconciliation of profit after income tax to net cash inflow from operating activities
65
66
67
64
65
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 2
EXPENSES
3 RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 July 2019
The following items of expenditure are included in cost of sales
Depreciation and amortisation
Employee benefit expense
Kiwisaver contributions
Export freight
Rent
(Decrease) / increase in inventory provision
(Decrease) in onerous contract provision
The following items of expenditure are included in sales and distribution
Depreciation and amortisation
Employee benefit expense
Kiwisaver contributions
Rent
The following items of expenditure are included in administrative and operating
Depreciation and amortisation
Employee benefit expense
Kiwisaver contributions
Directors fees
Share based payments expense
Consultancy
2019
$’000
24,289
48,711
1,166
9,524
874
(1,805)
(809)
1,625
10,195
252
3,637
1,725
17,986
480
752
644
2018
$’000
22,354
39,793
922
9,141
540
393
(12)
1,640
8,261
196
2,450
1,562
15,734
396
601
588
Profit for the year
Non‑cash and non‑operating items:
2019
$’000
82,239
2018
$’000
74,553
Depreciation and amortisation of non-current assets
27,639
25,556
Loss on sale of fixed assets
Write off intangibles
Share of loss/(gain) from associate
Non-cash share based payments expense
Interest costs classified as financing cash flow
Interest received classified as investing cash flow
Loss on derecognition of financial assets
Deferred tax
Gain on derivative financial instruments
Movements in working capital:
(Increase)/decrease in trade and other receivables
(Increase) in prepayments
(Increase) in inventories
Decrease/(Increase) in goods and services tax refundable
Increase in trade and other payables
Increase in current tax liabilities
147
123
580
644
8,819
(1,232)
1,842
4,341
22
(14,788)
(5,214)
(19,444)
2,846
46,306
1,828
136,698
168
175
(426)
588
9,001
(1,023)
1,297
1,846
323
31,884
(1,477)
(62,709)
(1,456)
6,592
13,498
98,390
2,768
4,459
Net cash inflow from operating activities
Deloitte services included in administrative and operating expenses
Statutory audit fee
Half year accounts review
Other assurance services
Taxation compliance
Total paid for Deloitte services
185
45
77
69
376
168
40
_
114
322
66
67
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 WORKING
CAPITAL
4
TRADE AND OTHER RECEIVABLES
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course
of business. If collection is expected in one year or less they are classified as current assets. If not, they are classified as
non-current assets.
Impairment
The Group recognises a loss allowance for expected credit losses (“ECL”) on trade and other receivables.
The Group measures the provision for ECL using the simplified approach to measuring ECL which uses a lifetime expected loss
allowance for all trade receivables. The Group’s credit loss model requires the Group to account for expected credit losses and
changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the
financial assets. Therefore, it is no longer necessary for a credit event to have occurred before credit losses are recognised.
The model is based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general
economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date.
Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of
a financial instrument. The expected credit loss is estimated as the difference between all contractual cash flows that are
due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the
original effective interest rate.
The Group writes off a financial asset when there is information indicating that the debtor is in such severe financial difficulty
and there is no reasonable and realistic prospect of recovery.
Furthermore, other impairment losses on an individual basis are determined by an evaluation of the exposures on an
instrument by instrument basis. All individual instruments that are considered significant are subject to this approach.
Credit Risk Management
The Group activities expose it to credit risk which refers to the risk that a counterparty will default on its contractual obligations
resulting in financial loss to the Group. Trade and other receivables are potentially subject to credit risk. The Group performs
credit evaluations on trade customers. The Group continuously monitors the credit quality of its major receivables and does not
anticipate non-performance of those customers, nor has there been historical non-performance of these customers. The Group
also maintains strict controls for any credit reviews such as credit increases.
The receivables assignment processes ensure that the Group’s trade receivables are materially managed in an efficient and
effective basis.
The carrying amount of financial assets recorded in the financial statements represents the Group’s maximum exposure to
credit risk.
Included in trade receivables are debtors which are past due at balance date, as payment was not received within 30 days,
and for which no provision has been made as there has not been a significant change in credit quality and the amounts are still
considered fully recoverable. No collateral is held over these balances and trade credit insurance cover was not obtained in
respect of these receivables. Interest is not charged on overdue debtors.
In the past five financial years, the Group has written off $0.3m bad debts. The historical analysis of bad debts on a customer
basis assists in the determination of any increases in credit risk since initial recognition. There are no significant credit
risk concentrations as at 31 July 2019 and two customers represent 70% of the overdue receivables, with no historical
The working capital section gives information about the short term assets and liabilities of the Group. This section includes the
non-performance. There were no other forward looking indicators to indicate increases in credit risk.
following notes:
4 Trade and other receivables
5
Inventories
6 Current assets – Other current assets
7 Trade and other payables
69
72
73
73
In addition, the Group has assessed the credit risk on other financial assets. The Group considered the credit risk for the loan to
Talbot Forest Cheese, and have determined that low credit risk existed in this agreement. The loan of $18m was extinguished
upon acquiring Talbot Forest Cheese on 1 August 2019. For further details, please refer to Note 18 “Business Combinations”
For cash and cash equivalents the Group has determined that all bank balances have low credit risk at each reporting period
as they are held by reputable international banking institutions.
The Group has not changed its overall strategy regarding the management of risk from 2018.
68
69
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019
(d) Derecognised financial assets
The Group has derecognised trade receivables that have been sold to two banks under the terms of receivables purchase
agreements entered into during July 2015 and January 2016. The Group routinely assess the terms of the agreements and
has determined that substantially all the risks and rewards have been transferred to the banks. Receivables selected for
assignment are with customers with strong credit ratings and good payment histories. This minimises the risk (and therefore
consequences) of late payment or default, as well as resulting in little volatility in the present value of future cash flows in
relation to assigned receivables under the various scenarios detailed in the terms of the two agreements. An evaluation of
external evidence of credit risk has also been performed for each customer. The Group has assigned $109.0m of receivables
as at 31 July 2019 (2018: $68.5m).
The Group has assessed its continuing involvement in the assigned receivables and determined that the fair value of
continuing involvement is immaterial. The Group reassesses the facility for qualification for derecognition at each reporting
date, when the terms of the facility are amended, and assesses each new customer at the initial assignment of a receivable.
One new customer group was assigned during the period.
If the Group’s customers defaulted on all trade receivables that have been derecognised at balance date, the Group would
be required to pay a late payment charge of $9,003 per day (2018: $6,320) for each day that these receivables remain
overdue, assuming that market conditions remain unchanged from reporting date. The likelihood that debtors will fall
overdue or remain overdue for a long period of time is small, given the strong credit ratings and good payment histories of
the customers whose receivables have been selected for assignment.
The loss for the period of $1.8m (2018: $1.3m) arising from derecognition of assigned receivables is the discount paid to the
banks for acquiring these receivables.
Trade receivables
Provision for doubtful and impaired receivables
Net trade receivables
Other receivables
Total receivables
2019
$’000
58,076
(395)
57,681
4,252
61,933
2018
$’000
46,566
–
46,566
579
47,145
(a) Impaired receivables
As at 31 July 2019, trade receivables of $7.1m were overdue but not impaired (2018: $1.4m) with impairment of $0.3m (2018: nil).
These relate to a number of independent customers for whom there is no recent history of default. The majority was collected within
several business days of 31 July 2019. Of the overdue receivables $1.1m remains unpaid which is expected to be collected in the
2020 financial year.
The aging analysis of these overdue trade receivables is as follows:
Overdue by
0 to 30 days
30 to 60 days
Over 60 days
Total overdue trade receivables
2019
$’000
6,021
60
1,044
7,125
2018
$’000
1,025
223
124
1,372
As outlined in the Changes in Accounting Policies, the Group has adopted NZ IFRS 9 (2014) effective from 1 August 2018 and applied
the new standard on a retrospective basis. The Group adopted the simplified approach to recognise lifetime expected credit losses
for financial assets as required or permitted by NZ IFRS 9 (2014).
During the period, an additional impairment loss of $0.08m was recognised.
In FY19, the Group performed an analysis of the past 12 month’s overdue receivables and the overdue receivables made up 1% of
total receivables collected and outstanding over the year ended 31 July 2019. All overdue receivables outstanding as at 31 July 2018
were collected.
(b) Allowance for bad and doubtful receivables
The Group has recognised a loss of $0.3m in relation to unrecoverable trade receivables during the year (2018: $nil).
(c) Trade and other receivables
Accounts receivable are amounts incurred in the normal course of business.
Receivables denominated in currencies other than the functional currency comprise NZ$52.6m (2018: $45.8m) of USD denominated
trade receivables.
70
71
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 July 2019
The total inventory provision as at reporting date was $0.3m (2018: $2.1m) which all related to finished goods (2018: $1.9m related to
finished goods and $0.2m related to raw materials). This decrease is due to increased focus on reducing impaired stock on hand.
In addition, the total onerous contracts provision as at reporting date was $0.5m (2018: $1.3m). Onerous contracts have reduced
in value as a result of a flatter global dairy trade auction results and favourable year end exchange rate, increasing forecast NZD
returns on USD sales contracts.
6 CURRENT ASSETS – OTHER CURRENT ASSETS
Included in other current assets is the Talbot Forest Cheese loan. On 18 September 2018, the Group entered into a conditional
agreement to acquire selected assets of Talbot Forest Cheese Limited and Talbot Forest Properties Limited (the Vendor) with
settlement on 1 August 2019. Prior to the 2019 settlement date, Synlait provided the Vendor with a secured loan facility. This loan
facility enabled the Vendor to complete a capital works programme and satisfy other aspects of the conditional agreement. During
the period, the loan advanced was $18m (31 July 2018: $nil). On 1 August 2019 the loan balance was extinguished on execution of
the transaction. For further details, please refer to Note 18, Business Combinations.
7
TRADE AND OTHER PAYABLES
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less otherwise they are
presented as non-current liabilities.
Trade and other payables are recognised initially at fair value plus any directly attributable transaction costs and are
subsequently measured at amortised cost using the effective interest method. Payables that are settled within a short
duration are not discounted.
Trade payables
Accrued expenses
Employee entitlements
Total trade and other payables
2019
$’000
82,122
126,690
7,208
216,020
2018
$’000
55,328
91,984
4,886
152,198
Payables denominated in currencies other than the functional currency comprise NZ$0.5m (2018: $0.2m) of USD and AUD
denominated trade payables and accruals.
5
INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and where applicable,
direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the
basis of normal operating capacity. Cost is determined on a weighted average basis and in the case of manufactured goods,
includes direct materials, labour and production overheads. Net realisable value is the estimated selling price in the ordinary
course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is
considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the
contract exceed the economic benefits expected to be received under it.
Key management judgement is applied in assessing inventory impairment, and therefore net realisable value of inventory.
Impairment is tested in three ways, stock provision, onerous contracts provision, and inventory impairment. The stock
provision considers the condition of inventory and therefore requires a high level of management judgement, whereas the
onerous contracts and impairment calculations are largely formulaic.
The stock provision tests for the physical impairment of both raw materials and finished goods. Physical impairment can be
for a variety of reasons, including damage, expiry, or obsolescence. Management judgement is required as often indicators
of impairment can be removed through further investigation or rework meaning that no write-down to net realisable value is
required. Management consider historical rework process results and future rework plans in making that judgement.
Estimates are required in relation to net realisable value, which is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling expenses. Net realisable value is determined by reference to
historic achieved market prices, future contracted sales and global dairy trade auction results. Reviewing the net realisable
values is carried out by management on a monthly basis, using their judgement in determining expected future proceeds
based on current indicators of the condition of inventory.
A key management estimation in determining inventory cost is the Monthly Milk Price which is derived from a forecast milk
price for the year. The Monthly Milk Price forms a key component of the product cost through the year.
Raw materials at cost
Finished goods at cost
Finished goods at net realisable value
Total inventories
2019
$’000
40,058
118,090
6,701
164,849
2018
$’000
22,833
94,881
27,690
145,404
Raw material inventories at $40.1m (11,307 MT) have increased (2018: $22.8m, 6,737 MT), due to increased forecast canned infant
formula production in the first half of FY20, increased plant utilisation of the Auckland blending and canning facility, and the
imminent commencement of operations of the Pokeno plant.
Finished goods have remained comparable at $124.8m (23,318 MT) (2018: $122.6m, 26,726 MT). The decrease in tonnage on hand
relates to product mix, with less low-value goods and more high-value goods included. Finished goods held at net realisable value
have reduced as there has been an increased focus on increasing turnover of impaired stock.
The cost of inventories recognised as an expense during the year was $838.0m. The cost of inventories recognised as an expense
includes $7.4m (2018: $7.0m) in respect of write-downs of inventory to net realisable value.
72
73
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 8 PROPERTY, PLANT AND EQUIPMENT
RECOGNITION AND MEASUREMENT
Property, plant and equipment are initially measured at cost less accumulated depreciation.
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets
includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working
condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they
are located.
When a self-constructed asset meets the definition of a qualifying asset under NZ IAS 23 ‘Borrowing Costs’, borrowing costs
directly attributable to the construction of the asset are capitalised until such a time as the asset is substantially ready for its
intended use or sale.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
When major components of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items of property, plant and equipment.
SUBSEQUENT COSTS
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it
is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured
reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.
DEPRECIATION
Depreciation of property, plant and equipment is recognised in profit or loss on a straight line basis over the estimated
useful lives of each part of an item of property, plant and equipment.
Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.
Capital work in progress is not depreciated. The total cost of this work is transferred to the relevant asset category on the
completion of the project and then depreciated.
Estimation and judgement is also required in the selection and application of useful lives. It is management’s best estimate
that the useful lives adopted adequately reflect the flow of resources and the economic benefits required and derived in the
use and servicing of property, plant, and equipment.
The estimated useful lives for the current and comparative periods are as follows:
Buildings
Plant and equipment
Fixtures and fittings
10 – 50 years
3 – 33 years
2 – 14 years
Depreciation methods, useful lives and residual values are reassessed at each reporting date.
IMPAIRMENT
Estimation and judgement is required in the impairment of property, plant, and equipment. The Group estimates or exercises
judgement in assessing indicators of impairment, forecasting future cash flows and determining other key assumptions used
for assessing fair values (less costs of disposal) or value in use.
LONG TERM
ASSETS
The assets section provides information about the long term investments made by the Group to operate the business and generate
returns to shareholders. This section includes the following notes:
8 Property, plant and equipment
9
Intangible assets
75
77
74
75
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019
Land
Buildings
Plant and
equipment
Fixtures and
fittings
Capital work
in progress
Total
$’000
$’000
$’000
$’000
$’000
$’000
GOODWILL
9
INTANGIBLE ASSETS
Cost
Cost
Balance as at 1 August 2017
Additions
Reclassification / transfer
Disposals
Balance as at 31 July 2018
Additions
Reclassification / transfer
Disposals
7,457
7,457
–
–
–
7,457
27,500
–
_
126,926
126,926
–
9,785
–
356,929
356,929
–
63,116
(196)
8,384
8,384
–
1,173
–
41,501
41,501
113,248
(74,074)
–
136,711
419,849
9,557
80,675
–
46,457
(127)
–
95,610
(2,251)
541,197
541,197
113,248
–
(196)
654,249
333,600
_
Balance as at 31 July 2019
34,957
183,041
513,208
Accumulated depreciation
Cost
Balance as at 1 August 2017
Depreciation
Disposals
Balance as at 31 July 2018
Depreciation
Disposals
Balance as at 31 July 2019
Carrying amounts
As at 31 July 2018
As at 31 July 2019
–
–
–
–
–
–
–
–
14,482
14,482
3,878
–
18,360
4,236
(44)
74,423
74,423
18,584
(160)
92,847
20,060
(1,964)
22,552
110,943
7,457
34,957
118,351
160,489
327,002
402,265
–
306,100
4,499
(146,566)
(1,283)
12,773
4,173
4,173
1,200
–
5,373
1,403
(1,283)
5,493
4,184
7,282
_
(3,661)
240,209
984,188
–
–
–
–
–
–
–
–
80,675
240,209
93,078
93,078
23,662
(160)
116,580
25,699
(3,291)
138,988
537,669
845,202
(a) Impairment
During the period, property, plant and equipment have been examined for impairment. No indicators of impairment have been
identified and no material items of property, plant and equipment are considered to be impaired.
(b) Capital work in progress
Assets under construction includes capital expenditure projects, until they are commissioned and transferred to fixed assets. Capital
work in progress of $240.2m is significantly greater than 2018 ($80.7m) due to the construction of Synlait Pokeno.
(c) Capitalised borrowing costs
During the year, the Group has capitalised borrowing costs amounting to $7.5m (2018: $0.8m) on qualifying assets. Interest has been
capitalised at the rate at which borrowing has been specifically drawn to fund the qualifying asset. In the year total borrowing costs
capitalised were for the liquid processing and packaging plant, Synlait Pokeno, and other smaller projects. Borrowing costs continue
to be capitalised for Synlait Pokeno, the enterprise resource planning systems upgrade, and the separator capacity upgrade.
Goodwill arises on the acquisition of subsidiaries and represents the excess of the cost of the acquisition over the net of the
fair values of the assets and liabilities of the subsidiaries acquired. Goodwill is tested for impairment annually and is carried
at cost as established at the date of acquisition of the subsidiary, less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to cash-generating units that are expected to benefit from the
business combination in which the goodwill arose.
PATENTS, TRADEMARKS AND OTHER RIGHTS
Separately acquired patents and trademarks are shown at historical cost. Patents and trademarks have a finite useful life
and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method to allocate
the cost of patents and trademarks over their estimated useful lives of 10 years.
COMPUTER SOFTWARE
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the
specific software. These costs are amortised on a straight line basis over their estimated useful lives of 3 to 10 years.
Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development
costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the
Group are recognised as intangible assets.
NEW ZEALAND UNITS (NZU)
New Zealand Units are purchased to offset carbon emissions under the New Zealand Emissions Trading Scheme. The units
are measured at cost.
IMPAIRMENT OF NON‑FINANCIAL ASSETS
The carrying amounts of the Group’s non-financial assets are reviewed at each reporting date to determine whether there is
any indication of impairment.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable
amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely
independent from other assets and groups.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any
goodwill allocated to the units and then to reduce the carrying amount of any other assets in the unit (group of units) on a
pro rata basis.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Impairment losses are recognised in profit or loss.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed
the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been
recognised. An impairment loss in relation to goodwill is not reversed.
76
77
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 July 2019
(a) Impairment tests for goodwill
As at 31 July 2019 management has determined that there is no impairment of any cash-generating units containing goodwill.
For the purposes of goodwill impairment testing, goodwill has been allocated to the Auckland blending and canning cash generating
unit. The recoverable amount of the cash generating unit has been determined based on value in use.
The discounted cash flow valuation was calculated using projected 5 year future cash flows based on a Board approved business
plan. Based on projected future cash flows, management has determined that the recoverable amount of the Auckland blending
and canning cash generating unit exceeds its carrying value and therefore goodwill would not be impaired. The business plan was
modelled using the following key assumptions:
–
Forecast canned infant formula demand and assumed production volumes and shifts over the assessment period.
–
Revenue per metric tonne based on external pricing information.
–
Estimated operating costs based on production volumes and shifts over the assessment period.
–
Estimated terminal growth rate of 0%.
–
An allowance of 2.5% per annum for increases in expenses.
–
Post-tax discount rate of 8.5% based on current capital structure and cost of debt to derive a weighted average cost of capital.
The Board believes that in severe downside forecast canned infant formula demand scenarios, or any reasonably possible
change in other key assumptions used in the discounted cash flow valuation, would not cause the carrying amount to exceed its
recoverable amount.
Goodwill
Patents,
trademarks and
other intangibles
Computer
software
Intangibles in
progress
New Zealand
Units
Total
$’000
$’000
$’000
$’000
$’000
$’000
Year ended 31 July 2018
Opening net book amount
3,643
Additions
Development costs
recognised as an asset
Amortisation charge (note 2)
Asset disposals
Closing net book value
Current
Non-current
Closing net book value
Year ended 31 July 2019
–
–
–
–
3,643
–
3,643
3,643
Opening net book value
3,643
Additions
Development costs
recognised as an asset
Amortisation charge (note 2)
Asset disposals/surrendered
Closing net book value
Current
Non-current
Closing net book value
–
–
–
–
3,643
–
3,643
3,643
283
–
123
(54)
–
352
–
352
352
352
497
–
2,829
3,448
270
(1,840)
(175)
4,532
–
4,532
4,532
4,532
3,170
134
6,802
(3,736)
–
–
3,200
–
3,200
3,200
3,200
7,117
–
(3,667)
(131)
(1,809)
–
718
–
718
718
–
5,893
–
5,893
5,893
–
(123)
6,527
–
6,527
6,527
–
2,967
–
–
–
2,967
2,951
16
2,967
2,967
5,765
–
–
(1,756)
6,976
3,686
3,290
6,976
6,889
13,217
(3,343)
(1,894)
(175)
14,694
2,951
11,743
14,694
14,694
16,549
(3,667)
(1,940)
(1,879)
23,757
3,686
20,071
23,757
Intangibles in progress of $6.5m at balance date is predominantly constituted of project to date spend on systems and process
development. During the year $0.1m of intangibles in progress were determined to no longer meet the definition of an asset and
were written off.
78
79
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 10 FINANCE INCOME AND EXPENSES
Interest income is recognised using the effective interest method. When a loan or receivable is impaired, the Group reduces
the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective
interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans
and receivables is recognised using the original effective interest rate.
Interest income on bank deposits
Total finance income
Interest and facility fees
Capitalised borrowing cost
Total finance costs
Loss on derecognition of financial assets
Net finance costs
2019
$’000
1,232
1,232
(16,345)
7,526
(8,819)
(1,842)
(9,429)
2018
$’000
1,023
1,023
(9,627)
658
(8,969)
(1,329)
(9,275)
DEBT AND
EQUITY
The debt and equity section gives information about the Group’s capital structure and financing costs related to this structure.
This section includes the following notes:
10 Finance income and expenses
11 Loans and borrowings
12 Share capital
13 Share based payments
14 Reserves and retained earnings
81
82
83
84
85
80
81
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019
11 LOANS AND BORROWINGS
12 SHARE CAPITAL
Interest bearing liabilities are recognised initially at fair value, net of transaction costs incurred. Interest bearing liabilities are
Ordinary shares are classified as equity.
subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption
value is recognised in the profit and loss component of the statement of comprehensive income over the period of the
borrowings using the effective interest method.
Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction
from the proceeds.
Current liabilities
Working capital facility NZD
Working capital facility USD
Non‑current liabilities
Revolving credit facility
Loan facility fees
Total non‑current liabilities
2019
$’000
47,240
52,386
99,626
250,000
(518)
249,482
2018
$’000
–
49,321
49,321
97,700
(635)
97,065
(a) Terms of loans and borrowings
The bank loans and working capital facility within Synlait Milk Limited are secured under the terms of the General Security Deed
dated 26 June 2013, by which all present and future property is secured to the ANZ Bank and Bank of New Zealand.
The Group facilities include:
–
A secured revolving credit facility (Facility A) of $150m maturing 1 August 2021, with amortisation of $30m on 1 August 2020.
– A secured revolving credit facility (Facility B) of $100m maturing 1 August 2023.
– A secured working capital facility of NZD $225m that matures on 20 August 2019.
The Group recently finalised an additional revolving credit facility of $60m that matures 1 August 2020 and extended the secured
working capital facility of $225m for a period of twelve months.
The Group is subject to capital requirements imposed by its bank through covenants agreed as part of the lending facility arrangements.
The Group has met all externally imposed capital requirements for the twelve months ended 31 July 2019 and 31 July 2018.
Secured revolving credit facility (Facility A) – ANZ / BNZ
Secured revolving credit facility (Facility B) – ANZ / BNZ
Secured working capital facility – ANZ / BNZ – USD
Secured working capital facility – ANZ / BNZ – NZD
Nominal
Interest rate %
Financial year
of maturity
Carrying
amount 2019
$’000
Carrying
amount 2018
$’000
2.55%
2.65%
3.30%
2.53%
2021
2024
2020
2020
150,000
100,000
52,386
47,240
15,000
82,700
49,321
–
The nominal interest rate is calculated by adding the BKBM rate for NZD facilities, US LIBOR rate for USD facilities and the applicable
margin rate. It excludes line fees and swap costs.
(a) Share capital
Ordinary shares
On issue at beginning of period
On issue at end of period
2019
Shares
2018
Shares
2019
$’000
2018
$’000
179,223,028
179,223,028
179,223,028
179,223,028
268,074
268,074
268,074
268,074
None of the above shares are held by the Group or its subsidiaries.
(b) Ordinary shares
All issued shares are fully paid and have no par value.
Ordinary shares are entitled to one vote per share at meetings of Synlait Milk Limited.
All ordinary shares rank equally with regard to Synlait Milk Limited’s residual assets.
(c) Capital risk management
The Group’s capital includes share capital, retained earnings and reserves.
The Group’s policy is to maintain a sound capital base so as to maintain investor and creditor confidence and to sustain
future development of the business. The impact of the level of capital on shareholders’ return is also recognised and the
Group 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 Group is subject to various security ratios within the bank facilities agreement.
The Group’s policies in respect of capital management and allocation are reviewed by the Board of Directors.
(d) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the
profit or loss attributable to shareholders by the weighted average number of shares outstanding during the period. Diluted EPS is
determined by adjusting the profit or loss attributable to shareholders and the number of shares outstanding to include the effects of
all potential dilutive shares.
82
83
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 13 SHARE BASED PAYMENTS
(a) LTI share scheme
Under the LTI share scheme, participants receive Performance Share Rights (“PSRs”) which can be converted into Ordinary
Shares in Synlait Milk Limited in three financial years’ time provided performance hurdles have been met during the
assessment period (the date of award of the PSRs plus three financial years). The number of PSRs granted to participants is
set at one quarter of their base salary divided by Synlait Milk Limited’s share price on the date of the award of the PSRs.
The PSRs consist of 50% Total Shareholder Return Rights (“TSR Rights”) and 50% Earnings Per Share Rights (“EPS Rights”).
The vesting for both the TSR Rights and the EPS Rights is determined in accordance with progressive vesting scales.
Synlait Milk Limited’s TSR must be greater than or equal to the 50th percentile of the constituents of the TSR Peer Group
over the assessment period for 50% of the TSR Rights to vest, scaled so that 100% of the TSR Rights vest if Synlait Milk
Limited’s TSR equals or exceeds the 75th percentile of the TSR Peer Group over the assessment period. The TSR Peer
Group is determined as at the date of award of the PSRs.
If Synlait Milk Limited’s EPS over the assessment period equals a Board approved EPS target, 50% of the EPS Rights vest,
scaled so that 100% of the EPS Rights vest if Synlait Milk Limited’s EPS over the assessment period equals the Board
approved EPS target plus 10%.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 July 2019
14 RESERVES AND RETAINED EARNINGS
(a) Retained earnings
Movements in retained earnings were as follows:
Balance 1 August
Net profit for the year
Balance 31 July
(b) Nature and purpose of reserves
Group
2019
$’000
166,536
82,239
248,775
2018
$’000
91,984
74,553
166,537
(i) Cash flow hedge reserve
The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging
instruments and the cost of cash flow hedging instruments. Cash flow hedging instruments relate to hedged transactions that have
not yet occurred.
For either performance hurdle to be met, Synlait Milk Limited’s TSR must be positive over the assessment period. No
exercise price is payable upon exercise of a PSR, Synlait Milk Limited’s ordinary shares being delivered to a participant for
(ii) Employee benefits reserve
The employee benefits reserve of $0.7m is comprised of the cumulative share based payment expense for share options not yet
nil consideration. The LTI share scheme is an annual scheme with PSRs granted to Board approved participants each year,
vested of $0.6m (FY18: $0.6m), and the related movement in deferred tax asset of $0.1m (FY18: $0.3m).
noting however that the annual award is assessed over a three year period.
The table below sets out the number of LTI share scheme PSR’s granted during the year:
(c) Dividends
No dividends were declared by the Group during the year.
Outstanding 1 August
Granted during the year
Forfeited during the year
2019
506,839
134,582
(168,487)
472,934
2018
253,685
253,154
–
506,839
The fair value of the PSRs awarded at grant date has been determined by an independent third party valuer, using a Monte Carlo
simulation to model the total share return for Synlait and the TSR peer group. The fair value of the PSRs awarded, along with key
assumptions, are listed below:
Risk free rate
Volatility
Share price at entitlement date
Share price at grant date
Total value of options granted at grant date ($000’s)
The estimated value of the PSRs is amortised over the vesting period from grant date.
2019 PSRs
2018 PSRs
1.97%
35.84%
10.81
8.66
559
2.54%
28.53%
4.53
7.65
1,779
(b) Expenses arising from share based payment transactions
Total expenses arising from share based payment transactions recognised during the period as part of employee benefit expense
were as follows:
Expenses for equity settled share based payment transactions
2019
$’000
644
2018
$’000
588
84
85
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 FINANCIAL RISK
MANAGEMENT
15 FINANCIAL RISK MANAGEMENT
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate risk, foreign
exchange rate risk, and commodity price risk including forward exchange contracts, interest rate swaps and commodity
derivative contracts.
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and
commodity price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.
The Group uses derivative financial instruments to hedge certain risk exposures.
MARKET RISK
Foreign exchange risk
The Group is exposed to foreign currency risk on its sales, which are predominantly denominated in US dollars. The Group is
also exposed to foreign currency risk on the purchase of raw materials for production and capital equipment purchases from
overseas. The Group enters into derivative arrangements in the ordinary course of business to manage foreign currency
risk. These instruments include forward exchange contracts, option collars and vanilla options. These instruments enable the
Group to mitigate the risk the variable exchange rates present to future cash flows for sales receipts or purchases by fixing
or limiting the exchange rate at which these cash receipts or payments are exchanged into NZ dollars.
The Group has a Board approved treasury policy that sets the parameters under which foreign exchange cover is to be
taken. As foreign exchange contracts are entered into based on forecast cash receipts or payments, variability in the
expected timing or amounts of future cash flows can lead to ineffective hedging. To mitigate the risk of ineffectiveness the
Group’s policy is to hedge a decreasing proportion of the risk exposure the further into the future the exposure exists given
the increasing uncertainty of cash flows. Additionally the Group’s policy is that the proportion of risk exposure to be hedged
changes on a monthly basis in response to the movement in market rates. As at 31 July 2019, the Group has hedged 50%
of its exposure to foreign exchange risk on sales, and 21% of its exposure to foreign exchange risk on payables, over the
following 2 years.
Interest rate risk
Interest rate risk is the risk that the value of the Group’s assets and liabilities will fluctuate due to changes in market interest
rates. The Group is exposed to interest rate risk primarily through its bank overdrafts and borrowings.
The Group manages its interest rate risk by using interest rate swaps to convert a portion of its floating rate debt to
fixed interest rates in relation to the benchmark interest rate element. As interest rate swaps are entered into based on
forecast debt levels, variability in future cash flows and debt levels can lead to ineffective hedging. To mitigate the risk of
ineffectiveness the Group’s policy is to hedge a decreasing proportion of the risk exposure the further into the future the
exposure exists given the increasing uncertainty of cash flows.
The Group has a Board approved treasury policy that sets the parameters to the extent of the cover taken. The policy
requires the Group to hedge 30% to 80% of its exposure to interest rate risk that matures within 3 years, 20% to 60% of the
risk that matures between 3 and 5 years, and 0% to 40% of the risk that matures between 5 and 10 years.
The financial risk management section presents information about the Group’s financial risk exposures and the financial instruments
used to mitigate this. This section includes the following notes:
15 Financial risk management
16 Financial instruments
86
87
93
87
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019
Commodity Price Risk
Dairy commodity price risk is the risk of volatility in profit and loss from the movement in dairy commodity prices to which the
Group may be exposed. Volatility in global dairy commodity prices can have an adverse impact on the Groups earnings and
milk price by eroding selling prices and increasing input costs.
The Group primarily manages its dairy commodity price risk by:
–
Determining the most appropriate mix of products to manufacture based on the milk supply curve and global demand
for dairy products;
–
Governing the length and terms of sales contracts so that sales revenue is reflective of current market prices and is,
where appropriate, linked to Global Dairy Trade (GDT) prices; and
–
Using commodity derivative contracts to manage sales price volatility caused by fluctuations in GDT prices.
The Group has a Board approved treasury policy that sets the parameters under which commodity cover is to be taken,
including permitted derivative types and volume limits.
Credit risk
The Group’s exposure to credit risk is mainly influenced by its customer base and banking counterparties. Management
has a credit policy in place under which each new customer is rigorously analysed for credit worthiness. Investments and
derivatives are only entered into with reputable financial banks.
The carrying amount of financial assets represents the Group’s maximum credit exposure. The Group also retains all the late
payment risk in the derecognition of financial assets, as described in note 4.
Synlait Milk Limited guarantees all facilities held by Synlait Milk Finance Limited.
Liquidity risk
Liquidity risk represents the Group’s ability to meet its contractual obligations as they fall due. The Group evaluates its
liquidity requirements on an ongoing basis and uses a variety of facilities to manage liquidity risk. The Group has negotiated
banking facilities sufficient to meet its medium term facility requirements.
Less than 1 year
1 to 2 years
Imports
Less than 1 year
2019
2018
Weighted
average
exchange rate
0.6895
0.6765
Nominal
balance
USD’000
353,150
160,600
Weighted
average
exchange rate
0.6916
0.7008
Nominal
balance
USD’000
274,800
210,000
0.6752
(42,467)
0.7163
(25,531)
(ii) Interest rate risk
As at the reporting date, the Group had the following interest rate swap contracts outstanding:
Less than 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
5 to 6 years
6 to 7 years
2019
2018
Weighted
average
interest rate
Nominal
Balance
$’000
Weighted
average interest
rate
Nominal Balance
$’000
4.23%
4.40%
4.36%
4.20%
4.20%
3.56%
–
79,500
45,000
40,000
30,000
30,000
10,000
–
4.45%
4.23%
4.40%
4.36%
4.20%
4.20%
3.56%
79,000
79,500
45,000
40,000
30,000
30,000
10,000
The above balances include forward start swap contracts for various periods and do not necessarily reflect the current active
contracts held at any one point in time.
In managing interest rate risks, the Group aims to reduce the impact of short term fluctuations on the Group’s earnings. Over the
longer term, however, changes in interest rates will have an impact on profit.
The Group has internal limits in place in order to reduce exposure to liquidity risk, as well as having committed lines of
credit. It is the Group’s policy to provide credit and liquidity enhancements only to wholly owned subsidiaries.
(iii) Sensitivity analysis
The following table summarises the sensitivity of the Group’s profit and equity to interest rate risk and foreign exchange risk.
Market risk
(i) Foreign exchange risk
The Group’s exposure to foreign currency risk at the reporting date was as follows:
Trade receivables
Trade payables
Working capital facility
2019
2018
USD
AUD
EUR
RMB
USD
AUD
EUR
RMB
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
34,462
(363)
(34,300)
36
–
–
–
(11)
–
18
–
31,222
(139)
– (33,647)
–
(3)
–
–
–
–
–
–
–
The Group’s exposure to foreign currency in the period ended 31 July 2019 is limited to its sales of dairy products, purchases of raw
materials for production and capital equipment purchases. As at the reporting date, the Group had the following foreign exchange
derivative instruments outstanding in respect of future sales and purchases transactions:
The sensitivity analysis below has been determined based on the mark to market impact on financial instruments of changing interest
and foreign exchange rates at balance date. The analysis is prepared assuming the amount of the financial instrument outstanding at
the balance sheet date was outstanding for the whole year, and by adjusting one input whilst keeping the others constant.
1% increase in interest rate
1% decrease in interest rate
5% increase in exchange rate
5% decrease in exchange rate
2019
Profit
$’000
–
–
–
–
Equity
$’000
2,450
(2,560)
33,312
(36,811)
2018
Profit
$’000
–
–
–
–
Equity
$’000
3,032
(3,184)
30,349
(33,878)
(iv) Commodity derivatives
During the reporting period the Group entered into a small number of commodity derivative contracts to further support the Group’s
existing financial risk management strategy. The movement in the fair value of the commodity derivatives is included within the cash
flow hedge reserve.
88
89
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 Liquidity risk
The total repayments and associated maturity of financial liabilities as at balance date is reported below.
Cash flow hedges
The Group enters into cash flow hedges of highly probable forecast transactions and firm commitments, as described in accounting
Less than 12
months
Between 1
and 2 years
Between 2
and 5 years
Over 5 years
Total
$’000
$’000
$’000
$’000
$’000
At 31 July 2019
Working capital facility
Trade and other payables
Loans and borrowings
99,626
216,020
–
–
–
149,580
Derivative financial instruments
27,960
6,569
–
–
99,902
3,201
Total
At 31 July 2018
Working capital facility
Trade and other payables
Loans and borrowings
Derivative financial instruments
Total
343,606
156,149
103,103
49,321
152,199
–
7,783
209,303
–
–
14,393
7,874
22,267
–
–
82,672
2,694
85,366
–
–
–
916
916
–
–
–
246
246
99,626
216,020
249,482
38,647
603,775
49,321
152,199
97,065
18,598
317,183
Nominal amount
Carrying amount
Hedge accounted amounts in
cash flow reserve
Total cash flow
hedge reserve
$’000
Assets
NZD’000
Liabilities
NZD’000
Intrinsic value
NZD’000
Time value
NZD’000
NZD’000
policy section of this note.
Hedging instruments used
in cash flow hedges
31 July 2019
Foreign exchange risk
Foreign exchange contracts
(USD)
Interest rate risk
Interest rate swaps
Commodity price risk
Total
31 July 2018
Foreign exchange risk
Foreign exchange contracts
(USD)
471,283
2,320
31,531
(29,211)
79,500
–
7,116
(7,116)
Dairy commodity futures (NZD)
5,307
83
2,403
–
83
38,647
(36,244)
429,269
3,125
12,633
(9,508)
Foreign currency collars
30,000
273
427
(67)
(87)
(154)
Interest rate risk
Interest rate swaps
108,500
–
5,538
(5,538)
Commodity price risk
Dairy commodity futures (NZD)
15,286
Total
301
3,699
–
301
18,598
(14,812)
(87)
(14,995)
–
–
–
–
–
(29,211)
(7,116)
8
(36,319)
(9,508)
–
–
(5,538)
204
Hedging instruments are located within the derivative financial instruments line items in the statement of financial position, classified
as assets or liabilities, current or non-current.
90
91
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 Effects of cash flow hedges on
statement of comprehensive income
Foreign exchange risk
Forward exchange contracts
Foreign currency collars
Interest rate risk
Interest rate swaps
Commodity price risk
Dairy commodity futures
Total
2019
2018
Hedging gains
/ (losses)
recognised
in other
comprehensive
income
Hedge
ineffectiveness
recognised in
profit or loss
Hedging
gains / (losses)
recognised
in other
comprehensive
income
Hedge
ineffectiveness
recognised in
profit or loss
$’000
$’000
$’000
$’000
(19,703)
154
(1,578)
(196)
(21,323)
–
–
–
–
–
(34,359)
(4,622)
616
284
(38,081)
–
–
–
–
–
Impact to reserves in equity
The impact of the Group’s hedge accounting policies on the reserves in equity is presented in the table below:
Hedge reserves
Opening balance
Movements attributable to cashflow hedges:
Change in value of effective derivative hedging instruments
Reclassifications to the income statement as hedged transactions occurred
Tax expense / (credit)
Total movement
Closing balance
2019
$’000
(10,797)
(29,589)
8,266
5,971
(15,352)
(26,149)
2018
$’000
16,621
(35,535)
(2,546)
10,663
(27,418)
(10,797)
16 FINANCIAL INSTRUMENTS
CLASSIFICATION
The Group classifies its financial assets in three categories: at amortised cost, at fair value through other comprehensive
income and at fair value through profit or loss. The classification of financial assets depends on the business model within
which the financial asset is held and its contractual cash flow characteristics.
The Group classifies its financial liabilities in two categories: at amortised cost and at fair value through profit or loss.
Financial instruments at amortised cost
(i)
Financial assets are classified as measured at amortised cost if the Group’s intention is to hold the financial assets for collecting
cash flows and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest.
The Group currently classifies its cash and cash equivalents, restricted cash equivalents, accounts receivable and other
receivables as financial assets measured at amortised cost.
Financial liabilities are classified as measured at amortised cost using the effective interest method, with the exception of
those classified at fair value.
The Group currently classifies its accounts payable, accrued liabilities (excluding derivatives) and term debt as financial
liabilities measured at amortised cost.
Financial instruments at fair value through other comprehensive income (“FVOCI”)
(ii)
The Group has elected to designate certain investments in equity instruments that are not held for trading as FVOCI at initial
recognition and to present gains and losses in other comprehensive income. Dividends earned from such investments are
recognised in profit or loss.
(iii) Financial instruments at fair value through profit or loss (“FVPL”)
Financial assets that do not meet the criteria for classification as measured at either amortised cost or FVOCI are classified as FVPL.
Derivative financial instruments that are not in an effective hedge relationship are classified as FVPL.
RECOGNITION AND MEASUREMENT
The Group recognises a financial asset or a financial liability when it becomes a party to the contractual provisions of the
instrument.
Regular purchases and sales of financial assets are recognised on the trade date – the date on which the Group commits to
purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not
classified at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised
at fair value, and transaction costs are expensed in the profit and loss component of the statement of comprehensive income.
Where financial assets are subsequently measured at amortised cost, interest revenue, credit losses and foreign exchange
gains or losses are recognised in profit or loss. On derecognition, any gain or loss is recognised in profit or loss. Financial
liabilities subsequently measured at amortised cost are measured using the effective interest method.
Where investments in equity instruments are designated as FVOCI, fair value gains and losses are recognised in other
comprehensive income. Dividends earned from such investments are recognised in profit or loss.
Where financial assets are subsequently measured at FVPL, all gains and losses are recognised in profit or loss.
A key management judgement is the assessment that substantially all the risks and rewards of ownership have been
transferred in the derecognition of financial assets.
Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been
transferred and the Group has transferred substantially all risks and rewards of ownership.
Financial liabilities are derecognised when the contractual obligations are discharged, cancelled or expired.
92
93
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 FAIR VALUE ESTIMATION
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure
purposes.
As the Group’s financial instruments are not traded in active markets their fair value is determined using valuation
techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at
each balance date.
All financial instruments held at fair value are included in level 2 of the valuation hierarchy as defined in NZ IFRS 13.
The fair value of foreign currency forward contracts is determined using forward exchange rates at balance date. The fair
value of foreign exchange option agreements is determined using forward exchange rates at balance date. The fair value of
interest rate swaps is determined using forward interest rates as at reporting date. The fair value of commodity derivatives is
determined using NZX settlement prices.
OFFSETTING FINANCIAL INSTRUMENTS
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is
a current legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or
realise the asset and settle the liability simultaneously. There are master netting agreements in place for derivative financial
instruments held, however these instruments have not been offset in the statement of financial position as they do not
currently meet the criteria for offset.
IMPAIRMENT OF FINANCIAL ASSETS
The Group has adopted the expected credit loss (“ECL”) model. For further detail please refer to Note 4. The Group assesses
whether there is evidence that a financial asset or group of financial assets is impaired, with the exception of assets that are
fair valued through profit or loss. A financial asset or a group of financial assets can be impaired and the impairment losses
are recognised in accordance with IFRS 9 (2014). The Group continues to assess if historical and future objective evidence
of impairment exists after the initial recognition of the asset.
DERIVATIVE FINANCIAL INSTRUMENTS – HEDGE ACCOUNTING
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate risk, foreign
exchange rate risk, and commodity price risk including forward exchange contracts, interest rate swaps, and commodity
derivative contracts.
Derivatives are initially recognised at fair value at the date the derivative contact is entered into and are subsequently
remeasured to fair value at each reporting date. For derivatives measured at fair value, the gain or loss that results from
changes in fair value of the derivative is recognised in earnings immediately, unless the derivative is designated and
effective as a hedging instrument. Hedges of highly probable forecast transactions or hedges of foreign currency risk of firm
commitments are designated as cash flow hedges by the Group.
The full fair value of a hedging derivative is classified as a current asset or liability when the remaining term of the hedged item
is 12 months or less from balance date, or when cash flows arising from the hedged item will occur within 12 months or less
from balance date. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining
maturity of the hedged item is more than 12 months and no cash flows will occur within 12 months of balance date.
Hedge accounting
(i)
The Group designates certain hedging instruments in respect of foreign currency risk and interest rate risk as cash flow
hedges. Hedges of risk on firm commitments and highly probably transactions are accounted for as cash flow hedges.
At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and
the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions.
Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument
that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item.
(ii) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are
recognised in other comprehensive income and accumulated as a separate component of equity in the hedging reserve.
The gain or loss relating to the ineffective portion and reclassification adjustments are recognised immediately in profit or
loss, included in revenue for foreign exchange instruments and commodity price derivatives, and finance costs for interest
rate swaps.
Amounts recognised in the hedging reserve are classified from equity to profit or loss (as a reclassification adjustment) in the
periods when the hedged item is recognised in profit or loss, in the same line as the recognised hedged item.
Hedge accounting is discontinued when the Group revokes the hedging relationships, the hedging instrument expires or is
sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss recognised in the
hedging reserve at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in
profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was recognised in
the hedging reserve is immediately recorded in profit or loss.
The Group separates the intrinsic value and time value of vanilla option and collar contracts, designating only the intrinsic
value as the hedging instrument. The time value, including any gains or losses, is recognised in other comprehensive
income until the hedged transaction occurs and is recognised in profit or loss.
(iii) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument
that does not qualify for hedge accounting are recognised immediately in the income statement.
94
95
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 (a) Financial instruments by category
Financial assets
At 31 July 2019
Cash and cash equivalents
Derivative financial instruments
Trade and other receivables
Investments in equity
Total
At 31 July 2018
Cash and cash equivalents
Derivative financial instruments
Trade and other receivables
Investments in equity
Total
Financial liabilities
At 31 July 2019
Derivative financial instruments
Working capital facility
Trade and other payables
Borrowings
Total
At 31 July 2018
Derivative financial instruments
Working capital facility
Trade and other payables
Borrowings
Total
At amortised
cost
At fair value
through other
comprehensive
income
At fair value
through profit
or loss
Total
$’000
$’000
$’000
$’000
16,007
–
61,933
–
77,940
32,129
–
47,145
–
79,274
–
–
–
110
110
–
–
–
690
690
–
2,403
–
–
2,403
–
3,699
–
–
3,699
At amortised
cost
At fair value
through profit
or loss
16,007
2,403
61,933
110
80,453
32,129
3,699
47,145
690
83,663
Total
$’000
$’000
$’000
–
38,647
99,626
216,020
249,482
565,128
–
–
–
38,647
–
18,598
49,321
152,199
97,065
298,585
–
–
–
18,598
38,647
99,626
216,020
249,482
603,775
18,598
49,321
152,199
97,065
317,183
All derivative financial instruments are designated in effective hedge relationships.
For instruments held at amortised cost, carrying amount is considered a reasonable approximation for fair value.
96
OTHER
This section contains additional information regarding the performance of the group during the financial year. This section includes
the following notes:
17 Income tax
18 Business combinations
19 Other investments
20 Related party transactions
21 Contingencies
22 Commitments
23 Events occurring after the reporting period
24 Other accounting policies
98
101
102
103
104
105
106
106
97
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 July 2019
17
INCOME TAX
The tax expense for the period comprises current and deferred tax. Tax is recognised in the profit and loss component of
the statement of comprehensive income, except to the extent that it relates to items recognised in other comprehensive
income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity,
respectively.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted
at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax
is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the
laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which
the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realised.
New Zealand tax consolidated group
Synlait Milk Limited and its wholly-owned New Zealand controlled entity, Synlait Milk Finance Limited, form a tax
consolidated group. The New Zealand Dairy Company Limited and Eighty Nine Richard Pearse Drive Limited are not
members of the tax consolidated group.
(a) Income tax expense
Current tax expense:
Current tax on profits for the year
Current tax on prior period adjustments
Deferred tax expense:
Temporary differences
Tax losses to carry forward
Adjustment to prior year tax losses brought forward
Other prior year adjustments
Total deferred tax
Income tax (expense) / benefit
(b) Reconciliation of effective tax rate
Profit before income tax
Income tax using the Group’s domestic tax rate – 28%
Other non-deductible costs
Adjustment to prior year tax losses brought forward
Other prior year adjustments
Income tax expense
(c) Imputation credits
2019
$’000
2018
$’000
(29,220)
(27,358)
721
(54)
(28,499)
(27,412)
(3,433)
(1,842)
17
5
(930)
(4,341)
(32,840)
115,079
(32,222)
(533)
111
–
(114)
(1,845)
(29,257)
103,810
(29,067)
(22)
(32,755)
(29,089)
(5)
(80)
(85)
–
(168)
(168)
(32,840)
(29,257)
Imputation credits available directly and indirectly to the shareholders of the Group
83,219
53,079
(d) Income tax recognised in other comprehensive income
The tax (charge)/credit relating to components of other comprehensive income is as follows:
31 July 2019
Cash flow hedges
Other comprehensive income
31 July 2018
Cash flow hedges
Other comprehensive income
Before tax
Tax (expense)
/ benefit
After tax
$’000
$’000
$’000
(21,323)
(21,323)
(38,081)
(38,081)
5,971
5,971
10,663
10,663
(15,352)
(15,352)
(27,418)
(27,418)
98
99
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 (e)
Deferred taxation
The balance comprises temporary differences attributable to:
Assets
Other items
Tax losses carried forward
Derivatives
Other items
Total deferred tax assets
Property, plant and equipment
Derivatives
Other items
Total deferred tax liabilities
Total deferred tax
Movements – Group
Balance
1 Aug 2017
Recognised in
profit or loss
Recognised
in other
comprehensive
income
Recognised
directly in
equity
$’000
Property, plant and equipment
(28,222)
Derivatives
Other items
Tax losses carried forward
(6,464)
1,015
184
$’000
(1,862)
–
(101)
111
$’000
–
10,663
–
–
Total
(33,487)
(1,853)
10,663
Balance
1 Aug 2018
Recognised in
profit or loss
Recognised
in other
comprehensive
income
$’000
(30,145)
4,199
1,287
295
$’000
(4,165)
–
603
(178)
$’000
–
5,971
–
–
Property, plant and equipment
Derivatives
Other items
Tax losses carried forward
Total
(24,364)
(3,740)
5,971
$’000
–
–
305
–
305
Recognised
directly in
equity
$’000
–
–
84
–
84
2019
$’000
2018
$’000
2,141
112
10,170
(13)
12,410
(35,061)
–
–
1,260
294
4,199
27
5,780
(30,144)
–
–
(35,061)
(22,651)
(30,144)
(24,364)
Prior year
adjustment
Balance
31 July 2018
$’000
(60)
–
68
–
8
$’000
(30,145)
4,199
1,287
295
(24,364)
Prior year
adjustment
Balance
31 July 2019
$’000
(751)
–
155
(5)
$’000
(35,061)
10,170
2,128
112
18 BUSINESS COMBINATIONS
Acquisitions of businesses are accounted for using the acquisition method. The cost of the acquisition is measured at fair
value, which is calculated as the sum of the assets given, liabilities incurred or assumed, and equity instruments issued by
the Group, at acquisition date, in exchange for control of the acquiree. Acquisition related costs are recognised in profit or
loss as incurred. The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Income
Statement from the date of acquisition or up to the date of disposal as appropriate.
On 1 August 2019, the Group completed the acquisition of selected assets and liabilities of Talbot Forest Cheese Ltd. (“TFC”) for
total consideration of $37.8m, including inventory. The acquirer was a newly incorporated company, Synlait Foods (Talbot Forest)
Limited. On the acquisition date, the Group paid $18.8m. Of the remaining consideration payable, $18.1m was applied against
an intercompany loan owed by the vendor to the Group and $0.9m has been retained and will be payable upon completion of
pre-completion works and plant acceptance tests. The acquisition will be accounted for in accordance with IFRS 3, Business
Combinations.
The acquisition of TFC includes a cheese manufacturing plant located in Temuka, New Zealand, capable of manufacturing a variety
of cheese products with an annual production capacity of 12,000MT, along with a consumer cheese brand. The acquisition excludes
the Talbot Forest Cheese artisan factory in Geraldine, New Zealand. Whilst this transaction was not completed in FY19 and is not
reflected in the financial statements, a business combinations note has been included in the financial statements on a provisional
basis pursuant with NZ IFRS 3.
The following summarizes the consideration paid for TFC and amounts of assets acquired and liabilities assumed recognised at the
acquisition date:
Current Assets
Inventory
Non‑current Assets
Property, plant and equipment
Land and buildings
Brand
Total identifiable net assets at fair value
Goodwill arising on acquisition
Total consideration
Less: Debt and accrued interest payable owed to the Group extinguished upon acquisition
Less: Retentions and other payables
Net cash outflow on acquisition
August 1, 2019
$’000
2,173
12,745
5,960
1,700
22,578
15,173
37,751
(18,076)
(885)
18,790
(602)
(22,651)
The land, buildings, plant and equipment, inventory, and brand have been recognised at acquisition date fair values based on third
party valuations.
The brand has been recognised at acquisition date fair value.
The fair value was determined based on a valuation performed on acquisition date. The brand was valued using the relief from
royalty method and key assumptions used in the valuation of the brand include the forecast earnings growth rate, the royalty rate
and the discount rate.
Goodwill arose in the acquisition of the business operations of TFC because the cost of acquisition reflected the benefit of future
cash flows above the current fair market value of the assets acquired, and the synergies and future market benefits expected to be
obtained from the cheese manufacturing plant and related brand.
Acquisition costs of $0.3m have been recognised in the income statement.
100
101
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 19 OTHER INVESTMENTS
INVESTMENTS IN ASSOCIATES
Associates are those entities in which the Group, either directly or indirectly, holds a significant but not a controlling interest,
and has significant influence. Investments in associates are accounted for using the equity method and are measured in the
statement of financial position at cost plus post acquisition changes in the Group’s share of net assets. Goodwill relating to
associates is included in the carrying amount of the investment. Dividends reduce the carrying value of the investment.
Equity securities
Investment in associates
Total other investments
2019
$’000
110
–
110
2018
$’000
110
580
690
Synlait Milk Limited held interests in the following entities at the end of the reporting period:
Name of entity
Country of incorporation
Class of shares
Equity holding
Synlait Milk Finance Limited (Subsidiary)
The New Zealand Dairy Company Limited (Subsidiary)
Eighty Nine Richard Pearse Drive Limited (Subsidiary)
Sichuan New Hope Nutritional Foods Co. Ltd (Associate)
Synlait Business Consulting (Shanghai) Limited
New Zealand
New Zealand
New Zealand
China
China
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
2019
2018
%
100
100
100
25
100
%
100
100
100
25
–
Associates
In January 2015, the Group acquired 25% of the shares of New Hope Nutritionals, an infant formula company registered in China.
This company owns and markets the “Akara” and “e-Akara” infant formula brands in the Chinese market, which are exclusively
manufactured by Synlait Milk Limited.
The investment is not individually significant to the Group. The Group’s share of this equity accounted investment is as follows:
(Loss)/Gain from continuing operations
The carrying value of the investment in New Hope Nutritionals was nil at balance date (2018: $0.6m):
Opening balance
Investment cost
Share of (losses)/gains
2019
$’000
(580)
(580)
2019
$’000
580
–
(580)
–
2018
$’000
426
426
2018
$’000
154
–
426
580
20 RELATED PARTY TRANSACTIONS
Parent entity
Bright Dairy Holding Limited hold 39.04% of the shares issued by Synlait Milk Limited (2018: 39.04%). Bright Dairy Holding Limited is
a subsidiary of Bright Food (Group) Co. Limited, a State Owned Enterprise domiciled in the Peoples’ Republic of China.
Other related entities
In June 2013, a subsidiary of Synlait Milk Limited, Synlait Milk Finance Limited, was set up primarily for holding all banking facilities
for the Group and related interest rate swaps. Funds are loaned to Synlait Milk Limited and interest is charged at market rates.
In January 2015, the Group acquired 25% of the shares of New Hope Nutritionals, an infant formula company registered in China.
This company owns and markets the “Akara” and “e-Akara” infant formula brands in the Chinese market, which are exclusively
manufactured by Synlait Milk Limited.
In May 2017, Synlait Milk Limited acquired 100% of the share capital of The New Zealand Dairy Company Limited and Eighty Nine
Richard Pearse Drive Limited. The New Zealand Dairy Company Limited was constructing a blending and canning plant in Auckland.
Eighty Nine Richard Pearse Drive Limited owns the land and buildings at which the Auckland blending and canning plant is being
constructed. Eighty Nine Richard Pearse Drive Limited leased its land and buildings to The New Zealand Diary Company Limited,
and now leases them to Synlait Milk Limited.
In May 2019, Synlait Business Consulting (Shanghai) Limited was incorporated. The wholly foreign owned entity will be operational
from 1 August 2019 and the principal activity of the entity is to provide services to assist Synlait to market products in China.
Key management and personnel compensation
Other than their salaries and bonus incentives, there are no other benefits paid or due to directors and executive officers as at 31
July 2019. The total short-term benefits paid to the key management and personnel is set out below.
Short term benefits
Share based payments expenses (note 13)
2019
$’000
5,773
644
2018
$’000
5,061
588
During the year the Group has continually invested in its senior leadership team. The senior leadership team has 13 members for the
year ended 31 July 2019 (31 July 2018:14).
(a) Other transactions with key management personnel or entities related to them
Information on transactions with key management personnel or entities related to them, other than compensation, are set out below.
(i) Loans to directors
There were no loans to directors issued during the period ended 31 July 2019 (2018: $nil).
(ii) Other transactions and balances
Directors of Synlait Milk Limited control 3.0% of the voting shares of the company at balance date (2018: 3.5%)
102
103
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 (b) Transactions with other related parties
22 COMMITMENTS
2019
$’000
2018
$’000
196
176
(a) Capital commitments
Capital expenditure contracted for at the end of the reporting period but not yet incurred is as follows:
Purchase of goods and services
Bright Dairy and Food Co Ltd – Directors fees
Sale of goods and services
Bright Dairy and Food Co Ltd – Sale of milk powder products
Bright Dairy and Food Co Ltd – Reimbursement of costs
Sichuan New Hope Nutritional Foods Co. Ltd – Sale of milk powder products
6,464
(91)
–
(c) Outstanding balances
The following balances are outstanding at the reporting date in relation to transactions with related parties other than key
management personnel:
Current receivables (sales of goods and services)
Bright Dairy and Food Co Ltd – Sale of milk powder products
Bright Dairy and Food Co Ltd – Reimbursement of costs
Sichuan New Hope Nutritionals Ltd – Sale of milk powder products
2019
$’000
1
(233)
224
584
(150)
7,301
2018
$’000
1
(129)
217
21 CONTINGENCIES
The Group is currently involved in a dispute regarding restrictive covenants attached to land it purchased in Pokeno.
In February 2018, the Group announced the conditional purchase of 28 hectares of land in Pokeno to establish its second nutritional
powder manufacturing site. The land was subject to restrictive covenants limiting the development of the land that the vendor was
required to remove. The vendor applied to the High Court to have the restrictive covenants removed.
In November 2018, the High Court removed the restrictive covenants. The High Court also declined to award compensation to the
covenant holder on the basis that they would not suffer any loss due to the extinguishment of the covenants as they were of little
practical value. The Group took legal title to the land following the High Court’s decision. The covenant holder appealed to the Court
of Appeal which in May 2019 overturned the High Court’s decision.
In June 2019, the Group filed an application for leave to appeal to the Supreme Court to have the Court of Appeal’s decision
overturned. In August 2019, the Supreme Court advised that there will be an oral hearing prior to a decision on whether the Group
will be granted leave to appeal. The oral hearing is set for 21 October 2019.
There are a range of possible outcomes for the Group including a negotiated settlement between the parties. Given the range of
possible outcomes the Group is not able to reliably estimate any potential liability.
No other significant contingent liabilities are outstanding at balance date (2018: $nil).
Pokeno processing plant
Liquid dairy packaging facility
Separator capacity upgrade
Drystore 4
Lactoferrin capacity expansion
Total
2019
$’000
49,455
16,916
5,820
2,523
–
74,714
2018
$’000
163,824
74,040
–
–
9,000
246,864
The above balances have been committed in relation to future expenditure on capital projects. Amounts already spent have been
included as work in progress.
(b) Operating lease commitments – group as lessee
LEASES
Leases on terms where the Group assumes substantially all the risks and rewards of ownership are classified as finance
leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the
present value of the minimum lease payments with a corresponding liability to the lessor included in the statement of
financial position as a finance lease obligation. Subsequent to initial recognition, the asset is accounted for in accordance
with the accounting policy applicable to that asset. Lease payments are apportioned between finance charges and reduction
in the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.
Other leases are operating leases and the leased assets are not recognised on the Group’s statement of financial position.
Operating lease payments are recognised as an expense on a straight line basis over the lease term, except where another
systematic basis is more representative of the time pattern over which economic benefits from leased assets are consumed.
Less than one year
Between one and five years
Greater than five years
Total
2019
$’000
3,468
4,897
537
8,902
2018
$’000
1,416
5,164
1,612
8,192
The operating leases relate to the leasing of warehouse and office space, vehicles and printers. All terms are reviewed on a regular
basis. All leases are subject to potential renewal.
104
105
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 23 EVENTS OCCURRING AFTER THE REPORTING PERIOD
On 1 August 2019, the Group completed the acquisition of Talbot Forest Cheese. For further information, please refer to Note 18.
There were no further events occurring subsequent to balance date which require adjustment to or disclosure in the
financial statements.
24 OTHER ACCOUNTING POLICIES
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, call deposits and cash held on trust by Tax Management New Zealand Ltd.
Goods and Services Tax (GST)
The profit and loss components of the statement of comprehensive income have been prepared so that all components are stated
exclusive of GST. All items in the financial position are stated net of GST, with the exception of receivables and payables, which
include GST invoiced.
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF SYNLAIT MILK LIMITED
OPINION
BASIS FOR OPINION
We have audited the consolidated financial statements of
Synlait Milk Limited and its subsidiaries (the ‘Group’ or ‘Synlait’),
which comprise the consolidated statement of financial position
as at 31 July 2019, and the consolidated income statement,
statement of comprehensive income, statement of changes in
equity and statement of cash flows for the year then ended,
and notes to the consolidated financial statements, including a
summary of significant accounting policies.
In our opinion, the accompanying consolidated financial
statements, on pages 54 to 106, present fairly, in all material
respects, the consolidated financial position of the Group as
at 31 July 2019, and its consolidated financial performance
and cash flows for the year then ended in accordance with
New Zealand Equivalents to International Financial Reporting
Standards (‘NZ IFRS’) and International Financial Reporting
Standards (‘IFRS’).
We conducted our audit in accordance with International
Standards on Auditing (‘ISAs’) and International Standards
on Auditing (New Zealand) (‘ISAs (NZ)’). Our responsibilities
under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Consolidated Financial
Statements section of our report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with
Professional and Ethical Standard 1 (Revised) Code of Ethics
for Assurance Practitioners issued by the New Zealand
Auditing and Assurance Standards Board and the International
Ethics Standards Board for Accountants’ Code of Ethics for
Professional Accountants, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
Other than in our capacity as auditor and the provision of
other assurance and taxation compliance services, we have
no relationship with or interests in the Company or any
of its subsidiaries. These services have not impaired our
independence as auditor of the Company and Group.
106
107
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 July 2019 AUDITOR’S REPORT CONTINUED
AUDITOR’S REPORT CONTINUED
AUDIT MATERIALITY
KEY AUDIT MATTERS
We consider materiality primarily in terms of the magnitude of
misstatement in the financial statements of the Group that in our
judgement would make it probable that the economic decisions
of a reasonably knowledgeable person would be changed or
influenced (the ‘quantitative’ materiality). In addition, we also
assess whether other matters that come to our attention during
the audit would in our judgement change or influence the
decisions of such a person (the ‘qualitative’ materiality). We use
materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Pōkeno Land Legal Dispute
In February 2018 the Group announced the conditional purchase
We have evaluated the appropriateness of the accounting
of 28 hectares of land in Pōkeno to establish its second
treatment, assessment of the potential outcomes of the
nutritional powder manufacturing site.
proceedings and the accounting presentation of the legal
In November 2018, the High Court removed the covenants which
dispute by performing the following procedures:
would have hindered development of the land. The Group took
- Reading the High Court and Court of Appeal judgements
legal title to the land following the High Court’s decision.
relating to the legal dispute;
In May 2019 the Court of Appeal overturned the High Court
- Discussing the matters with the Group’s senior
We determined materiality for the Group financial statements as
decision to remove the covenants.
management including internal legal counsel;
a whole to be $5,750,000.
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion
on these matters.
The Group continues to be involved in legal proceedings and
- Discussing the matters with external counsel representing
has filed an application for leave to appeal to the Supreme Court
the Group and obtaining a legal confirmation letter; and
to have the Court of Appeal’s decision overturned.
- Challenging management’s assessment of the potential
The disclosure about and explanations of the legal dispute are
outcomes of proceedings and the appropriateness
contained in note 21 of the notes to the consolidated financial
of treating the legal dispute as a contingent liability
statements.
We have included the Pōkeno legal dispute as a key audit matter
in accordance with NZ IAS 37 Provisions, Contingent
Liabilities and Contingent Assets.
due to the level of judgement and uncertainty in relation to the
We have found that the legal dispute has been appropriately
legal dispute and the range of possible outcomes.
disclosed as a contingent liability within note 21 to the notes to
the consolidated financial statements.
KEY AUDIT MATTER
Sales to international customers
HOW OUR AUDIT ADDRESSED THE
KEY AUDIT MATTER
The Group’s revenue primarily consists of the sale of dairy
We have evaluated the application of sale contract terms for
products which totalled $1,024 million for the year ending 31
international customers to recognise revenue by performing the
July 2019. As outlined in note 1 of the consolidated financial
following:
statements approximately 69% of sales are to customers
outside of New Zealand.
- We obtained an understanding of and evaluated the
design and implementation of internal controls used by the
The contract terms for international customers, which
Group to ensure that the correct sale contract terms for
determine the point at which control of the goods is transferred
international customers are used to recognise revenue at
and revenue should be recognised vary by customer.
the appropriate time.
The application of the incorrect terms to revenue recognition
-
For a sample of sales recognised for international
for a contract for an international customer may result in
customers for the period prior to and after 31 July 2019 we
revenue being recorded in the incorrect period.
obtained the specific documentation that outlined the sales
We have included the application of the correct contract terms
to revenue recognition for international customers as a key
audit matter due to the significance of the revenue balance
to the Group and the potential impact that would arise from
and delivery terms. We read this documentation, noted the
specific terms and conditions and checked that revenue
was recognised at the appropriate time in accordance with
those conditions.
revenue being recorded in the incorrect period.
We have found that revenue has been appropriately recognised
in the correct years.
OTHER INFORMATION
The directors are responsible on behalf of the Group for
the other information. The other information comprises
the information in the Annual Report that accompanies the
consolidated financial statements and the audit report.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon.
Our responsibility is to read the other information and
consider whether it is materially inconsistent with the
consolidated financial statements or our knowledge obtained
in the audit or otherwise appears to be materially misstated.
If so, we are required to report that fact. We have nothing to
report in this regard.
108
109
Synlait Milk Limited Financial Statements for the year ended 31 July 2019Synlait Milk Limited Financial Statements for the year ended 31 July 2019 AUDITOR’S REPORT CONTINUED
DIRECTORS’ RESPONSIBILITIES FOR THE CONSOLIDATED
The directors are responsible on behalf of the Group for the
FINANCIAL STATEMENTS
preparation and fair presentation of the consolidated financial
statements in accordance with NZ IFRS and IFRS, and for such
internal control as the directors determine is necessary to
enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud
or error.
In preparing the consolidated financial statements, the
directors are responsible on behalf of the Group for assessing
the Group’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either
intend to liquidate the Group or to cease operations, or have
no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE
Our objectives are to obtain reasonable assurance about
whether the consolidated financial statements as a whole are
free from material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with ISAs
and ISAs (NZ) will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated
financial statements.
A further description of our responsibilities for the audit of the
consolidated financial statements is located on the External
Reporting Board’s website at:
www.xrb.govt.nz/standards-for-assurance-practitioners/
auditors-responsibilities/audit-report-1
This description forms part of our auditor’s report.
This report is made solely to the Company’s shareholders, as a
body. Our audit has been undertaken so that we might state to
the Company’s shareholders those matters we are required to
state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company’s
shareholders as a body, for our audit work, for this report, or
for the opinions we have formed.
CONSOLIDATED FINANCIAL STATEMENTS
RESTRICTION ON USE
Andrew Dick, Partner
For Deloitte Limited
Auckland, New Zealand
11 September 2019
110
STATUTORY
INFORMATION
Synlait Milk Limited Annual Report 2019
111
Synlait Milk Limited Financial Statements for the year ended 31 July 2019
STATUTORY INFORMATION
STATUTORY INFORMATION CONTINUED
1
BUSINESS OPERATIONS
Synlait is an innovative, pioneering New Zealand-based company that is shifting perceptions and driving value through new thinking,
and new attitudes. We combine expert farming with state-of-the-art processing to produce a range of nutritional milk products for
our global customers that provide genuine benefits for human health and wellbeing.
Our company was born disruptive. It is this spirit that has driven our success. We’re applying that attitude to sustainability – ensuring
that looking after people and protecting our planet underpins all we do.
The company’s business underwent change during the year as we executed our strategy, with intentional investments made as part
of our next growth phase. These included the completion of the advanced liquid dairy packaging facility, now servicing Foodstuffs
South Island, its inaugural customer, and the building of the second infant processing facility at Pokeno.
In May 2019 we established a subsidiary in China, Synlait Consulting (Shanghai) Limited (Synlait China). Synlait China’s activities are
limited to the provision of consulting services. It will assist us with local knowledge on doing business in China and enable us to
better support our customers.
Subsequent to our balance date (on 1 August 2019), Synlait completed the acquisition of the business and selected assets of Talbot
Forest Cheese including its Temuka site and its consumer cheese brand (Talbot Forest Cheese). This business is now owned and
operated by a second new subsidiary, Synlait Foods (Talbot Forest) Limited.
2 DIRECTORS
Synlait’s Directors as at 31 July 2019 are the same Directors profiled on page 28 of this report. Directors of Synlait’s subsidiaries are
as follows:
• Synlait Milk Finance Limited: Bill Roest, Graeme Milne ONZM, Dr John Penno, Min Ben, Qikai Lu, Hon. Ruth Richardson,
Sam Knowles and Sihang Yang
• The New Zealand Dairy Company Limited: Graeme Milne and Nigel Greenwood
• Eighty Nine Richard Pearse Drive Limited: Graeme Milne and Nigel Greenwood
• Synlait Consulting (Shanghai) Limited: Deborah Marris, Martijn Jager and Nigel Greenwood
• Synlait Foods (Talbot Forest) Limited: Leon Clement and Nigel Greenwood
3 DIRECTORS’ INTERESTS
The Directors of Synlait and its subsidiaries declared the interests described below during the year to 31 July 2019 to meet their
obligations under the section 140(2) of the Companies Act 1993. They are recorded in the Interests Register of the relevant company:
Directors’ Interests
Bill Roest
Director Synlait Milk Limited
Director Synlait Milk Finance Limited
Director Housing Foundation Limited
Director Metro Performance Glass Limited
Independent Chair of the Audit Committee for
Fisher & Paykel Appliances Limited
Trustee New Zealand Housing Foundation
Trustee WJ & IJ Family Trust
Shareholder in Synlait Milk Limited
Receipt of Directors’ Fees from Synlait Milk Limited
at approved rate
Insurance cover arranged by Synlait Milk Limited
Deed of Indemnity and Access from Synlait Milk Limited
Graeme Milne ONZM
Chair Synlait Milk Limited
Chair Synlait Milk Finance Limited
Chair Eighty Nine Richard Pearse Drive
Chair The New Zealand Dairy Company Limited
Chair Terracare Fertilisers Limited
Director Alliance Group Limited
Director NZP Holdings Limited
Director New Zealand Pharmaceuticals Limited
Director Nyriad Limited
Director Nyriad Nominee Limited
Chair of PF Olsen Limited
Chair PF Olsen Group Ltd
Chair Advisory Board Pro-Form Limited
Directors’ Interests (continued)
Hon. Ruth Richardson
Director Synlait Milk Limited
Director Synlait Milk Finance Limited
Director Ruth Richardson (NZ) Limited
Chair SYFT Technologies Limited (retired 20 August 2019)
Chair The New Zealand Merino Company Limited
Director Bank of China (NZ) Limited
Chair Kula Fund Advisory Committee
Shareholder in Synlait Milk Limited
Receipt of Directors’ Fees from Synlait Milk Limited
at approved rate
Insurance cover arranged by Synlait Milk Limited
Deed of Indemnity and Access from Synlait Milk Limited
Dr. John Penno
Board Appointed Director Synlait Milk Limited
Director Synlait Milk Finance Limited
Director Sichuan New Hope Nutritional Foods Co., Limited
Director Okuora Holdings Limited
Chair The Pure Food Co Limited
Director Leaft Foods Limited
Director Thorndale Dairies Limited
Trustee John Penno Trust
Shareholder in Okuora Holdings Limited
Shareholder Leaft Foods Limited
Shareholder in Thorndale Dairies Limited
Shareholder in Synlait Milk Limited
Chair of Fresh Water Leaders Group reporting to Ministers
Parker and O’Connor
Graeme Milne ONZM (continued)
Chair Advisory Board Rimanui Farms Limited
Council member Waikato University
Trustee Rockhaven Trust
Partner GR & JA Milne
Shareholder in Synlait Milk Limited
Receipt of Directors’ Fees from Synlait Milk Limited
at approved rate
Insurance cover arranged by Synlait Milk Limited
Deed of Indemnity and Access from Synlait Milk Limited
Sam Knowles Director
Director Synlait Milk Limited
Director Synlait Milk Finance Limited
Director Trustpower Limited
Director Rangatira Limited
Director Fire Security Services 2016 Limited
Director Umajin Limited
Chairman OnBrand Limited
Chairman Adminis Limited
Director Magritek Limited
Director Com Investments Limited
Director Growthcom Limited
Director Habourside Rentals Limited
Director of Montoux Limited
Trustee Ruby Family Trust
Trustee World Wildlife Fund NZ
Trustee Com Trust
Trustee Ian Samuel Knowles Children’s Trust
Receipt of Directors’ Fees from Synlait Milk Limited
at approved rate
Receipt of Directors’ Fees from Synlait Milk Limited
at approved rate
Insurance cover arranged by Synlait Milk Limited
Deed of Indemnity and Access from Synlait Milk Limited
Insurance cover arranged by Synlait Milk Limited
Deed of Indemnity and Access from Synlait Milk Limited
Shareholder (through Okuora Holdings Limited) in
Signum Limited
Min Ben
Director Synlait Milk Limited
Director Synlait Milk Finance Limited
Receipt of Directors’ Fees from Synlait Milk Limited
at approved rate
Insurance cover arranged by Synlait Milk Limited
Deed of Indemnity and Access from Synlait Milk Limited
Qikai Lu
Director Synlait Milk Limited
Director Synlait Milk Finance Limited
Director Ba’emek Advanced Technologies Limited
Receipt of Directors’ Fees from Synlait Milk Limited
at approved rate
Insurance cover arranged by Synlait Milk Limited
Deed of Indemnity and Access from Synlait Milk Limited
Sihang Yang
Director Synlait Milk Limited
Director Synlait Milk Finance Limited
Receipt of Directors’ Fees from Synlait Milk Limited
at approved rate
Insurance cover arranged by Synlait Milk Limited
Deed of Indemnity and Access from Synlait Milk Limited
Deborah Marris
Director Synlait Consulting (Shanghai) Limited
Director Primary Collaboration New Zealand Limited
Director BFGM Limited
Shareholder BFGM Limited
Insurance cover arranged by Synlait Milk Limited
Leon Clement
Director Synlait Foods (Talbot Forest) Limited
Director POD Farming Limited
Shareholder POD Farming Limited
Insurance cover arranged by Synlait Milk Limited
112
113
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019
STATUTORY INFORMATION CONTINUED
STATUTORY INFORMATION CONTINUED
Directors’ Interests (continued)
Martijn Jager
Director Synlait Consulting (Shanghai) Limited
Insurance cover arranged by Synlait Milk Limited
Nigel Greenwood
Director Eighty Nine Richard Pearse Drive Limited
Director The New Zealand Dairy Company Limited
Director Synlait Foods (Talbot Forest) Limited
Insurance cover arranged by Synlait Milk Limited
No Director requested to disclose or use information in their possession as a Director of Synlait or its subsidiaries that would not
otherwise have been available to him or her.
As permitted by section 162 of the Companies Act 1993 and our Constitution, we indemnify and insure Directors and Officers against
liability to other parties that may arise in the course of their activities as a Director or Officer. Details of the indemnities and insurance
are kept in Synlait’s Interests Register. This cover does not apply to any liabilities arising from criminal or reckless acts by our
Directors or Officers.
4 DIRECTORS’ REMUNERATION
The remuneration and other benefits paid to Synlait’s Directors in the year to 31 July 2019 was as approved by shareholders at the
last two annual meetings. The annual fee paid to Directors (effective 1 April 2019) is $85,000 per annum, except for the annual fee of
the two committee Chairs, which is $97,000, and the Chair which is $169,000 per annum.
The total remuneration and the value of other benefits received by Directors (and past Directors) from Synlait for the year ended 31
July 2019 was as set out in the table below. Fees are not paid to Directors or employees of Synlait for acting as a Director of any of
Synlait’s subsidiaries.1
Director
Bill Roest
Class
Position
Retired / Appointed
Independent3
Audit and Risk Committee Chair
Graeme Milne ONZM Independent3
Chair
Retired and reappointed
28 November 2018
2019 Total
Remuneration2
$93,667
$156,333
Dr John Penno4
Board Appointed
Director
Appointed 28 November 2018
$229,889
(previously Managing Director)
Min Ben
Qikai Lu
Bright Appointed5
Director
Bright Appointed5
Director
Hon. Ruth Richardson Bright Appointed5
Currently Director, previously
People and Governance Chair
Sam Knowles
Independent3
Currently People and
Governance Chair, previously
Director
Sihang Yang
Bright Appointed5
Director
$81,667
$81,667
$91,667
$83,667
$81,667
1Synlait Milk Finance Limited, The New Zealand Dairy Company Limited, Eighty Nine Richard Pearse Drive Limited, Synlait Consulting (Shanghai) Limited
and Synlait Foods (Talbot Forest) Limited. Note that the Directors do not receive any additional remuneration or benefits as directors of the subsidiaries.
2From 1 April each year director fees are updated, so these include eight months at the rates approved in 2017 and four months at the new rates approved
in 2018.
3Director independence is addressed on page 46
4In the year to 31 July 2019 Dr John Penno received remuneration of $229,889. This was made up of employee remuneration of $174,222 for his
engagement as Chief Executive Officer and Managing Director (no bonus component) and Director fees of $55,667 for the period since 27 November 2018
when he was appointed as Board Appointed Director.
Dr John Penno was a participant of the company’s long-term incentive scheme in 2017 and 2018. He was granted 70,154 performance share rights under
the scheme in the year ended 31 July 2017 and 51,843 performance rights under the scheme in the year ended 31 July 2018. In the year to 31 July 2019 the
performance share rights for both years (121,997) were forfeited. Details of the executive long term incentive scheme are disclosed on page 49.
5Directors have been appointed by Bright Dairy Limited, owners of 39.04% of Synlait as at 31 July 2019, under Synlait’s constitution in conjunction with a
waiver granted by NZX Regulation on 24 June 2013
5
EMPLOYEE REMUNERATION
During the year ended 31 July 2019, 211 employees and former employees received individual remuneration and other benefits
in their capacity as employees of Synlait Milk Limited or any of its five subsidiaries the value of which was $100,000 or more.
Remuneration and other benefits are shown in the table below in brackets of $10,000.
Synlait’s Strategic Remuneration Policy is approved by the Board’s People, Environment and Governance Committee. That
Committee also recommends to the Board, and reviews, the remuneration of the Chief Executive and the Executive Leadership Team.
Remuneration range
$100,000 – $109,999
$110,000 – $119,999
$120,000 – $129,999
$130,000 – $139,999
$140,000 – $149,999
$150,000 – $159,999
$160,000 – $169,999
$170,000 – $179,999
$180,000 – $189,999
$190,000 – $199,999
$200,000 – $209,999
$210,000 – $219,999
$220,000 – $229,999
$230,000 – $239,999
$310,000 – $319,999
$320,000 – $329,999
$340,000 – $349,999
$360,000 – $369,999
$370,000 – $379,999
$380,000 – $389,999
$400,000 – $409,999
$410,000 – $419,999
$450,000 – $459,999
$460,000 – $469,999
$820,000 – $829,999
Number of employees
FY19
73
40
11
12
13
10
7
10
4
6
6
3
1
1
1
1
2
2
1
1
2
1
1
1
1
114
115
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019
STATUTORY INFORMATION CONTINUED
STATUTORY INFORMATION CONTINUED
6 DONATIONS
Donations made by Synlait and its subsidiaries totalled $5,500 for the year to 31 July 2019.
7 AUDITORS
We outline key information about out auditors and our audit process, including audit and other fees paid to our auditor in the year to
31 July 2019 on pages 51 to 52.
8
STOCK EXCHANGE LISTINGS
Synlait’s shares have been listed on the Main Board operated by NZX Limited (NZX) since 23 July 2013. We were admitted to the
Official List of ASX Limited as a foreign exempt issuer under a compliance listing on 24 November 2016 and trading of our shares on
that exchange commenced on 25 November 2016.
As an ASX foreign exempt issuer, we must comply with the NZX Listing Rules (other than as waived by NZX) and are exempt from
complying with most of the ASX Listing Rules as set out in ASX Listing Rule 1.15.
9
SHARES ON ISSUE
As at 31 July 2019 there were 179,223,028 ordinary shares in Synlait on issue.
10 20 LARGEST SHAREHOLDERS
Our shareholders with the 20 largest shareholdings in Synlait as at 31 July 2019 were:
Rank
Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Bright Dairy Holding Limited
The a2 Milk Company (NZ) Limited
John Penno
Munchkin, Inc.
Pendal Group Limited
Ausbil Investment Management Limited
FIL Investment Management (Australia) Limited
Eley Griffiths Group Pty. Ltd.
The Vanguard Group, Inc.
Retail Investors of Craigs Investment Partners
Regal Funds Management Pty. Ltd.
ECP Asset Management Pty Ltd
New Hope Dairy (HongKong) Trading Co Ltd
Renaissance Smaller Companies Pty. Ltd.
Accident Compensation Corporation
Vanguard Investments Australia Ltd.
First NZ Capital Custodians Limited (Various Private Investors)
BlackRock Institutional Trust Company, N.A.
Paul & Bronwyn Lancaster
20
Norges Bank Investment Management (NBIM)
Total top 20 holders of ordinary shares
Total remaining holders balance
31-Jul-2019
69,968,944
31,174,646
5,100,000
3,895,000
3,613,692
3,135,115
2,989,979
2,775,952
2,524,236
2,393,198
1,848,680
1,807,354
1,792,300
1,721,352
1,565,148
1,507,516
1,442,946
1,089,311
1,085,623
1,019,365
142,450,357
36,772,671
% S/O
39.04%
17.39%
2.85%
2.17%
2.02%
1.75%
1.67%
1.55%
1.41%
1.34%
1.03%
1.01%
1.00%
0.96%
0.87%
0.84%
0.81%
0.61%
0.61%
0.57%
79.48%
20.52%
11 SUBSTANTIAL PRODUCT HOLDERS
As required under section 293 of the Financial Markets Conduct Act 2013, the substantial product holders of the company according
to Synlait’s records and disclosures made under section 280(1)(b) of the Financial Markets Conduct 2013 Act as at 31 July 2019 were:
Name
Bright Dairy Holding Limited
The a2 Milk Company (NZ) Limited
12 HOLDINGS BY DIRECTORS
Fully paid ordinary shares held by
substantial product holder as at
31 July 2019
Percentage of 179,223,028 shares on
issue held by substantial product holder
as at 31 July 2019
69,968,944
31,174,646
39.04%
17.39%
As at 31 July 2019 Synlait’s Directors had a relevant interest in the following securities issued by Synlait:
Securities held legally or beneficially
as at 31 July 2019
Securities held legally or beneficially
as at 31 July 2018
Name
Bill Roest
Graeme Milne ONZM
Dr John Penno
Min Ben
Qikai Lu
Hon. Ruth Richardson
Sam Knowles
Sihang Yang
13 SPREAD OF SHAREHOLDERS
As at 31 July 2019, our shareholding was spread as follows:
Range
1 - 99
100 - 199
200 - 499
500 - 999
1,000 - 1,999
2,000 - 4,999
5,000 - 9,999
10,000 - 49,999
50,000 - 99,999
100,000 - 499,999
500,000 - 999,999
1,000,000 over
Rounding
Total
Total holders
362
381
619
718
1,059
1,383
582
351
28
34
8
17
27,750
72,753
5,100,000
0
0
56,222
55,000
0
Units
18,476
48,703
195,858
478,257
1,353,290
4,061,363
3,874,980
6,119,797
1,902,106
7,419,165
6,012,101
147,738,932
5,542
179,223,028
27,750
72,753
6,120,755
0
0
56,222
55,000
0
% Units
0.01
0.03
0.11
0.27
0.76
2.27
2.16
3.41
1.06
4.14
3.35
82.43
0.00
100.00
116
117
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019
STATUTORY INFORMATION CONTINUED
DIRECTORY
14 CREDIT RATING STATUS
Synlait does not have a credit rating.
15 NZX WAIVERS
On 24 June 2013, Synlait was granted waivers from various NZX Listing Rules to allow our Constitution and the composition of
our Board to reflect our non-standard governance arrangements. Those waivers were amended on 30 October 2018 to provide
for changes to our corporate governance arrangements, and were relied on in the year to 31 July 2019. A summary of those
arrangements is on pages 44-45. Copies of these waivers, and other waivers that we have obtained or relied on before 1 August
2018 can be found at: www.synlait.com/investors/. We have not obtained or relied on any other waivers in the year to 31 July 2019.
16 GENDER COMPOSITION OF DIRECTORS AND OFFICERS
Below is a breakdown of the gender composition of Synlait’s Directors and Officers as at 31 July 2019 with the composition as at
31 July 2018 in brackets:
Group
Board
Officers
Female
2 (2)
2 (2)
Male
6 (6)
91 (8)
Total
8 (8)
11 (10)
1This figure includes 2 males who are reporting to the Chief Executive Officers temporarily, pending the appointment of a new employee who they will
report to.
REGISTERED OFFICE
1028 Heslerton Road
Rakaia, RD13
New Zealand
Telephone: +64 3 373 3000
Email: info@synlait.com
AUDITOR
Deloitte Limited
80 Queen Street
Auckland 1010
New Zealand
Telephone: +64 9 303 0700
Email: nzinfo@deloitte.co.nz
SHARE REGISTER
Computershare Investor Services Limited
Private Bag 92119
Auckland 1142
Level 2
159 Hurstmere Rd
Takapuna
Auckland 0622
Freephone (within NZ): 0800 467 335
Telephone: +64 9 488 8777
Email: enquiry@computershare.co.nz
MANAGING YOUR SHAREHOLDING ONLINE
To change your address, update your payment instructions and
to view your registered details including transactions, please
visit www.investorcentre.com/nz
General enquiries can be directed to:
enquiry@computershare.co.nz
Please assist our registry by quoting your CSN or shareholder
number when making enquiries.
OTHER INFORMATION
Please visit our website: www.synlait.com
118
119
Synlait Milk Limited Annual Report 2019Synlait Milk Limited Annual Report 2019