ANNUAL
REPORT
2023
Doing Milk Differently
For A Healthier World
PAGE 01 & 02
ANNUAL REPORT 2023
WELCOME TO SYNLAIT’S
ANNUAL REPORT
Our Annual Report reviews Synlait Milk Limited’s (Synlait) and
subsidiaries’ financial performance and business achievements
for the year ended 31 July 2023.
An online copy of this Annual Report and previous annual, interim
and sustainability reports are available at: synlait.com/investors/
We are always looking for ways to improve our reporting.
Please email any feedback to: investors@synlait.com
CORPORATE
GOVERNANCE
SUSTAINABILITY
REPORTING
Our Corporate Governance Statement
describes Synlait’s current compliance
with the NZX Corporate Governance
Code (NZX Code) recommendations
in the year to 31 July 2023.
Synlait releases a standalone
sustainability report each December.
The report reviews Synlait’s strategy
and initiatives to achieve our
sustainability objectives and targets.
The Corporate Governance
section of the Annual Report can
be found on Synlait’s website:
synlait.com/investors/corporate-
governance-2023/
Reddecliffe Farm, Beautiful Valley, Canterbury.
PAGE 03 & 04
Dean and Nicky Reddecliffe and their farm team –
finalist at Synlait’s Annual Dairy Honours Awards
in the For A Healthier World category.
ANNUAL REPORT 2023 PAGE 05 & 06
09
33
15
01
129
01
09
About this Report
Chair Review
43
Financial and Performance Metrics
44
Milk Price
15
CEO Review
45
29
Our Board
30
33
Our Executive Leadership Team
CFO Review
Financial Statements Contents
Auditor’s Report
Statutory Information
124
129
149
Directory
ANNUAL REPORT 2023 PAGE 07 & 08
Brendon Dolan from BP Dolan Farms, Canterbury
– winner at Synlait’s Annual Dairy Honours Awards
in the Doing Milk Differently category.
ANNUAL REPORT 2023 PAGE 09 & 10
CHAIR REVIEW
Simon Robertson
Welcome to our 2023 Annual Report
The report highlights our work to create a
more focused Synlait. Our financial results
are challenging, and not where we need
them to be, but tactically, we are building the
foundations for a stronger Synlait; playing to
our strengths while continuing to diversify
our products, markets, and customers.
Our refreshed strategy (summarised on
page 17) leverages Synlait’s strengths in our
world-class capabilities and experience in
partnering to produce high-value Advanced
Nutrition and Foodservice products. Over
the coming 12 months, the Board will support
Management to continue building stronger
foundations. We will address our balance
sheet (through the intended divestment of
Dairyworks and its Temuka assets); right
sizing our cost base to current activities and
near-term growth opportunities; delivering
and building on current and prospective
Advanced Nutrition and Foodservice
customer opportunities; and lifting our
overall operational performance.
Over the last 12 months, Synlait has
navigated challenges and learned a lot.
We have experienced customer forecast
demand and production changes;
operational stability and cost challenges
such as CO2 shortages; a tight labour
market; extreme weather events; inflationary
pressures; and the stabilisation of our
Enterprise Resource Planning (ERP) system.
Some of these challenges were market-
driven, others our own, but importantly,
the team has adapted and reflected, and is
driven to create a more focused Synlait.
1 Huang, China Dairy Outlook Through 2023, 4.
2 Statista, “Number of births per year in China from 2012 to 2022.”
Setting the scene for a more focused
Synlait: market dynamics changed
post-COVID-19
Towards the middle of the 2022 calendar
year, the world reached a turning point in
the COVID-19 pandemic. While restrictions
started falling away, the pandemic’s
economic impact became clear. This was
particularly evident in China, which plays a
critical role in global dairy markets as the
world’s largest importer, New Zealand’s
largest trading partner, and the largest
export market for Synlait’s customers.
The easing of COVID-19 restrictions has had
a dramatic impact in China. A Government
push for food security and safety means
China has invested significantly in domestic
dairy production driven by favourable policy
change. This is evident in two places on-
farm: since 2015 the percentage of Chinese
dairy herds with more than 1,000 heads
increased 20% to 44% as local consumers
demanded high-quality premium milk.
Secondly, milk production has also tripled
over the last 20 years to approximately
39.3m metric tons in 2022. Substantial
capital investment in local manufacturing
assets has created a robust domestic dairy
industry, and the insular nature of COVID-19
played to this.1
Chinese birth rates fell 10% in 2022²,
property prices weakened, and youth
unemployment rose. Consumer habits
have also evolved as support for made-
in-China products has grown across many
industries. For example, the Chinese infant
formula industry was previously boosted by
high-paying consumers favouring global,
westernised brands. The made-in-China
mentality and the re-registration of all infant
formula products required under China’s
new GB (food safety) legislation has flipped
this dynamic, resulting in more domestic and
fewer global brands, increasing local market
share as the industry consolidates.
What a more focused Synlait looks like,
leveraging our core Advanced Nutrition
and Foodservice capabilities
The current China market dynamics present
a short-term challenge for all exporters, but
Synlait is well placed to adapt. We have the
capabilities, assets and market access which
mean the building blocks are in place.
As the CEO Report on page 15 details, we
have a clear competitive advantage, or
right to win, in our chosen areas, Advanced
Nutrition and Foodservice, supported by
our disciplined and well-run Ingredients
business. Our core food safety and quality
and manufacturing capabilities, highly
integrated value chain, Advanced Nutrition
and Foodservice know-how, and industry-
leading sustainability credentials set us
apart.
Advanced Nutrition is defined as formulated
powders in bulk or consumer-ready format,
formulated beverages, and speciality
nutritional ingredients that our customers
sell to consumers. We don’t just consider
this infant formula, but also paediatric
or adult nutrition products. The world’s
population is ageing and driving greater
demand for Adult Nutrition solutions. Adult
Nutrition is currently a USD $63 billion
global market with an 8% compound annual
growth rate (CAGR), and the Asia Pacific
region is showing the same growth rates
as consumer awareness increases. With
the requirements to manufacture infant and
adult nutrition solutions being similar, Synlait
is well positioned to leverage its expertise
and assets to enter this category. We are
playing to our strengths, while continuing
to diversify our products, markets, and
customers within the Advanced Nutrition
category. We are building out our portfolio
of opportunities for the medium term within
Southeast Asia and China, with related new
product development work focused on Adult
Nutrition.
Ensuring greater focus and execution in
Advanced Nutrition and Foodservice was
why, in June, we announced our intention
to divest Dairyworks and its Temuka assets.
A divestment will enable our team to focus
solely on growing the highest margin
segments of our value-add, B2B Advanced
Nutrition and Foodservice businesses,
where we already have world-class assets,
capacity, know-how, and most importantly,
partnerships with global customers such
as Savencia, Nestle, Danone, and The a2
Milk Company, to deliver products for their
consumers. China remains a key market
for several of these customers and the
access we have secured via our State
Administration for Market Regulation (SAMR)
re-registration this year is clear proof of
our success and access in this market and
category. Synlait has retained its China
market access as the industry consolidates,
a clear endorsement of the quality of the
products we manufacture.
Creating a high performing team
On behalf of the Board, I want to
acknowledge the leadership of Grant
Watson, our CEO, who has been in the
role for 18 months. Grant is placing greater
importance on our team’s delivery and its
alignment with strategy. He is laser-focused
on ensuring everyone from a Red Line
Cleaner or a Process Technician to a Head of
a department or Executive Leadership Team
(ELT) member understands our strategy and
the role they play in delivering it.
ANNUAL REPORT 2023 PAGE 11 & 12
The ELT has transformed over the last 12
months, with Grant building a high-quality
team alongside Adam Maxwell, Rob Stowell,
Suzan Horst, and Tim Carter, who have been
part of Synlait for some time. The capability
and culture of the ELT have significantly
lifted with Abby Ye, Cathy Gamlen, Charles
Fergusson, Glenn Laing, Naiche Nogueira
and Paul Mallard joining us (see page 30 for
more information).
What it means to be a B Corp™
As I mentioned in my last shareholder
letter, I strongly believe in Synlait’s purpose,
Doing Milk Differently For A Healthier
World. It has shaped who we are, what
we stand for, and what we do. From day
one, Synlait has been a catalyst for change
in our industry and becoming a B Corp™
committed us to balancing people, planet,
and profit.
I would also like to acknowledge the
changes around our Board table. We
farewelled independent Director Sam
Knowles at the Annual Meeting, who retired
by rotation. Sam joined Synlait just before
our NZX listing in 2013. Thank you to Sam
for his invaluable contribution to Synlait’s
strategic direction and growth during this
time. Paul Washer replaced Sam and has
been a great addition to our team, taking on
the Audit & Risk Committee Chair role. We
are seeing the benefits of Paul’s significant
listed company and industry experience.
In 2021, B Corp™ announced that a
company’s constitution must include a
B Corp™ purpose statement and stakeholder
clause. Adopting the requirement is
committing to a higher standard of
accountability in our decisions and signals
to our stakeholders that our purpose is core
to Synlait. We have also found our
B Corp™ status a highly effective way of
connecting our people to our purpose. At
our Annual Meeting in December, the Board
will request your support to endorse this
constitutional change.
Our largest shareholder, Bright Dairy, also
changed their Board appointed Directors
earlier this calendar year, with Liu Ruibing
(Ryan), the CFO of Bright Dairy, and Zhu Yi
(Julia), the Vice President of Bright Dairy,
replacing Min Chen (Joyce) and Gui Min
(Gracie). Julia and Ryan bring significant
finance, corporate management, and
strategic planning experience, strengthening
our governance.
Thank you to the Board and ELT for your
contribution and ongoing energy to
Synlait during a challenging 12 months.
Your endless passion for our business is
energising.
The B Corp™ value set has been part of
Synlait for many years, with sustainability
being a key focus around our board table,
board committees and represented in our
ELT. We are already leading in this space,
and the values are consistent with our
strategic ambitions to create high-value
nutritional solutions in our Advanced
Nutrition and Foodservice businesses.
Today’s consumers have high expectations
of how we should care for our community,
and we must deliver on this. I look forward
to sharing more information with you in our
Notice of Meeting and hope we can count
on your support.
high-quality and safe products for our
global customers. Thank you for your
commitment, passion, and loyalty to Synlait.
The Board acknowledges that our current
financial and share price performance is
unacceptable. A reality of the Synlait story
in the short term is that we are a highly
leveraged business. If we do not right-
size our balance sheet to the size of our
business, we will not have the freedom
to accelerate on near and medium term
opportunities at the pace our customers,
and their consumers, demand.
I want to reassure you that the news we
received from The a2 Milk Company last
week about the purported cancellation of
the exclusivity arrangements under the
Nutritional Powders Manufacturing and
Supply Agreement (NPMSA) for the a2
Platinum® and other nutritional products is
not expected to impact our FY 24 results.
Synlait disputes that The a2 Milk Company
has the right to cancel the exclusivity
arrangements. Our complete response to
The a2 Milk Company is in the Investor
Presentation which was released with this
Annual Report.
The Board’s priority is to support Grant and
his team. We have a clear plan in place and
an extremely capable leadership team to
ensure we deliver stronger execution. We
are committed to creating a more focused
Synlait, for you, our shareholders. Thank
you for your support.
Regards
Thank You
Finally, thanks to our farmer suppliers and
staff. The New Zealand dairy industry is
facing tougher times. Without the support of
each of these groups, we cannot produce
Simon Roberston
Chair
ANNUAL REPORT 2023 PAGE 13 & 14
Sam Taylor, Reddecliffe Farm, Beautiful Valley, Canterbury.
ANNUAL REPORT 2023 PAGE 15 & 16
ANNUAL REPORT 2023
CEO REVIEW
Grant Watson
Synlait disputes that The a2 Milk Company
has the right to cancel the exclusivity
arrangements. The dispute resolution
process involves a 20-business day period
of good faith negotiation between Synlait
and The a2 Milk Company, followed by
arbitration (if not resolved). This is not
expected to impact our FY 24 results. Our
complete response to The a2 Milk Company
is in the Investor Presentation, which was
released with this Annual Report. We will
keep you updated on progress.
Thank you to our shareholders, staff, farmer
suppliers, and customers for your support
and loyalty during an extremely challenging
year. As an ELT and Board, we are excited
by the opportunities ahead and will continue
to tackle a range of challenges as we focus
on the basics and actively rebuild our
momentum. Our team are highly focused
on lifting our performance and returning to
profitability as we look ahead to a new and
exciting era in our company’s history.
Nāku noa, nā
Grant Watson
CEO
Tēnā koutou shareholders
It was an extremely challenging year for
Synlait. We delivered a poor financial
result with an adjusted total net profit after
tax (NPAT) of $2.5 million (adjusted total
EBITDA of $95.6 million). Various factors
contributed to our financial performance,
including material reductions in customer
demand, CO2 shortages, extreme
weather events, the COVID-19 pandemic,
inflationary and significant costs associated
with the launch and stabilisation of our
enterprise resource planning (ERP) system.
Some factors were outside our control, and
others were within our control.
A complete summary of our financial
performance is available in the Investor
Presentation released with this Annual
Report.
Despite the challenges, our team delivered
a number of significant successes, putting
us into a much stronger position for the
year ahead. These successes, detailed
further on page 21, include achieving
the State Administration for Market
Regulation re-registration, which secures
our China market infant formula access
for The a2 Milk Company through until
September 2027, establishing the Synlait
Farmer Leadership Team, the launching of
functional foodservice cream (Joyhana) in
China, and taking our Executive Leadership
Team (ELT) through a phase of renewal.
Our Ingredients and Dairyworks businesses
also delivered strong financial results.
Laying the foundations for FY 24
and beyond
Our Chair, Simon Robertson spoke to
further challenging times ahead in the
short to medium term. We face difficult
market dynamics in China, softening global
economies more generally, and inflationary
pressures across our cost base.
To ensure Synlait can navigate its way
through this, we are highly focused on
driving the quality of our execution. As we
move forward, it is critical that our strategy
is more focused and that our resource base
is appropriately aligned to deliver against
our plan.
Our ELT and Board were actively involved
with our strategy refresh during the year.
As a part of this, we made the decision
to double down on our value-add B2B
businesses, Advanced Nutrition and
Foodservice, where we have a clear
competitive advantage and right to win.
We also announced our intention to divest
our Dairyworks business and associated
Temuka assets.
We are creating a more focused Synlait.
Our five-year strategy is on the next page
and includes seven sections. It is designed
to be a simple story that sets out our
ambitions and focus areas for Synlait during
the coming years. The key components of
each section are summarised.
FY 24 – focusing on the basics
and rebuilding momentum
It was pleasing to announce the successful
completion of our planned bank refinancing
last week. Our banking group remains
supportive, and we are pleased to welcome
the Bank of China, China Construction
Bank, HSBC, and Rabobank to the
syndicate alongside ANZ.
We also responded to The a2 Milk
Company’s announcement last week and
confirmed we had received notice from
The a2 Milk Company purporting to cancel
the exclusivity arrangements under the
Nutritional Powders Manufacturing and
Supply Agreement (NPMSA) for the a2
Platinum® and other nutritional products.
PAGE 17 & 18
SYNLAIT STRATEGY FY 24 – FY 28
AMBITION
TO FY 28
RIGHT TO PLAY
STRONG FOUNDATIONS
CHANNELS
BUSINESS TYPES
CATEGORIES
PRODUCTS
Farmer Net
Promoter Score
Top Quartile
Customer Net
Promoter Score
Top Quartile
Staff Engagement
Top Quartile
Food Safety
and Quality
Highly Utilised,
Efficient Plants
Advanced Nutrition
and Foodservice
Know-How
Advanced
Nutrition
Foodservice
Infant
Nutrition
Adult
Nutrition
Advanced
Ingredients
Foodservice
Cream
IWS Level 2
Return on
Capital 15%
B Corp™
Score of 105
Integrated
Value Chain
Regulatory
Know-How
Sustainability
Credentials
Ingredients
AMF and Butter
(TBC)
Cream Cheese
(TBC)
Commodity
Powders
Ambition is what Synlait’s success looks like in five years.
There are three metrics relating to farmer, staff, and
customer engagement, along with precise operations,
financial, and sustainability metrics.
Right to Play is Synlait’s core capability; some might refer to
this as our tickets to the game.
Channels (or business units) are the
areas Synlait is focusing its efforts.
Categories are the products Synlait manufactures within its channels
(business units).
•
•
•
•
Infant and Adult Nutrition – infant formula, paediatric or adult nutrition
products.
Advanced Ingredients – lactoferrin products.
Foodservice Cream – UHT cream.
Butter and Cream Cheese are TBC. These opportunities are currently being
considered.
•
Commodity Powders – whole milk powder, skim milk powder, etc.
•
Food Safety and Quality – meeting high-quality
standards is non-negotiable. We must meet
accreditation standards in New Zealand and each
country we export to.
• Highly Utilised and Efficient Plants – our modern
assets must run efficiently and effectively to achieve
an acceptable (or better) return on capital (one of our
ambitions).
•
•
•
•
Advanced Nutrition and Foodservice Know-How –
we are experts in these channels across all areas of
Synlait, from manufacturing and product innovation to
customer relationships.
Integrated Value Chain – our supply chain must be
strong from farm to customer.
Regulatory Know-How – we understand and align
to regulations in New Zealand and the countries we
export to.
Sustainability Credentials – our B Corp™ accreditation
demonstrates our commitment to strong sustainability
credentials in all that we do.
•
•
•
Advanced Nutrition –
formulated powers in bulk
or consumer-ready format,
formulated beverages, and
speciality nutritional ingredients
that our customers sell to
consumers.
Foodservice – products such as
functional UHT cream are sold
to customers who turn them into
finished products for out-of-
home consumption at bakeries,
cafes, beverage chains, etc.
Ingredients – bulk milk powder
and other bulk products sold to
manufacturers, who use them in
a range of applications.
ANNUAL REPORT 2023 PAGE 19 & 20
SYNLAIT STRATEGY FY 24 – FY 28 (CONTINUED)
Greater China
Philippines
Vietnam
Indonesia
Thailand
Singapore
Malaysia
Australia
New Zealand
RIGHT TO WIN
COMPETITIVE ADVANTAGE MODELS
FARMER SUPPLIERS
1
COMPETITIVE, TRANSPARENT
FARMGATE MILK PRICE
CUSTOMERS
1
FOOD SAFETY, QUALITY,
TRACEABILITY AND SURETY OF SUPPLY
8
PURPOSE
AND CULTURE
7
MADE WITH
BETTER MILK
2
FAVOURABLE
ADVANCE RATE
AND NO SHARES
3
DIGITAL TOOLS
AND ON-FARM
SUPPORT
9
PURPOSE
AND CULTURE
4
INDUSTRY AND
COMMUNITY
ENGAGEMENT
8
B CORP™ AND
MADE WITH
BETTER MILK
2
NEW ZEALAND
PROVENANCE AND
MARKET ACCESS
3
4
BASIC
PRODUCT
PORTFOLIO
ADVANCED
PRODUCT
PORTFOLIO
6
LEAD WITH
PRIDE™
5
SPECIALTY
MILK PREMIUMS
7
DEEP CHANNEL
EXPERTISE
5
FLEXIBLE WORLD CLASS
MANUFACTURING FACILITIES
6
BEST IN CLASS
CUSTOMER ENGAGEMENT
Right to Win is how Synlait differentiates itself from its competitors. We must have an operating model with our farmer suppliers
and customers that sets us apart from our competitors.
GEOGRAPHIES
GROWTH MARKETS
KEY ENABLERS
OF EXECUTION
Geographies are countries and regions where Synlait
invests resources. These include New Zealand, Australia,
China and selected Southeast Asian markets.
On-Farm
Excellence
Best In Class
Customer
Engagement
Disciplined
Product
Innovation
High
Performance
Culture
Systems, Tools
and Processes
World Class
Manufacturing
and Supply Chain
Key Enablers are focus areas across Synlait to ensure we execute with excellence. Our six focus areas are:
On-Farm Excellence
Disciplined Product Innovation
Systems, Tools and Processes
•
•
Farmer Supplier Cashflow
and Payment System
Sustainability Enabled via
Lead With Pride™
• New Product Development (NPD)/
New Technology Development
(NTD) for Advanced Nutrition
• NPD/NTD for Advanced Ingredients
• Digital Tools and User Experience
• NPD/NTD for Foodservice/Liquids
•
•
Industry and Community
Engagement
Farmer Communications and
Engagement
Best In Class
Customer Engagement
• Deep Market Expertise
• Deep Customer Expertise
•
•
•
Tailored Value Propositions
and Solution Offerings
Joint Business Planning and
Customer Satisfaction Measurement
Sales, Pricing, and Customer
Service Capability
• Digital Solutions
• NPD for Ingredients
• Development of Subject Matter
Expertise
• Disciplined Innovation Processes
High Performance Culture
Synlait Safe (Health, Safety
and Wellbeing)
Leadership
Talent and Succession
Capability and Development
Reward and Recognition
Employee Value Proposition
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
SAP
Integrated Business Planning
Business Performance Information
Strategic Planning, Accountability
and Execution
Information Services Strategy
and Roadmap
World Class Manufacturing
and Supply Chain
Food Safety, Quality, Regulatory
and Laboratory
Integrated Work Systems
Procurement and Logistics
Asset Care Strategy
10 Year Asset Masterplan
ANNUAL REPORT 2023 PAGE 21 & 22
1
WE ACHIEVED SAMR
RE-REGISTRATION!
TO CELEBRATE10SUCCESSES
The last financial year was challenging for many, and Synlait
also felt the impact. Here are the ten successes we are proud of
and celebrated at Synlait Day, our staff conference held in June,
which helped us make significant progress in key strategic areas.
Our success
Synlait achieved re-registration of The a2 Milk Company’s
Chinese labelled 至初® Infant Formula (stages one, two
and three). Re-registration was a key priority for us this
year, and we were notified of the successful registration
by the State Administration for Market Regulation in
June 2023.
The impact
Re-registration allows Synlait to manufacture and export
this product for the China market until September 2027. It
is pivotal for the ongoing success of the manufacturing and
supply agreement that Synlait and The a2 Milk Company
have. Over the last three years, the project involved Synlait
and The a2 Milk Company team members.
2
SYNLAIT SAFE IS BECOMING
‘HOW WE DO THINGS AT SYNLAIT’
We’re regularly talking
and thinking about our
PB5s
Total Recordable Injury Frequency
Rate (TRIFR) has reduced to
10.6
Our success
Synlait launched its internal health and safety initiative
called ‘Synlait Safe’ in November. Designed to inspire staff
to make a meaningful commitment to safety, it focused
on the reason staff want to be safe at work, to get home
safely. Activations, competitions, communications, training,
motivational speakers and mailouts prompt conversations
about the importance of safety.
The impact
Our goal is to Work Safe | Home Safely. By integrating
critical elements of our cognitive behavioural safety
programme (Synlait Safe mindsets), we have achieved a
clear shift in mindset and culture across our workforce.
Since launching Synlait Safe, we have seen our TRIFR
reduce by >30%. It is sitting at 10.6 (FY 22: 14.9). We will
continue working to reach our goal of having no injuries.
* PB5: Synlait Safe creates a clear and collective view of our health and safety performance, setting a standard to ensure we all go home to our Personal Big 5 (what and who we
are staying safe for), which we call our PB5.
ANNUAL REPORT 2023 PAGE 23 & 24
3
SYNLAIT FARMER LEADERSHIP
TEAM ESTABLISHED
5
OUR NEW ENTERPRISE RESOURCE
PLANNING SYSTEM WENT LIVE!
8
Committed Farmer
Suppliers in team
Our success
Synlait established a Farmer Leadership Team of eight
farmer suppliers. These eight farmers are a conduit
between Synlait and our farmer supplier base. The team
provides feedback and direction on Synlait’s strategic
choices and prioritisation of tactics.
The impact
Synlait has regularly connected with the group, and
we have hosted them at each site throughout the year.
Constructive challenge and healthy tension will always be
welcome around this table. By leveraging this team, Synlait
and our farmer supplier base will collectively become
stronger.
Our success
We officially switched on our new Enterprise Resource
Planning system on 1 August 2023. Implementing this
software impacted every aspect of our systems and
processes for the better.
The impact
We have over 250 people using the new ERP system
daily, and we are beginning to see the benefits of what a
modern, organisation-wide system like this can bring to
Synlait. Introducing the new ERP system was challenging
but well-supported by our entire team. We have learned
plenty about our internal processes and how to use the
platform through data-driven decision-making.
4
JOYHANA UHT WHIPPING CREAM LAUNCHED
AND WON AN INNOVATION AWARD
6
ENGAGEMENT LIFTED
Our engagement
score is currently
4.05
Employee engagement
ratio increased to
5.7:1
Our success
We were thrilled to see our Joyhana UHT Whipping
Cream win the ‘New Product Innovation Award’ at May’s
prestigious China International Bakery Exhibition. The
recognition comes just months after Joyhana was launched
alongside our local partner, Sinodis, in China.
The impact
Joyhana has been extremely well received at local launch
events held across China. We continue to see strong and
increasing demand for the product due to its superior
functional performance and unique properties.
Our success
We measure the level of employee engagement regularly
across all team members. This is part of our activity to
ensure Synlait continues to be a great place to work.
We have seen a strong lift in our overall employee
engagement ratio, which has increased throughout
the year to 5.7:1 (5.7 engaged people for each actively
disengaged employee) (FY 22: 5.67:1).
The impact
Across the year, our engagement score has held
consistently between 4.03 to 4.05 (FY 22: 4.05).
The engagement and enthusiasm of Synlait’s people are
key to our future success.
ANNUAL REPORT 2023 PAGE 25 & 26
7
PALMERSTON NORTH
CELEBRATED FIVE YEARS
9
MAY WAS AN AMAYZING
RECORD MONTH!
19,143
Metric tonnes of
ingredients invoiced
21,194
Metric tonnes of
product shipped
188
Trucks loaded
with 1,186 TEU
Our success
Synlait has a talented group of 20 research-focused team
members, with 17 working at our Palmerston North office.
The Palmerston North team work on a shared site at
Massey University, selected so we could collaborate on
cutting-edge liquids research. We celebrated five years at
the site in March.
The impact
The celebration allowed us to acknowledge the growth
we have seen, the excellent work produced by this
innovative team, and the incredible contribution they
make to Synlait. The team’s innovations have included
commissioning a UHT pilot plant, commercialising
Joyhana and several consumer beverages, and filing an
Advanced Nutrition patent.
Our success
While the year began with some challenges, the
production and release of product generated strong
momentum in the second half of our financial year
when we achieved a record month in May 2023. During
the month, we had 188 loaded trucks leave our Synlait
Dunsandel site and shipped over 21,000 MT of product.
The impact
The previous record was 16,000 MT. Our ability to hit this
new record was due to the incredible effort of every team
member involved in the process.
8
OUR JOURNEY TO NET POSITIVE
FOR THE PLANET IS PROGRESSING
Boiler 2 transitioned to biomass (wood
pellets) as a fuel source, reducing Synlait
Dunsandel site emissions by approximately
40%
60,000
Trees planted this
calendar year
10
WE CELEBRATED 10 YEARS LISTED ON NZX
Our success
Since Synlait announced its sustainability strategy in 2018,
we have continued to work towards our goal for our net
business impact to be positive for the planet with our
restorative and regenerative agriculture, manufacturing,
and supply chain processes.
The impact
We transitioned Boiler Two at Synlait Dunsandel to use
biomass (wood pellets) as a fuel, enabling a significant
emissions reduction step over time. We have also
progressed with our commitment to planting native trees
through Whakapuāwai, with 60,000 trees to be planted in
the 2023 calendar year.
Our success
We were pleased to celebrate 10 years of being listed
on the New Zealand Stock Exchange (NZX) in June.
Having Synlait listed as a public company in 2013 was
a key milestone for the company as we were becoming
established as a disruptive industry leader, and it was
important to acknowledge this milestone.
The impact
Being listed on the NZX has significantly lifted our profile
and provided the opportunity for market credibility and
access to raise capital funds to support the company as we
have expanded over the last decade.
ANNUAL REPORT 2023 PAGE 27 & 28
Sam Mallard, Align Farms, Farm Manager.
FARMER SUPPLIER CONFERENCES
AND DAIRY HONOURS AWARDS
We bring our farmer suppliers together at an annual winter event designed to
update them about what is happening at Synlait and celebrate their successes
at the Dairy Honours Awards. Congratulations to our 2023 award winners!
DOING MILK
DIFFERENTLY AWARD
KOTAHITANGA
AWARD
BP Dolan Farms Ltd
Jersey Oaks Ltd
FOR A HEALTHIER
WORLD AWARD
QUALITY BY
DESIGN AWARD
Dewhirst Land Company
Align Farms Ltd (Sam Mallard pictured)
SUPREME LEAD
WITH PRIDE™ AWARD
GREENHOUSE
GAS AWARD
North Island: Torrens Land Ltd
South Island: K & T Pastoral for
Mt Hutt Dairies Ltd
North Island: S and J Brighouse Ltd
South Island: Mount Rivers Ltd for
Mount Rivers Holdings
BEST MILK
QUALITY AWARD
LOWEST SOMATIC
CELL COUNT AWARD
North Island: Green Grass (2003) Ltd
South Island: Lieuwes Abbott Ltd
North Island: Maharee Farms Ltd
South Island: Lieuwes Abbott Ltd
BEST MILK
QUALITY AWARD
WEIGHTED BY FARM SIZE
SYNLAIT SAFE
AWARD
South Island: Ngāi Tahu Farming Ltd –
Waimakariri
North Island: Landcorp Pamu
South Island: Partners in Cream Ltd
for Ngāi Tahu Farming Ltd – Timutimu
DairyHonours
ANNUAL REPORT 2023 PAGE 29 & 30
OUR BOARD
OUR EXECUTIVE LEADERSHIP TEAM
Simon Robertson
Independent Chair
Dr. John Penno
Board Appointed Director
Liu Ruibing (Ryan)
Bright Dairy Appointed Director
Paul McGilvary
Independent Director
Grant Watson
Chief Executive Officer
Rob Stowell
Chief Financial Officer
Paul Mallard
Chief Operating Officer
Naiche Nogueira
Director of Advanced Nutrition
Paul Washer
Independent Director
Hon Ruth Richardson
Bright Dairy Appointed Director
Sihang Yang (Edward)
Bright Dairy Appointed Director
Zhu Yi (Julia)
Bright Dairy Appointed Director
Abby Ye
President China and
Director of Foodservice
Adam Maxwell
Director of Ingredients
Tim Carter
CEO Dairyworks and
Director of Consumer
Charles Fergusson
Director of On-Farm Excellence
and Business Sustainability
Glenn Laing¹
Director of Manufacturing
Dr. Suzan Horst
Director of Quality,
Cathy Gamlen²
Director of People and Culture
Regulatory and Laboratory
1 Glenn was appointed Acting Director of Manufacturing in March 2023 and permanently appointed to the role in August 2023.
2 Cathy was appointed Director of People and Culture in April 2023 and joined the Synlait team in August 2023.
ANNUAL REPORT 2023 PAGE 31 & 32
Sam Mallard, Align Farms Farm Manager,
Heather Donaldson, DairyNZ and Ang Wafer,
Synlait Area Manager.
ANNUAL REPORT 2023 PAGE 33 & 34
CFO REVIEW
Rob Stowell
Kia ora shareholders
Below is a detailed summary of Synlait’s
financial result for the 12 months
ended 31 July 2023. In this CFO review
Synlait’s performance is detailed under
our four business units which are:
ADVANCED
NUTRITION
Consumer-packed nutritional
products, infant formula base powder,
and lactoferrin.
INGREDIENTS
Whole milk powder, skim milk powder,
anhydrous milk fat, and butter milk
powder.
CONSUMER
Fresh milk, cream, ready to drink
beverages, and Dairyworks (cheese
and butter).
FOODSERVICE
UHT cream.
FINANCIAL PERFORMANCE
Sales and gross profit performance
Total revenues, including Dairyworks, of $1,603.6 million were down $57.0 million or 3% driven by lower ingredient
commodity prices and reduced sales volumes. Total sales volumes of 198,583 MT were 12% lower than FY 22 due
to higher Advanced Nutrition base powder manufacture which displaced Ingredients production, as well as FY 22
enjoying the benefit of high carryover inventory from FY 21 due to the COVID-19 pandemic. Unforeseen reductions and
deferrals of consumer-packaged Advanced Nutrition demand resulted in sales volumes ending well below expectations.
Production output was also impacted by operational stability issues and adverse weather conditions.
Gross profit by business unit1
FY 23
FY 22
% Change
Sales Volume (MT)
Gross Profit ($ millions)
Gross Profit/MT
Sales Volume (MT)
Gross Profit ($ millions)
Gross Profit/MT
Sales Volume (MT)
Gross Profit ($ millions)
Gross Profit/MT
Ingredients
Advanced
Nutrition
Consumer
Foodservice
Total
108,856
54.6
501
132,481
57.5
434
(18%)
(5%)
16%
31,971
57.0
1,782
33,506
73.8
2,203
(5%)
(23%)
(19%)
56,999
29.0
508
59,786
21.3
357
(5%)
36%
42%
757
(0.2)
(313)
-
-
-
-
-
-
198,583
140.4
707
225,773
152.6
676
(12%)
(8%)
5%
1 Gross profit not attributable to business units is not included.
Advanced Nutrition
Advanced Nutrition volumes fell 5% to 31,971 MT driven by reductions and deferrals of demand. Advanced Nutrition
gross profit per MT decreased significantly to $1,782/MT due to rapid increases in raw materials and manufacturing
costs in the period. Significantly higher than normal inventory write-downs and provisions also impacted margin,
triggering an increased focus on ensuring operational stability. Net production increased 26% to 39,159 MT, driven by
higher base powder manufacture, as we managed volatility in demand in Q4 and positioned ourselves to maximise
processing of raw milk heading into the FY 24 peak milk season.
Our lactoferrin business continues to perform well. Lactoferrin sales decreased 19% to 30 MT, driven by increased
internal consumption to meet customer requirements. Production was in line with expectations.
ANNUAL REPORT 2023 PAGE 35 & 36
FINANCIAL PERFORMANCE (CONTINUED)
Ingredients
Despite not having the same level of FX benefit as in FY 22, margin performance was excellent with the team executing
well on aligning production and sales mix to the SMP/AMF lead bucket. This resulted in margin on a per MT basis
improving 16% to $501/MT.
Ingredients sales were 18% lower at 108,856 MT as higher production of Advanced Nutritional base powders reduced
our ability to process raw milk through our dryers. Sales were also impacted by FY 23 having significantly less carry-over
inventory compared to FY 22 which saw the deferral of sales from FY 21 into FY 22 because of the COVID-19 pandemic.
The impact of lower sales volumes largely offset the benefits of aligning to the lead bucket. This resulted in total gross
margin decreasing by $2.9 million.
After record-high ingredient inventory levels at H1 23 due to ERP implementation challenges, closing inventory finished
down 35% year-on-year, thanks to the excellent efforts of our warehouse and logistics teams.
Consumer Foods
Sales volumes decreased 2,787 MT to 56,999 MT as Dairyworks sold less butter due to a tight butter market. Gross
profit on a per MT basis increased 42% to $508/MT because of the Temuka cheese plant being idled for the full year,
efficiencies gained from the first full year of Dairyworks’ cool store operations, and the impact of pricing lag and lower
overhead costs.
In June we announced our intention to divest Dairyworks and its Temuka assets. While Dairyworks has performed well,
we do not believe it aligns to our strategy and we would need to invest significant capital to take Dairyworks to the next
level. We believe that focus should instead be placed on our Advanced Nutrition and Foodservice (UHT cream) business
units where we have a clear right to win.
Foodservice (UHT cream)
During the year we successfully commercialised our JOYHANA branded UHT cream, which is the product of a
partnership with the international dairy company, SAVENCIA Group. Margin attainment was approximately ($0.2 million)
on sales of 757 MT. We expect this to improve significantly moving into FY 24 and beyond as we ramp up volumes.
Market feedback has been positive, and we are excited about the potential that this new segment holds for us moving
forward.
Milk price and milk supply
Raw milk remains our most significant component of cost of goods sold.
Our final base milk price for the 2022/23 season is $8.22 per kgMS, compared to the 2021/22 base milk price of $9.30
per kgMS. We paid an additional $0.27 per kgMS in incentive and premium payments through a2, Lead With Pride™ and
winter milk payments, increasing the average total milk price to $8.49 per kgMS, compared with $9.59 per kgMS in
2021/22. Our contracted suppliers received a total of $22.9 million in additional value-added premiums in the 2022/23
season, compared to $23.8 million in 2021/22.
We received 83.9 million kgMS from our contracted suppliers, 0.9 million kgMS more than FY 22. Six additional
contracted suppliers contributed to the year-on-year upside; however, this was partially offset by a second consecutive
season of unfavourable weather conditions impacting yields. We sold (net) 7.9 million kgMS over the season, resulting
in an overall 4%, or 2.9 million kgMS, decrease in milk processed in FY 23. Additional contractual milk sales in the North
Island, unexpected plant outages and rephasing of infant base powder production related to the SAMR re-registration led
to increased milk sales in FY 23.
Average reference commodity prices started the 2022/23 season well above historic levels, but they fell steadily across
the season due to weakening Chinese demand and recovering global supplies. The reference basket price fell to
USD$3,640, a 13% decrease vs the 2021/22 season. This decrease is the key contributor to the $1.08 per kgMS decrease
in the average base milk price paid to our suppliers in 2022/23.
Operating expenditure
Selling, general, and administrative (SG&A) expenses including Dairyworks increased $37.0 million to $129.3 million.
Outside of ERP related costs, the most significant drivers were employee costs ($9.8 million), consultancy and legal costs
($4.2 million), distribution costs ($1.9 million), and travel costs ($1.6 million).
Employee and contractor costs increased as we saw significant wage inflation and increased headcount in anticipation of
higher Advanced Nutrition demand, which did not all materialise due to reductions and deferrals of demand. Employee
and contractor costs were also impacted by reduced capitalisation of labour costs as we wrapped up significant projects,
saw the renewal of our executive team, and invested significantly in health and safety. Consultancy and legal costs
increased as we revisited our capital structure, amended our banking facilities, engaged in a significant contract dispute,
and commenced the process of divesting of Dairyworks. Travel costs increased as borders reopened, our business
development teams recommenced travel to key markets, and we approached commissioning of our recent Pokeno
processing upgrade project.
During the year we incurred $17.4 million of costs in connection with our ERP implementation. $6.8 million of this was
incurred during the stabilisation period of the implementation, with an additional $10.6 million of recurring annual costs
(including $6.1 million of depreciation). Costs at Dairyworks were also up $1.7 million driven by the across-the-board
impacts of inflation.
Cost reductions are one of our key priorities as we head into FY 24.
ANNUAL REPORT 2023 Foreign exchange
Management of foreign exchange exposure is one of Synlait’s key risks with many product sales being to overseas
markets, creating a primarily USD exposure risk. Our foreign exchange policy seeks to achieve the lowest annual average
New Zealand Dollar (NZD)/USD exchange rate for the year. In FY 23 we achieved a net annual average NZD/USD export
exchange rate of 0.6446 (FY 22: 0.6732).
Earnings per share and return on capital employed
Our reported basic and diluted earnings per share (EPS) including Dairyworks were both (1.96) cents, against basic EPS of
17.62 cents and diluted EPS of 17.58 cents in FY 22. The dilutive shares are basic EPS adjusted for contingently issuable
shares in accordance with the Employee Share Scheme. Synlait also generated a pre-tax return on average capital
employed of 2.7% in FY 23 compared with 5.6% in FY 22.
PAGE 37 & 38
FINANCIAL PERFORMANCE (CONTINUED)
EBITDA
Earnings before interest, tax, depreciation, and amortisation (EBITDA) including Dairyworks decreased $40.9 million to
$90.7 million.
$ million (including Dairyworks)
Profit before tax
Add back: net financing costs
EBIT
Add back: depreciation and impairment
EBITDA
FY 23
FY 22¹
(7.3)
38.3
31.0
59.7
90.7
44.1
21.0
65.1
66.5
131.6
1 FY 22 EBITDA has been restated for a reclassification of research and development tax incentive income from tax to
other income
Net financing costs
Net financing costs including Dairyworks increased $17.3 million or 82.4% to $38.3 million. The increase is primarily due
to a significant increase in wholesale interest rates and higher working capital requirements because of implementation
issues with our new ERP system.
Capitalised interest is $1.0 million higher than the prior year with higher interest rates and completion of work on the
Pokeno processing upgrade project. The loss on derecognition of financial assets, the financing cost associated with our
receivables financing programme, also increased due to an increase in wholesale interest rates. Further, interest on lease
liabilities including Dairyworks increased $0.9 million due to entering a new warehouse lease in Auckland to service
increased out-turn Advanced Nutrition demand.
$ million
Gross term debt interest*
Less capitalised interest
Net term funding interest
Working capital and revolving credit interest
Interest received
Loss on derecognition of financial assets
Net short-term funding interest
Interest on lease liabilities
Synlait finance expense
Dairyworks finance costs
Net finance costs
FY 23
(19.1)
6.6
(12.5)
(15.4)
0.3
(5.8)
(20.9)
(1.4)
(34.8)
(3.5)
(38.3)
FY 22
Change
(16.6)
5.6
(11.0)
(4.2)
0.2
(2.3)
(6.3)
(0.7)
(18.0)
(3.0)
(21.0)
(2.5)
1.0
(1.5)
(11.2)
0.1
(3.5)
(14.6)
(0.7)
(16.8)
(0.5)
(17.3)
* Gross term debt interest includes revolving credit facilities, which are categorised as current debt in the financial
statements.
ANNUAL REPORT 2023 PAGE 39 & 40
FINANCIAL POSITION
Overview
Net debt increased $71.6 million, largely driven by increased finance costs and an increase in Advanced Nutritional
base powders to enable us to maximise raw milk processing through peak milk in FY 24.
Our reported net profit after tax loss of ($4.3 million) has decreased total retained earnings to $327.8 million from
$332.1 million. Total shareholders’ equity increased to $790.3 million because of the net movement in hedging reserves
exceeding profit after tax by $42.1 million.
We also successfully refinanced our banking facilities in September and welcomed four new banks into the banking
syndicate. This refinance will give us access to a broader range of services, more capacity, and significant savings. We
appreciate the continued support of our banking syndicate.
Trade and other receivables
At $92.8 million, trade and other receivables including Dairyworks increased by $3.7 million. The balance of receivables
assigned including Dairyworks as at 31 July 2023 was $160.4 million, a decrease of $15.2 million. During the year, two
new Nestle subsidiaries were added to the receivable’s assignment programme.
Inventories
Total inventory holdings including Dairyworks increased 30% to $302.5 million (FY 22: $232.9 million). This was driven
by a $62.4 million (7,503 MT) increase in Advanced Nutrition base powders which will enable us to maximise processing
of raw milk during the peak milk months in FY 24. Raw materials balances (including Dairyworks) decreased slightly
in tonnage by 3% to 17,240 MT, however, total value increased $20.2 million to $116.0 million reflecting higher landed
costs and a change in composition to accommodate production of Advanced Nutrition products. Dairyworks contributed
$11.5 million (1,831 MT) to the overall increase in inventories because of a change in phasing for maturation cheese
replenishment.
Synlait Milk Limited
Dairyworks Limited
Total
FY 23
$ million
250.3
52.2
302.5
MT
36,026*
6,705*
42,731
FY 22
$ million
192.3
40.7
233.0
MT
32,762*
4,576*
37,338
* Inventory not measured in metric tonnes is excluded as not material to our volumes.
We also incurred significant cost of $19.8 million in relation to inventory write-downs and provisions for manufacturing
and quality issues – a disappointing $16.2 million increase over the prior year. We consider this level of write-downs to be
unacceptable and are working diligently to ensure that this does not repeat in FY 24.
Property, plant and equipment
Property, plant, and equipment including Dairyworks at $1,018.6 million, is up $2.7 million. The increase is a
consequence of total capital expenditure of $49.4 million, depreciation of $46.1 million, and net disposals of $0.6
million. The capital expenditure of $49.4 million primarily relates to routine operational capex and the Synlait Pokeno
processing modifications project which was mostly commissioned in July 2023.
Trade and other payables
Trade and other payables including Dairyworks at $323.6 million are up $0.5 million.
Operating cash flows and total net debt
Operating cash flows including Dairyworks were at $39.0 million, down $193.9 million on prior year. The decrease in
cash flow is attributed to the decrease in profitability year-on-year and an increase in inventory. FY 22 operating cash
flows were also significantly higher due to the impact of carry-over inventory from COVID-19 related delays in FY 21.
Total net debt (excluding lease liabilities) at year end, including current and term debt facilities less cash on hand, was
$413.5 million, an increase of $71.6 million.
ANNUAL REPORT 2023 PAGE 41 & 42
FINANCIAL POSITION (CONTINUED)
$ million
Current debt
Term debt (carrying amount)
Transaction costs
Cash on hand (including cash held by Dairyworks)
Total net debt (excluding lease liabilities)
FY 23
243.7
179.0
1.1
(10.3)
413.5
FY 22
58.9
295.6
1.9
(14.5)
341.9
Cash outflow from investing activities totalled $61.9 million, a decrease of $3.7 million. A significant proportion of the
spend related to Synlait Pokeno and implementation of our new ERP system. Further, interest paid, and repayment of
lease liabilities totalled $48.7 million, up $18.6 million on prior year.
Funding facilities and covenants
After reporting date, the Group refinanced its syndicated banking facilities. The new funding arrangements are
summarised as follows:
1. Revolving credit facilities of $230 million. These facilities also step down over time with maturity dates between
31 July 2024 and 1 October 2025.
2. Working capital facility of $240 million, maturing 1 October 2024, together with a $10 million on-demand bilateral
facility. This facility is a seasonal facility where the facility limit changes at several times during the term of the facility.
Synlait is required to make a mandatory prepayment of at least $130 million by no later than 31 March 2024.
This is reflected in the above facility limits.
With net debt of $413.5 million, our gearing (net debt/net debt + equity) is 34.3% (FY 22: 30.0%) and our leverage
(net debt/EBITDA) is 4.6x (FY 22: 2.6x).
The lenders of Synlait’s new banking syndicate are ANZ Bank, Bank of China, China Construction Bank, HSBC,
and Rabobank.
Derivatives
At 31 July 2023 Synlait Milk held USD $634.7 million (net), in foreign exchange contracts as detailed in note 19 of the
Financial Statements. These have been placed across a 24-month future period, in accordance with our Treasury Policy.
Additionally, Dairyworks held USD $3.3 million in import foreign exchange and AUD $5.1 million in export contracts.
Given the depreciation in the NZD/USD exchange rate across the last 24 months, we have mark to market unrealised
losses associated with these contracts at year-end of $3.4 million after tax, a movement of $46.1 million after tax. As our
foreign exchange contracts 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.
We also have in place a nominal balance of $30.0 million of interest rate swap agreements at year-end (FY 22: $40.0
million) at various weighted average interest rates. The agreements have unrealised mark to market gains of $0.5 million
after tax, a positive movement of $0.7 million after tax on FY 22. The movement is a result of the increase in wholesale
interest rates.
We continue to use dairy commodity derivatives to support the management of the risk of movement in dairy commodity
prices. However, we had no dairy commodity derivatives on hand at balance date (FY 22: NZD $12.9 million).
Most unrealised gains and losses on derivatives detailed above are deferred to the cash flow hedge reserve. Year-on-
year there was a $46.4 million movement in the reserve, with a closing balance of ($49.3 million) in FY 22 to ($2.9 million)
in FY 23.
Synlait has five key bank covenants in place within our new syndicated bank facility agreement. For FY 24, these are:
1.
Total shareholder funds of no less than NZD $600.0 million at all times.
2. Working capital ratio of no less than 1.5x at all times.
3.
Interest coverage ratio of no less than 2.25x.
4. Leverage ratio of no greater than 3.5x.
5. Senior leverage ratio no greater than 2.25x.
Kind regards
Robert Stowell
CFO
ANNUAL REPORT 2023 PAGE 43 & 44
FINANCIAL AND PERFORMANCE METRICS
MILK PRICE
Key Financial Metrics (includes results of Dairyworks which has been classified as a discontinued operation)1
Currency as stated (in millions)
FY 19
FY 21
FY 20
FY 22
FY 23
This table shows how Synlait takes the milk supplied by our contracted farmer suppliers, values milk components,
and makes a pay-out via the average base milk price.
Income statement
Revenue
Gross profit
EBITDA2 6
EBIT2 6
NPAT
Revenue (USD per MT)
Gross profit per MT (NZD)
EBIT per MT sold (NZD)6
Net cash from/(used in) operating activities
Balance sheet
Capital employed
Net operating assets3
Return on net operating assets6
Net return on capital employed (pre-tax)6
Debt/debt + equity (excl. derivatives)
Net debt/EBITDA5 6
Earnings per share
Average FX conversion rate (NZD:USD)
Base milk price
Total milk price (kgMs)4
Key operational metrics
Sales (MT)6
Ingredients
Nutritionals
Consumer
Foodservice
Total sales (MT)
Production (net production) (MT)6
Ingredients
Nutritionals
Consumer foods
Foodservice
Total production (MT)
Milk purchases ('000 kg MS)
Milk purchased from contracted supply
Milk purchased from other suppliers
Total milk purchases ('000 kg MS)
1,024.3
186.3
150.8
123.1
81.2
4,384
1,174
776
136.7
824.4
632.4
21.9%
18.0%
39.3%
2.2
45.33
0.6792
6.40
6.58
98,499
51,231
8,947
-
158,677
96,158
50,165
9,466
-
155,789
64,189
1,877
66,066
1,302.0
203.7
169.6
122.0
74.3
4,435
1,043
625
103.8
1,128.2
1,040.5
14.6%
12.5%
47.2%
3.1
41.45
0.6651
7.05
7.30
97,561
52,871
44,818
-
195,250
94,188
63,857
44,744
-
202,788
76,551
(6,079)
70,472
1,367.3
67.3
37.3
(17.7)
(28.5)
4,162
308
(81)
15.9
1,244.0
1,152.3
(1.6%)
(1.5%)
38.7%
12.9
(13.77)
0.6659
7.55
7.82
125,914
34,362
58,483
-
218,759
138,971
20,990
55,088
-
215,049
86,814
(4,077)
82,737
1,660.6
146.8
131.5
65.1
38.5
4,951
650
288
232.9
1,090.3
995.2
6.1%
5.6%
30.0%
2.6
17.62
0.6732
9.30
9.59
132,481
33,506
59,786
-
225,773
122,330
31,016
52,894
-
206,240
82,978
(4,044)
78,934
1,603.6
144.0
90.7
31.0
(4.3)
5,205
725
156
39.0
1,203.9
1,205.3
2.8%
2.7%
34.3%
4.6
(1.96)
0.6446
8.22
8.49
108,856
31,971
56,999
757
198,583
108,010
39,159
53,753
1,514
202,436
83,929
(7,922)
76,007
¹ The group uses several non-GAAP measures when discussing financial performance. Management believes these measures provide useful insight 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, amortisation, and non-cash impairment accordingly. A reconciliation of EBIT and
EBITDA is provided in the CFO Review on page 37.
³ Net operating assets includes current assets, property, plant, and equipment, right-of-use assets, and intangible assets. It deducts trade payables and excludes capital work in progress,
derivative balances, loans and borrowings, goodwill, and tax balances.
⁴ 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.
⁵ Net debt calculation excludes lease liabilities.
⁶ Prior period amounts have been restated to conform to current year presentation
The 2022/23 milk price has not fully been paid out at the time of annual report release, figures represent what
has been paid and is accrued to be paid.
It also highlights the incentive payments made to our farmer suppliers in addition to the average base milk price.
This information represents payments made in the milk season which runs 1 June to 31 May as opposed to
Synlait’s financial year.
For the recently completed 2022/2023 milk season we paid out an average base milk price of $8.22 per kgMS
with an average additional incentive payment of $0.27 per kgMS.
kgMS collected
Average fat %1
Average protein %
Average lactose %
Volume of components collected (kg)
Fat
Protein
Lactose
Component value ($/kg)1
Fat
Protein
Lactose
Component value ratio
Fat
Protein
Lactose
Total paid per component ($’000)
Fat
Protein
Lactose
Volume charge
Average base milk price ($/kgMS)²
Total incentive payment ($’000)
Average incentive payment ($/kgMS)³
Total average Synlait payment ($/kgMS)⁴
2018/19
2019/20
2020/21
2021/22
2022/23
63,438,694
4.91
3.92
4.99
76,550,913
4.90
3.98
4.99
86,812,624
4.90
3.97
4.98
82,865,662
4.93
3.98
4.97
83,996,987
4.98
4.00
4.95
35,270,506
28,168,188
35,894,766
42,252,084
34,298,829
42,977,611
47,954,515
38,858,109
48,760,985
45,849,217
37,016,444
46,179,993
46,548,849
37,448,139
46,348,501
$7.36
$4.18
$1.53
1
0.567
0.208
$259,645
$117,658
$54,988
($26,283)
$6.40
$11,531
$0.18
$6.58
$8.44
$4.20
$1.67
1
0.497
0.198
$356,689
$143,911
$71,819
($32,747)
$7.05
$19,250
$0.25
$7.30
$8.73
$5.02
$1.68
1
0.575
0.193
$418,541
$194,875
$82,137
($40,118)
$7.55
$23,518
$0.27
$7.82
$9.43
$7.31
$2.32
1
0.775
0.246
$432,333
$270,615
$107,204
($39,501)
$9.30
$23,802
$0.29
$9.59
$7.27
$8.30
$1.87
1
1.142
0.257
$338,487
$310,926
$86,698
($45,656)
$8.22
$22,929
$0.27
$8.49
1 Rounded to two decimal places.
2 Amount paid for components + volume charge/kgMS collected = base milk price.
3
Includes incentives and winter milk premiums.
4 Base milk price + average incentive payment.
ANNUAL REPORT 2023 PAGE 45 & 46
FINANCIAL STATEMENTS
CONTENTS
47
Director’s Responsibility
Statement
48
Income Statement
49
Statement of
Comprehensive Income
50
51
Statement of
Changes In Equity
Statement of
Financial Position
52
Statement of
Cash Flows
53
Notes to the
Financial Statements
124
129
Auditor’s Report
Statutory Information
58
67
75
Performance
Working Capital
Long Term Assets
59
61
62
65
66
01 Discontinued Operation
02 Revenue Recognition
03 Segment Reporting
04 Expenses
05 Reconciliation of (Loss)/
Profit After Income Tax
to Net Cash Inflow From
Operating Activities
68
72
74
06 Trade and Other
Receivables
Inventories
07
08 Trade and Other
Payables
76
09 Property, Plant and
Equipment
10 Biological Assets
11
Intangible Assets
12 Leases
79
80
85
88
99
113
Debt and Equity
Financial Risk Management
Other
89
13 Finance Income and
100 19 Financial Risk
Management
108 20 Financial Instruments
Expenses
90
93
94
96
98
14 Loans and Borrowings
15 Other Non-current
Liabilities
16 Share Capital
17 Share Based Payments
18 Reserves and Retained
Earnings
Income Tax
114 21
118 22 Other Investments
120 23 Related Party Transactions
122 24 Contingencies
122 25 Commitments
123 26 Events Occurring After the
Reporting Period
123 27 Other Accounting Policies
ANNUAL REPORT 2023
PAGE 47 & 48
DIRECTORS’ RESPONSIBILITY STATEMENT
INCOME STATEMENT
For the year ended 31 July 2023
The Directors are pleased to present the 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, Synlait Business
Consulting (Shanghai) Co., Ltd, Dairyworks Limited, Synlait Milk (Holdings) No.1 Limited, and Synlait Milk (Dunsandel
Farms) Limited (together “the Group”) as set out on pages 48-123, for the year ended 31 July 2023.
The Directors are responsible for ensuring that the financial statements present fairly the financial position of the Group
as at 31 July 2023 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.
Simon Robertson
Chair
25 September 2023
Paul Washer
Independent Director
25 September 2023
Revenue
Cost of sales
Gross profit
Other income
Sales and distribution expenses
Administrative and operating expenses
ERP implementation costs
Earnings before net finance costs and income tax
Finance expenses
Finance income
Loss on derecognition of financial assets
Net finance costs
(Loss)/profit before income tax for the year from continuing operations
Income tax benefit/(expense)
(Loss)/profit after tax for the year from continuing operations
Profit/(loss) after tax from discontinued operations
Net (loss)/profit for the year
Earnings per share
Basic earnings per share (cents)
Diluted earnings per share (cents)
Attributable to continuing operations:
Basic earnings per share (cents)
Diluted earnings per share (cents)
Attributable to discontinuing operations:
Basic earnings per share (cents)
Diluted earnings per share (cents)
Notes
2
4
2
4
4
4
13
13
13,6
21
1
16
16
16
16
16
16
2023
$’000
1,320,758
(1,202,850)
117,908
13,294
(41,548)
(68,306)
(6,794)
14,554
(29,331)
281
(5,771)
(34,821)
(20,267)
6,123
(14,144)
9,852
(4,292)
(1.96)
(1.96)
(6.47)
(6.47)
4.51
4.51
2022
$’000
(Restated)
1,397,012
(1,272,783)
124,229
22,220
(33,867)
(44,099)
(3,295)
65,188
(15,853)
159
(2,264)
(17,958)
47,230
(6,857)
40,373
(1,850)
38,523
17.62
17.58
18.47
18.43
(0.85)
(0.84)
Comparatives have been restated due to the reclassification of the Research and Development Tax Incentive. Refer to
notes 2 and 21 for further information.
ANNUAL REPORT 2023The accompanying notes form part of and are to be read in conjunction with these financial statements. PAGE 49 & 50
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 July 2023
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 July 2023
(Loss)/profit for the period
Items that may be reclassified subsequently to profit and loss
Effective portion of changes in fair value of derivatives designated in cash flow hedges
Exchange differences on translation of foreign operations
Income tax (expense)/benefit 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
Total comprehensive income for the year is attributable to:
Continuing operations
Discontinued operations
Total
Notes
19
21
2023
$’000
2022
$’000
(4,292)
38,523
64,405
(19)
(18,033)
46,353
46,353
42,061
32,133
9,928
42,061
(79,701)
24
22,316
(57,361)
(57,361)
(18,838)
(16,937)
(1,901)
(18,838)
Group
Equity as at 1 August 2021
Profit/(loss) for the year
Share
capital
Employee
benefits
reserve
Hedging
reserves
Notes
$’000
$’000
$’000
464,774
-
698
-
8,089
-
Other comprehensive income
Effective portion of changes in fair value of cash flow hedges 19
Exchange differences on translation of foreign operations
Income tax on other comprehensive income
19,21
Total other comprehensive income
Employee benefits reserve
16,17
Total contributions by and distributions to owners
Equity as at 31 July 2022
Equity as at 1 August 2022
(Loss)/profit for the year
Other comprehensive income
Effective portion of changes in fair value of cash flow hedges 19
Exchange differences on translation of foreign operations
Income tax on other comprehensive income
19,21
Total other comprehensive income
Employee benefits reserve
16,17
Total contributions by and distributions to owners
-
-
-
-
-
-
464,774
464,774
-
-
-
-
-
-
-
-
-
-
-
(79,701)
-
22,316
(57,385)
120
120
-
-
818 (49,296)
818 (49,296)
-
-
-
-
-
-
64,405
-
(18,033)
46,372
(83)
(83)
-
-
Foreign
currency
translation
reserve
$’000
Retained
earnings
Total
equity
$’000
$’000
(2) 293,555 767,114
38,523
38,523
-
-
24
-
24
-
-
-
-
-
-
-
-
(79,701)
24
22,316
(57,361)
120
120
22 332,078 748,396
22 332,078 748,396
(4,292)
(4,292)
-
-
(19)
-
(19)
-
-
-
-
-
-
-
-
64,405
(19)
(18,033)
46,353
(83)
(83)
Equity as at 31 July 2023
464,774
735
(2,924)
3 327,786 790,374
ANNUAL REPORT 2023The 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. PAGE 51 & 52
STATEMENT OF FINANCIAL POSITION
As at 31 July 2023
STATEMENT OF CASH FLOWS
For the year ended 31 July 2023
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Intangible assets
Goods and services tax refundable
Prepayments
Inventories
Derivative financial instruments
Current tax asset
Assets held for sale
Total current assets
Non-current assets
Property, plant and equipment
Biological assets
Intangible assets
Goodwill
Other investments
Derivative financial instruments
Right-of-use assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Loans and borrowings
Derivative financial instruments
Lease liabilities
Liabilities directly associated with assets classified as held for sale
Total current liabilities
Non-current liabilities
Loans and borrowings
Deferred tax liabilities
Derivative financial instruments
Lease liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital
Reserves
Retained earnings
Total equity attributable to equity holders of the Group
Total liabilities and equity
Notes
6
11
7
19,20
1
9
10
11
11
22
19,20
12
8
14
19,20
12
1
14
21
19,20
12
15
16
18
18
2023
$’000
9,290
82,941
2,805
2,711
9,879
250,252
16,339
3,271
177,881
555,369
992,996
3,906
77,747
6,026
935
6,427
42,204
1,130,241
1,685,610
280,954
243,727
26,862
5,200
60,611
617,354
178,998
54,685
-
41,693
2,506
277,882
895,236
464,774
(2,186)
327,786
790,374
1,685,610
2022
$’000
14,493
91,096
2,692
5,649
16,638
232,941
6,530
554
-
370,593
1,015,860
3,892
94,467
64,189
110
1,661
25,205
1,205,384
1,575,977
323,123
58,885
55,941
4,301
-
442,250
295,592
41,866
20,573
24,750
2,550
385,331
827,581
464,774
(48,456)
332,078
748,396
1,575,977
Cash flows from operating activities
Cash receipts from customers
Cash paid for milk purchased
Cash paid to other creditors and employees
Net movement in goods and services tax
Income tax payments/(refunds)
Net cash inflow from operating activities
Cash flows from investing activities
Interest received
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisition of intangible assets
Proceeds from sale of New Zealand Units
Livestock trading
Acquisition of interest in joint venture
Net cash outflow from investing activities
Cash flows from financing activities
Repayment of borrowings
Receipt of borrowings
Net movement in working capital facility
Interest paid
Repayment of lease liabilities
Net cash inflow/(outflow) from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash included in assets held for sale
Cash and cash equivalents at end of year
Notes
5
2023
$’000
1,608,110
(720,926)
(851,255)
4,486
(1,378)
39,037
311
(48,821)
584
(16,074)
3,072
(197)
(825)
(61,950)
-
15,777
51,589
(44,306)
(4,400)
18,660
(4,253)
14,493
31
(981)
9,290
2022
$’000
1,711,573
(804,665)
(675,834)
(1,188)
3,034
232,920
170
(53,855)
30,467
(39,053)
-
(3,350)
-
(65,621)
(82,500)
-
(56,537)
(26,051)
(4,079)
(169,167)
(1,868)
16,020
341
-
14,493
ANNUAL REPORT 2023The 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. PAGE 53 & 54
NOTES TO THE FINANCIAL STATEMENTS
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, Synlait Business Consulting (Shanghai) Co., Ltd, Dairyworks Limited, Synlait Milk (Holdings) No.1
Limited, and Synlait Milk (Dunsandel Farms) Limited.
Synlait Milk Limited and its subsidiaries are primarily involved in the manufacture and sale of dairy products.
The parent company, Synlait Milk Limited (“the Company”), 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 an FMC reporting entity under the Financial Market Conducts Act 2013 and its financial
statements comply with that Act.
BASIS OF PREPARATION
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 and
on account of the Group’s recent implementation of its ERP (Enterprise Resource Planning) system and trivial rounding
differences. These classifications had no effect on the reported results of operations. In addition, comparative period
information has been re-presented to exclude amounts relating to discontinued operations (refer to note 1 for further
information) and restated to reclassify Research and Development Tax Incentive (RDTI) income from tax benefit/(expense)
to other income (refer to notes 2 and 21 for further information).
The financial statements were authorised for issue by the Directors on 25 September 2023.
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 each of the group’s entities are measured using the currency of the primary
economic environment in which the entity operates. The financial statements are presented in New Zealand Dollars
($), which is the Company’s functional currency and the Group’s presentation 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.
Use of accounting estimates and judgements
The preparation of these financial statements in conformity with NZ IFRS requires the Group 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 presentation of assets and related liabilities which
are held for sale (refer to note 1), derecognition of financial assets (note 6), the assessment of impairment of inventory
(note 7), and the assessment of impairment for goodwill and any other intangible assets (note 11). The individual notes
referred to in the financial statements provide additional information.
MATERIAL EVENTS AND OTHER SIGNIFICANT ITEMS
Profit downgrades
On 17 March 2023 the Group announced a revised NPAT guidance range of $15m to $25m as a result of decreased
forecast Advanced Nutrition demand, as well as operational stability, cost, and ERP implementation challenges. On 26
April 2023 the Group announced a further downgrade to a NPAT guidance range of ($5m) to $5m primarily due to further
reductions to forecast Advanced Nutrition demand. As a result, the Group engaged its banking syndicate to obtain
amendments to certain banking covenants for the year ended 31 July 2023, all of which were complied with. Refer to
note 14 for additional information.
Debt refinancing
The Group classified its working capital and revolving debt facilities as current liabilities at 31 July 2023 as it had not yet
finalised the renewal of its banking facilities. The Group has introduced new banks into the banking syndicate as part of
its successful refinance which was executed on 18 September 2023. Refer to note 14 for further information.
Dairyworks divestment
On 2 June 2023 the Group announced the planned sale of its subsidiary, Dairyworks Limited, which specialises in the
packaging and distribution of cheese and butter products. The decision was made in connection with a strategy refresh
which resulted in an increased focus on the Group’s Advanced Nutrition and Foodservice (UHT cream) business units.
The Group expects the sale to occur in the first half of the 2024 financial year. Refer to note 1 for further information.
ANNUAL REPORT 2023 PAGE 55 & 56
MATERIAL EVENTS AND OTHER SIGNIFICANT ITEMS (CONTINUED)
China State Administration for Market Regulation (SAMR) licence
On 6 June 2023 SAMR notified the Group of the successful re-registration of its SAMR licence which allows the Group
to manufacture infant formula at its Dunsandel facility on behalf of The a2 Milk Company for export into China. The
registration expires in September 2027. $6.4m was capitalised to intangible assets in respect of this registration. Refer to
note 11 for further information.
ERP implementation
On 1 August 2022 the Group commissioned its new ERP system. Post-implementation challenges were encountered
which resulted in significantly reduced sales volumes of ingredient products in the first half of 2023. Export volumes have
now normalised after remediation efforts. The Group has presented costs associated with the implementation separately
in the statement of profit and loss. A total of $60.9m of cost relating to the project was capitalised to intangible assets in
the period. Refer to note 11 for further information.
Pokeno processing upgrade project
The Group has undertaken a series of upgrades to its North Island operations over the previous three financial years in
connection with a significant customer contract which will see the Group commence production of plant-based Advanced
Nutrition products at its Pokeno site. The Group received approval for first lot to stock on 29 July 2023 resulting in the
capitalisation of $71.2m of capital work in progress relating to dryer and wetmix upgrades and additions. $27.7m of spend
relating to the packaging line portion of the project, which was commissioned in August 2023, remained in work in
progress at 31 July 2023. Refer to note 9 for additional information.
A new warehouse lease was also entered into in conjunction with the commencement of commercial production. Refer to
note 12 for further information.
Climate risk
The Group’s operations may be impacted by future climate change. These impacts may be physical (e.g. severe or
unusual weather patterns and events) or transitional (e.g. changes to government regulations or customer and supplier
needs and demands).
The Group regularly assesses its operating environment with regard to the impact of climate change. Specific
consideration has been given in these financial statements to the impact of future climate change on the useful lives
of the Group’s property, plant, and equipment, impairment of intangible assets (NZUs), and carrying value of loans and
borrowings (ESG linked loans). No significant impacts were noted during the period.
GOING CONCERN
In preparing these financial statements, the Directors have conducted a comprehensive assessment of various
uncertainties facing the Group and its ability to continue as a going concern. The Directors have considered several
events, circumstances, and recent developments in making this assessment:
During the 2023 financial year, the Group announced two material profit downgrades in short succession in March and
April 2023. The reasons for these downgrades are noted in the “Material events and other significant items” section.
The Directors view the events which led to the profit downgrades as events which are not expected to recur and expect
financial performance to improve in the 2024 financial year. This is due, but not limited to: cost reduction initiatives, a
significant increase in plant utilisation following the launch of new Advanced Nutrition products and through increased
Foodservice UHT cream volumes, the recent renewal of the Group’s SAMR license, and a significantly increased focus on
operational stability.
The reduction in profitability and operating cash flows during the 2023 financial year led to higher debt levels and related
interest costs which required the Group to engage its banking syndicate to amend certain debt facility covenants for the
2023 financial year with which the Group complied. At 31 July 2023, the Group’s banking facilities totalling $243.7m were
presented as current due to their maturity date of 1 October 2023 which resulted in total current liabilities exceeding total
current assets by $62.0m.
The Group completed a comprehensive review of its capital structure. On 18 September 2023, the Group executed
new banking facilities with its banking syndicate (refer to note 14 for additional information) which was the first step of
execution of its capital strategy. The new facilities include reducing debt facility limits during their term which are timed
with forecasted cash flows in the 2024 financial year, including the planned sale of Dairyworks which the Directors
consider highly probable to occur within the next 12 months. The upcoming bond maturity on 17 December 2024 has
also been considered in the Group’s recent capital strategy review and in recent discussions with the Group’s banking
syndicate. While a final decision is pending, the Group is likely to refinance the subordinated bond with senior bank
debt facilities, a senior bond, and operating cashflows. To ensure a successful refinance, Synlait is working towards
deleveraging by divesting Dairyworks, managing working capital efficiently, and increasing operational performance.
The Group also expects to comply with all externally imposed covenants and capital requirements.
On 15 September 2023, the Group received notice from The a2 Milk Company purporting to cancel the exclusivity
arrangements under the Nutritional Powders Manufacturing and Supply Agreement (NPMSA) for the a2 Platinum® and
other nutritional products that the company produces. The Group disputes that The a2 Milk Company has the right to
cancel the exclusivity arrangements. The potential impact on forecast sales volumes has been considered and reflected
in the Group’s forecast financial results as well as in the five-year forecast on which goodwill and asset impairment testing
is based (refer to note 11). No significant impacts have been noted.
The Directors have carefully considered the aforementioned facts and circumstances, placing particular emphasis on the
forecast improvement in financial performance, the recently executed banking facilities, anticipated sale of Dairyworks,
expected compliance with covenants and capital requirements attached to those facilities, as well as alternative debt
reduction strategies. Alternative viable debt reduction strategies available to the Group could include additional equity
and/or other forms of debt. The Directors believe there is time to work through these options if required.
While the Directors acknowledge that key future events and requirements noted above inherently have a degree of
uncertainty, the Directors consider that these do not result in material uncertainties related to events or conditions that
may cast significant doubt upon the entity’s ability to continue as a going concern. Accordingly, the financial statements
have been prepared on a going concern basis.
ANNUAL REPORT 2023 PAGE 57 & 58
BASIS OF CONSOLIDATION
PERFORMANCE
This section covers the Group’s financial performance and includes the
following notes:
01 Discontinued Operation
02 Revenue Recognition
03 Segment Reporting
04 Expenses
05 Reconciliation of (Loss)/Profit After Income Tax to Net Cash Inflow
From Operating Activities
59
61
62
65
66
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.
Standards, amendments and interpretations adopted during the period
NZ IAS 37 – Cost of Fulfilling a Contract
On May 14, 2020, the IASB issued amendments to NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
NZ IAS 37 requires that a provision be taken for the costs of fulfilling a contract. The amendments clarify that the costs of
fulfilling a contract comprise both incremental costs (e.g. direct labour and materials) and an allocation of other direct costs
(e.g. an allocation of the depreciation charge for an item of property, plant, and equipment used in fulfilling the contract).
These amendments were effective for the Group from 1 August 2022 and have not had a significant impact on the Group’s
financial statements (onerous contracts provision) as the Group does not incur significant incremental or other direct cost
to fulfil a contract past the point of converting raw materials and work-in-process inventory into finished goods.
Standards, amendments and interpretations to existing standards that are not yet effective
NZ CS 1, CS 2, CRDC – Climate related disclosures
In December 2022, The External Reporting Board (‘XRB’) of New Zealand issued Aotearoa New Zealand Climate
Standards, a new climate related disclosure framework. Three new standards have been issued: NZ CS 1 Climate related
Disclosures, NZ CS 2 Adoption of Climate related Disclosures, and NZ CS 3 General Requirements for Climate related
Disclosures. The guidance is aligned to the International Task Force on Climate related Disclosures (‘TCFD’) disclosure
framework which focuses on governance, strategy, risk management, and metrics and targets.
The Group is currently undertaking a project to build on and leverage its existing sustainability reporting framework in
preparation for the release of its first climate statement under these new standards. This is expected to be issued by the
Group as at 31 July 2024, with mandatory assurance required on the greenhouse gas emissions amounts reported in the
climate statements beginning in 2025.
There are no other standards that are not yet effective and expected to have a material impact on the Group in the current
or future reporting periods and on foreseeable future transactions.
ANNUAL REPORT 2023
PAGE 59 & 60
01. DISCONTINUED OPERATION
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered
principally through a sale transaction rather than through continuing use and a sale is considered highly probable.
Key judgement is applied in determining whether a sale is highly probable.
Non-current assets (or disposal groups) are measured at the lower of their carrying amount and fair value less costs
to sell. A key estimate is applied in determining fair value less costs of disposal.
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair
value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset
(or disposal group), but not in excess of any cumulative impairment loss previously recognised.
Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they
are classified as held for sale.
Non-current assets and liabilities classified as held for sale are presented separately from the other assets in the
balance sheet.
A discontinued operation is a component of the Group that has been disposed of or is classified as held for sale
and that represents a separate major line of business or geographical area of operations and is part of a single
coordinated plan to dispose of such a line of business or area of operations. The results of discontinued operations
are presented separately in the statement of profit or loss.
On 2 June 2023 the Group announced its intention to divest its subsidiary, Dairyworks Limited, which specialises in
the production and sale of consumer-packaged cheese and butter products. The divestment decision was made in
connection with the Group’s recently completed strategy review which resulted in an increased focus on the Group’s
Advanced Nutrition and Foodservice (UHT cream) business units.
The associated assets and liabilities of Dairyworks Limited comprise a disposal group and have been consequently
presented as held for sale. The associated financial performance has been presented as profit/(loss) from discontinued
operations. All profit and loss disclosures have been re-presented to exclude the impact of discontinued operations.
A board approved programme is underway to divest of Dairyworks which is considered highly probable to be completed
before March 2024. Whilst certain routine approvals will be required in order to enable the sale, the Group considers that
these approvals are likely to be granted.
The Dairyworks Limited subsidiary comprises the Dairyworks segment as detailed in note 3. Dairyworks is being
marketed at a selling price based on a valuation multiplier as determined by an independent third party.
(a) Financial performance and cash flow information are presented below
Revenue
Cost of sales
Other income
Sales and distribution expenses
Administrative and operating expenses
Impairment of Temuka cheese plant assets
Net finance costs
Income tax
Profit/(loss) from discontinued operation
Net cash inflow/(outflow)
Net cash inflow from operating activities
Net cash outflow from investing activities
Net cash outflow from financing activities
Net increase/(decrease) in cash generated by the discontinued operation
2023
$’000
282,822
(256,738)
3,039
(6,768)
(5,889)
-
(3,455)
(3,159)
9,852
32,488
(1,787)
(30,090)
611
2022
$’000
263,589
(240,902)
415
(5,587)
(5,403)
(12,231)
(3,030)
1,299
(1,850)
46,869
(2,406)
(45,992)
(1,529)
Net cash outflows from financing activities are comprised of principal and interest payments on debt facilities which are
held by the Group and have not been included in the disposal group as the sale transaction is expected to occur on a
debt free basis.
(b) Disaggregation of assets and liabilities held for sale:
The following assets and liabilities were reclassified as held for sale as at 31 July 2023:
Assets of disposal group classified as held for sale
Cash and cash equivalents
Trade, other receivables, and other current assets
Inventories
Property, plant, and equipment
Intangible assets
Goodwill
Right of use assets
Total
2023
$’000
981
9,865
52,253
25,594
17,093
58,163
13,932
177,881
2022
$’000
-
-
-
-
-
-
-
-
ANNUAL REPORT 2023 PAGE 61 & 62
01. DISCONTINUED OPERATION (CONTINUED)
Property, plant, and equipment includes $7.2m of assets, comprised primarily of land and buildings, which are currently
being considered for sale separately to the disposal group.
Liabilities of disposal group classified as held for sale
Trade and other payables and other current liabilities
Current tax liabilities
Lease liabilities
Deferred tax liabilities
Total
2023
$’000
(42,680)
(2,990)
(14,337)
(604)
(60,611)
2022
$’000
-
-
-
-
-
The proceeds of disposal net of transaction costs are expected to substantially exceed the carrying amount of the
disposal group and accordingly no impairment loss has been recognised.
02. REVENUE RECOGNITION
Sales of goods
The Group manufactures and sells a range of milk powder, milk powder related products, fresh milk, UHT milk and
cream, cheese, and butter to customers. Revenue from contracts with customers is recognised when the control
of 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 expected
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.
Dairy products
Other income
Total income
2023
$’000
1,320,758
13,294
1,334,052
2022
$’000
(Restated)
1,397,012
22,220
1,419,232
The decrease in other income is due to an $11.9m gain on sale and leaseback included in the prior period which arose on
the sale and leaseback of the Group’s Auckland land and building located at 89 Richard Pearse Drive. $2.5m of benefit
in the comparative period relating to the Research and Development Tax Credit has been reclassified from income tax
(expense)/benefit to other income to better reflect to the underlying nature of the income.
03. SEGMENT REPORTING
(a) Reportable segments
NZ IFRS 8 Operating Segments requires disclosure of information about operating segments, products and services,
geographical areas of operation, and major customers. Information is based on internal management reports, both
in the identification of operating segments and measurement of disclosed segment information.
The Group has identified the following segments:
•
Synlait: manufacture and sale of liquid milk and milk powder based products (nutritionals, ingredients, fresh
milk, and ultra heat treatment (‘UHT’) milk and cream products).
• Dairyworks: manufacture and sale of cheese and other products (cheese, butter). The Dairyworks segment
is comprised of the Dairyworks Limited subsidiary which has been treated as a discontinued operation in the
period. Refer to note 1 for additional information.
The accounting policies of the Group have been consistently applied to the operating segments. Net Profit After
Tax (NPAT) is the measure reported to the chief operating decision-maker (“the Board”) for the purposes of resource
allocation and assessment of performance for the Group. A consistent measure has been used for the purpose of
reporting the performance of each operating segment. Inter-segment pricing is determined on an arm’s length basis.
ANNUAL REPORT 2023 PAGE 63 & 64
03. SEGMENT REPORTING (CONTINUED)
(b) Segment revenues and results
The following is an analysis of the Group’s revenue and results by reportable segment:
(28,451)
(28,451)
External revenue
Inter-segment revenue from sale of goods
Revenue from sale of goods
Net (loss)/profit after tax for the period
Finance income
Finance expenses
Depreciation and amortisation
Income tax benefit/(expense)
Total assets
Total liabilities
Net assets
External revenue
Inter-segment revenue from sale of goods
Revenue from sale of goods
Net profit/(loss) after tax for the period
Finance income
Finance expense
Depreciation and amortisation
Impairment of Temuka cheese plant
Income tax (expense)/benefit
Total assets
Total liabilities
Net assets
31 July 2023
$000’s
Synlait
1,320,758
2,363
1,323,121
(14,144)
281
(29,331)
(55,403)
6,123
1,507,729
(834,625)
673,104
31 July 2022
$000’s
Synlait
1,397,012
1,310
1,398,322
40,373
159
(15,852)
(48,203)
-
(6,857)
1,401,915
(784,057)
617,858
31 July 2023
$000’s
Dairyworks
31 July 2023
$000’s
Eliminations
282,822
-
282,822
9,852
29
(2,513)
(4,286)
(3,159)
177,881
(60,611)
117,270
-
(2,363)
(2,363)
-
-
-
-
-
-
-
-
31 July 2022
$000’s
Dairyworks
31 July 2022
$000’s
Eliminations
263,589
-
263,589
(1,850)
11
(2,878)
(6,038)
(12,231)
1,299
174,062
(43,524)
130,538
-
(1,310)
(1,310)
-
-
-
-
-
-
-
-
-
31 July 2023
$000’s
Total
1,603,580
-
1,603,580
(4,292)
310
(31,844)
(59,689)
2,964
1,685,610
(895,236)
790,374
31 July 2022
$000’s
Total
1,660,601
-
1,660,601
38,523
170
(18,730)
(54,241)
(12,231)
(5,558)
1,575,977
(827,581)
748,396
(c) Sales by geographical area
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 portion of both infant nutritional and ingredients sales are ultimately
consumed in China.
The proportion of sales revenue for continuing operations by geographical area is summarised below:
China
Rest of Asia
Middle East and Africa
New Zealand
Australia
Rest of World
Total
Year ended
31 July 2023
$’000
Year ended
31 July 2022
$’000
13%
25%
5%
49%
5%
3%
100%
14%
31%
4%
40%
7%
4%
100%
All Group non-current assets are in New Zealand, other than $0.1m (2022: $0.3m) located in China.
(d) Major customers
Revenues of 55% (2022: 48%) are derived from the top three external customers.
ANNUAL REPORT 2023 PAGE 65 & 66
04. EXPENSES
The following items of expenditure are included in cost of sales:
Depreciation and amortisation
Employee and contractor costs
Energy costs
Freight
Milk transport
Repairs and maintenance
Inventory provisions and write-downs
Provision movements included in inventory variances, provisions, and write-downs:
Increase/(decrease) in inventory provision
Increase/(decrease) in onerous contract provision
The following items of expenditure are included in sales and distribution expense:
Depreciation and amortisation
Employee and contractor costs
Insurance
Freight
Consultancy, legal, and transaction costs
Rent and storage
The following items of are included in administrative and operating expenses:
Depreciation and amortisation
Employee and contractor costs
Director fees
Share based payments expense
Consultancy, legal, and transaction costs
Information services and subscriptions
The following items are included in ERP implementation expense:
Consultancy
Employee and contractor costs
Information services and subscriptions
PwC services included in administrative and operating expenses*:
Statutory audit fee
Half year accounts review
Other assurance services
Consultancy
2023
$’000
41,061
80,585
25,376
17,769
26,980
18,701
19,796
6,057
2,001
5,998
17,637
1,609
5,449
2,030
898
8,512
32,229
827
1
6,836
11,166
5,415
1,127
252
410
74
220
52
756
2022
$’000
40,954
63,915
21,780
14,327
24,673
14,672
3,590
(1,900)
(2,101)
4,319
14,371
1,482
4,762
1,577
1,253
2,733
25,611
837
115
3,114
7,679
1,108
829
1,327
299
68
-
31
398
* 2023 payments to PwC reflect $220k paid to PwC New Zealand for audit services performed on behalf of the Group’s
largest shareholder, Bright Dairy Holding Limited, and $52k for consulting fees incurred in connection with a logistics
review. 2022 payments to PwC reflect $12k for finalisation of reports related to unusual transaction analysis and historic
performance analysis performed prior to appointment as statutory auditors. Training services were also performed in
2022 amounting to $19k.
05. RECONCILIATION OF (LOSS)/PROFIT AFTER INCOME TAX
TO NET CASH INFLOW FROM OPERATING ACTIVITIES
Profit/(loss) for the year
Non-cash and non-operating items:
Depreciation and amortisation of non-current assets
Depreciation of right-of-use assets
Gain on sale of property, plant and equipment
Impairment of property, plant and equipment and intangible assets
New Zealand Units surrendered
Gain on sale of New Zealand Units
Non-cash share based payments (recovery)/expense
Interest costs classified as financing cash flow
Interest received classified as investing cash flow
Loss on derecognition of financial assets
Deferred tax movement
Loss on derivative financial instruments
Unrealised foreign exchange gain
Loss/(gain) on revaluation of biological assets
Movements in working capital:
(Increase)/decrease in trade and other receivables
Decrease/(increase) in prepayments
(Increase)/decrease in inventories
Decrease in goods and services tax refundable and other current assets
Increase in trade and other payables
Decrease in current tax assets
Net cash inflow from operating activities
2023
$’000
(4,292)
54,205
5,484
(154)
165
1,177
(1,769)
(83)
31,846
(311)
6,743
(4,610)
143
(31)
183
(1,227)
4,900
(69,565)
4,486
11,474
273
39,037
2022
$’000
38,523
50,030
4,211
(11,699)
12,231
2,407
-
120
18,730
(170)
2,427
4,749
18
(341)
(558)
17,284
(2,341)
38,003
1,312
56,795
1,189
232,920
ANNUAL REPORT 2023 PAGE 67 & 68
WORKING CAPITAL
The working capital section gives information about the short-term assets and
liabilities of the Group. This section includes the following notes:
06. TRADE AND OTHER RECEIVABLES
06 Trade and Other Receivables
07
Inventories
08 Trade and Other Payables
68
72
74
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 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 manner.
ANNUAL REPORT 2023 PAGE 69 & 70
06. TRADE AND OTHER RECEIVABLES (CONTINUED)
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 seven financial years, the Group has not written off any bad debts, although it has recognised provisions for
debts when collection was considered doubtful. 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 2023. Three customers represent 63% of the overdue receivables. There were no other forward-looking
indicators to indicate increases in credit risk.
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 2022.
Trade receivables
Provision for doubtful and impaired receivables
Net trade receivables
Other receivables
Total receivables
2023
$’000
78,021
(2,588)
75,433
7,508
82,941
2022
$’000
85,573
(3,658)
81,915
9,181
91,096
(a) Impaired receivables
As at 31 July 2023, trade receivables of $7.9m were overdue (2022: $12.1m). These relate to several independent
customers for whom there is no recent history of default. The majority has been collected except for $2.5m which has
been allowed for and $0.6m which remains unpaid and is expected to be collected in the 2024 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
2023
$’000
3,638
10
4,228
7,876
2022
$’000
5,674
978
5,428
12,080
(b) Allowance for bad and doubtful receivables
The Group has recognised a $0.7m loss in relation to provisions raised for potentially unrecoverable trade receivables
during the year (2022: $1.0m). This loss relates to receivables which are in dispute and is unrelated to customer default or
credit risk. The Group has also recognised a loss of $0.4m for estimated receivables impairment under NZ IFRS 9 Financial
Instruments (2022: $0.2m).
(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 NZD $58.7m (2022: NZD $50.7m)
of USD and AUD denominated trade receivables.
ANNUAL REPORT 2023 PAGE 71 & 72
06. TRADE AND OTHER RECEIVABLES (CONTINUED)
07. INVENTORIES
(d) Derecognised financial assets
The Group has derecognised trade receivables that have been sold to two banks under the terms of underlying
receivables purchase agreements. 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 results in immaterial volatility in the
present value of future cash flows in relation to assigned receivables under the various scenarios detailed in the
terms of the four agreements. An evaluation of external evidence of credit risk has also been performed for each
customer. The Group has $144.2m of receivables assigned as at 31 July 2023 (2022: $175.6m).
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.
The loss on derecognition for the period of $5.8m (2022: $2.4m) arising from derecognition of assigned receivables
is the discount paid to the banks for acquiring these receivables.
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 based on 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 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 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. Judgement is required as often
indicators of impairment can be mitigated through further investigation or rework meaning that no write down to net
realisable value is required. The Group 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 the Group on a monthly basis, using judgement in determining
expected future proceeds based on current indicators of the condition of inventory.
A key 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.
ANNUAL REPORT 2023 PAGE 73 & 74
07. INVENTORIES (CONTINUED)
08. 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
2023
$’000
143,308
123,939
13,707
280,954
2022
$’000
140,455
168,512
14,156
323,123
Payables denominated in currencies other than the functional currency comprise NZD $39.4m (2022: NZD $38.5m) of
USD, EUR, GBP, RMB, SGD, and AUD denominated trade payables and accruals.
Raw materials
Raw materials at cost
Raw materials at net realisable value
Work in progress
Work in progress at cost
Work in progress at net realisable value
Finished goods
Finished goods at cost
Finished goods at net realisable value
Total inventories
2023
$’000
79,497
-
79,497
111,528
1,062
112,590
52,725
5,440
58,165
250,252
2022
$’000
94,777
997
95,774
56,541
195
56,736
75,965
4,466
80,431
232,941
Raw material inventories at $79.5m (12,245 MT) have decreased from prior year (2022: $95.8m, 17,738 MT) primarily
due to the reclassification of Dairyworks raw materials inventory to assets held for sale, offset by higher holdings of raw
materials for use in the production of Advanced Nutrition products.
Work in progress inventories at $112.6m (14,664 MT) have increased (2022: $56.7m, 7,934 MT) due to higher holdings of
Advanced Nutrition base powders to enable production in peak milk months in the 2024 financial year.
Finished goods have decreased to $58.2m (9,117 MT), (2022: $80.4m, 11,666 MT). The decrease is primarily due to the
reclassification of Dairyworks finished goods inventory to assets held for sale.
The cost of inventories recognised as an expense during the year was $1,158.2m (2022: $1,206.0m). The cost of
inventories recognised as an expense includes $19.8m (2022: $3.6m) in respect of write downs of inventory to net
realisable value. The increase is due to various operational stability challenges which were experienced in the year.
The total inventory provision as at reporting date was $9.6m, of which $5.9m related to finished goods, $1.3m related to
work in progress and $2.4m related to raw materials (2022: $6.2m, $2.2m related to finished goods, $0.7m related to
work in progress and $3.3m related to raw materials).
Onerous contracts provision as at reporting date was $2.0m (2022: $nil) relating to future shipments of downgrade
product.
ANNUAL REPORT 2023 PAGE 75 & 76
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:
09. PROPERTY, PLANT AND EQUIPMENT
09 Property, Plant and Equipment
10 Biological Assets
11
Intangible Assets
12 Leases
76
79
80
85
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 where the Group has an obligation to remove and restore.
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. 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 the Group’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
10-60 years
Plant and equipment
3-35 years
Fixtures and fittings
2-25 years
Depreciation methods, useful lives and residual values are reassessed at each reporting date.
ANNUAL REPORT 2023 PAGE 77 & 78
09. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
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.
Cost
Balance as at 1 August 2021
Additions
Reclassification/transfer
Impairment
Disposals
Balance as at 31 July 2022
Balance as at 1 August 2022
Additions
Reclassification/transfer
Impairment
Disposals
Transfer to assets held for sale
Balance as at 31 July 2023
Accumulated depreciation
Balance as at 1 August 2021
Depreciation (note 4)
Disposals
Balance as at 31 July 2022
Balance as at 1 August 2022
Depreciation (note 4)
Disposals
Transfer to assets held for sale
Balance as at 31 July 2023
Carrying amounts
As at 31 July 2022
As at 31 July 2023
Land
Buildings
$’000
$’000
Plant
and
equipment
$’000
Fixtures
and
fittings
$’000
Capital work
in progress
Total
$’000
$’000
60,655
324,175
776,121
28,618
56,417
1,245,986
-
-
-
(3,890)
56,765
56,765
-
-
-
-
(1,350)
-
29
-
(8,688)
-
14,308
(11,865)
(1,763)
315,516
315,516
776,801
776,801
-
14,994
-
(4)
(4,614)
-
77,680
(164)
(5,464)
(21,186)
-
848
(16)
(510)
28,940
28,940
-
3,175
-
(3,488)
(3,965)
61,529
(15,185)
(350)
(119)
61,529
-
(12,231)
(14,970)
102,292
102,292
1,280,314
1,280,314
48,144
(95,849)
-
-
(2,170)
48,144
-
(164)
(8,956)
(33,285)
55,415
325,892
827,667
24,662
52,417
1,286,053
-
-
-
-
-
-
-
-
-
36,661
7,120
(331)
43,450
43,450
7,094
(4)
(1,079)
49,461
170,741
35,966
(1,019)
205,688
205,688
35,217
(5,104)
(6,851)
228,950
11,435
4,113
(232)
15,316
15,316
3,767
(3,413)
(1,024)
14,646
-
-
-
-
-
-
-
-
-
218,837
47,199
(1,582)
264,454
264,454
46,078
(8,521)
(8,954)
293,057
56,765
55,415
272,066
276,431
571,113
598,717
13,624
10,016
102,292
52,417
1,015,860
992,996
(a) Impairment
During the period, property, plant, and equipment was examined for impairment. A $0.2m (2022: $12.2m) impairment
charge has been recognised to reflect the write-down of select assets to the higher of their fair value less costs
of disposal (FVLCOD) and value-in-use. In addition, depreciation expense includes $0.9m relating to accelerated
depreciation of assets which have been determined to no longer be of use to the Group. The prior period charge of
$12.2m is the result of the Group’s decision to continue idling its Temuka cheese plant while it evaluated plans for the
resumption of operations. There has been no further impairment charge or reversal of impairment in the current period.
The plant’s assets, which are comprised primarily of land and buildings, are now for sale and included within assets held
for sale. Refer to note 1 for further information.
(b) Capital work in progress
Capital work in progress includes capital expenditure projects until they are commissioned and transferred to property,
plant and equipment. Capital work in progress of $52.4m is lower than 2022 ($102.3m) due primarily to the capitalisation
of $71.2m of work in progress spend relating to the Group’s Pokeno processing upgrade project. The dryer and wetmix
kitchen modification portion project was commissioned in July 2023. $27.7m of spend relating to the packaging line
portion of the project, which was commissioned in August 2023, remained in work in progress at 31 July 2023. The
balance of work in progress comprises of routine capital expenditure.
(c) Capitalised borrowing costs
During the year, the Group has capitalised borrowing costs amounting to $6.6m (2022: $5.6m) 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, borrowing costs were capitalised primarily for the Pokeno processing upgrade project.
ANNUAL REPORT 2023 PAGE 79 & 80
10. BIOLOGICAL ASSETS
11. INTANGIBLE ASSETS
Biological assets comprise livestock (dairy cows) and are measured at fair value less costs to sell at both initial
recognition and at the end of each reporting period. Changes in the fair value of biological assets are recognised in
profit or loss. The fair value of biological assets is determined by an independent valuer with reference to local area
market prices at the end of each reporting period. The fair value measurement of livestock is facilitated by grouping
livestock by age and type. All of the Group’s biological livestock assets are classified as bearer biological assets.
Balance as at 1 August
Purchases
Births, deaths, and other movements
Sales
Gain/(loss) arising from changes in fair value less selling costs
Balance as at 31 July
2023
$’000
3,892
929
85
(816)
(184)
3,906
2022
$’000
-
3,334
-
-
558
3,892
As at 31 July 2023 there were 2,372 dairy cows on hand (2022: 1,851). The dairy cows are used for the purposes of
producing milk to be consumed in the Group’s milk processing operations.
Goodwill
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 (CGU) that are expected to
benefit from the business combination in which the goodwill arose. The recoverable amount of CGUs is the higher
of fair value less costs to sell and value in use. If this recoverable amount is less than the carrying amount of the
CGU an impairment loss is recognised immediately in the profit and loss, and it is not subsequently reversed.
Brands
Purchased brands have been assessed as indefinite life intangible assets, after considering factors such as the
expected use of the assets, the period of legal control, the typical product life cycle of these assets, the industry in
which the assets are operating, and the level of maintenance expenditure required. Purchased brands are initially
recognised at fair value if acquired as part of a business combination, and are tested for impairment annually, or
more frequently if there are any indicators of impairment, on the same basis as goodwill.
Patents, trademarks and other rights
Separately acquired patents, trademarks, and other rights are shown at historical cost. Patents, trademarks,
and other rights 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, trademarks, and other rights over their
estimated useful lives of 4 to 20 years.
Computer software
Costs associated with maintaining computer software programmes are recognised as an expense as incurred.
Development costs that are directly attributable to the design, testing, and implementation of identifiable and
unique software products controlled by the Group are recognised as intangible assets. Amortisation is calculated
using the straight-line method to allocate the cost of computer software over an estimated useful life of 4 years to
10 years.
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 and expensed on a first-in first-out basis. Units are surrendered during the year to
meet our obligations under the New Zealand Emissions Trading Scheme.
ANNUAL REPORT 2023 PAGE 81 & 82
11. INTANGIBLE ASSETS (CONTINUED)
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 CGU exceeds its recoverable amount.
A CGU 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 CGUs 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 (or group of units) on a
pro rata basis.
The recoverable amount of an asset or CGU 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.
Cost
Balance as at 1 August 2021
Additions
Reclassification/transfer
Disposals
Surrenders
Balance as at 31 July 2022
Balance as at 1 August 2022
Additions
Reclassification/transfer
Disposals
Surrenders
Transfer to assets held for sale
Balance 31 July 2023
Accumulated amortisation
Balance as at 1 August 2021
Amortisation (note 4)
Disposals
Balance 31 July 2022
Balance 1 August 2022
Amortisation (note 4)
Disposals
Transfer to assets held for sale
Balance as at 31 July 2023
Carrying amounts
Year ended 31 July 2022
Current
Non-current
Closing net book value
Year ended 31 July 2023
Current
Non-current
Closing net book value
Goodwill
Brands
$’000
$’000
Patents,
trademarks
and other
intangibles
$’000
Computer
software
Intangibles
in progress
New
Zealand
Units
Total
$’000
$’000
$’000
$’000
64,189
16,569
2,015
15,230
31,658
10,057
139,718
-
-
-
-
64,189
64,189
-
-
-
-
(58,163)
6,026
-
-
-
-
-
-
-
-
-
-
64,189
64,189
-
6,026
6,026
-
-
-
-
16,569
16,569
-
-
-
-
(16,569)
-
-
-
-
-
-
-
-
-
-
-
263
-
-
2,278
2,278
-
6,427
-
-
(91)
8,614
-
1,077
(891)
-
15,416
15,416
-
67,791
(4,787)
-
(1,359)
77,061
1,066
11,120
372
-
1,438
1,438
416
-
(47)
1,807
2,460
(813)
12,767
12,767
7,711
(4,785)
(883)
14,810
31,601
(1,340)
-
-
61,919
61,919
12,877
(74,164)
(39)
-
-
7,532
-
-
(2,407)
15,182
15,182
-
-
(1,302)
(2,979)
-
593
10,901
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
39,133
-
(891)
(2,407)
175,553
175,553
12,877
54
(6,128)
(2,979)
(76,182)
103,195
12,186
2,832
(813)
14,205
14,205
8,127
(4,785)
(930)
16,617
-
16,569
16,569
-
840
840
-
2,649
2,649
-
61,919
2,692
12,490
2,692
158,656
61,919
15,182
161,348
-
-
-
-
6,807
6,807
-
62,251
62,251
-
593
593
2,805
8,096
10,901
2,805
83,773
86,578
The decrease in intangibles in progress is due to the capitalisation of the group’s ERP system on 1 August 2022 and
SAMR license on 6 June 2023. The ERP system is being depreciated over a useful life of 10 years and the SAMR license
over a useful life of 4 years.
During the year, excess NZUs with a cost of $1.3m were sold for proceeds of $3.1m, resulting in a gain of $1.8m which is
included in other income.
ANNUAL REPORT 2023 PAGE 83 & 84
11. INTANGIBLE ASSETS (CONTINUED)
(a) Impairment tests for indefinite life intangibles
As at 31 July 2023 the Group has determined that there is no impairment of any CGU’s containing goodwill.
For the purposes of goodwill impairment testing, goodwill has been allocated to two CGU groups; the Synlait Milk CGU
(nutritionals, ingredients, fresh milk, UHT milk products) and Dairyworks CGU (cheese, butter).
At 31 July 2023, $58.2m (2022: $58.2m) of goodwill and $16.6m (2022: $16.6m) of brand assets were allocated to the
Dairyworks CGU and included within assets held for sale. $6.0m (2022: $6.0m) of goodwill and $nil (2022: $nil) of brand
assets were allocated to the Synlait Milk CGU.
The value-in-use calculation uses five-year future cash flows based on Board approved business plans and is discounted
based on a CGU specific weighted average cost of capital (WACC) as determined by an independent third party. Based
on projected future cash flows, the Group has determined that the recoverable amount of each CGU exceeds its carrying
amount and therefore goodwill is not impaired. The business plans were modelled using the following key assumptions:
The range of annual revenue growth rates and allowance for increase in expenses is primarily attributable to the impact
of higher commodity prices and resulting sales prices and reflect past experience and management's future expectations
for the business. The terminal growth rate reflects the long term expected growth rate for New Zealand.
At 31 July 2023 the recoverable amount of the Synlait CGU exceeded its carrying amount by $373.4m. The Group has
carried out a sensitivity analysis and determined the following changes in key assumptions in isolation across the entire
forecast period to be reasonably possible:
Change in key assumption
0.5% increase in discount rate
1% decrease in terminal growth rate
15% reduction within forecast operating cash flow
Decrease in headroom
($109.1m)
($155.7m)
($356.6m)
2023
2022
For the Dairyworks CGU any reasonably possible change in the key assumptions would not cause the carrying amount of
the Dairyworks CGU to exceed or be near to its recoverable amount.
Synlait CGU
Annual revenue growth rates within forecast operating cashflow
Allowance for increase in expenses within forecast operating cash flow
Post-tax discount rate
Pre-tax discount rate
Terminal growth rate
Dairyworks CGU
Annual revenue growth rates within forecast operating cashflow
Allowance for increase in expenses within forecast operating cashflow
Post-tax discount rate
Pre-tax discount rate
Terminal growth rate
3.9% - 11.8%
1.5% - 8.8%
9.2%
11.8%
2.0%
3.7% - 7.9%
0.7% - 8.1%
8.6%
11.5%
2.0%
1.3% - 11.8%
0.8% - 8.2%
8.1%
10.4%
2.0%
4.2% - 21.9%
3.7% - 22.0%
7.5%
9.5%
2.0%
Indefinite life intangibles, which is comprised entirely of brands, have been tested using the relief from royalty method.
Brand royalty rates for the year ended 31 July 2023 are based on a percentage of revenue. The impairment testing was
modelled using the following key assumptions:
Annual revenue growth rates
Allowance for increase in expenses
Royalty rate
Pre-tax discount rate
Terminal growth rate
2023
2022
5.1% - 12.6%
2.0% - 4.0%
3.75% - 4.25%
13.5%
2.0%
4.9% - 22.1%
2.0% - 4.0%
3.75% - 4.25%
11.5%
2.0%
The Group has carried out a sensitivity analysis and believes that any reasonably possible change in the key assumptions
would not cause the carrying amount of the brands to exceed or be near to their recoverable amount.
ANNUAL REPORT 2023 PAGE 85 & 86
12. LEASES
Measurement of right-of-use assets and lease obligations
Right-of-use assets are initially measured equal to the corresponding present value of the remaining lease liability.
Subsequent additions are measured at the initial amount of the lease obligation adjusted for any lease payments
made at, or before, the commencement date, plus any initial direct costs incurred, less any lease incentives
received.
The ROU asset is subsequently depreciated on a straight-line basis over the shorter of the term of the lease, or
the useful life of the asset determined on the same basis as the Group’s property, plant and equipment. The ROU
asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease
obligation.
Measurement of lease obligations
The lease obligation is initially measured at the present value of lease payments remaining at the lease
commencement date, discounted using the Group’s incremental borrowing rate. Lease payments included in the
measurement of the lease obligation, when applicable, may comprise fixed payments, variable payments that
depend on an index or rate, amounts expected to be payable under a residual value guarantee and the exercise
price under a purchase, extension or termination option that the Group is reasonably certain to exercise.
The lease obligation is subsequently measured at amortised cost using the effective interest method. It is
remeasured when there is a change in future lease payments arising from a change in an index or rate, if there
is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or
if the Group exercises a purchase, extension or termination option. When the lease obligation is remeasured, a
corresponding adjustment is made to the carrying amount of the ROU asset.
The Group does not recognise ROU assets and lease obligations for short-term leases that have a lease term of
twelve months or less or for leases of low-value assets. Payments associated with these leases are recognised as
an operating expense on a straight-line basis over the lease term within costs and expenses on the consolidated
income statement. The Group has also elected to apply a single discount rate to portfolios of leases with
reasonably similar characteristics.
Right-of-use assets
Cost
Balance as at 1 August 2021
Additions and acquisitions
Additions through sale and leaseback
Sale and leaseback adjustment
Disposals
Foreign exchange differences
Balance as at 31 July 2022
Balance as at 1 August 2022
Additions and acquisitions
Sale and leaseback adjustment
Disposals
Foreign exchange differences
Transfer to assets held for sale
Balance as at 31 July 2023
Accumulated Depreciation
Balance as at 1 August 2021
Sale and leaseback adjustment
Disposals
Depreciation
Foreign exchange differences
Balance as at 31 July 2022
Balance as at 1 August 2022
Sale and leaseback adjustment
Disposals
Depreciation
Foreign exchange differences
Transfer to assets held for sale
Balance as at 31 July 2023
Carrying amounts
Balance as at 31 July 2022
Balance as at 31 July 2023
Buildings
$’000
Plant and
equipment
$’000
18,289
9,025
11,390
(5,186)
(1,065)
50
32,503
32,503
34,422
(167)
-
(38)
(16,952)
49,768
5,128
(432)
(1,065)
4,297
28
7,956
7,956
(519)
-
5,358
(33)
(3,961)
8,801
24,547
40,967
1,389
185
-
-
(342)
-
1,232
1,232
2,258
-
(276)
-
(1,440)
1,774
532
-
(304)
346
-
574
574
-
(183)
645
-
(499)
537
658
1,237
Total
$’000
19,678
9,210
11,390
(5,186)
(1,407)
50
33,735
33,735
36,680
(167)
(276)
(38)
(18,392)
51,542
5,660
(432)
(1,369)
4,643
28
8,530
8,530
(519)
(183)
6,003
(33)
(4,460)
9,338
25,205
42,204
In May 2023, the Group entered into a lease for a warehouse premises located at 9 Jerry Green Street in Auckland.
The warehouse will be used to meet storage requirements for new Advanced Nutrition products launching in the 2024
financial year and to consolidate Auckland warehouse operations, allowing for the surrender of an existing lease located
at 81 Westney Road. The lease term is for 9 years with annual payments of $4.7m increasing at a rate of 3.5% annually.
The lease has resulted in the recognition of a $34.4m right of use asset and corresponding lease liability determined by
applying an incremental borrowing rate of 7.6%.
ANNUAL REPORT 2023 PAGE 87 & 88
12. LEASES (CONTINUED)
Lease obligations
Contractual, undiscounted cash flows associated with the Group’s lease obligations are as follows:
Within one year
Between one and five years
Beyond five years
Total undiscounted lease obligations
Discounted lease obligations recognised on the Group’s consolidated balance sheet are as follows:
Current
Non-current
Total discounted lease obligations
2023
$’000
2022
$’000
8,254
27,817
26,315
62,386
5,200
41,693
46,893
5,718
20,668
9,301
35,687
4,301
24,750
29,051
Interest expense on lease obligations for the year ended 31 July 2023 was $2.2m (2022: $0.7m) and is included in
finance expense. Operating lease expense relating to short-term and low-value leases not included in the measurement
of lease obligations for the year ended 31 July 2023 is $1.3m (2022: $1.4m). The Group’s weighted average cost of
borrowing at 31 July 2023 was 7.00% (2022: 5.13%).
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:
13 Finance Income and Expenses
14 Loans and Borrowings
15 Other Non-current Liabilities
16 Share Capital
17 Share Based Payments
18 Reserves and Retained Earnings
89
90
93
94
96
98
ANNUAL REPORT 2023 PAGE 89 & 90
13. FINANCE INCOME AND EXPENSES
14. LOANS AND BORROWINGS
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 bearing liabilities are recognised initially at fair value, net of transaction costs incurred. Interest bearing
liabilities are 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.
Interest expense on borrowings, bank and facility fees and transaction costs are recognised in the income
statement over the period of the borrowings, using the effective interest rate method, unless such costs relate
to funding capital work in progress. Interest expense on lease obligations are also recognised in the income
statement in accordance with NZ IFRS 16.
Interest income on loans and deposits
Total finance income
Interest and facility fees
Capitalised borrowing costs
Interest on leases
Total finance expenses
Loss on derecognition of financial assets
Net finance costs
2023
$’000
281
281
(34,533)
6,649
(1,447)
(29,331)
(5,771)
(34,821)
2022
$’000
159
159
(20,783)
5,592
(662)
(15,853)
(2,264)
(17,958)
Working capital facility NZD
Working capital facility USD
Revolving credit facility
Current liabilities
Retail bonds
Revolving credit facility
Non-current liabilities
Total loans and borrowings
Drawn facility
amount
$’000
Transaction
costs
$’000
46,071
64,403
133,333
243,807
180,000
-
180,000
423,807
-
-
(80)
(80)
(1,002)
-
(1,002)
(1,082)
2023
Carrying
amount
$’000
46,071
64,403
133,253
243,727
178,998
-
178,998
422,725
Drawn facility
amount
$’000
Transaction
costs
$’000
-
58,885
-
58,885
180,000
117,500
297,500
356,385
-
-
-
-
(1,692)
(216)
(1,908)
(1,908)
2022
Carrying
amount
$’000
-
58,885
-
58,885
178,308
117,284
295,592
354,477
(a) Terms of loans and borrowings
The revolving credit facility and working capital facility within the Group 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 NZD $33.3m maturing 1 October 2023.
A secured revolving credit facility (Facility B) of NZD $50m maturing 1 October 2023.
A secured revolving credit facility (Facility C) of NZD $50m maturing 1 October 2023.
A secured working capital facility of NZD $250m maturing 1 October 2023.
Facilities B and C are Environmental, Social, and Governance (ESG) linked loans. These facilities are eligible for lower interest
rates if the Group achieves ESG targets and higher rates if it falls short of targets.
ANNUAL REPORT 2023 PAGE 91 & 92
14. LOANS AND BORROWINGS (CONTINUED)
Subsequent to year end, the Group refinanced its syndicated banking facilities. Changes to funding arrangements include:
•
Bank of China, China Construction Bank, HSBC, and Rabobank have been introduced to the syndicate. ANZ Bank
remains in the syndicate with BNZ Bank removed.
• Working capital facility of NZD $240m, maturing 1 October 2024, together with an NZD $10m on-demand bilateral
facility. This facility is a seasonal facility where the facility limit changes at several times during the term of the facility.
•
Revolving credit facilities of NZD $230m. These facilities also step down over time with maturity dates between
31 July 2024 and 1 October 2025.
In addition, the Group is required to make a prepayment of the higher of any Dairyworks sales proceeds or $130m by no later
than 31 March 2024.
The Group is subject to capital requirements imposed by its bank through covenants agreed as part of the lending facility
arrangements. Due to a decrease in forecast demand for Advanced Nutrition products, the Group obtained amendments to
certain covenants in April 2023. These amendments are detailed in the following section. The Group met the amended and
all other externally imposed capital requirements for the twelve months ended 31 July 2023.
The following summarises banking covenants which were in place for the year ended 31 July 2023:
1.
Total shareholder funds of no less than $600.0m at all times.
2. Working capital ratio of no less than 1.5x at all times.
3.
Interest cover ratio of no less than 2.25x (3.0x prior to amendment) on 31 July 2023.
4. Leverage ratio of no greater than 5.5x (4.0x prior to amendment) on 31 July 2023.
5. Senior leverage ratio of no greater than 3.5x (3.5x prior to amendment) on 31 July 2023.
The financial covenants for the 2024 financial year under the recently executed facilities agreement are:
1.
Total shareholder funds of no less than $600.0m at all times.
2. Working capital ratio of no less than 1.5x at all times.
3.
Interest cover ratio of no less than 2.25x for the 31 July 2024 reporting date, increasing to 3.0x for the 31 July 2025
reporting date.
4. Leverage ratio of no greater than 3.5x for the 31 July 2024 reporting date, decreasing to no greater than 3.25x on and
from 31 July 2025 reporting date.
5. Senior leverage ratio of no greater than 2.25x for 31 July 2024 reporting date.
Retail Bonds
Borrowings under the retail bond programme are supported by a Master Trust Deed and supplemented by the Series
Supplement entered into between the Group and the New Zealand Guardian Trust Company Limited. The retail bonds are
unsecured and subordinated and mature on 17 December 2024. At 31 July 2023, the retail bond had a fair value of $158.8m
(2022: $164.2m), based on NZX Debt Market valuation (NZDX).
Nominal interest rates
Nominal interest
rate %
Financial year of
maturity
Carrying
amount 2023
Carrying amount
2022
Secured revolving credit facility (Facility A, B & C) – ANZ/BNZ
Secured working capital facility – ANZ/BNZ – USD
Secured working capital facility – ANZ/BNZ – NZD
Subordinated retail bonds
7.38%
6.70%
7.37%
3.83%
2024
2024
2023
2025
133,333
64,403
46,071
180,000
117,500
58,885
-
180,000
The nominal interest rate is calculated by adding the BKBM rate for NZD facilities, US SOFR rate for USD facilities and
the applicable margin rate. It excludes line fees and swap costs. Nominal interest rate for the subordinated retail bonds
excludes transaction costs.
ANNUAL REPORT 2023 PAGE 93 & 94
15. OTHER NON-CURRENT LIABILITIES
16. SHARE CAPITAL
The Group records liabilities for make-good obligations, such as those which arise upon the end of a building
lease, in the period a reasonable estimate can be made. The liability is determined using estimated future costs
and discounted using an appropriate discount rate. On initial recognition, the carrying value of the liability is added
to the carrying amount of the associated asset and depreciated over its useful life or expensed when there is no
related asset. The liability is accreted over time through charges to finance expense and reduced by actual costs
of settlement. Make-good liabilities are reviewed annually and changes to estimates result in an adjustment of the
carrying amount of the associated asset or, where there is no asset, they are credited or charged to profit or loss
Make-good liabilities are discounted at the risk-free rate at the balance date and accreted over time through
periodic charges to profit or loss. The liabilities are reduced by actual costs of settlement.
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a
deduction from the proceeds.
During the reporting period, no new ordinary shares were granted to participants of the Group’s Long Term Incentive
scheme as a result of share rights that were granted under the scheme vesting and being converted to ordinary shares
(2022: $nil). Shares issued in the prior year to participants were at no cost. Refer to note 17 for further information.
Make-good liability
Balance as at 1 August
Liabilities recognised
Accretion
Change in estimates
Balance as at 31 July
2023
$’000
2,550
-
122
(166)
2,506
2022
$’000
-
2,473
77
-
2,550
No other shares were issued in the period.
(a) Share capital
Ordinary shares
On issue at beginning of period
Issue of share capital under employee share plans
On issue at end of period
2023 Shares
2022 Shares
218,581,661
-
218,581,661
-
218,581,661
218,581,661
2023
$’000
464,774
-
464,774
2022
$’000
464,774
-
464,774
The make-good liability relates to future costs to be incurred with respect to the lease of the Group’s Auckland blending
and canning premises. The total undiscounted amount of the estimated cash flows required to satisfy this obligation is
$3.9m (31 July 2022: $3.6m). The obligation has been discounted using an interest rate of 5.74% (31 July 2022: 3.75%).
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.
ANNUAL REPORT 2023 PAGE 95 & 96
16. SHARE CAPITAL (CONTINUED)
17. SHARE BASED PAYMENTS
(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.
(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.
Total basic EPS for the 2023 financial period was (1.96) cents (2022: 17.62 cents) of which 4.51 cents related to
discontinuing operations (2022: (0.85) cents). Diluted EPS for the 2023 financial period was (1.96) cents (2022: 17.58) of
which 4.51 cents related to discontinuing operations (2022: (0.84) cents). Weighted average shares outstanding for the
2023 financial period was 218,581,661 (2022: 218,581,661). Weighted average shares outstanding, adjusted for potentially
dilutive shares for the 2023 financial period was 219,251,184 (2022: 219,082,925).
(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 TSR Rights and 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%.
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 nil consideration. The LTI share scheme is an annual scheme with PSRs granted to Board approved
participants each year, noting however that the annual award is assessed over a three-year period.
ANNUAL REPORT 2023 PAGE 97 & 98
17. SHARE BASED PAYMENTS (CONTINUED)
18. RESERVES AND RETAINED EARNINGS
The table below sets out the movement in LTI share scheme PSR’s during the year:
(a) Retained earnings
Movements in retained earnings were as follows:
Outstanding 1 August
Granted during the year
Forfeited during the year
Exercised during the year
Total
2023
521,602
462,634
(346,989)
-
637,247
2022
380,102
371,889
(230,389)
-
521,602
Balance 1 August
Net profit/(loss) for the year
Balance 31 July
2023
$’000
332,078
(4,292)
327,786
2022
$’000
293,555
38,523
332,078
During the period, no new ordinary shares were granted to participants of the LTI scheme. See note 16 for further detail.
The fair value of the PSRs awarded at grant date has been determined by an independent third party valuer, using a Monte
Carlo simulation to model the total share return for Synlait and the TSR peer group. The fair value of the PSRs awarded, along
with key assumptions, are listed below:
Risk free rate
Volatility
Share price at entitlement date ($)
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.
2023 PSRs
2022 PSRs
3.48%
35.00%
3.27
3.26
962
2.34%
40.00%
3.70
3.40
712
(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/(recoveries) for equity settled share based payment transactions
2023
$’000
1
2022
$’000
115
(b) Nature and purpose of reserves
(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.
(ii) Employee benefits reserve
The current year movement in the employee benefits reserve of ($0.1m) (2022: $0.1m) is comprised of the cumulative
share based payment expense for share options not yet vested of $0.2m (2022: $0.3m), vesting / lapsing of rights during
the period of ($0.2m) (2022: ($0.2m)) and related movements in deferred tax balances of ($0.1m) (2022: $nil).
(c) Dividends
No dividends were declared by the Group during the year.
ANNUAL REPORT 2023 PAGE 99 & 100
FINANCIAL RISK
MANAGEMENT
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:
19. FINANCIAL RISK MANAGEMENT
19 Financial Risk Management
20 Financial Instruments
100
108
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.
In relation to foreign exchange contracts that 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 2023, the Group has hedged 49% of its exposure to forecast foreign exchange risk on USD sales. As
at 31 July 2023, the Group has hedged 20% of its exposure to forecast foreign exchange risk on USD purchases.
The Group hedges foreign exchange risk over the following 2 years from balance date.
ANNUAL REPORT 2023 PAGE 101 & 102
19. FINANCIAL RISK MANAGEMENT (CONTINUED)
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.
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. The
Group 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.
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.
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.
Market risk
(i) Foreign exchange risk
The Group’s exposure to foreign currency risk at the reporting date was as follows:
USD
$’000
42,385
(4,432)
(40,023)
(2,070)
AUD
$’000
-
(269)
-
(269)
EUR
$’000
19
(860)
-
(841)
2023
RMB
$’000
-
(471)
-
(471)
USD
$’000
46,989
(554)
(37,036)
9,399
AUD
$’000
3,375
(880)
-
2,495
EUR
$’000
77
-
-
77
2022
RMB
$’000
-
-
-
-
Trade receivables
Trade payables
Working capital facility
Total
ANNUAL REPORT 2023 PAGE 103 & 104
19. FINANCIAL RISK MANAGEMENT (CONTINUED)
The Group’s exposure to foreign currency in the period ended 31 July 2023 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 foreign currency transactions:
USD
Exports
Less than 1 year
1 to 2 years
Imports
Less than 1 year
1 to 2 years
AUD
Exports
Less than 1 year
EUR
Imports
Less than 1 year
Weighted average
exchange rate
0.6301
0.6007
0.6349
-
-
-
2023
Nominal
balance
$’000
538,000
132,000
(35,260)
-
-
-
Weighted average
exchange rate
0.6755
0.6459
0.6540
0.6416
2022
Nominal
balance
$’000
468,165
364,500
(31,464)
(500)
0.9232
9,745
0.6058
(1,088)
(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
Weighted average
interest rate
%
4.20%
3.54%
3.56%
-
2023
Nominal
balance
$’000
30,000
15,000
10,000
-
Weighted average
interest rate
%
4.36%
4.20%
3.54%
3.56%
2022
Nominal
balance
$’000
40,000
30,000
15,000
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.
(iii) Sensitivity analysis
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.
Interest rates
100 basis point increase in interest rate
100 basis point decrease in interest rate
Foreign exchange rates
5% increase in exchange rate
5% decrease in exchange rate
Post-tax impact on the
Income statement
Post-tax impact on cash
flow hedge reserve (equity)
2023
$’000
(3,431)
3,431
175
(194)
2022
$’000
(3,079)
3,079
(611)
676
2023
$’000
285
(290)
2022
$’000
515
(528)
33,751
(37,288)
41,772
(46,190)
(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.
ANNUAL REPORT 2023 PAGE 105 & 106
19. FINANCIAL RISK MANAGEMENT (CONTINUED)
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 policy section of this note.
At 31 July 2023
Working capital facility
Trade and other payables
Loans and borrowings
Derivative financial instruments
Lease liabilities
Total
At 31 July 2022
Working capital facility
Trade and other payables
Loans and borrowings
Derivative financial instruments
Lease liabilities
Total
Less than
12 months
$’000
Between
1 and 2 years
$’000
Between
2 and 5 years
$’000
110,474
280,954
133,333
26,862
5,200
556,823
58,885
323,123
-
55,941
5,718
443,667
-
-
180,000
-
4,848
184,848
-
-
117,500
20,573
5,572
143,645
-
-
-
-
13,793
13,793
-
-
180,000
-
15,096
195,096
Over
5 years
$’000
-
-
-
-
23,052
23,052
-
-
-
-
9,301
9,301
Total
$’000
110,474
280,954
313,333
26,862
46,893
778,516
58,885
323,123
297,500
76,514
35,687
791,709
Hedging instruments used
In cash flow hedges
Nominal
amount
Carrying amount
Assets
Liabilities
Hedge accounted
amounts in cash
flow reserve
Intrinsic value
Total cash flow
hedge reserve
$’000
NZD$’000
NZD$’000
NZD$’000
NZD$’000
At 31 July 2023
Foreign exchange risk
Foreign exchange contracts (USD)
Interest rate risk
Interest rate swaps (NZD)
Commodity price risk
Dairy commodity futures
Total
31 July 2022
Foreign exchange risk
Foreign exchange contracts (USD)
Foreign exchange contracts (AUD)
Foreign exchange contracts (EUR)
Interest rate risk
Interest rate swaps
Commodity price risk
Dairy commodity futures
Total
634,710
22,110
(26,862)
(4,752)
(4,752)
30,000
-
656
-
-
-
22,766
(26,862)
656
656
-
(4,096)
-
(4,096)
800,701
9,745
1,088
7,331
70
-
(75,723)
(372)
(24)
(68,392)
(302)
(24)
(68,392)
(302)
(24)
40,000
36
(395)
(359)
(359)
12,866
754
8,191
-
(76,514)
610
(68,467)
610
(68,467)
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.
ANNUAL REPORT 2023 PAGE 107 & 108
19. FINANCIAL RISK MANAGEMENT (CONTINUED)
20. FINANCIAL INSTRUMENTS
Effects of cash flow hedges on
statement of comprehensive
income
Hedging gains/(losses)
recognised in other
comprehensive income
$’000
Hedge ineffectiveness
recognised in profit
or loss
$’000
Hedging gains/(losses)
recognised in other
comprehensive income
$’000
Hedge ineffectiveness
recognised in profit
or loss
$’000
2023
2022
Foreign exchange risk
Cash and cash equivalents
Interest rate risk
Interest rate swaps
Commodity price risk
Dairy commodity futures
Total
64,001
1,014
(603)
64,412
-
-
(7)
(7)
(83,127)
3,092
212
(79,823)
Hedge ineffectiveness is included within the finance expenses line of the income statement.
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
2023
$’000
(49,296)
20,646
43,759
(18,033)
46,372
(2,924)
-
-
122
122
2022
$’000
8,089
(77,916)
(1,785)
22,316
(57,385)
(49,296)
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.
(i) Financial instruments at amortised cost
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, except for receivables from customers
who participate in the Group’s receivables purchase agreements which are classified as financial assets
measured at fair value through profit and loss (FVPL).
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.
(ii) Financial instruments at fair value through other comprehensive income (“FVOCI”)
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.
ANNUAL REPORT 2023 PAGE 109 & 110
20. FINANCIAL INSTRUMENTS (CONTINUED)
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.
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 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.
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, with the exception of retail bonds, 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,
with the exception of the retail bonds, which are included in level 1. The retail bonds are listed instruments on the
NZDX and the Group is satisfied there is sufficient trading in these instruments to qualify as an active market.
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 6. 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. 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.
ANNUAL REPORT 2023 PAGE 111 & 112
20. FINANCIAL INSTRUMENTS (CONTINUED)
(i) Hedge accounting
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.
(a) Financial instruments by category
Financial assets
At 31 July 2023
Cash and cash equivalents
Derivative financial instruments
Trade and other receivables
Investment in equity
Total
At 31 July 2022
Cash and cash equivalents
Derivative financial instruments
Trade and other receivables
Investment in equity
Total
Financial liabilities
At 31 July 2023
Derivative financial instruments
Working capital facility
Lease liabilities
Trade and other payables
Loans and borrowings
Total
At 31 July 2022
Derivative financial instruments
Working capital facility
Lease liabilities
Trade and other payables
Loans and borrowings
Total
At amortised cost
$’000
9,290
-
63,175
-
72,465
14,493
-
86,061
-
100,554
At fair value through
other comprehensive
income
$’000
At fair value through
profit or loss
Total
$’000
$’000
-
-
-
935
935
-
-
-
110
110
-
22,766
19,766
-
42,532
-
8,191
5,035
-
13,226
At amortised cost
$’000
-
110,474
46,893
280,954
312,251
750,572
-
58,885
29,051
323,123
295,592
706,651
At fair value through
profit or loss
$’000
26,862
-
-
-
-
26,862
76,514
-
-
-
-
76,514
9,290
22,766
82,941
935
115,932
14,493
8,191
91,096
110
113,890
Total
$’000
26,862
110,474
46,893
280,954
312,251
777,434
76,514
58,885
29,051
323,123
295,592
783,165
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,
with exception to the Retail Bond (the fair value of the Retail Bond is shown at note 14).
ANNUAL REPORT 2023 PAGE 113 & 114
OTHER
This section contains additional information regarding the performance of the
group during the financial year. This section includes the following notes:
21.
INCOME TAX
21
Income Tax
22 Other Investments
23 Related Party Transactions
24 Contingencies
25 Commitments
26 Events Occurring After the Reporting Period
27 Other Accounting Policies
114
118
120
122
122
123
123
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, tax is also recognised in other comprehensive income or directly in equity,
respectively.
Current tax is the expected tax payable on 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 and Synlait
Milk (Dunsandel Farms) Limited, form a tax consolidated group. The New Zealand Dairy Company Limited, Eighty
Nine Richard Pearse Drive Limited, Dairyworks Limited and Synlait Milk (Holdings) No.1 Limited are not members of
the tax consolidated group.
ANNUAL REPORT 2023 PAGE 115 & 116
21.
INCOME TAX (CONTINUED)
(a) Income tax (expense)/benefit
Current tax expense:
Current tax on profit/(loss) for the year
Current tax on prior period adjustments
Total
Deferred tax expense:
Temporary differences
Prior year adjustments
Change in estimate
Total deferred tax
Income tax benefit/(expense)
(b) Reconciliation of effective tax rate
Profit/(loss) before income tax
Income tax using the Group’s domestic tax rate – 28%
Tax exempt income
Non-deductible costs
Total
Prior year adjustments
Deferred tax credit relating to change in estimate
Other tax effects for reconciliation between accounting profit and tax expense
Total
Income tax benefit/(expense)
2023
$’000
629
519
1,148
5,212
(237)
-
4,975
6,123
(20,267)
5,675
881
(733)
5,823
283
-
17
300
6,123
2022
$’000
(Restated)
150
1,362
1,512
(7,833)
(1,074)
538
(8,369)
(6,857)
47,230
(13,270)
6,006
(385)
(7,649)
287
538
(33)
792
(6,857)
During the period the Group amended its accounting policy with respect to the recognition of the Research and Development
Tax Credit (“the credit”). The is credit now recognised in other income, rather than as an increase in income tax benefit/
(expense). As a result, the comparative period benefit of $2.5m has been reclassified to other income, increasing income tax
expense by a corresponding amount.
(c) Imputation credits
Imputation credits available directly and indirectly to the shareholders of the Group
80,338
83,000
2023
$’000
2022
$’000
(d) Income tax recognised in other comprehensive income
The tax credit/(charge) relating to components of other comprehensive income is as follows:
31 July 2023
Cash flow hedges
Other comprehensive income
31 July 2022
Cash flow hedges
Other comprehensive income
(e) Deferred taxation
The balance comprises temporary differences attributable to:
Before tax Tax benefit/(expense)
$’000
$’000
64,405
64,405
(79,701)
(79,701)
(18,033)
(18,033)
22,316
22,316
Assets
Tax losses carried forward
Other items
Derivatives
Total deferred tax assets
Liabilities
Property, plant and equipment
Intangible assets
Total deferred tax liabilities
Total deferred tax
2023
$’000
18,860
6,144
1,147
26,151
(74,702)
(6,134)
(80,836)
(54,685)
After tax
$’000
46,372
46,372
(57,385)
(57,385)
2022
$’000
-
5,717
19,171
24,888
(61,500)
(5,254)
(66,754)
(41,866)
ANNUAL REPORT 2023 PAGE 117 & 118
21.
INCOME TAX (CONTINUED)
22. OTHER INVESTMENTS
Balance
1 Aug 2021
Recognised
in profit or
loss
$’000
(55,995)
(3,146)
4,298
49
(4,639)
(59,433)
$’000
(8,912)
-
1,299
-
340
(7,273)
Recognised
in other
comprehensive
income
$’000
Recognised
directly in
equity
Prior year
adjustment
$’000
$’000
Movement
relating to
discontinued
operation
$’000
-
22,316
-
-
-
22,316
-
-
5
-
-
5
(196)
-
125
(49)
(955)
(1,075)
3,602
-
(8)
-
-
3,594
Property, plant and equipment
Derivatives
Other items
Tax losses carried forward
Intangible assets
Total
Balance
1 Aug 2022
Recognised
in profit or
loss
$’000
(61,501)
19,170
5,719
-
(5,254)
(41,866)
$’000
(9,028)
-
878
18,860
(5,498)
5,212
Recognised
in other
comprehensive
income
$’000
Recognised
directly in
equity
Prior year
adjustment
$’000
$’000
-
(18,033)
-
-
-
(18,033)
-
-
(5)
-
-
(5)
(499)
-
285
-
(22)
(236)
Property, plant and equipment
Derivatives
Other items
Tax losses carried forward
Intangible assets
Total
Movement
relating to
discontinued
operation
$’000
(3,673)
11
(732)
-
4,637
243
(54,685)
Balance
31 July
2022
$’000
(61,501)
19,170
5,719
-
(5,254)
(41,866)
Balance
31 July
2023
$’000
(74,701)
1,148
6,145
18,860
(6,137)
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.
Investments in joint ventures
The Group measures its interests in joint ventures where it does not hold significant influence over the ventures
at either fair value through profit and loss (FVTPL) or fair value through other comprehensive income (FVOCI). The
determination of the measurement basis is made on an investment-by-investment basis. Investments where the
Group holds significant influence 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
joint ventures is included in the carrying amount of the investment. Dividends reduce the carrying value of the
investment.
Equity securities
Interest in joint venture
Total other investments
2023
$’000
110
825
935
2022
$’000
110
-
110
During the period the Group invested $0.8m in a public-private joint venture. The joint venture is intended to undertake
a portfolio of investments that will help accelerate delivery of biological emissions tools to all New Zealand farmers.
The Group has committed to investing a further $2.8m in the joint venture. The Group has made a one-time irrevocable
election to measure the interest in the joint venture at FVOCI.
ANNUAL REPORT 2023 PAGE 119 & 120
22. OTHER INVESTMENTS (CONTINUED)
23. RELATED PARTY TRANSACTIONS
Synlait Milk Limited held, either directly or indirectly, interests in the following entities at the end of the reporting period:
Name of entity
Country of
incorporation
Class of
shares
2023
%
2022
%
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) Co., Ltd (Subsidiary)
Synlait Milk (Holdings) No.1 Limited (Subsidiary)
Dairyworks Limited (Subsidiary)
Synlait Milk (Dunsandel Farms) Limited (Subsidiary)
Primary Collaboration New Zealand Limited
Primary Collaboration New Zealand (Shanghai) Co., Ltd (Subsidiary)
Centre for Climate Action Joint Venture
New Zealand
New Zealand
New Zealand
China
China
New Zealand
New Zealand
New Zealand
New Zealand
China
New Zealand
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
25
100
100
100
100
17
100
2
100
100
100
25
100
100
100
100
17
100
-
Parent entity
Bright Dairy Holding Limited hold 39.01% of the shares issued by Synlait Milk Limited (2022: 39.01%). 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 Sichuan 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. New Hope Innovation (Hong Kong) Trading Company
Limited is a related entity of Sichuan New Hope Nutritionals and is engaged in the import and export of dairy foods. Main
products include whole milk powder, skim milk powder and whey powder. The company is the Hong Kong arm of the
Chinese New Hope Dairy group, New Hope Dairy.
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, which was subsequently sold to Synlait Milk Limited. Eighty Nine Richard Pearse Drive Limited
owned the land and buildings at which the Auckland blending and canning which were sold in a sale and leaseback
transaction in the previous period. Both The New Zealand Dairy Company Limited and Eighty Nine Richard Pearse Drive
Limited are now non-trading entities.
In May 2019, Synlait Business Consulting (Shanghai) Co., Ltd was incorporated. The wholly owned foreign entity started
operations from 1 August 2019 and the principal activity of the entity is to provide services to assist Synlait to market
products in China.
On 1 August 2019, the Group acquired selected assets and liabilities of Talbot Forest Cheese Limited. The acquirer was
a newly incorporated company, Synlait Foods (Talbot Forest) Limited. The acquisition included a cheese manufacturing
plant located in Temuka, New Zealand, capable of manufacturing a variety of cheese products. On 31 December 2020,
Synlait Foods (Talbot Forest) Limited was amalgamated into Dairyworks Limited.
On 1 April 2020, the Group acquired 100% of the share capital in Dairyworks Limited. Dairyworks Limited specialises in
the processing, packaging, and marketing of dairy products, including cheese, butter, and milk powder.
On 3 August 2020 Synlait Milk (Holdings) No.1 Limited was incorporated for the purposes of holding newly acquired land
located adjacent to the Group’s Dunsandel Operations. Synlait Milk (Holdings) No.1 Limited was previously known as
Synlait Milk (Dunsandel Farms) Limited.
ANNUAL REPORT 2023
PAGE 121 & 122
23. RELATED PARTY TRANSACTIONS (CONTINUED)
On 25 May 2022 Synlait Milk (Dunsandel Farms) Limited was incorporated for the purposes of dairy farming operations
on land located adjacent to the Group’s Dunsandel Operations.
Key management and personnel compensation
Other than their salaries and bonus incentives, there are no other benefits paid or due to executive leadership team
members as at 31 July 2023. The total short-term benefits paid to the key management and personnel is set out below.
(c) Outstanding balances
The following balances are outstanding at the reporting date in relation to transactions with related parties other than key
management personnel:
2023
$’000
609
(1,118)
-
-
2022
$’000
(27)
(1,072)
(65)
740
Short term benefits
Share based payments expenses (note 17)
2023
$’000
7,095
1
2022
$’000
6,727
115
Current receivables (payables)
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
Sichuan New Hope Nutritionals Ltd – other costs
(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.
24. CONTINGENCIES
(i) Loans to directors
There were no loans to directors issued during the period ended 31 July 2023 (2022: $nil).
(ii) Other transactions and balances
Directors of Synlait Milk Limited own and control 2.4% of the voting shares of the company at balance date (2022: 2.4%)
(b) Transactions with other related parties
Purchase of goods and services
Bright Dairy and Food Co Ltd – Directors fees
New Hope Innovation (Hong Kong) Trading Company Limited – reimbursement of costs
Sale of goods and services
Bright Dairy and Food Co Ltd – sale of dairy products
Sichuan New Hope Nutritional Food Co. Ltd – sale of milk powder products
New Hope Innovation (Hong Kong) Trading Company Limited – sale of milk powder products
2023
$’000
267
-
1,807
-
-
2022
$’000
311
582
32,671
408
163
No significant contingent liabilities are outstanding at balance date (2022: $nil).
25. COMMITMENTS
Capital commitments
Capital expenditure contracted for at the end of the reporting period but not yet incurred is as follows:
Pokeno modifications
Dunsandel reverse osmosis capacity expansion
Other operational capital expenditure
Total
2023
$’000
745
-
-
745
2022
$’000
5,304
2,712
3,658
11,674
The above balances have been committed in relation to future expenditure on capital projects. Amounts already spent
have been included as work in progress.
ANNUAL REPORT 2023 PAGE 123 & 124
26. EVENTS OCCURRING AFTER THE REPORTING PERIOD
On 18 September 2023, the Group completed the refinancing of its debt facilities. Refer to note 14 for additional
information.
On 15 September 2023, the Group received notice from The a2 Milk Company purporting to cancel the exclusivity
arrangements under the Nutritional Powders Manufacturing and Supply Agreement (NPMSA) for the a2 Platinum® and
other nutritional products that the company produces. The Group disputes that The a2 Milk Company has the right to
cancel the exclusivity arrangements. The potential impact on forecast sales volumes has been considered and reflected
in the Group’s forecast financial results as well as in the five-year forecast on which goodwill and asset impairment testing
is based (refer to note 11). No significant impacts have been noted.
27. 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
Independent auditor’s report
SHAREHOLDERS OF SYNLAIT MILK LIMITED
To the shareholders of Synlait Milk Limited
Our opinion
In our opinion, the accompanying financial statements of Synlait Milk Limited (the Company), including its subsidiaries (the Group), present fairly, in
all material respects, the financial position of the Group as at 31 July 2023, its financial performance and its 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).
Our opinion
In our opinion, the accompanying financial statements of Synlait Milk Limited (the Company), including its
subsidiaries (the Group), present fairly, in all material respects, the financial position of the Group as at
31 July 2022, its financial performance and its 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).
The Group’s financial statements comprise:
What we have audited
the statement of financial position as at 31 July 2023;
the statement of financial position as at 31 July 2022;
the income statement for the year then ended;
the statement of cash flows for the year then ended; and
the statement of changes in equity for the year then ended;
the statement of comprehensive income for the year then ended;
What we have audited
the income statement for the year then ended;
The Group's financial statements comprise:
●
●
●
●
●
●
the statement of changes in equity for the year then ended;
the notes to the financial statements, which include significant accounting policies and other explanatory information.
the statement of comprehensive income for the year then ended;
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ)) and International Standards on Auditing (ISAs).
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our
report.
the notes to the financial statements, which include significant accounting policies and other explanatory
information.
the statement of cash flows for the year then ended; and
•
•
•
•
•
•
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ))
and International Standards on Auditing (ISAs). Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners
(including International Independence Standards) (New Zealand) (PES 1) issued by the New Zealand Auditing and Assurance Standards Board and the
International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards
Board for Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Our firm carries out other services for the Group that are related to our role as the Group’s auditor and in the area of a logistics review. The provision of
these other services have not impaired our independence as auditor of the Group.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current
year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Independence
We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code
of Ethics for Assurance Practitioners (including International Independence Standards) (New Zealand) (PES
1) issued by the New Zealand Auditing and Assurance Standards Board and the International Code of Ethics
for Professional Accountants (including International Independence Standards) issued by the International
Ethics Standards Board for Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
Our firm carried out other services for the Group in the areas of unusual transaction analysis, historic
performance analysis and training services. The provision of these other services has not impaired our
independence as auditor of the Group.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit
of the financial statements of the current year. These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
PricewaterhouseCoopers, PwC Centre, 60 Cashel Street, PO Box 13244, Christchurch 8141, New Zealand
T: +64 3 374 3000, pwc.co.nz
ANNUAL REPORT 2023
PAGE 125 & 126
DESCRIPTION OF THE
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED
THE KEY AUDIT MATTER
DESCRIPTION OF THE
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED
THE KEY AUDIT MATTER
We considered the Group’s assessment of their ability to reduce debt in
line with the debt maturity profile, their forecast compliance with the new
banking covenants, the reasonableness of the alternative debt reductions
strategies as well as the consequential impact of these matters on the
Directors’ assessment of the Group’s ability to continue as a going concern,
including whether or not material uncertainties exist. Our procedures
included the following:
•
•
•
•
•
•
•
•
•
read the Group’s going concern paper to obtain an understanding of
the key assumptions and judgements made;
read the new executed facility agreements between the Group and
its banking syndicate to obtain an understanding of the key terms
including facility limits, repayment terms and banking covenants;
tested the mathematical accuracy of management’s forecasted
covenant calculations for the year ending 31 July 2024;
challenged management’s forecasted cash flow assumptions and
sensitivity analysis including the assumptions around any potential
cash flow implications from the notice of cancellation of exclusivity
from The A2 Milk Company on 15 September 2023;
obtained an update from management and their advisors on the
status of the Dairyworks sales process and considered whether it was
reasonable that this met the test of highly probable as outlined in NZ
IFRS 5;
considered the Group’s plans and intentions with respect to the
maturity of the subordinated bonds;
with the assistance of our treasury experts, considered the
reasonableness of the Group’s determination of alternative strategies
available to reduce debt levels, including the external advice obtained
by management on the viability and timelines for these alternative
strategies;
engaged our internal treasury experts to assist with our considerations
of various elements of the future funding plans of the Group; and
considered the appropriateness of the Group’s disclosure.
Capital structure and funding
The Group’s loans and borrowings (bank borrowings and subordinated
retail bonds) as at 31 July 2023 were $422.7m (31 July 2022: $354.5m).
The higher debt levels resulted from reduced profitability and operating
cash flows due to events and conditions detailed in the going concern
note, which in turn required the Group to engage with its banking
syndicate during the year to amend certain banking covenants. The Group
has complied with its amended banking covenants as at 31 July 2023.
All of the Group’s bank borrowings were classified as current liabilities
at 31 July 2023 due to these facilities expiring on 1 October 2023. In
addition, the subordinated bonds of $180m mature on 17 December 2024.
On 18 September 2023 the Group executed new banking facilities with an
expanded banking syndicate. The facilities have a mix of one and two year
terms and limits that reduce during the facility term as outlined in note
14. In addition, the Group now has a requirement to repay the higher of
the proceeds from the proposed sale of Dairyworks or $130m by no later
than 31 March 2024. The sale of Dairyworks is considered highly probable
by the Directors and as such has been presented as a discontinued
operation in the financial statements.
The majority of new banking covenants are in line with the covenants as
at 31 July 2023. However, the leverage ratio and senior leverage ratio
reduce significantly to 3.5x and 2.25x (from 5.5x and 3.5x) respectively
on 31 July 2024. As a result, the new banking facilities therefore require
reduction over the next 12 months.
Consideration also needs to be given to the maturity of the subordinated
bonds and how this is repaid or refinanced.
On 15 September 2023, The A2 Milk Company, a key customer, notified
the Group that it was seeking to end exclusivity rights for production of its
infant milk formula products. Management did not identify any significant
impacts on the FY 24 forecasts as the risk was anticipated and considered
as part of the forecasting process.
Uncertainties exist in relation to future events and operating conditions
of the Group and its ability to repay debt in line with maturity dates and
comply with bank facility covenants. To address these uncertainties
management has prepared forecasts that consider a range of scenarios
and considered the viability of other alternative strategies to reduce
debt. The Directors concluded that, after having carefully considered the
forecast financial performance, the recently executed banking facilities,
expected compliance with covenants and capital requirements attached
to those facilities, the current stage of negotiations to sell Dairyworks and
the alternative debt reduction strategies available to them, that there are
no material uncertainties that may cast significant doubt upon the Group’s
ability to continue as a going concern.
Because of the significance of the judgements involved in these
assumptions, we have considered this to be an area of focus for the audit.
Impairment assessment
As per note 11 to the financial statements the Group has two cash
generating units (CGUs) being Synlait Milk and Dairyworks.
We considered the appropriateness of the Group’s conclusion on
classifying the Dairyworks disposal group assets and liabilities held for sale.
On 2 June 2023 the Group announced its intention to divest its subsidiary
Dairyworks Limited. Dairyworks met the criteria of an asset held for sale
and therefore the goodwill ($58.2m) and brands ($16.6m) related to the
Dairyworks CGU was included within the disposal group and considered
by the Group for impairment in line with the requirements under NZ IFRS 5.
Assets held for sale are carried at the lower of the carrying value or the fair
value less cost to sell. The carrying value of the assets and liabilities held
for sale as at 31 July 2023 amounted to $117m as per note 1. The Group
determined the fair value less cost to sell exceeded the carrying value of
the disposal group and no associated impairment was recognised.
$6m of goodwill was allocated to the Synlait Milk CGU. The Group based
its impairment assessment of the Synlait Milk CGU on a value in use basis,
using a discounted cash flow model based on forecast future performance
to determine the recoverable amount. Management performed sensitivity
analysis for the effect of reasonable possible changes in key assumptions
on the impairment assessment and included the relevant disclosures.
The key assumptions in the impairment assessment are the cash flow
forecasts (through annual growth rates for revenue and expenses),
terminal growth rate and the discount rate.
On 15 September 2023, The a2 Milk Company Limited, a key customer,
notified the Group that it was seeking to end exclusivity rights for
production of its infant milk formula products. Management did not identify
any significant impacts on the FY 24 forecasts as the risk was anticipated
and considered as part of the forecasting process.
As part of the impairment assessment process, management performed a
comparison of the net assets to the market capitalisation of the Company
and prepared an analysis and explanation of the difference.
Management considered the reasons for this difference in finalising their
assessment of the recoverable amounts of the Group’s CGUs.
The impairment testing of the Synlait Milk goodwill and the Dairyworks
assets and liabilities held for sale is considered a key audit matter due to
the materiality of the balances, the gap between the Group’s net assets
and its market capitalisation, and the significant level of management
estimation and judgement applied in determining key assumptions used
in the impairment assessments.
For the goodwill and assets and liabilities held for sale impairment
assessments, our audit focused on assessing and challenging the key
assumptions used by management.
Our procedures included the following:
•
•
•
•
•
•
•
•
•
•
•
evaluated the appropriateness of the identification of the Group’s
CGUs;
compared the cash flows included in management’s impairment
model to the board approved plans;
assessed the Group’s forecasting accuracy by comparing historical
forecasts to actual results, taking into consideration the impact of the
Covid-19 pandemic and the impacts of the SAP implementation;
discussed with management the basis for the cash flow forecasts
and the key drivers of change in the forecasts, including internal and
external factors;
obtained an update from management and their advisors on the
status of the Dairyworks sales process and indicative pricing;
engaged our valuation expert to assist us with:
•
•
•
considering whether the valuation methodology applied was
appropriate;
assessing whether the discount rates and long term growth
rates used by management are reasonable in the context of the
forecasts; and
considering management’s paper comparing the net assets and
the market capitalisation of the Company, in the context of our
stand back assessment of the impairment test;
tested the accuracy of the calculations in management’s impairment
model, and checking that the carrying amount for the CGU’s net
assets was correctly included in the impairment assessment;
evaluated the reasonableness of management’s forecast cash flows;
performed sensitivity analyses for the effect of reasonably possible
changes in key assumptions on the impairment assessment;
evaluated the effect of the trading results and market announcements
up to the date of our report including the impact of The a2 Milk
Company Limited exclusivity notice of cancellation; and
considered the appropriateness of disclosures in the financial
statements.
ANNUAL REPORT 2023 PAGE 127 & 128
Our audit approach
Our audit approach
Overview
Overview
Overall group materiality: $8,000,000, which represents
approximately 0.5% of total revenues.
Overall group materiality: $8,000,000, which represents 0.5% of total revenue from continuing and
discontinued operations.
We chose total revenue from continuing and discontinued operations as the benchmark because, in our view,
it is the benchmark against which the performance of the Group is most commonly measured by users, and is a
generally accepted benchmark.
We chose total revenues as the benchmark because, in our view, it
is the benchmark against which the performance of the Group is
most commonly measured by users, and is a generally accepted
benchmark.
Full scope audits were performed for two entities in the Group based on their financial significance being
Synlait Milk Limited and Dairyworks Limited.
Following our assessment of the risk of material misstatement, we
selected Synlait Milk Limited and Dairyworks Limited entities for full
scope audits, comprising the principal business units. Specified
procedures over certain material balances and transactions and
analytical review procedures were performed over the remaining
entities.
Specified audit procedures and analytical review procedures were performed on the remaining entities.
As reported above, we have two key audit matters, being:
As reported above, we have two key audit matters, being:
Capital structure and funding
•
● Temuka cheese manufacturing plant asset impairment; and
•
● Sale and leaseback transaction
Impairment assessment
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we
the financial statements. In particular, we considered where management made subjective judgements; for
considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions
example, in respect of significant accounting estimates that involved making assumptions and considering
and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls,
future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management
including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
override of internal controls, including among other matters, consideration of whether there was evidence of
bias that represented a risk of material misstatement due to fraud.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance about whether the financial
statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the
financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the financial
statements as a whole as set out above. These, together with qualitative considerations, helped us to determine the scope of our audit, the nature, timing
and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate, on the financial statements as a whole.
How we tailored our group audit scope
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including
account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
the overall Group materiality for the financial statements as a whole as set out above. These, together with
qualitative considerations, helped us to determine the scope of our audit, the nature, timing and extent of our
Full scope audits were performed for two entities in the Group based on their financial significance being Synlait Milk Limited and Dairyworks Limited.
audit procedures and to evaluate the effect of misstatements, both individually and in aggregate, on the
financial statements as a whole.
Specified audit procedures and analytical review procedures were performed on the remaining entities.
How we tailored our group audit scope
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the
financial statements as a whole, taking into account the structure of the Group, the accounting processes and
controls, and the industry in which the Group operates.
Full scope audits were performed for two entities in the Group based on their financial significance being
Synlait Milk Limited and Dairyworks Limited.
Specified audit procedures and analytical review procedures were performed on the remaining entities.
All audit procedures were performed by PricewaterhouseCoopers New Zealand.
PwC
Other information
The Directors are responsible for the other information. The other information comprises the information
included in the Annual report, but does not include the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form
of audit opinion or assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or
our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work
we have performed on the other information that we obtained prior to the date of this auditor’s report, we
Other information
conclude that there is a material misstatement of this other information, we are required to report that fact. We
The Directors are responsible for the other information. The other information comprises the information included in the annual report, but does not include
have nothing to report in this regard.
the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form of audit opinion or assurance conclusion
thereon.
Responsibilities of the Directors for the financial statements
The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of the
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 financial statements that are free from material
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
misstatement, whether due to fraud or error.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a
In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to
material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
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.
Responsibilities of the Directors for the financial statements
The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of the 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 financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are
In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
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.
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (NZ) and ISAs will always detect a material misstatement when it exists.
Auditor’s responsibilities for the audit of the financial statements
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are free from material misstatement, whether due to
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
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
financial statements.
audit conducted in accordance with ISAs (NZ) and ISAs 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
A further description of our responsibilities for the audit of the financial statements is located at the External
the basis of these financial statements.
Reporting Board’s website at:
https://www.xrb.govt.nz/assurance-standards/auditors-responsibilities/audit-report-1/
This description forms part of our auditor’s report.
A further description of our responsibilities for the audit of the financial statements is located at the External Reporting Board’s website at:
https://www.xrb.govt.nz/assurance-standards/auditors-responsibilities/audit-report-1/
This description forms part of our auditor’s report.
Who we report to
This report is made solely to the Company’s shareholders, as a body. Our audit work has been undertaken so
that we might state those matters which 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 and the Company’s shareholders, as a body, for our audit work, for this report or for
the opinions we have formed.
Who we report to
This report is made solely to the Company’s shareholders, as a body. Our audit work has been undertaken so that we might state those matters which
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 and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have
formed.
The engagement partner on the audit resulting in this independent auditor’s report is Elizabeth Adriana (Adri) Smit.
The engagement partner on the audit resulting in this independent auditor’s report is Elizabeth Adriana (Adri)
Smit.
For and on behalf of:
For and on behalf of:
Chartered Accountants
27 September 2022
Chartered Accountants
25 September 2023
PwC
Christchurch
ANNUAL REPORT 2023
PAGE 129 & 130
Jersey Oaks in Culverden. Owner Tim Delaney –
winner of Synlait’s Annual Dairy Honours Award,
Kotahitanga.
STATUTORY
INFORMATION
01. BUSINESS OPERATIONS
Synlait is a nutrition company. We combine expert farming with state-of-the-
art processing to produce a range of Advanced Nutrition, Foodservice and
Ingredient products. In the year to 31 July 2023, we made no changes to our
company structures.
In June 2023, Synlait announced its intention to divest its Dairyworks and its
Temuka assets. Synlait’s Board and Management are undertaking a strategy
and capital structure refresh, including an asset review. To ensure greater focus
and execution of Synlait’s overall business strategy, the company intends to
divest of Dairyworks and its Temuka assets. The divestment process remained
underway as at the end of this financial year.
ANNUAL REPORT 2023 PAGE 131 & 132
02. DIRECTORS
Synlait’s Directors are profiled on our website synlait.com/people/. This table sets out the people that held office
(or ceased to hold office) as a Director of Synlait and its subsidiaries during the year ending 31 July 2023:
Company
Directors
Synlait Milk Limited
Synlait Milk Finance Limited
Simon Robertson (Chair)
Dr. Gui Min (Gracie)¹
Ian (Sam) Knowles²
Dr. John Penno³
Min Chen (Joyce)⁴
Paul McGilvary⁵
Paul Washer⁶
Ruibing Liu (Ryan)⁷
Hon. Ruth Richardson⁸
Sihang Yang (Edward)
Yi Zhu (Julia)⁷
Independent
Bright Dairy Appointed
Independent
Board Appointed
Bright Dairy Appointed
Independent
Independent
Bright Dairy Appointed
Bright Dairy Appointed
Bright Dairy Appointed
Bright Dairy Appointed
Appointed
25 November 2020
1 February 2022
4 July 2013
21 July 2013
1 December 2021
24 January 2022
2 December 2022
19 June 2023
16 November 2016
11 November 2010
19 June 2023
Company
The New Zealand Dairy
Company Limited
Eighty Nine Richard Pearse
Drive Limited
Synlait Business Consulting
(Shanghai) Co., Ltd
Directors
Grant Watson
Robert Stowell
Grant Watson
Robert Stowell
Martijn Jager
Deborah Marris
Boyd Williams
Grant Watson⁹
Robert Stowell⁹
Paul Mallard⁹
1 Dr Gui Min (Gracie) retired from the Board on 19 June 2023.
2 Sam Knowles retired from the Board on 2 December 2022.
3 Dr. John Penno had previously been a Director of Synlait Limited, which has since been removed from the Register of Companies. When first appointed to the Board of Synlait Milk Limited,
John was CEO and Managing Director. In November 2018, following stepping down as CEO, he became the Board Appointed Director. In May 2021 John became Interim CEO following the
resignation of then CEO Leon Clement. The Board determined that Dr. John Penno was the best person to act as Chair once Grant Watson took up the CEO role in January 2022. As a result
of John’s long history with the company, the Board considered that Dr. John Penno was not an Independent Director under the NZX Listing Rules. To manage the fact that Dr. John Penno was
not an Independent Director, the Board sought to change the Constitution to enable the Chair to be either an Independent Director or the Board Appointed Director at the Annual Meeting on
1 December 2021. The resolution was passed by shareholders and John remains the Board Appointed Director. John stood down as Chair at the 2022 Annual Meeting and resumed his role
as a Board Appointed Director.
4 Min Chen (Joyce) retired from the Board on 19 June 2023.
5 Paul McGilvary was appointed by the Board in January 2022 to fill a casual vacancy and was re-elected to the Board as an Independent Director by shareholders at the
2022 Annual Meeting.
⁶ Paul Washer was elected to the Board at the 2022 Annual Meeting on 2 December, replacing Sam Knowles who retired by rotation.
⁷ Ruibing Liu (Ryan) and Yi Zhu (Julia) replaced Dr. Gui Min (Gracie) and Min Chen (Joyce) as Bright Dairy Appointed Directors on 19 June 2023.
⁸ When first appointed to the Board of Synlait Milk Limited, Hon. Ruth Richardson was an Independent Director. In 2013, she became a Bright Dairy Appointed Director.
⁹ Grant Watson and Robert Stowell were appointed Directors by Resolution dated September 2022 and Paul Mallard in March 2023. The paperwork is currently being processed in China
to formally enact the change.
Company
Dairyworks Limited
Directors
Timothy Carter
Grant Watson
Synlait Milk (Dunsandel Farms) Limited Grant Watson
Robert Stowell
Synlait Milk (Holdings) No.1 Limited
Grant Watson
Robert Stowell
Synlait has considered the independence of its three Independent Directors against the definition in the NZX Listing
Rules, the commentary to recommendation 2.4 in the NZX Corporate Governance Code and its Board Charter and is
satisfied its Independent Directors meet the requirements for independence.
As permitted by waivers from the NZX Listing Rules, Bright Dairy Holdings Limited, a shareholder of Synlait, is entitled
to appoint four Directors to Synlait’s Board. One of those Directors must ordinarily reside in New Zealand and have local
commercial and governance experience for an NZX listed company. Currently that Director is Hon. Ruth Richardson.
03. DIRECTOR INTERESTS
The following declarations of interest were made by Directors of Synlait and its subsidiaries under section 140 of the
Companies Act 1993. Entries which are italicised indicate new disclosures during the year ended 31 July 2023.
Simon Robertson
Director and Shareholder Synlait Milk Limited
Director Synlait Milk Finance Limited
Director Alliance Group Limited
Director Ballance Agri-Nutrients Limited
Trustee Robertson Family Trust
Trustee G R Foot Trust
Trustee Norman Family Trust
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
ANNUAL REPORT 2023 PAGE 133 & 134
03. DIRECTOR INTERESTS (CONTINUED)
Dr. John Penno
Paul Washer¹
Director and Shareholder Synlait Milk Limited
Director Synlait Milk Finance Limited
Director Okuora Farms Limited
Director and Shareholder Okuora Holdings Limited (and through Okuora Holdings Limited, shareholder in Pastoral Robotics Limited
and The Pure Food Co Limited, shareholder in Signum Holdings Limited and creditor of it and its subsidiaries)
Chair and Shareholder Wangapeka River Hops Limited
Chair and Shareholder The Pure Food Co Limited
Director and Shareholder Leaft Foods Limited
Director and Shareholder Thorndale Dairies Limited
Director and Shareholder The New Zealand Merino Company Limited
Trustee John Penno Trust
Through Signum Holdings Limited, shareholder in TCL Holdings Limited (previously Trust Codes Limited) and Cloud Computing
Continuation Services Limited1
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
Paul McGilvary²
Director and Shareholder Synlait Milk Limited
Director Synlait Milk Finance Limited
Director AsureQuality Limited³
Director BVAQ Pty Ltd (Australia)⁴
Waikato Milking Systems Limited Partnership⁵
WMS GP Limited⁵
Waikato Milking Systems Lease Limited⁵
New Zealand Hops 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
Director Synlait Milk Limited
Director Synlait Milk Finance Limited
Chief Financial Officer and Shareholder Pact Group Holdings (Australia) Pty Ltd and Director of Pact Group subsidiaries²
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
Ruibing Liu (Ryan)³
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
Hon. Ruth Richardson
Director and Shareholder Synlait Milk Limited
Director Synlait Milk Finance Limited
Director Ruth Richardson (NZ) Limited
Director New Zealand Taxpayers’ Union
Trustee Christchurch Early Intervention Trust
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 (Edward)
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
1 TCL Holdings Limited (previously Trust Codes Limited) was a supplier to Synlait on normal terms of trade until October 2022, but has not provided services to the Group after
that date. Since Okuora Holdings Limited invested in Signum Holdings Limited, there has, and continues to be, a protocol in place whereby John Penno abstains from all
Board discussions and decisions involving the supply arrangements between Synlait and TCL Holdings Limited.
2 Paul McGilvary was appointed by the Board in January 2022 to fill a casual vacancy and was re-elected to the Board as an Independent Director by shareholders at the 2022
Annual Meeting.
³ Paul McGilvary was Acting Chair of AssureQuality from 17 October 2022 until 1 July 2023 and is a Director from 1 July 2023 onwards.
⁴ Paul McGilvary was Chair of BVAQ Pty Ltd (Australia) until 1 January 2023 and is a Director from 1 January 2023 onwards.
⁵ Paul McGilvary ceased as a Director 31 May 2023.
1 Paul Washer was appointed to the Board on 2 December 2022.
2 Pact Group Holdings (Australia) Pty Ltd is the ultimate holding company of a number of subsidiaries, some of which, Paul Washer is also a Director. Pact Group, via its subsidiaries Alto
Packaging Limited, Astron Plastics Limited and VIP Plastic Packaging (NZ) Limited, is a supplier to Synlait on normal terms of trade. Pact Group was a supplier to Synlait prior to Paul Washer
becoming a Director of Synlait. There is a protocol in place whereby Paul Washer abstains from all Board discussions and decisions involving the supply arrangements between Synlait and
Pact Group.
³ Ruibing Liu (Ryan) as appointed to the Board on 19 June 2023.
ANNUAL REPORT 2023 No new disclosures were made during the period by Dr. Gui Min (Gracie) who retired from the Board on 19 June 2023.
No new disclosures were made during the period by Min Chen (Joyce) who retired from the Board on 19 June 2023.
No new disclosures were made during the period by Sam Knowles who retired from the Board on 2 December 2022.
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 them. As permitted by section 162 of the Companies Act 1993 and
Synlait’s constitution, Synlait indemnifies and insures Directors and Officers against liability to other parties that may
arise in the course of their activities as a Director or Officer of Synlait. 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.
For the purposes of section 148(2) of the Companies Act 1993, no further disclosures were made by the Directors in
respect of the increase or decrease in their shareholdings.
PAGE 135 & 136
03. DIRECTOR INTERESTS (CONTINUED)
Yi Zhu (Julia)¹
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
Grant Watson
Director Dairyworks Limited
Director Synlait Milk (Dunsandel Farms) Limited
Director Eighty Nine Richard Pearse Drive Limited
Director The New Zealand Dairy Company Limited
Director Synlait Milk (Holdings) No.1 Limited
Director Synlait Business Consulting (Shanghai) Co., Ltd²
Shareholder 365 Ventures Limited³
Insurance cover arranged by Synlait Milk Limited
Deed of Indemnity and Access from Synlait Milk Limited
Robert Stowell
Director Synlait Milk (Dunsandel Farms) Limited
Director Eighty Nine Richard Pearse Drive Limited
Director The New Zealand Dairy Company Limited
Director Synlait Milk (Holdings) No.1 Limited
Director Synlait Business Consulting (Shanghai) Co., Ltd²
Director and Shareholder Orange Homes (2022) Limited
Insurance cover arranged by Synlait Milk Limited
Deed of Indemnity and Access from Synlait Milk Limited
Timothy Carter
Director Dairyworks Limited
Director and Shareholder Niko Holdings 2003 Limited
Shareholder Tatahi Holdings Limited
Insurance cover arranged by Synlait Milk Limited
Deed of Indemnity and Access from Synlait Milk Limited
Paul Mallard
Director Synlait Business Consulting (Shanghai) Co., Ltd²
1 Yi Zhu (Julia) was appointed to the Board on 19 June 2023.
² Grant Watson and Robert Stowell were appointed Directors by Resolution dated September 2022 and Paul Mallard in March 2023. The paperwork is currently being processed in China
to formally enact the change.
³ Grant Watson has advised (prior to becoming a shareholder) that 365 Ventures Limited (trading as Safe365) is a supplier to Dairyworks Limited, a Synlait subsidiary, on normal terms
of trade. Safe365 was a supplier to the Group prior to Grant Watson becoming a Director of Dairyworks. There is a protocol in place whereby Grant Watson abstains from all Board
discussions and decisions involving the supply arrangements between Dairyworks and 365 Ventures Limited.
ANNUAL REPORT 2023 PAGE 137 & 138
04. DIRECTOR REMUNERATION
05. DIRECTOR HOLDINGS
There was no change to the fees paid to Directors of Synlait this financial year. The below fees, as approved by
shareholders on 27 November 2019 and effective 1 April 2020, are:
This table sets out the relevant interests held by Directors during the period in securities issued by Synlait:
Directors
Securities held (legally or beneficially) as at 31 July 2023 Securities held (legally or beneficially) as at 31 July 2022
13,324 ordinary shares
Simon Robertson
0
Dr. Gui Min (Gracie)¹
5,109,803 ordinary shares
Dr. John Penno
0
Min Chen (Joyce)²
0
Paul McGilvary³
0
Paul Washer⁴
Ruibing Liu (Ryan)⁵
0
Hon. Ruth Richardson 66,025 ordinary shares
Ian (Sam) Knowles⁶
64,803 ordinary shares
Sihang Yang (Edward) 0
0
Yi Zhu (Julia)⁷
13,324 ordinary shares
0
5,109,803 ordinary shares
0
0
0
0
66,025 ordinary shares
64,803 ordinary shares
0
0
Role
Directors, excluding the Chair and Committee Chairs
Board Chair
Audit and Risk Committee Chair
People Environment and Governance Committee Chair
Fee
$88,900
$178,000
$104,150
$100,900
This table sets out the total remuneration and the value of other benefits received by Synlait Directors during the year
ended 31 July 2023:
Directors
Simon Robertson
Dr. Gui Min (Gracie)
Dr. John Penno
Min Chen (Joyce)
Paul McGilvary
Paul Washer
Ruibing Liu (Ryan)
Hon. Ruth Richardson
Sam Knowles
Sihang Yang (Edward)
Yi Zhu (Julia)
Role
Director
Board Chair
Director
Director
Director
Director
Chair of People, Environment and Governance Committee
Director
Chair of Audit and Risk Committee
Director
Director
Director
Director
Director
Remuneration
$118,667¹
$77,788²
$118,600³
$77,788⁴
$96,400⁵
$68,799⁶
$11,113⁷
$88,900
$33,633⁸
$88,900
$11,113⁹
Fees are not paid to Directors or employees of Synlait for acting as a Director of any Synlait subsidiaries.
1 Simon Robertson was appointed Chair of the Board on 2 December 2022.
2 Dr. Gui Min (Gracie) retired from the Board on 19 June 2023.
3 Dr. John Penno was the Chair of the Board until 2 December 2022..
4 Min Chen (Joyce) retired from the Board on 19 June 2023.
5 Paul McGilvary was appointed Chair of People, Environment and Governance Committee on 16 December 2022.
6 Paul Washer was appointed to the Board on 2 December 2022 and was appointed Chair of the Audit and Risk Committee on 16 December 2022.
7 Ruibing Liu (Ryan) was appointed to the Board on 19 June 2023.
⁸ Sam Knowles retired from the Board on 2 December 2022.
⁹ Yi Zhu (Julia) was appointed to the Board on 19 June 2023.
1 Dr. Gui Min (Gracie) retired from the Board on 19 June 2023.
2 Min Chen (Joyce) retired from the Board on 19 June 2023.
3 Paul McGilvary was appointed by the Board in January 2022 to fill a casual vacancy and was re-elected to the Board as an Independent Director by shareholders at the
2022 Annual Meeting.
4 Paul Washer was appointed to the Board on 2 December 2022.
5 Ruibing Liu (Ryan) was appointed to the Board on 19 June 2023.
⁶ Sam Knowles retired from the Board on 2 December 2022.
⁷ Yi Zhu (Julia) was appointed to the Board on 19 June 2023.
ANNUAL REPORT 2023 PAGE 139 & 140
06. EMPLOYEE REMUNERATION
During the year ended 31 July 2023, 440 employees (including former employees) of Synlait and its subsidiaries (not being
Directors) received remuneration and other benefits, in their capacity as employees, of $100,000 or more, information
includes overtime and company contribution to KiwiSaver, as set out below:
Chief Executive Officer Remuneration
The table below sets out remuneration paid to Synlait’s Chief Executive Officer in the year to 31 July 2023:
Salary bracket ($)
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
240,000 – 249,999
250,000 – 259,999
260,000 – 269,999
270,000 – 279,999
280,000 – 289,999
290,000 – 299,999
330,000 – 339,999
360,000 – 369,999
370,000 – 379,999
390,000 – 399,999
400,000 – 409,999
420,000 – 429,999
450,000 – 459,999
470,000 – 479,999
530,000 – 539,999
650,000 – 659,999
780,000 – 789,999
920,000 – 929,999
Total
Number of employees
88
79
64
48
35
20
23
15
13
9
4
5
3
6
1
4
3
3
2
1
2
2
2
1
1
1
1
1
1
1
1
1
440
Remuneration
Salary
Total fees paid
KiwiSaver employer contribution
Medical insurance employer contribution
Short term incentive scheme
Long term incentive scheme
Total remuneration
07. DONATIONS
Grant Watson
$900,000
N/A
$27,000
$1,012.89
N/A
N/A
$928,012,89
Dairyworks Limited, a subsidiary of Synlait, made cheese donations to a value of $20,686 in the year to 31 July 2023.
These were the only donations made by the Synlait Group in the financial year.
08. AUDITORS
In the year to 31 July 2023, Synlait’s total payments to its auditors PricewaterhouseCoopers were as follows:
Statutory audit
Half audit review
Other assurance services
Consulting
Total
$410,000
$74,000
$220,000
$52,000
$756,000
Synlait’s Strategic Remuneration policy is approved by Synlait’s People, Environment and Governance Committee.
That Committee also reviews and recommends to the Board the remuneration of the Chief Executive Officer and the Executive
Leadership Team.
ANNUAL REPORT 2023 PAGE 141 & 142
09. STOCK EXCHANGE LISTINGS
Synlait’s ordinary shares have been listed on the NZX Main Board since 23 July 2013 (ticker code: SML). On 24 November
2016 Synlait completed a compliance listing on the ASX as a foreign exempt issuer (ticker code: SM1). As an ASX foreign
exempt issuer, Synlait complies with the NZX Listing Rules (other than as waived by NZX Regulation) and is exempt from
complying with most of the ASX Listing Rules, as set out in ASX Listing Rule 1.15. In December 2019, Synlait issued $180
million of unsecured, subordinated, fixed rate bonds with an interest rate of 3.83% per annum. These securities are
quoted and trade on the NZX Debt Market (ticker code: SML010). In November 2020, Synlait successfully completed
a $200 million equity raising to complete the investment phase of its strategy and strengthen its balance sheet. The
equity raise comprised a $180 million underwritten placement at a fixed price of NZ$5.10 per share and a $20 million
underwritten share purchase plan at the same share price.
According to notices given under section 280(1)(b) of the Financial Markets Conduct Act 2013, the following are Synlait’s
substantial product holders as at 31 July 2023. The number of shares owned is as advised by the shareholder in their last
Substantial Security Holder Notice.
Substantial product holder
Bright Dairy Holding Limited
The a2 Milk Company Limited
Total
Number of ordinary shares in
which relevant interest is held
Percentage of total
ordinary shares on issue
85,266,605
43,352,509
128,619,114
39.01%
19.83%
58.84%
10. TOP 20 SECURITY HOLDERS AND SUBSTANTIAL SECURITY HOLDERS
Set out below are Synlait’s largest bondholders as at 31 July 2023:
Synlait had the following securities on issue as at 31 July 2023:
•
•
218,581,661 ordinary shares
180,000,000 subordinated bonds.
Set out below are Synlait’s 20 largest shareholders as at 31 July 2023:
01. Bright Dairy Holding Limited
02. The a2 Milk Company (NZ) Limited
03. Accident Compensation Corporation
04. New Zealand Funds Management Ltd.
05. Chester Asset Management Pty Ltd.
06. John Penno
07. The Vanguard Group, Inc.
08. L S Keeper
09. MMC Limited
10. Smartshares Limited
11. State Street Global Advisors Australia Ltd.
12. Norges Bank Investment Management (NBIM)
13. Devon Funds Management Limited
14. First NZ Capital Custodians Limited (Various Private Investors)
15. Guardians of New Zealand Superannuation
16. Paul & Bronwyn Lancaster
17. BNP Paribas Nominees (NZ) Limited – A/C NZCSD
18. Dimensional Fund Advisors, L.P.
19. Castle Point Funds Management Limited
20. Therese Roche
Total
Number of shares held
Percentage of ordinary
shares on issue
85,266,605
43,352,509
7,881,712
6,381,425
5,380,000
5,109,803
3,347,122
1,975,000
1,852,459
1,621,026
1,589,389
1,491,175
1,386,719
1,364,270
1,183,682
1,055,623
931,317
921,571
901,414
900,000
173,892,821
39.0%
19.8%
3.6%
2.9%
2.5%
2.3%
1.5%
0.9%
0.8%
0.7%
0.7%
0.7%
0.6%
0.6%
0.5%
0.5%
0.4%
0.4%
0.4%
0.4%
79.6%
Number of bonds held
Percentage of total
bonds on issue
01. Custodial Services Limited
02. Hobson Wealth Custodian Limited
03. FNZ Custodians Limited
04. Tea Custodians Limited Client Property Trust Account – NZCSD
05. Forsyth Barr Custodians Limited
06. Citibank Nominees (New Zealand) Limited – NZCSD
07. RGTKMT Investments Limited
08. Sierra Investments Limited
09. National Nominees Limited – NZCSD
10. BNP Paribas Nominees (NZ) Limited – NZCSD
11. JB Were (NZ) Nominees Limited
12. FNZ Custodians Limited
13. MASFEN Securities Limited
14. JPMorgan Chase Bank NA NZ Branch-Segregated Clients Acct – NZCSD
15. Hobson Wealth Custodian Limited
16. FNZ Custodians Limited
17. Francis Horton Tuck
18. Falstaff Investments Limited
19. Craddock Farms Limited
20. Khia Goom Phua
Total
35,325,000
26,043,000
25,395,000
22,615,000
9,037,000
5,400,000
3,275,000
2,945,000
2,012,000
1,994,000
1,930,000
1,254,000
981,000
905,000
869,000
865,000
800,000
768,000
654,000
569,000
143,636,000
19.63%
14.47%
14.11%
12.56%
5.02%
3.00%
1.82%
1.64%
1.12%
1.11%
1.07%
0.70%
0.55%
0.50%
0.48%
0.48%
0.44%
0.43%
0.36%
0.32%
79.80%
ANNUAL REPORT 2023 PAGE 143 & 144
11. SPREAD OF PRODUCT HOLDERS
13. NZX WAIVERS
The spread of Synlait’s ordinary shareholders as at 31 July 2023 is as follows:
Size of holding
Number of investors Percentage of investors
Total number of shares
Percentage issued
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 1,000,000
1,000,001 and over
Total
2,793
2,383
690
547
94
17
6,524
42.81%
36.53%
10.58%
8.38%
1.44%
0.26%
100%
1,251,286
6,231,623
5,222,324
10,886,259
15,233,724
179,756,445
218,581,661
0.57%
2.85%
2.39%
4.98%
6.97%
82.24%
100%
The spread of Synlait’s bondholders as at 31 July 2023 is as follows:
On 10 November 2020 Synlait was granted waivers by NZX Regulation in relation to the share offer completed in 2020
(“Share Offer”) comprising a NZ$180 million placement of shares (“Placement”) and a $20 million share purchase plan
(“Share Purchase Plan”) (“Synlait Waiver”). A condition of the Synlait Waiver was that it was disclosed in the Share Offer
document and in our Annual Report.
The Synlait Waiver provides waivers from Listing Rules 4.5.1, 4.5.1(e)(iii), 4.19.1 and 5.2.1 as set out below (with the
conditions):
• Waiver from Rule 4.5.1 to the extent required to allow any shares offered in the Share Purchase Plan and not taken up
by existing shareholders to be issued to other persons without requiring approval by ordinary resolution.
•
Conditions: The waiver only applied to shares offered to existing shareholders under the Share Purchase Plan
and as a result of the Share Purchase Plan being undersubscribed were offered to other persons and when
aggregated with the number of shares under the Placement would exceed the 25% threshold in Rule 4.5.1. The
Share Purchase Plan was required to be fully underwritten.
• Waiver from Rule 4.5.1(e)(iii) to the extent that the level of participation of Bright Dairy would be determined according
to criteria applying to all persons participating in the Placement.
Size of holding
Number of holders
Percentage of holders
Total number of bonds
Percentage issued
•
Conditions: Two directors of Synlait (not associated with Bright Dairy) were required to certify to NZX that:
1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 1,000,000
1,000,001 and over
Total
56
165
573
145
12
951
5.89%
17.35%
60.25%
15.25%
1.26%
100%
277,000
1,591,000
15,596,000
25,311,000
137,225,000
180,000,000
0.15%
0.88%
8.66%
14.06%
76.24%
100%
12. CREDIT RATING
Synlait does not have a credit rating.
•
•
•
Synlait was not unduly influenced by Bright in its decision to permit Bright to participate in the Placement at a
higher level of participation than other persons;
Bright will not be involved in or influence any allocation decision in relation to the Placement;
Bright will not derive any benefit as a result of its higher level of participation other than to avoid its holding
in Synlait being diluted as a consequence of the Share Offer.
• Waiver from Rule 4.19.1 to the extent that the allotment of shares to Bright in respect of the subscriptions received
under the Placement to occur within 10 business days of the closing date for the Placement.
•
Conditions: The allotment of shares to Bright occurs in part on the Placement allotment date and in part on the
Share Purchase Plan allotment date.
• Waiver from Rule 5.2.1 to the extent that Synlait would otherwise require Synlait to obtain approval of shareholders
to enter into a material transaction with any related party in connection with the Placement (referred to as a relevant
party).
•
Conditions: Two directors of Synlait (not associated with any relevant party) certifying to NZX that:
•
•
Synlait was not unduly influenced in its decision to undertake the Placement by the relevant parties;
The relevant parties who participate in the Placement will not be influence any allocation decision in the
Placement
ANNUAL REPORT 2023 PAGE 145 & 146
13. NZX WAIVERS (CONTINUED)
•
The relevant party will not derive any benefit as a result of the related party relationship other than solely
through participation in the Share Offer on the same terms as all other participants; and
•
Entry into the Placement is in the best interests of Synlait’s shareholders.
The Board comprises eight directors, made up of the following:
•
Four directors appointed by Bright Dairy (the Bright Dairy Directors):
• None of whom (i) are required to retire from rotation under the NZX Listing Rules, or (ii) are subject to removal by
•
The effect of the NZX Waivers in the context of the Share Offer is to permit:
ordinary resolution of shareholders;
•
•
•
•
An increased number of shares (from what is otherwise provided for under the Listing Rules) to be issued under
the Share Offer without shareholder approval;
The Share Offer to be fully underwritten, to allow any shares not taken up by eligible shareholders under the
Share Offer to be issued to other persons without requiring shareholder approval (which when aggregated with
the number of Shares issued under the Placement, may exceed the Placement threshold provided under the
Listing Rules as modified by the Class Waiver);
Bright, The a2 Milk Company Limited and other related parties to be issued Shares in the Placement having an
aggregate value above 10% of Synlait’s average market capitalisation without shareholder approval; and
Bright to be issued such number of shares under the Placement that will ensure it is not diluted as a result of the
Share Offer, which would otherwise cause Bright to lose its director appointment rights under the Constitution.
Further details of these director appointment rights are included in the Annual Report.
Synlait also made the Share Offer relying on the Class Waiver and ruling issued by NZX Regulation dated 30 September
2020 (Class Waiver). The Class Waiver provides a waiver from Listing Rule 4.5 and a ruling in relation to the definition of
“share purchase plan”.
A copy of the Synlait Waiver and Class Waiver is available at nzx.com and asx.com.au under the ticker code “SML” and
“SM1”, respectively). All of the conditions in the Synlait Waiver have been met.
Synlait continues to rely on waivers granted on 27 November 2019 from various NZX Listing Rules, allowing our
Constitution and Board composition to reflect our non-standard governance arrangements, as described below.
Synlait listed on the NZX on the basis that Bright Dairy and Food Co Limited would be able to continue to consolidate
Synlait into its group financial statements (that are prepared under China GAAP). At the time, Bright Dairy agreed
with Synlait that for so long as Bright Dairy continued to hold between the Initial Percentage (being 39.119%) and
50% (inclusive) of the shares in Synlait in each case calculated in accordance with clause 22.5 of the Constitution
(so as to exclude shares issued under employee share schemes or director remuneration), the following governance
arrangements will apply to Synlait.
• One of whom must be an ordinary resident in New Zealand and be a director of such standing and with such
commercial and governance experience in New Zealand as is appropriate for a director of a NZX listed company
– the Hon. Ruth Richardson is the current Bright Dairy Director meeting this requirement; and
•
All of whom are required to have appropriate skills and experience to ensure that Synlait has a suitable mix of
skills and experience on the Board;
•
Three directors who are not appointed by Bright Dairy and who must be Independent Directors; and
• One Managing Director, or, if a Managing Director is not appointed, a Board Appointed Director, who will be appointed
by the Board. The current Managing Director or Board Appointed Director, and any Director proposed to fill that role,
cannot vote on the appointment or replacement of the Managing Director or Board Appointed Director (as applicable).
Consequently, Bright Dairy controls the composition of the majority of the Board as it has four out of seven votes on
this appointment. Synlait does not currently have a Managing Director, but does have a Board Appointed Director,
being Dr. John Penno, (together, these are the Governance Arrangements).
A summary of the waivers permitting these Governance Arrangements is set out below:
•
•
•
The NZX Listing Rules allow Bright Dairy to appoint representatives to the Board so long as the proportion of the
Board made up by their representatives is not greater than the proportion of the total shares in Synlait that they own.
A waiver was required to permit Bright Dairy to appoint four Directors, or 50% of the Board, as Bright Dairy owns less
than 50% of the shares in Synlait.
The NZX Listing Rules prevent Directors from appointing alternates to act for in their place if they cannot attend Board
meetings unless a majority of their co-Directors agree. A waiver has been granted to permit Synlait’s Constitution to:
•
•
Allow a Bright Dairy Director to appoint another Bright Dairy Director to exercise their voting rights at a Board
meeting they are unable to attend; and
Prohibit the non-Bright Dairy Directors from appointing alternate Directors. Synlait considers that it is important
that Directors are encouraged to attend all meetings.
The NZX Listing Rules require that Synlait’s constitution permit a Director to vote on a decision in which they are
interested, where that matter is one in respect of which Directors are required by the Companies Act 1993 to sign a
certificate or relates to an indemnity contemplated by section 162 of the Companies Act. A waiver has been granted
to allow Synlait’s Constitution to prohibit the Managing Director (if it has one, which it doesn’t currently) from voting or
being part of the quorum on matters relating to his/her remuneration under any circumstances.
ANNUAL REPORT 2023 PAGE 147 & 148
13. NZX WAIVERS (CONTINUED)
15. GENDER COMPOSITION
•
The NZX Listing Rules prevent the imposing of conditions on who may be appointed as a Director, except as
specifically contemplated by the Rules. A waiver has been granted so that Synlait is permitted to require that persons
who may be appointed to the three non-Bright Dairy Director positions must be independent.
These waivers are subject to the conditions that:
•
•
•
•
•
•
•
Bright Dairy continues to hold no less than 39.119% of Synlait’s shares, calculated in accordance with Synlait’s
Constitution.
The Governance Arrangements are contained in Synlait’s Constitution and will cease to apply when Bright Dairy
ceases to own between 39.119% and 50% (inclusive) of the shares in Synlait, calculated in accordance with Synlait’s
Constitution.
Full and accurate disclosure of all material aspects of the Governance Arrangements and Synlait’s reliance on these
waivers is made in any offer document, and in every annual report while these waivers are being relied on.
Synlait continues to bear a non-standard designation to notify the market of its unique governance arrangements.
The quorum for a Board meeting must include two Independent Directors, and Synlait must have three Independent
Directors (compared to the two Independent Directors required by the NZX Listing Rules).
Immediately on Bright Dairy ceasing to hold 39.119% of the shares in Synlait, Synlait comply with the provisions in
its Constitution requiring that some of the Bright Dairy Directors must resign to keep the proportion of Bright Dairy
Directors on the Board consistent with the proportion of the total shares in Synlait owned by Bright Dairy.
Bright Dairy Directors must retire by rotation at the next annual meeting following the drop in shareholding below that
threshold, irrespective of whether they have been the longest in office.
A copy of these waivers, and other waivers Synlait has obtained, or relied on can be found in the investor centre of
Synlait’s website.
14. NZX CORPORATE GOVERNANCE CODE
Synlait’s statement on the extent to which Synlait has followed the recommendation in the NZX Code during the year to
31 July 2023 can be found at: synlait.com/investors/corporate-governance
Synlait’s operating subsidiaries operate largely independently from Synlait. Synlait does not require them to comply with
the recommendations in the NZX Code.
This table sets out the gender composition of Synlait’s Directors and Officers (CEO and direct reports to the CEO)
as at 31 July 2023. The prior year’s comparison is in brackets.
Group
Board
Officer
Total
Female
2 (3)
3 (2)
5 (5)
Male
6 (5)
8 (7)
14 (12)
Total
8 (8)
11 (9)
19 (17)
16. PERFORMANCE AGAINST DIVERSITY POLICY
Synlait’s Diversity and Inclusion Policy promotes a culture of diversity and inclusiveness, putting in place appropriate
strategies and measurable objectives. We aim to achieve three main goals:
• Workforce diversity – employ, develop and retain more women and Māori.
• 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.
To help us meet these goals we have our Mātua (Parental Leave) Policy and our Tāwariwari (Flexible Working) Policy,
and report to the Board on candidate diversity. Our success will be measured against the following as at the end of
2024. The prior year’s comparison is in brackets:
Measure
Progress at 31 July 2023 – compared to FY 22
Reduction of the gender pay gap to ≤ 5%
40-50% of leadership positions
(people leaders, supervisors, specialist roles and senior leadership) held by women
No regretted losses of high potential female employees
13% (17%)¹
40% (37%)
4 (8)
1 The methodology adopted in the 2022 Annual Report used a mean to report Synlait’s progress towards the reduction of the gender pay gap. This year, Synlait have
adopted a methodology using a median to measure our progress. Accordingly, the FY 22 figure in this report has been updated to the median as at 31 July 2022 and a
median has ben used to access the progress as at 31 July 2023.
ANNUAL REPORT 2023 DIRECTORY
B CORP™ CERTIFIED
Synlait’s commitment to elevating
people and planet to the same level
as profit was recognised in June
2020 when it became part of the
B Corp™ community.
B Corp™ is a community of leaders
driving a global movement of people
using business as a force for good.
Certified B Corporations™ consider
the impact of their decisions on
their workers, customers, suppliers,
community, and the environment.
B Corp™ resonates strongly with
Synlait’s purpose of Doing Milk
Differently For A Healthier World.
Registered and head office
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+64 3 373 3000
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