Synlait swung to a $28.5m NPAT loss after a2 Milk volume reset

Group EBITDA was $37.3m. Management attributes the result to a2 Milk's forecast volume reduction, which forced an inventory and demand reset.

The full-year figure masks a much sharper second-half decline. HY21 EBITDA was $47.7m, implying H2 EBITDA of -$10.4m. HY21 NPAT was $6.4m, implying H2 NPAT of -$34.8m. Operating cash flow collapsed 85% to $15.9m, and pre-lease free cash flow worsened to -$100.3m on $116.2m of capex (8.5% of revenue). Gross borrowings fell modestly to $492.9m while equity rose 26.5% to $767.1m, signalling that external capital — not internal cash generation — funded the year's investment program.

• The implied H2 EBITDA of -$10.4m and H2 NPAT of -$34.8m mean the run-rate going into FY22 is loss-making, so any "return to profitability" plan starts from a deeper hole than the full-year EBITDA of $37.3m suggests.
• Cash conversion deteriorated sharply. OCF/EBITDA was only 42.5%, with trade debtors up 82.4% to $101.2m and receivable days widening from 15.5 to 27. Operating working capital grew $47.3m. This matters because it consumed almost the entire EBITDA print and left the balance sheet — not trading — to fund capex.
• Leverage looks stretched against current earnings power. Net debt of $476.9m sits at 12.8x EBITDA, and ROE swung from +12.4% to -3.7%. Equity supported the ratios this year; without a recovery in earnings, the leverage profile is the binding constraint on strategic flexibility.

Management states it has reviewed strategy, appointed a CEO, reset banking arrangements, and built "a plan to return to robust profitability," but no dated earnings or cash milestone is supplied. The release does not support a clean read-through to FY22 — the H2 exit run-rate is negative, inventory release is flagged as a priority, and the a2 Milk volume trajectory is the dominant external variable.

What the disclosure does support is that the recovery thesis hinges on three things being demonstrated in the next reporting period: inventory unwind converting to cash, customer demand stabilising, and the new CEO translating the stated plan into margin recovery in Ingredients and Nutritionals.

EBITDA of $37.3m converted to only $15.9m of operating cash flow; after capex, free cash flow was -$100.3m, materially worse than the prior comparable -$33.7m. FCF/NPAT of 352.5% is a mathematical artefact of negative NPAT and deeply negative FCF, not a sign of cash strength. Effective tax of 27.3% (versus 26.2% prior) sits close to the statutory rate, so the PBT-to-NPAT gap of -0.6 percentage points does not flag tax noise — the loss is operating.

Working capital absorption was the dominant drag: trade debtors up $45.7m, inventories essentially flat at $270.9m despite the volume reset, and OWC up $47.3m overall. That combination suggests demand fell faster than production and collections could be flexed, which is a recovery risk rather than a one-off timing event. The lower capex base (-16.6% YoY) provides some relief, but is not yet enough to make the business self-funding at current margins.

This briefing cannot assess whether the new CEO's plan can deliver the implied earnings recovery, because no quantitative targets, segment margin trajectory, or FY22 volume commitments are disclosed.