Inventory release of NZ$70.8m powered Synlait's cash flow recovery

The principal driver was a NZ$70.8m reduction in inventories (NZ$406.4m to NZ$335.6m), which the historical baseline flags as the lower edge of range against a pattern of typical builds averaging NZ$79.9m.

Revenue rose 19.0% to NZ$790.6m and EBITDA rose 43.4% to NZ$68.4m, lifting the EBITDA margin to 8.7% — above the historical range of 3.0%–7.2%. PBT grew 265.9% to NZ$31.1m and NPAT grew 335.9% to NZ$27.9m. Net debt fell from NZ$483.7m to NZ$391.8m, taking net debt/EBITDA to 5.7x from 10.1x, below the historical mean of 13.6x.

• Inventory days fell to 77.3 from 111.4 — at the low end of the supplied 68.9–122.4 day range. Pre-lease free cash flow of NZ$71.3m is unprecedented against a 5-period mean of NZ$-124.6m, and FCF/NPAT of 255.3% confirms how much of the cash inflow is balance-sheet rather than earnings-driven. If inventories rebuild towards their historical norm, the cash trajectory looks materially weaker.

• PBT growth of 265.9% is a cleaner read than headline NPAT growth of 335.9%. The effective tax rate dropped to 10.2% from 24.7%, opening a 70 percentage-point gap between PBT and NPAT growth rates. Investors anchoring on the NPAT line will overstate the operating step-up unless tax normalises lower on a durable basis.

• The comparator was unusually weak, which inflates percentage gains. FY21 full-year EBITDA was only NZ$37.3m versus HY21's NZ$47.7m, meaning the second half of FY21 contributed an implied NZ$-10.4m. The 43.4% EBITDA lift and 19.0% revenue lift are off a depressed base, not a clean run-rate.

The supplied seasonality context shows HY21 represented 127.9% of FY21 EBITDA and -22.4% of FY21 NPAT, so the prior shape is an unreliable template for the second half. Annualising HY22 revenue gives NZ$1.6b, but the realised H2 will hinge on whether the inventory release reverses and whether the EBITDA margin recovery holds outside the lower-cost half.

The release language references a continuing "cost structure review" and "working capital management" as work-in-progress, indicating management views the recovery as partial rather than complete.

The EBITDA margin of 8.7% sits above the historical 3.0%–7.2% range, ROE strengthened to 3.7% from 0.8%, and capex intensity fell to 5.8% of revenue from 9.4%. Those are real operational signals.

However, the cash quality requires a sharp discount. The NZ$70.8m inventory release sits NZ$92.8m below the historical working-capital movement mean of NZ$22.0m — the gap between this period and a typical period is larger than the entire reported pre-lease FCF. The deleveraging from 10.1x to 5.7x net debt/EBITDA was funded substantially by the inventory drawdown, not retained earnings. NPAT is further flattered by the 10.2% effective tax rate versus 24.7% prior. Strip both effects and the underlying recovery is meaningful but considerably less dramatic than headline growth rates suggest.

This briefing cannot assess management's internal inventory targets, tax-rate guidance, or covenant terms because none are disclosed in the supplied excerpts.