Morning everyone, welcome to Synlait's full year results conference call. We know that many of you will be dialing into this call from your homes as lockdowns continue in certain parts of New Zealand and Australia. We hope you are keeping safe and well during these times. On our call today, we have Synlait's Chair, Graeme Milne, Synlait's Co-founder, Director, and current CEO, John Penno, and Synlait's CFO, Rob Stowell. John will open the call and then hand to Graeme for an update on Grant Watson's appointment as CEO and our proposed governance changes announced today. Rob will then cover off our financial performance and hand back to John for an update on our strategy, operational performance, and FY 2022 outlook. Graeme, John, and Rob will be available for questions at the end of the presentation. Please keep questions to two per person.
If you have any follow-ups, please reach out to me afterwards. Over to you, John.
All right. Good morning, everybody. Good to be on the call. Look, we've got a comprehensive slide deck that we put out this morning. On this call, we don't intend to cover every point in each slide, but are assuming that you've had a moment to have a look. We'll cover the key points and then move to questions and answers, ahead of some more calls that we have with some of you in the coming days and weeks. Look, clearly, FY 2021 proved to be very challenging for Synlait. After nine straight years of profit, we really are bitterly disappointed to post our largest ever financial loss and the only loss we've ever posted as a listed company. That loss is NZD 28.5 million on an NPAT basis and is NZD 102.8 million delta from our NPAT last year.
It's no secret to anyone that the shape of the business changed dramatically in December, following a very large forecast reduction from A2. That meant that our inventory levels, and demand, and our outlook needed to be substantially reset. During the final quarter of the year, the board and management worked together to build a really comprehensive picture, not just of the last 12 months, but the last five years, how the business had developed as we look to build a robust plan, a comprehensive plan to move the business from where it had got itself to back to a position of financial strength and pursuing our strategy. We do hope that today's plan or this announcement today will give investors in particular, and our shareholders, and our suppliers confidence in our path forward. You'll hear five parts to that plan.
Firstly, we reviewed the strategy and we remain very confident, but execution clearly needs to improve. We've aligned our structure to our strategy and in Grant have appointed a CEO who we believe is really well-suited, not just to the strategy, but to the way that we have structured the business and is used to working with businesses in this structure, and we think we'll be able to drive the results we're all looking for. Early in the process, we had to reset our banking arrangements, and we had a very strong relationship with that bank and a strong plan to get ourselves to where we need to be, and Rob will talk to that. Important to that is making changes to release cash from our inventory and improve our working capital management, and we'll talk to those things.
Most importantly, we've built a robust plan to return to profitability over the next two years. With that quick summary, I'm going to hand to Graeme to introduce the new CEO, and also talk about governance changes that we had proposed. Graeme Milne.
Yeah, thanks very much, John. Certainly been a difficult year for us. Turning to today's announcements, firstly, I'm very pleased to announce our new CEO will be Grant Watson. Grant has most recently been the CEO of Miraka dairy company, and before that he was at Fonterra for 10 years. He had various roles there, including heading up the global food service, and he worked in Fonterra Brands, and he was at one stage, the Managing Director of Tip Top prior to its sale. Prior to that, he worked for McDonald's actually for approximately 15 years, and he became the COO for New Zealand. Grant will start with Synlait early in the new year, and he brings a wealth of dairy sector experience, plus a proven track record of success in materially transforming businesses and achieving sustainable results.
It's a great pleasure to welcome Grant to lead our Synlait team. Secondly, I'd like to turn to our board and announce some changes designed to refresh and strengthen our governance. As announced in 2018, actually, I will stand down from chairing Synlait after 17 years in the role. That allows room for new talent, but at the same time, the board has asked me to stay on as an advisor for a period of about one year. I'll step down when Grant starts, and our new chair will be John Penno. John's ideally placed to be our new chair, while we go through the recovery phase and to assist directly in bedding in the new CEO.
Our constitution requires that the board chair be independent, which John, by way of being a recent CEO, is not, and therefore, there will need to be a temporary change to the constitution. We do see independence as best practice, and therefore John's appointment will be for a relatively short period, something like one to two years. Finally, filling my position as a new independent director on the board will be Paul McGilvary. Paul also brings strong sector experience to the table. Paul's had an international career in dairy. In fact, he reported to me at one stage in London, and before he returned to New Zealand. He became the CEO of HortResearch, which is now Crop & Food Research , and then the CEO of Tatua, which is certainly the most successful dairy company in New Zealand, dairy co-op, at least, in New Zealand.
For the last six years in his career, he's been in governance. In summary, during the next period, we will retain the experience of John and myself whilst bringing it on the new skills of Grant and Paul. For those of you that have got the slide in front of you'll see how the board will look next year with John as the chair and then three very strong independent directors in Simon Robertson, Sam Knowles, and of course, Paul McGilvary. They're complemented by the Bright directors, being Ruth Richardson and the three directors from Shanghai. I'm happy to take any questions at the end, but would like to hand over to Rob Stowell. Please note that Rob is no longer the interim CFO.
Rob stepped up at short notice to the role in May and has done a great job in difficult times. The board was more than happy to confirm him into the permanent role last Friday. Congratulations, Rob, and over to you.
Thanks, Graeme. Good morning, everyone. I'm just on slide 7. Look, firstly, obviously, as John and Graeme have mentioned, it's been a very challenging year for Synlait, and you could say that COVID hit Synlait late, and it hit it very hard. The graph to the right, it shows supply chain concepts, that's exactly what happened to us. As we were moving into FY 2021, we expected to have almost double or a big increase in sales to what we had the previous year. We set ourselves up through buying raw materials, manning our plants, producing base powder. Through the next few months, our consumer product sales dropped around 85%. That was a big impact that we saw in FY 2021 and most of the reason that our result was down.
However, as the dust settled, we did do a discovery piece of work in the last quarter, and we found that there was other underperformance issues in the company. We will talk a little bit about that in the coming slides. Look, the actions taken in the last quarter will strengthen the fundamentals of the business, and it will set it up for success in the future. The loss was NZD 28.5 million, and that was within guidance range. Just flip to slide eight. We have got the key metrics there. Revenue up to NZD 1.4 billion, up NZD 55 million. That was mainly due to the 12 months of results from Dairyworks, up from four months the previous year. The EBITDA was down NZD 132 million to NZD 37.3 million. The operating cash flows were down 85% of just NZD 16 million.
Our capital expenditure was NZD 140 million, and that was down from the previous year as we wind down our capital program. Look, there was some good news in this. Our net debt was down just under NZD 480 million. We had expected to be at a five in front of it, so that was a little bit better than we anticipated. Our milk price, the total average milk price is NZD 7.82, is our second highest, and our base milk price is our third highest in history. There's some good news within that slide. Moving on to slide number nine. What we've tried to do here is demonstrate how the result dropped by NZD 102.8 million from NZD 74 million profit last year to NZD 28.5. I won't go through this in an immense amount of detail, but I want to point out a few key areas here.
Our infant formula volumes dropped considerably, 35%. With that, all the production recoveries from that product and in costs meant the impact was NZD 55.7 million. We've split out the stock rebalancing within the next bar, that's NZD 33 million. What that is in FY 2020, we produced around 60,000 tonnes of infant base powder. Due to the demand downgrade, we had to unwind that back to around 19,000 metric tons. It basically says here we made a little bit too much base powder in FY 2020, and we had to counter that in FY 2021. That hurt us. Those bars are obviously the big impact and through the rest of the bridge there, you can see lactoferrin is a little bit down. That was due to a little bit more volume, but prices softening. Ingredient volumes was up NZD 8.4 million.
When we stopped making infant based powder in FY 2021, that milk was diverted to ingredient products. That's our whole milk powder, skim milk powder, and AMF products. That saw a recovery in our profitability on that side. The next bar, which is our ingredients performance, that's down NZD 20 million. This is after tax. That NZD 20 million is made up of a number of factors, some which are external factors, such as the fact that we don't produce butter prices were very strong in FY 2021. That squeezed our margins against the milk price. Also getting all those ingredients products coming through, we just weren't set up for it. That affected our sales volume and our mix, and ultimately our delivery at the end of the year, is combined with the shipping constraints.
We ended up finishing the year 13,000 metric tons of product, which normally we would've sold through in that year. Moving forward. Liquid is a little bit down. That's due to the fact that pantry stocking of milk products was higher in FY 2020 than FY 2021. We also commissioned the UHT cream line, in this financial year, that was a little bit down. We expect that to bounce back next year. Consumer foods contributed to NZD 9.4 million. That's essentially the Dairyworks and Talbot Forest Cheese business. That was a little bit down on what we expected. That was due to butter margins being squeezed with some new entrants to the market. Also, a little bit of profitability drag from Talbot Forest Cheese and some inventory write-downs. Again, some of those items are one-off. We expect them to not occur again next year.
That essentially takes us through to the NZD 28.5 million NPAT. Now, for FY 2022, we do see us getting back to robust profitability. What that means is it's going to take us a couple of years to get back up to the sorts of profitability that we experienced leading up into FY 2021. Some of the reasons that we feel we're going to bounce back reasonably strongly in FY 2022 is because our ingredients margin performance will come back. Some of those issues that we encountered in FY 2021, we see as being one-off and will bounce back on that side. Ingredient volumes, so the 13,000 metric tons of product that was sitting in inventory at the end of FY 2021, that'll come through in FY 2022. Our infant based powder production will increase even on conservative volumes, a2 volumes and infant volumes, that will bounce back.
We'll have increased lactoferrin volumes next year as well. We're going to have improved Dairyworks contribution, that will bounce back reasonably strongly next year, as the expectation there. Significant operational cost savings. We have looked hard at both the Synlait business and also the Dairyworks business, and there's a range of initiatives in there, which are happening. The last one there is our sale and leaseback of our Richard Pearse Drive site in Auckland, which is a canning and blending site. That was a media release we did a couple of weeks ago. That delivers NZD 30 million, which we can place against debt and also will deliver a one-off gain on sale of approximately NZD 17 million. That's a very quick flyover our bridge to last year and also some snippets of why we think FY 2022 is going to be a lot more positive.
Moving forward into page 10. Look, this is some production and inventory points. As noted, our production of consumer packaging and infant reduced in FY 2021. That was a big reverse in the trends in prior years. Our infant based powder was down, milk directed to whole milk powder, skim milk powder, and AMF. This resulted in a lot of this unplanned ingredient volume. That's all in here. Now, the key point from this slide to take is that our ending inventories in FY 2021, around 30,000 metric tons, are very high. We expect them to come down quite a bit in FY 2022. There's some guidance here. At least 15,000 tons next year. Moving on to slide 11. We've tried to align our business units' performance reporting to the new matrix structure, which we'll talk through shortly.
This is a step towards trying to be more transparent, both externally and internally, on how business units are performing to give greater clarity. For each area, you can see we've got revenue and sales volume and gross profit per metric ton. Across Nutritionals and Ingredients, you can see there that our gross profit per metric ton has come back down quite a bit on that FY 2021. Slide 12, same thing. You've got the liquids business unit is running at a loss, and also the consumer foods, which includes Dairyworks and some commentary around what we saw happen there last year. Slide 13, operating costs. Look, the key point here is, we are actually holding our costs static against last year. There is an increase, that's essentially Dairyworks' full-year effect. The other thing to note there is the recent news of our reorganizational restructure work.
We expect savings of between NZD 10 million-NZD 12 million per annum. We expect around NZD 7 million of FY 2022. That will mostly up against, and above the gross margin line. Slide 14, cash flow and capital spend. Our operating cash flow, we're obviously low on FY 2021 at NZD 16 million. That was mainly due to less consumer packaged infant formula volumes coming through, and also the fact that we didn't sell down that 13,000 tons of ingredient product. We do expect, with the work that we've been doing, for cash flows to come back strongly in FY 2022. We normally have around NZD 100 million of operating cash flows per annum. We expect it to be a lot stronger than that this year. We also see our capital spend winding down considerably.
We still have spend on projects such as our ERP system project, the multinational customer work that's going on in Pokeno and some other operational CapEx. Essentially, that build phase is phasing down each year, so that's positive and will allow us to pay down some debt this year. In page 15, coming into net debt and bank refinancing. Look, this has been a big focus for us over the last couple of months. Our net debt was down to NZD 479 million. That's still a lot of debt. We obviously received the equity raise proceeds across this year. We'll receive the NZD 30 million proceeds from the sale of our Auckland premises in October this year. That will all help to reduce debt. Our covenant level, total debt, EBITDA level is 4.5 for FY 2022. We expect to be well below this in FY 2022.
We're tracking really well in that regard so far. We expect our balance sheet to return to normal metrics within the next two years. Obviously, we did our refinancing, bank refinancing this year, in the last few months, and that's allowed us to have some really good, robust facilities out for the next two years for the working capital. That extends for one year, and we renew that, and then we've got the other facilities that go out the 1st of October 2023. That's a really secure platform for the business. It gives us increased certainty and, look, really positive, constructive relationships with the bank. We've banked with ANZ and BNZ for a very long time now, and those relationships were really important as we worked through that phase, and I just want to thank the banks for their support over the last couple of months.
That's me, so I'll hand back over to John to talk around strategy.
All right. Thanks, Rob. Again, that's a quick scan through a lot of detailed information. We are trying to make sure that we are providing everybody with lots of information about the company as we build our plan to go forward. As we look at strategy, one of the key things we've done in the last quarter is review again our strategy and making sure it remains fit for where we're heading. The strategy has matured, and it starts from us having a very clear advantage of being a small part of a big and important industry here in New Zealand, and an even smaller part of a very important global industry. Over the life of the company, we have looked to position ourselves within that, under our purpose of doing milk differently for a healthier world.
I hope that people will see, as we work our way through and head into discussion, the work we've done over a very long period of time, positioning our company with respect to leadership and environmental issues, animal welfare issues, which are at the heart of the production end of our dairy industry, we think has set us up very well for the time that the company finds itself in now. I'll talk a little bit to how we're looking to take advantage of that positioning that we've built up over a long period of time. We remain a growth company, and we remain focused on growing our revenue out to NZD 2 billion to get the scale that we need. Also because we see each of the growth opportunities as profitable in their own right.
Albeit that we need to make changes to drive those financial outcomes that we would need to achieve, and we will talk to that. You'll hear us increasingly talking about the business in four parts as we grow towards that NZD 2 billion in revenue. Ingredients is a very important part of the business. It's where we started, and our early profitability was carved out in the ingredient space. That's our whole milk powder, skim milk powder, and AMF that we manufacture to high specifications for key customers. A very small part of the global industry, but something that we can and should do very well and very efficiently here at our Dunsandel site and on our nutritional dryers when they're not being used for base powder.
Our nutritional business is at the heart of our business today, where we've built a world-class nutritionals business with everything from product development, the technical capability to be making world-class products all the way from ingredient sourcing to delivering final packaged consumer products in what is the most heavily regulated and sensitive product group globally. We'll talk about both a2 and customer risk in terms of the importance that will continue to play for a long time going forward. Our liquids business is quite different. That is new. That is a new area of business for us that strategically we think is very important to develop because it is the new opportunities and technologies that are being used and increasingly demanded by the markets that are openly accessible to us that have developed economically very quickly in the last 30 years.
We need to be in consumer-packed dairy products and food service products to be in the premium end of dairy in those markets. This is something we've invested both in R&D and in plant and increasingly in business development opportunities, and we continue to believe this will be a very important part of our future. Finally, moving to branded product. Learning to work directly with consumers, first in the New Zealand market, but with a very clear eye on international opportunities alongside the other elements of the Synlait business, potentially with some of the customers that we have in our B2B business, but also other opportunities that we see developing over time. That started with the Dairyworks acquisition, and we are increasingly thinking about how we integrate that into our overall operations.
If we think about the year that's been, page 18 gives a little more detail on some of the numbers in behind Robert Stowell's earlier explanation of what happened to the business as we dealt with a very large turndown in the forecast outlook for the a2 business, when we were preparing for growth in that part of the business, and the impact that that had on the financials of the company in FY 2021. That event caused us to look further. As they say, when the tide goes out, the rocks start showing, and we did identify. We took the opportunity to take a very deep look at the way the company had developed. We ran what we called a discovery project inside, where we looked back across all of the metrics, financial and physical, through the company over a five-year period.
What became clear was, firstly, the business had been slower to develop than we had planned. While the year reinforced the importance of diversifying both within our nutritionals business and also building high-earning categories away from our nutritionals business for the future, it was clear that we'd built in costs faster than we had developed that business. The third thing that was clear was that our use of capital had become suboptimal. Some of that is tied up in the same problem, that our large capital projects were completed delivering capacity well ahead of our ability to onboard. We made some choices where we held that manufacturing capacity in reserve for high-value opportunities, when perhaps we could have got the plants up and running with lower-value products and then grown into higher-value opportunities over time, which had traditionally been our strategy.
Beyond that, though, our maintenance CapEx has been too high for what is essentially new plant end-to-end through the business. Our oldest pieces of plant are only 13 years old. We have many parts of the business that are only five years old or less. The third area that we were using too much capital was simply in our accumulation of stock. Again, in Rob's presentation, we give visibility to the accumulation of stock over some years and our plan to bring that stock back to what we see as much more normal levels. Which will release cash to allow us to finish out our capital projects in the next 12 months and see significant debt repayment well beyond net earnings after tax.
I guess the key question that we grappled with in the last quarter is, why did it take this event to figure all this out? I think that where we landed was that our structure had not kept pace with our strategy. We've gone through quite a big design exercise where we are moving to a matrix structure where we're aligning all elements of the business to the customers that we serve. We've broken it into four parts, being nutritionals, ingredients, liquid, and then our consumer business, which is Dairyworks. Acknowledging that each part of that business needs a strategy of its own, not just to support status quo, but to deliver highest and best results.
For example, our ingredients business needs to be efficient, focused on yield, cost, quality and throughput, and must have a simple sales strategy designed to optimize product mix where we can, optimize plant throughput, and keep our cost structures low. Our nutritionals business, on the other hand, must be very quality-focused and will bring a much higher cost structure because of the demanding nature of those products. It is big enough to stand on its own and to have a management structure from manufacturing and supply chain all the way through, that is focused on those customers and on that part of the business to avoid costs unnecessarily moving into other parts of the business.
Our liquids business, which is brand new and is all about R&D and new customer development and business development, again, needs quite a different approach to make sure that that reaches its potential. In Grant, we've chosen someone who not only has deep experience in some of the areas that we have underperformed to the greatest level, he's used to working in these structures. He has led end-to-end processes as he has developed the international food service business of Fonterra, which has really been one of the big business success stories out of New Zealand in recent years. He understands what it is to make different parts of the business gain the advantages from working as part of a whole, but with the focus on outcomes that each area needs. That's how we believe we will see significant improvement in performance over time.
If I go to the, just a quick update on these four areas. Firstly, our ingredients business. As Rob said, we undersold last year. We had some issues both in price and phasing, as we had some quite large changes to plan that flowed from a big change in plan mid-year to make much less base powder, and therefore we had milk flowing to ingredients. Our plan is to grow our ingredients business a little bit. We see there are some plant efficiencies we can achieve. With Pokeno coming on stream and Dunsandel D3, which is our third nutritional dryer here, we can retire D2, our second dryer to ingredients, and save some costs and gain some efficiency, and over time, process more milk to manufacture more ingredients. The marginal returns for extra product coming through the system are very high.
We're also very focused on our Made with Better Milk program. This was launched in the last 12 months with an explicit aim of developing the opportunity that we have built over many years, working with our farmers to be using leading practice around environmental management, animal welfare, the way they work with their people on farm, and of course, the quality of their product. What we see from our large multinational customers in particular, are some very bold promises that they're making their consumers in terms of the way they will work in the world and down through supply chains. We see ourselves as extremely well-positioned to partner with them in terms of delivering products with known and authentic traceability back to farm practice that is better for people and better for planet. We see it turning into some quite significant financial opportunities for us.
If we go to our nutritionals business, The a2 Milk Company remains our most important customer, and we expect this to be the case for some time. We are continuing to work with them on new product opportunities. Of course, the most important thing probably in our whole company is making sure that we achieve the regulatory authorities from China to continue building this business in partnership with a2, supporting them as they build their brand going forward. We're working very closely with a2 on that process. We've provided some visibility to the timelines required to move our way through the regulatory process. I can confirm that we're well prepared and we're confident in achieving a good outcome there over the next 12 months.
If we go to page 24, we want to give just a little bit more visibility to our second major customer for our nutritionals business. During the last 12 months, in November 2020, we signed an agreement. We can't name this customer. They're a listed company. Some of the confidentiality arrangements we have with them is that at this point, we are unable to name them. What we can say is that they're a major international multinational and a global leader globally, but especially in the Asia Pacific region. Their product grouping has been growing very quickly in the last few years, and we are working with them on what we expect to be a very long-term relationship to manufacture a group of consumer-packed nutritional products.
That will be centered on the Pokeno plant. You'll see from the timeline there that there's quite a lot of work, I would note a slightly higher CapEx requirement than we had earlier indicated, being NZD 85 million as we refit not only the Pokeno plant but also our blending and canning operation at RPD and build a flexible sachet filling line, a high-quality sachet filling line, which will be built on the Pokeno site in the next 12 months. Once that all comes on, we would expect to see our consumer pack volumes increase between 35% and 40% at that time. This is a customer that will bring significant volume from startup, then we see opportunity to continue to grow that business from that point.
On page 25, what we are seeing is, in the same way that we saw base powder volumes going down, third-party base powder, the volumes that we had got used to manufacturing for third-party customers, particularly multinationals, slip away. It's being driven by quite a big change in the Chinese domestic market. Over the past two years, the top 10 local brands have grown significantly in terms of their market share, and that's been at the expense of the multinationals. What we're seeing is new demand coming from China for base powder manufactured to some of those multinationals for products that we can send there under the current regulatory regime. We see that as quite promising, and we are engaged with some customers that we would expect to turn into significant volume. On page 26, I talk to our liquid business. This is new.
It is a small part of the business. It started up with fresh milk supply to Foodstuffs in the South Island. You'll see there, we're about to launch what we see as quite an innovative product that we've been working on for some time, which is a Swappa Bottle, which we are trying in the coming weeks with Foodstuffs South Island. If all going to plan, we expect to roll that out. That is a high-margin product. It is a product that has a very low environmental footprint, with a container that has become the benchmark in terms of food quality in stainless steel and one that we see having a very long shelf life that's backed by a big social media marketing program, where people can watch the life of the bottle, how many times it's been returned.
We're looking for the change that people have gone through as we've got used to not carrying plastic bags out of the supermarket, but taking our bags back to the supermarket, as sort of a major cultural shift. We've seen this happening in offshore markets. We think that'll happen here. A very important positioning point for Synlait going forward. You will also see a UHT whipping cream product there, where we're deep in negotiations with a key distributor for the Chinese market and something that, of course, our coming CEO will bring a huge depth of experience in terms of developing that important and high potential opportunity. Consumer foods, Dairyworks. Dairyworks has underperformed in the last 12 months for a specific reason, and that is that our Talbot Forest Cheese operation has not been operating profitably.
It has been operating at a significant loss, and we have made the choice to close that factory for two years while we go through some changes that we need to make to bring it back in profitably, involving recovery of whey here at the Dunsandel plant. We're making a significant cost saving in the next two years and then expect to bring it back to production in a profitable way. I'm going to turn now briefly to page 29 and talk to our full-year guidance. We're not putting a number on this. What we are saying is that we expect to return to robust profitability in FY 2022. What that's based on is firstly, a return to normal trading conditions and tighter management of our ingredients business.
As Rob said, we will also have higher volumes flowing into that business, which is product that was not sold or shipped in the last 12 months as we bring down inventory. The second is that we expect improved infant formula base powder volumes. That is even if we don't have growth in our finished infant formula business, we're still going to see improved base powder volumes, and we do see potential for growth into the Chinese market inside this financial year. We see a growing contribution from our liquids and consumer foods business over the next 12 months, and there are significant and targeted cost savings. These are coming from Synlait, Dairyworks, and Talbot Forest Cheese.
In the media, you will have seen us, but in this EP, we're talking about the cost savings that are flowing from Synlait, but we are also seeing cost savings and release of inventory, providing cash from the Dairyworks business and the Talbot Forest Cheese businesses as well. We see that profit continuing to build through FY 2023 as we ramp up our new customer at the Pokeno site and ongoing growth, which we expect to see from liquids and consumer foods and bringing the cheese business back into 2024. As Rob explained, and hopefully we've provided sufficient detail that you'll be able to work out how big the numbers are, but we're planning significant reductions in inventory here at Synlait. That's already started, and hence slightly lower net debt than we were projecting back in May at year-end.
That'll continue right through the year, and we expect to close at significantly less inventory both here at Synlait and at Dairyworks at the end of this financial year. That'll release cash well in excess of our earnings and enable us to finish our CapEx and bring debt down, with a view to bringing debt down to ratios that we feel comfortable with over a two-year period. In short, to summarize, we are confident in our immediate outlook. We have reviewed the strategy, and I'm very happy to take questions on that, but we've divided up the strategy into its parts to improve focus on execution. We've reset the organization with quite a big change process that we're continuing to work our way through, but the results, we confirmed with staff our plans on Friday.
We've appointed a CEO who we believe not only is the right CEO to lead the company forward, we believe he's the right person to change the way that we work, with a greater focus on results and to help us run a more complex organization really well into the future. Rob did a great job of getting our banking arrangements reset, we've got a strong relationship with the bank. We continue to review our operating performance relative to those expectations, as Rob said, we've started the year reasonably well. We're making changes to release cash and improve our working capital, most importantly, we have a plan to return to robust profitability as soon as we can.
Look, I know that is quite a long presentation, and there's a lot more material we didn't cover, but at that point, I'd like to hand over for questions that might be there from the listeners.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If your on to speak your term please pick up the handset to ask your question. Your first question comes from Chelsea Leadbetter from Forsyth Barr. Please go ahead.
Morning, team. I guess maybe starting with the new Nutritionals customer and appreciate the color on volumes and the uplift. I guess what I'm trying to understand is the volume uplift. What growth is that implying or assumed over the coming years before they actually transition to you? Is there any growth assumed, or is it all existing business that's coming to get to those levels? Then secondly, the margin on that volume, should we be thinking about it at a similar level to what you're achieving in that segment today, or is there something that we need to be aware of with that?
I'll get Rob to answer the margin question. Look, it's quite a different business than we've worked with in the past. They have a large position in various markets around the world. As part of their own long-term planning, they have a very small number of third-party arrangements that they put in place from time to time, and then they tend to work with those parties over long periods. It's not reliant on them growing those markets. We have a very good relationship with them where we're constantly looking at the markets that we are preparing to serve with them. We're looking at their numbers with them month to month to month. Getting those sales and operational planning processes between us are already up and running. The numbers that we're talking about are pretty much where they are now.
They could be higher, they are based on existing products and existing markets, not products that we need to grow to get to those volumes. I'll hand over to Rob to talk to margins.
Hi, Chelsea. Look, obviously, there's some commercial sensitivities around this, but what I will say is they are a hell of a lot higher than our ingredient products and a little bit lower than what our current nutritional products are priced at. Really good value-added business.
It's slightly different business, though, in that they bring more to the partnership than we're used to. It's not exactly like the like for the things we're doing. There's various things in the supply chain that make it a little different. Yep.
Okay. No, helpful color. Just second question on Dairyworks. I appreciate you've called out a few one-offs and things are going to change going forward. If you took out the Talbot loss and the inventory write-down, what's the go-forward EBITDA that you would've had in FY 2021 as a baseline for us to understand thinking into FY 2022?
How big is the drag from Talbot Forest Cheese that's been consolidated into the Dairyworks number?
Yeah.
I'm asking the question to Rob.
Yep.
Okay. Look, I think it's not usually material, and that's part of it, Chelsea. I think we were giving guidance around that business being between NZD 15 million and NZD 20 million EBITDA previously. Obviously, we haven't got there this year, we expect to be well within inside that range going forward with the measures that were taken in the last few months.
Great. No, that's all. Thank you.
Just to add to that, I'll point to in the guidance, we talk about significant cost savings, not just here at Dunsandel, which are the ones that we've been a little more public about, but also within the Dairyworks business and at Talbot Forest. There's been significant cost savings achieved in both of those businesses in recent months.
Thank you. Your next question comes from Adrian Allbon from Jarden. Please go ahead.
Good morning, John and Rob. The first question around the nutritionals guidance for FY 2022. Like if you take the various data on year-end inventory and the uplift that you're signaling on the manufacturing side of things or the production volumes, is it fair to say like the consumer pack volumes are assumed to be flat year within that? Is there some other change in business relations with a2 that's in the mix? I presume, again, that the volume is a lot more skewed to Chinese label.
Our outlook assumption for our existing finished infant formula business is reasonably conservative. We need to make sure that we're able to meet any uplift or growth in demand that might come through. It's probably fair to say internally, we're being a little bit more conservative than the market is at the moment. I don't think that's because we have a better view of where the market might go. Actually, we have grown confidence in the way that a2 are managing their business and developing the market and the way that they are thinking about it. I think that we're quite positive about that. We have felt that it's prudent to make sure that we manage our business pretty conservatively and base our financial projections around a pretty conservative set of numbers, given the year that we've just had.
When we talk about returning to robust profitability, it is not expecting any significant increase in the volumes on the last 12 months.
That's all. Just to clarify some of that, just in terms of the inventory reduction that you pointed to in that space for the financial 2022 year, is that a change in the way that you do business with them? Or is it just a reflection of the sellout volumes are fatter, seeing that you've got a manufacturing uplift?
No, it's generally, this bullwhip effect that we've been talking about now for quite a few months, where in our business to get manufacturing efficiencies, we have been building up quite large volumes of work in progress of base powder, which is there to be blended into final products as a second step. With the current outlook, we don't need anything like as much as we turned out. We don't need as much as we had on hand. It's not financially as efficient to have so much on hand, we've run that right. We've run that down. That's part of the story. If you look at There's a detailed graph in there that had begun through FY 2021. Through FY 2021, we've really started to run those base powders down. That's what had quite a big impact on our fixed cost recoveries or lack thereof.
When we talk about fixed cost recoveries, these are genuine costs that have sat in the business and that we're only now releasing through the restructuring that we've just undertaken or that we're in the throes of undertaking. We've maintained a cost structure that's been high enough to do much more product. We're taking that out of the business. It's really internal planning and processes. It's not a new agreement with a2. We're able to meet our agreement and obligations, and indeed provide, in some ways, it's probably better providing them with fresher, better product than we have been able to in the past.
Adrian, if we did see a recovery in basic volumes, we definitely got the capability to ramp up base powder production very quickly still.
Okay. No, that's good. Thank you. Maybe the same question only for you, Rob. Are you able to, just in terms of the better-than-expected net debt finish for the year, are you able to approach that? Is that mostly just the fact that you sold a little bit more of the excess ingredient volume than you were expecting? Just related to that, can you give us an indication of the CapEx for the year ahead? Post the review of the maintenance CapEx being too high, what should be the level of maintenance CapEx going forward?
Yeah, sure, Adrian. I'll do the capital expenditure one first. Our CapEx for next year is going to be circa NZD 90 million-NZD 100 million. Again, another step down on this year. We've still got the Pokeno multinational customer project to finish off. We've still got the Tumu project to finish off, and a couple of other things. The operational CapEx for the business, if you include both Synlait and Dairyworks should really be sitting under NZD 20 million per annum, you're likely to see a little bit lower than that if possible. Year-on-year, around NZD 20 million. We still will have to invest in technology and stuff like that going forward. The concept of that. With regards to the net debt, the main reason that we came in a little bit low was two or three factors, actually.
Our capital spend phased more into FY 2023, so there's a bit of slippage there. We had a better mix of receivable assignment customers coming through in the end of the year, so we got a little bit of extra money there. There's just some really good working capital practices that ended us a little bit better than what we anticipated a couple of months earlier. Okay. Thank you, Adrian.
Thank you. Your next question comes from Nick Mar from Macquarie. Please go ahead.
Hey, guys. Just a kind of big picture question. Previously there was a chart talking about a NZD 200 million kind of value opportunity across the business. Where do you guys kind of sit on the view on that going forward?
Sorry, just repeat that. I didn't quite understand that.
Yes. There was previously a kind of chart looking at the kind of opportunity to increase earnings through kind of value across your asset base. Kind of extracting premium margins and kind of shifting mix. The number was around NZD 200 million of long-term upside. What's the kind of view whether that's still a kind of relevant long-term number?
Yeah. No, I understand that. We think that that number is still robust. We've probably got a slightly different view on how to deliver it. There's more opportunity around cost savings and efficiency out of our underlying business. It's fair to say that we are a little more If you line up that chart, which I've just now flicked through to, many of the same things are at work. We're just advancing them and giving them a little more visibility. Things like, the food service creams Made with Better Milk, bringing the multinational customer on Pokeno, moving to branded products, formulated liquid nutrition-type products, capturing all of the value add milk components that we use with Talbot. The same themes are there. We see the same opportunities.
We're just getting much more focused on how do we deliver them efficiently and how do we do that while minimizing capital spend. We've spent enough capital, we think, to get through to that NZD 2 billion in revenue. A lot of these projects, some of them need a little bit more capital, it's about emphasis and priority. We're certainly prioritizing projects that can be delivered from existing customer systems and processes without any more capital, and while making it, create an opportunity to make the business more efficient. What we need to do, we've also got more focused on what we need to do in the different parts. What we need to do in terms of Made with Better Milk, which is essentially built on our ingredient platform and our Lead With Pride milk supply base, is simply develop the customer relationships.
We can do that while increasing throughput and efficiency of our ingredients operations. The customer at Pokeno, that's been very much about building the relationship with that customer, searching for future opportunities and growth, while investing the capital. The liquid part of the business, things like liquid infant formula and some of the liquid branded products that we have, it's really about picking up the R&D that we've already invested in and developing the market opportunities and something that we think that Grant Watson is going to make an enormous contribution to in his time with us. It's not a U-turn on that at all. It's just how do we deliver it quickly, and without increasing cost structures, and particularly without spending any more capital than we need to.
Okay, great answer. In terms of following up from Chelsea's question on the 35%-40% uplift from the multinational customer, is that against the current level of expected production, in your business, or is that against your FY 2024 expectations, if that customer wasn't there?
It's against our FY 2024 expectation. We've taken a reasonably conservative view in terms of our way to there. We've got a conservative outlook for other customers, but it is against where we expect to be in FY 2024.
Great. Thank you.
Thank you.
Just to be clear, we expect a slow build from other customers, not a decline.
Thank you. Your next question comes from Stephen Ridgewell from Craigs Investment Partners. Please go ahead.
Yeah, good morning, or actually good afternoon, I should say. Look, first question is for John. I just wanted to clarify, that with the debt structure refresh and the outlook provided today, that the board doesn't see the need for additional equity to fund the company's operation and CapEx plans over the next couple of years if it hasn't been referenced explicitly?
No, good question. No, we don't. I'm sure that as you work your way into the detail provided and look at the magnitude of unwind that we can get out of inventory, and the cash flows that we expect in the next 12 months, that you'll feel comfortable with that. We've got to hit our numbers, but we've set up reasonably conservative set of numbers to hit and we're on track. No, we don't expect to raise capital in the next 12 months.
That's helpful. Thanks, John. If the company was to raise capital down the track, what would be the potential uses of that capital? Just sort of in light of the trend in the last few years of kind of diversifying operations away from the a2 relationship, what would be the kind of primary uses?
Well, it's not in the plan at the moment. This is a plan to make sure we deliver the opportunity down the capital that we've already spent. That is in three places. It's in plant and equipment, it's in product and business development. Of course, quite important to all this is our underlying ERP system, where we're moving to a SAP-based system that's been quite a large investment that is going to be put in place in December. We see significant growth in the categories that we've laid out ahead of us without the need to spend more capital. We don't have a plan to raise capital at any point because we see debt coming down reasonably quickly, while we grow out these other areas of the business.
For the foreseeable future anyway, our focus is going to be on delivering from the capital and the strategy that has been spent rather than hitting into new areas of business.
That's great. Maybe just one last one from me, just also on the kind of medium term kind of outlook. Is a 20% return on capital kind of still a realistic target for us to think about, John? Was the board and the strategic review suggesting your returns are a bit lower than that? Can you just share your thinking about with us where you think Synlait, what returns it can earn on a medium term basis, relative to industry and peers?
I'll hand that to Rob.
That's fair. Hello. We would definitely be wanting to get close to that number. Obviously, any new business that we come across will be at that, actually obviously we need to kind of work back into that sort of range.
Okay, maybe we can.
If we go to a high level, the company's well positioned in terms of the high-value opportunities in the industry, and we're a very small part of a very large industry. Just as we got used to showing, early in the life of the company, very good returns to the capital that we invested, we do think that we're well positioned to get back to there. Whether it's through improving the ingredients business by capitalizing on the investment that we've made in the quality of the supply chain, the amount we're investing with farmers, in terms of their Lead With Pride programs and the other differentiated milk programs that we have in place. Our Nutritionals business, we think, has a strong future.
The mere fact that we've landed customer is points to the fact that these days we're recognized as one of the global leaders in terms of manufacturing these products. We're very proud to be sitting alongside the other third-party manufacturers globally. These are all the other companies that we've aspired to be, the limited number of third-party manufacturers that that customer chooses to work with. In our Liquids business, we think that there's a very exciting future there as we build perhaps our own future and some of the very exciting products that we have developed. If you look across the space, we're not in low-returning categories of the industry.
We're in high-returning categories of our industry. It's over to us to make those investments, by building the company in the first place and in the way that we've set it up to make those work. We think that we can.
Great. Thank you.
Thank you. Your next question comes from Marcus Curley from UBS. Please go ahead.
Good afternoon. I just wondered if you could talk to what you think normal returns look like, maybe at a gross margin per ton in Ingredients. Obviously that's the reference in terms of where the business could be heading this year.
I'll get Rob to talk to it. There's a graph there that where we sort of disclose some of our products per ton in historic terms. FY, there's certainly a big pull-down, a big decline on FY on the previous year in FY 2021. I guess, the point that we're trying to make is that in our discovery work, it's pretty clear that even by FY 2020, we had a cost structure coming into that part of the business that was higher than it needed to be. I would like to think that we'll see a rebuild, back to where we've been historically and Made with Better Milk, potentially further.
Yes, I think that's a pretty good explanation from John. There's a lot of moving parts in here, Marcus, around how well utilized the plants are. We've got plans to fill up our plants further. All the cost efficiency that we're working on at the moment, and yield efficiencies will mean that we'll get back to what we've been used to in the past, where much more robust returns through ingredients. I think there's a lot of one-offs in FY 2021 that you'll see explained in the deck.
Do you think potential inventory cost headwinds are a problem for the ingredients business, particularly in the first half?
What do you mean by inventory cost, Marcus?
Well, I suppose Fonterra talked to the fact that the last quarter of the year was particularly high. Milk price fell sharply. I think, it's reasonable to assume that you've got high cost inventory heading into the first half. Is it a material impact for you in terms of the expectations for the ingredients business this year?
Look, to be honest, yeah, the way you explain it, that is there. It is high costs, product, Marcus, as we head into the year. Most of that product that we held at year-end has been sold through already. As we move through the whole of FY 2022, that product will be relatively immaterial, it's probably about 10%.
Okay. Secondly, could you talk to the performance of lactoferrin, obviously, with the new consolidation, you can't see the lactoferrin result. I just wondered if you could talk at least directionally to what happened on gross margin per ton within that category in the last 12 months.
Yeah. Sure. The lactoferrin business is still really successful and really strong. Volume-wise, we added another three tons onto what we sold the previous year. That was good. However, we did see some softening in pricing, which meant that our margins actually came back a little bit, and you can kind of see that on the bridge and within the pack. Look, the lactoferrin business will continue to be really important for us in 2022 and beyond, Marcus.
Are you seeing that stabilize, on a gross margin per ton basis?
Yeah, I think it's fair to say we are. There's been a lot of talk about large lactoferrin capacity coming to the market, but, there's more and more lactoferrin being built into product and as it should be. It's a great product and actually it brings infant formula closer to mother's milk, and that's the aim. Our lactoferrin is globally recognized now as one of the leaders. We would like to think it's the leading product in the market. We're seeing prices are actually a little firmer than we were expecting right at the moment.
Okay. Thank you.
Thank you. That does conclude our time for questions. I'll now hand back to Dr. Penno for closing remarks.
Well, thank you very much. Firstly, let me thank everybody for their patience. There's a number of investors on this call who have stayed with us through what has been a difficult year. I acknowledge that, and I thank you, particularly those who invested in our capital raising, who participated in our capital raising and who have been with us. We're very mindful of that. We're equally mindful that during the year, things turned in a way that we weren't expecting. Now, I do hope that through this pack and in the days and weeks that come, people will see that we, both board and management, are very focused on bringing the company through this period, returning it quickly to financial strength. Getting back to the business of growing a great New Zealand company. That is what we are looking to do.
That is what we firmly believe is there for us. I thank everybody for their patience as we work through this and look forward to the various conversations that are to come. Thanks everybody for participating.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.