Synlait beats prospectus forecast as full-year profit more than doubles

Tuesday 24th September 2013

Synlait Milk, the Canterbury-based dairy processor that went public in July, posted a 161 percent jump in full-year profit, beating its prospectus forecast, although infant formula sales missed its target.

Profit was $11.5 million in the year ended July 31, from $4.4 million a year earlier, the company said in a statement. Sales rose about 12 percent to $420 million, which Synlait said was driven by increased volumes.

Synlait, which is 39 percent owned by China's Bright Dairy, raised $75 million of new capital in its initial public offering, using the funds to repay debt and build a new lactoferrin plant as it ramps up production to meet demand from China. All up, it has capital spending plans of $186 million to expand its facilities by May 2015.

It has added customers including A2 Corp, which is also targeting the Chinese market, and lured milk suppliers including listed farming group Rural Equities, which now sells a third of its production to the dairy company.

Profit in the latest year exceeded the $10.8 million forecast in its prospectus even as sales came in about $6.4 million below forecast, reflecting lower-than-expected infant formula revenue. It attributed the miss to stricter Chinese regulations.

"We remain confident of meeting our long term objectives for our infant formula and nutritionals business despite missing volume targets in FY2013 primarily due to market disruption caused by Chinese regulatory changes at the end of the financial year," said managing director John Penno.

The shares were unchanged at $3.30, and are now 50 percent above the $2.20 offer price.

Revenue from its infant and nutritionals products rose about 78 percent to $43.5 million, below its forecast of $52.9 million.

Its gross margin jumped to 65.1 percent from 46 percent a year earlier and compares with its forecast of 64.6 percent.

The company collected 46.8 million kilograms of milk solids in 2013, up from 44 million kg MS a year earlier. Manufactured volumes rose to 91,229 metric tonnes from 81,398 metric tonnes.

The company didn't give updated guidance for 2014 though earlier this month it reiterated its prospectus forecast for sales of $524.4 million and underlying pretax earnings of $32.1 million in the 2014 year. It wasn't expecting to pay a dividend in 2013 or 2014 as it invested for growth.

Earlier this month the company lifted its forecast milk payment for 2014 to $8 per kg MS, from a previous forecast of $7/kgms.

BusinessDesk.co.nz

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