Synlait reports 9.7% decline in 1H net profit

Synlait reports 9.7% decline in 1H net profit on lower margins

By Rebecca Howard

March 20 (BusinessDesk) - Synlait Milk reported a 9.7 percent decline in first-half net profit on lower margins for its fully-finished infant formula but said it continues to expect a lift in full-year earnings.

Net profit was $37.3 million in the six months to Jan 31, versus $41.3 million in the same period a year earlier. Revenue, however, lifted 7 percent to $470.9 million on higher sales volumes across its powders and cream and lactoferrin businesses. It processed 12.4 percent more milk than it did in the same period last year, producing 90,495 metric tonnes of product.

"While our sales volumes of fully-finished infant formula were slightly ahead of HY18, these were delivered at lower margins. This is a result of the new pricing agreement entered into with The a2 Milk Company last July, as well as not having the benefit of the higher margin sales to our China-based customers that we enjoyed in HY18. These brands are awaiting State Administration for Market Regulation registration," Synlait said in a statement.

All manufacturers of infant formula are required to register brands and recipes with the China Food and Drug Administration to sell into the Chinese market through traditional channels. The registration is part of broader efforts by China to lift food safety standards after a number of scares including the death of infants from ingesting infant formula laced with melamine in 2008.

Synlait expects to obtain SAMR registration for New Hope’s Akara and E-Akara brands and Bright Dairy’s Pure Canterbury brand by the end of 2019, but noted it is difficult to be definitive on timelines.

Synlait said the first half was characterised by the significant investments in its manufacturing base across all its key categories. "This is part of our focus on supporting the growth of our customers and diversifying our business," it said.

Nearly $200 million of capital expenditure was invested in the six months to Jan 31.

Synlait said its new manufacturing facility in Pokeno continues to be on track for commissioning for the 2019-20 milk season. "This is a $260 million investment which will allow us to meet customer demand, whilst also eliminating our single-site risk," it said. The company continues to recruit new milk suppliers in the area.

It also said it is on track to complete an advanced liquid dairy packaging facility in Dunsandel, a $125 million investment.

The company said it is on track to meet full-year canned infant formula volume guidance of 41,000 – 45,000 MT, with significantly higher volumes forecast to be delivered in the second half of the financial year.

"The volume growth in the second half of FY19 is driven by strong growth in The a2 Milk Company’s infant formula products. We maintain our outlook that full-year profitability is expected to increase in FY19, but not at the same rate as FY18," it said.

The stock last traded at $11.29 and is up 25 percent so far this year.

(BusinessDesk)

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