Synlait annual profit slumps, cuts forecast payout

Synlait Milk’s [NZX: SML] annual profit dropped 46% as lactoferrin sales missed expectations, leading to a cut in the forecast payout for the current season.  

The Rakaia-based milk processor’s net profit dropped to $10.6 million, or 7.21c per share, in the 12 months ended July 31, from $19.6 million, or 13.4c a year earlier.

That was just within the $10-15 million forecast Synlait gave when reporting its first-half results in March.

Revenue fell 25% to $448.1 million and the bottom line was also affected by a $1.6 million unrealised loss on foreign exchange.

Synlait is "in a global operating environment where milk prices have fallen to unsustainably low levels and this is reflected in our revenue," chairman Graeme Milne says.

"Our suppliers are an important part of our business and we've prioritised paying them higher advances and final payments for their milk, relative to our earnings, in what has turned out to be the first of probably two very challenging years on-farm."

Global milk prices slumped through the start of the year, prompting milk processors, including Synlait, to cut payments to their farmer suppliers, and forcing its larger rival, Fonterra, to slash its forecast payout for the 2016 season to $3.85 per kilogram of milk solids, the lowest level in more than a decade.

Synlait has lowered its forecast payout to $5/kgMS from the $5.50/kgMS level it signalled in June, though it is still a premium to Fonterra.

Synlait paid an average milk price of $4.54/kgMS in the 2015 season, compared to $4.40/kgMS paid by Fonterra, and down from $8.31/kgMS paid in 2014.

Chief executive John Penno says Synlait's value-add products mean it can pay a premium to its suppliers above the base milk price.

"More than half of our suppliers will attract a premium payment this season because of the value they're creating on the farm," Mr Penno says.

Synlait didn't provide earnings guidance for the 2016 year, though it says it expects sales volumes will rise to 122,500 tonnes of product from 97,800 tonnes in 2015. That includes a doubling of lactoferrin sales, albeit at "significantly lower pricing."

The company's net debt rose to $262 million as at July 31 from $152.1 million, primarily to fund the build of its third spray drier, which is in the final stages of commissioning.

Synlait shares last traded at $2.53, and have declined 21% this year.

(BusinessDesk)