Synlait Milk full-year profit rises 70%, to take 25% stake in New Hope Nutritional

Synlait Milk [NZX: SML], which twice cut its earnings forecast, posted earnings growth that met revised guidance and said it plans to take a 25 percent stake Sichuan New Hope Nutritional Foods Co to gain a direct interest in a Chinese infant formula brand.

Profit rose 70 percent to $19.6 million in the 12 months ended July 31, from $11.5 million a year earlier, the Rakaia-based company said in a statement. Sales rose 43 percent to $600 million.

Profit was within the guidance of between $17.5 million and $22.5 million Synlait gave in May, when it said earnings growth would be less than previously forecast because of a strong currency and an unfavourable product mix. Profit still met its prospective financial information (PFI) target. Its shares have fallen 16 percent this year as the NZX 50 Index gained 9 percent and last traded at $3.30, up from its $2.20 listing price last year.

"Achieving targeted premiums and gross margin for specialised ingredients when world market prices were high proved challenging," said chairman Graeme Milne. "Along with the development of our nutritionals business being set back by regulatory change in the important Chinese market, it meant the profitability advantages over and above PFI we experienced in the first half of the year were largely eliminated."

The company is still awaiting registration under China's new food safety regulations, which require manufacturers to take responsibility for branded product sold to consumers. To build its relationship with a Chinese brand, it plans to acquire 25 percent of New Hope Nutritional, which sells the akaraTM branded infant formula range in China and is in turn owned by New Hope Dairy, a shareholder in New Zealand's PGG Wrightson.

"It is our desire, as the manufacturing company, to develop a close association with our Chinese brand owners to reassure consumers that these brands are produced from a reliable, vertically integrated company that is prepared to stand behind the quality of the product," managing director John Penno said. "This approach has been signalled by Chinese officials as a future requirement for the export of retail-ready infant formula to China."

The company that counts China's Bright Dairy as a cornerstone shareholder affirmed it has no plans to start paying dividends.

Synlait Milk's volume of milk grew to 49.9 million kilograms of milk solids (kgMS) in 2014 from 46.8 million kgMS a year earlier. Manufactured volumes rose to 96,492 metric tonnes from 91,229 tonnes. The company paid an average $8.31 per kg MS to its suppliers.

Gross margin widened to $77.1 million from $65.1 million.

(BusinessDesk)