Synlait annual profit slumps 46% as lactoferrin sales struggle, forecast payout cut
By Paul McBeth
Sept. 22 (BusinessDesk) - Synlait Milk, which counts China's Bright Dairy & Food as its biggest shareholder, posted a 46 percent drop in annual profit as lactoferrin sales missed expectations and it kept milk payments high enough to ensure supply. Synlait cut its payout forecast for the current season.
Net profit dropped to $10.6 million, or 7.21 cents per share, in the 12 months ended July 31, from $19.6 million, or 13.4 cents a year earlier, the Rakaia-based milk processor said in a statement. That was just within the $10 million-to-$15 million forecast Synlait gave when reporting its first-half results in March. Revenue fell 25 percent to $448.1 million, and the bottom line was also weighed on 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 FY15 revenue," chairman Graeme Milne said. "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 have slumped through the start of the year, prompting milk processors including Synlait to cut their payments to their farmer suppliers, and forcing their larger rival, Fonterra Cooperative Group, 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 today lowered its forecast payout to $5/kgMS from the $5.50/kgMS level it signalled in June, though 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 said 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," Penno said.
Synlait didn't provide earnings guidance for the 2016 year, though said it expects sales volumes will rise to 122,500 tonnes of product in 2016, from 97,800 tonnes in 2015. That includes a doubling of lactoferrin sales, albeit at "significantly lower pricing," Synlait said in a presentation slide accompanying the release.
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 his in the final stages of commissioning.
Synlait shares last traded at $2.53, and have declined 21 percent this year.