Synlait full-year profit gains 11% on surging sales, offset by rise in expenses

Tuesday 19th September 2017

Synlait Milk, whose shares have more than doubled in the past two years, reported an 11 percent gain in annual profit as a jump in sales was offset by a similar increase in expenses.

Net profit rose to $38 million in the 12 months ended July 31 from $34.4 million a year earlier, the Dunsandel-based milk processor said in a statement. Revenue climbed 39 percent to $759 million while cost of sales rose 45 percent to $649 million.

Synlait, whose product range includes infant formula for A2 Milk, raised almost $100 million in new capital during the financial year to repay debt and fund its growth, including the purchase of a milk powder canning plant in Auckland capable of blending and packaging infant formula and an expansion of its wetmix facility at its Dunsandel site. Sales and distribution costs and wages rose in the year while finance costs fell.

"We see considerable opportunities to solidify our current ingredient and infant formula positions, and to enter new categories," said chair Graeme Milne. "A more profitable, more diversified and lower risk business is our goal and we will make good progress towards this in FY18."

Gross profit per metric tonne fell to $781 from $863 a year earlier while the volume of sales climbed to 141,393 tonnes from 116,402 tonnes. A breakdown by category shows gross profit for powders and cream fell 12 percent to $688 a tonne, while consumer packaged gross profit rose 8.9 percent to $723 a tonne. Specialty ingredients gross profit was $16,904 a tonne, a turnaround from a loss of $14,647 a tonne a year earlier.

Chief financial officer Nigel Greenwood said the decline in gross profit was driven by higher growth in ingredient sales, which diluted gross profit per tonne, "as well as weaker margins within our ingredients sub-category". The decline in gross profit per tonne for powders and cream was "due to tougher trading conditions for ingredient products."

Increased milk production and the sale of 3,939 tonnes of carry-over impaired inventory from 2016 "at little or no margin" diluted margin per tonne, he said. In addition, ingredient sales volumes grew 22 percent, outpacing a 17 percent increase for infant sales volumes, which also diluted margin per tonne.

Net finance costs fell to $12.2 million from $15 million as net debt tumbled to $83 million from $214 million. Synlait affirmed its forecast milk price of $6.50 per kilogram of milk solids for the 2017/18 dairy season, up from $6.30/kgMS in 2016/17.

No dividends were declared.

The shares last traded at $5.25 and are up 69 percent this year, second only to A2 Milk's 174 percent gain on the NZX 50.

(BusinessDesk)

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