Synalit cuts full-year profit forecast on high kiwi, falling dairy price

Friday 30th May 2014

Synlait Milk, the dairy processor which counts China’s Bright Dairy as a cornerstone shareholder, cut its full-year earning forecast for the second time this year as a strong currency and an unfavourable product mix weighs on the exporter.

The Rakaia-based company said profit will be $17.5 million to $22.5 million in the year ending July 31, down from a March estimate of $25 million and, 30 million, and a January forecast of $30 million to $35 million. Its prospectus forecast profit of $19.8 million.

"A reduced advantage from a favourable product mix in the second half of the year, and a consistently high New Zealand foreign exchange rate has resulted in a reduction in forecast net profit after tax of approximately $7.5 million for the financial year," the company said.

Synlait lowered the bottom end of its forecast milk payment to suppliers for the full-year to $8.20 to $8.40 per kilogram of milk solids from a previous forecast of $8.30 to $8.40/kgMS, and said it expects to pay a lower price for the upcoming 2015 season of $7.00/kgMS, matching the forecast made earlier this week by its the nation's dominant dairy company Fonterra Cooperative Group.

In January, Synlait said it expected sales of baby formula to fall below its 10,000 metric tonne target this year because stricter Chinese regulations had caused “considerable disruption” in that market. Earlier this month, the dairy exporter missed out in the first round of approvals under new Chinese regulations, preventing it from exporting infant formula to that market. The dairy processor is spending $21 million expanding its laboratory and administrative facilities, in part to increase its testing capabilities.

The shares last traded on the New Zealand All Ordinaries Index at $3.40, valuing the company at $497.6 million, and 55 percent above its $2.20 listing price last July. The shares climbed as high as $4.11 in mid-January.

The company expects to publish its full-year earnings on Sept. 24.

BusinessDesk.co.nz

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