Synlait says falls in product profit margin affect forecast

Last updated 05:00 31/05/2014

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Shares in NZX-listed Synlait Milk fell significantly after a cut to its profit forecast for the second time this year.

The Dunsandel-based dairy processor says margins on its products having fallen significantly impacting its profit expectations for the year to July 31.

Chairman Graeme Milne said Synlait's new forecast net profit range of $17.5 million to $22.5m for fiscal 2014 had been revised from a range of $25m-30m. But this was in line with its prospectus forecast of $19.8m. At its half year result release in March Synlait cut its full year 2014 net profit forecast to a range of $25m to $30m, from $30-$35m forecast previously.

Synlait's shares fell yesterday following the announcement. In afternoon trade they were down 30 cents or nearly 9 per cent to $3.10.

Managing director John Penno said there had been a "reduced advantage" from a still favourable product mix in the second half of the financial year, and the consistently high New Zealand dollar impacting exports.

"Milk powders in the first half of the year were very profitable relative to other products (like cheese, which Synlait does not produce) . . . in the second half of the year they're still more profitable, but not anywhere as much.

"We had a very good first half, but in the second half we've been bringing those expectations down as the market has returned to normal, and as we've faced the ongoing challenges in the Chinese market in terms of getting our infant business established there," Penno said.

The infant formula and nutritional market continues to prove challenging because of regulatory changes in China and it is clear the company would not meet its volume targets for this financial year, Penno said.

However, Synlait remained confident of receiving the required Chinese regulatory approval to be able to regularly export finished infant formula into China probably around July or August.

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