Synlait Milk profit falls more than expected; still no coronavirus impact

Synlait reported net profit of $26.2 million in the six months to January 31, down from $37.3m a year earlier. Photo / Supplied

Synlait Milk's first-half profit fell more than expected, but it kept its guidance for the full-year and said it is still seeing no operational impact from Covid-19.

The milk processor reported net profit of $26.2 million in the six months to January 31, down from $37.3m a year earlier. Last month it said net profit would be between $26.5m and $28.5m.

"Due to month end shipment challenges we fell slightly below our guidance range. This is a timing issue," it said.

Last month, it also lowered its annual forecast for net profit to between $70m and $85m in the 12 months ending July 31, at best a flat result from the $82.2m reported the year earlier.

Today, Synlait said it "remains comfortable with its FY20 earnings guidance range" and reiterated plans to play suppliers $7.25 per kilogram of milk solids in the 2019-2020 season. That would be the highest payout since the 2014 season and is up from $6.58/kgMS last season.

Synlait said it is seeing no "material short-term impact" from Covid-19, although the outbreak "represents some downside risk going forward."

Profit was supported by the sales of consumer-packaged infant formula, which lifted 22 per cent on the same period. Total revenue was up 19 per cent at $559m and milk processed rose 8.5 per cent to 46.7 million kgMS.

Net profit was weighed on by higher depreciation and interest costs as Synlait invests for growth, it said.

Among other things it had a $3.2m increase in employee costs "reflecting ongoing investment in people," it said.

Net debt, meanwhile, rose from $159.7m to $447.4m in the half year with $220m of capital expenditure.

Funds were used for a second infant-capable manufacturing facility in Pokeno and an advanced dairy liquid packaging plant at Dunsandel.

Regarding legal issues surrounding its Pokeno factory, it said "uncertainty remains regarding land at Synlait Pokeno." However, the company remains comfortable with its legal position ahead of the Supreme Court hearing scheduled for April.

Last year, Synlait won the right to appeal a decision restricting the land where its new $260m Pokeno factory has been built to grazing, lifestyle farming and forestry.

The shares closed at $4.62 yesterday, having slumped 48 per cent so far this year.