Synlait soars on formula

Synlait Milk said it was on track towards racking up its most profitable year ever after a big increase in infant formula sales drove its first-half earnings sharply higher. Photo / Brett Walker

Synlait Milk said it was on track towards racking up its most profitable year ever after a big increase in infant formula sales drove its first-half earnings sharply higher.

The Rakaia-based company, which listed on the NZX in 2013, said its underlying net profit after tax came to $12.3 million for the six months to January 31, up from $400,000 in the previous corresponding period.

This was mostly because of increased sales of canned infant formula.

"We expect this year to be our most profitable ... and to continue to build on the trend that has been well-established in the business," chief executive John Penno told the Herald.

"We knew that as we built our nutritional business - the value added side - that it would go straight to earnings," he said.

"The previous first half was abnormally low, with most of the company's annual earnings occurring in the second half."

Infant formula product sales for the period were 7498 tonnes - a 155 per cent increase on the previous first half - accounting for 16 per cent of total sales volumes, compared to 7 per cent a year earlier.

Synlait Milk tends not to be buffeted by low milk prices, but its suppliers do, and Penno said that had meant lower milk production from its suppliers.

He expected to see milk flows to fall again, "reasonably significantly" next year, but that the addition of 28 new Canterbury milk suppliers for 2016/17 would compensate for the loss. Penno said growth in the infant formula business was expected to continue through into 2017.

Chairman Graeme Milne said the company expects to see an almost fourfold increase in canned infant formula sales in 2016 compared with 2015.

In the same time frame, Synlait would have strengthened its balance sheet by restructuring its working capital requirements and repaying debt.

"This position provides a base for potential further capital expansion," Milne said.

Penno said the result partly reflected Synlait's partnership with nutritional customer The a2 Milk Company.

Synlait is also in partnership with US-based Munchkin to produce "Grass Fed" infant formula, expected to be launched in Australia and New Zealand in May.

Penno said the impact of prolonged low dairy commodity pricing continued to hit home for its suppliers.

"We remain committed to supporting them where we can," he said.

Synlait shares closed up 10c yesterday at $3.15.