Synlait Milk, whose shares are up 81 per cent from its initial public offering, lowered its full-year profit forecast, saying regulatory changes in China and Fonterra Cooperative Group's whey protein recall are denting volumes of infant formula and nutritional products.
Full-year profit will be in a range of $25 million to $30 million, down from the $30 million-to-$35 million estimate it gave in January. The projection is still well ahead of its prospectus forecast of $19.8 million.
The Rakaia-based company lowered its guidance while announcing a 79 per cent jump in first-half profit to $12.1 million as sales rose 62 per cent to $284.9 million. Its profit margin rose to $919 per metric tonne in the six months ended Jan. 31 from $751 in full-year 2013.
"Despite it being clear that we will not meet our infant formula and nutritional volume targets for this financial year, we remain confident of meeting our long-term objectives," managing director John Penno said in a statement.
"With a favourable product mix and an increasing amount of product sold into value-added applications we expect our milk powder and cream products business to outperform our initial public offer projections in FY2014," he said.
The shares last traded at $3.99, valuing the company at about $584 million. The company is 39 per cent owned by China's Bright Dairy & Food. It won't pay a dividend.
Synlait had warned in January that it may fall short of its target of selling 10,000 metric tonnes of infant formula and nutritional products in China because of disruptions in that market caused by increased regulation. Full-year infant formula sales are now expected to be similar to 2013 and the company took a pretax provision against infant and nutritional inventories of $5.8 million.
Overall sales volumes for ingredients rose 4.1 per cent to 40,503 metric tonnes in the first half while nutritional volumes jumped about 90 per cent to 3,005 tonnes. Total milk procurement rose 7 per cent to 31,547 kilograms of milk solids.
The company plans to bring forward some planned capital spending and has increased the capacity of its second infant formula and nutritional spray drier by 25 per cent, lifting the cost of the project by $31.5 million to $135 million including site work for a fourth spray drier, it said.