Synlait shares drop on first half-result

Synlait said its profit was lower than expected due to delays in the shipment of infant formula and nutraceutical products.

Synlait Milk's share price dropped by 8.6 per cent after the South Island dairy company said said unrealised foreign exchange losses drove the company to a $6.4 million net loss for the six months to January 31 from a $12.1 million profit a year earlier.

The unrealised foreign exchange losses came to $6.8m, Synlait said.

By mid-morning, Synlait shares were trading at $2.75, down 26c to 8.6 per cent since Friday's closing level.

In Februay, the company said its first-half result will take a big dip but says its full-year earnings "guidance" will remain intact.

The company then that it expected its six-month result to be "substantially lower" owing to the marked-to-market accounting treatment of its financial instruments.

In today's announcement, the company said the profit for the period was lower than expected, mostly due to delays in the shipment of infant formula and nutraceutical products.

A one-off, after tax product mix benefit of $7.5 million in the first half of 2014, combined with increased depreciation and interest costs from the commissioning of three projects in the second half, were the main reasons for the $11.7 million variation between the underlying interim results, it said.

"We are expecting a much stronger performance in the second half of full year 2015, associated with increased sales of our higher margin infant and nutraceutical products," said chairman Graeme Milne said in a statement.

Despite an expectation that current market volatility will continue, Synlait is confident that sufficient committed contracts are in place to achieve a forecast net profit after tax result of $10 - $15m for the 2015 year.

"Production challenges have occurred in the first year of commercially producing lactoferrin, a high-value bioactive protein," Synlait said.

"As a consequence, there is an increasing risk that the sales target of 15 tonnes may not be achieved in 2015," it said.

Managing director John Penno said that although the previous 18 months have been challenging for the dairy industry, investing in nutritional capacity and capability would create value for the business in the long term.

"We are acutely aware of the decline in commodity prices and the impact this is having on our suppliers," he said. "We have an increased ability to respond well to these pressures, which meansin some situations we can offer financial incentives to help ease these impacts on our suppliers," Penno said.

Synlait Milk last week increased its forecast market milk price upwards for the 2015 season from $4.40 per kilogram of milk solids to a range of $4.50 to $4.70 kg.

Last year, Synlait Milk posted net profit of $19.6 million for the year to July 31 - in line with its prospectus forecast and up from $11.5 million in the previous financial year.

Synlait shares debuted on the NZX at a 24.5 per cent premium to the $2.20 issue price in July 2013.