Milk firm picks stronger second half of year but market volatility expected to continue.

Synlait Milk's share price has tumbled after the Canterbury-based specialised milk powder manufacturer reported a $6.4 million net loss for the six months to January and revised down its full-year earnings forecast.

The company, which is 39 per cent owned by Shanghai's Bright Dairy - through Shanghai Bright Dairy and Food - said the loss arose from unrealised foreign exchange losses of $6.8 million.

"While we are expecting a much stronger performance in the second half of the 2015 financial year, associated with increased sales of our higher margin infant formula and nutraceutical products, we expect the current market volatility to continue and have therefore revised our forecast [earnings] to a range of $10 million to $15 million for the full year to July 31, 2015," the company said.

Synlait's shares closed down 8.6 per cent at $2.75 yesterday.

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The company did not disclose its previous internal forecast, but one brokerage had previously forecast a net profit of $20 million for the year.

In February, Synlait said its first-half result would be "substantially lower" owing to the marked-to-market accounting treatment of its financial instruments.

In yesterday'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, the company said.

Harbour Asset Management analyst Oyvinn Rimer said the previous first-half result had been inflated by one-off items and that the most recent half reflected the marked-to-market accounting treatment given to Synlait's financial instruments, which would "wash out" in time.

While the result was weaker than expected, he said the company's lower value powders tended to sell in the first half, when the dairy season was at its peak, with most of its higher value nutritionals and infant formula selling in the second.

"There should be a path to significant improvement in the second half, but there is still lots of risk out there," Rimer said.

Analysts said the share price fall probably reflected disappointment that Synlait's sales target for lactoferrin - a high-value protein - of 15 tonnes for this year may not now be met.

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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.

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 per kg - still below the average cost of production for most farmers.

Last year, the company posted an annual net profit of $19.6 million for the year to July 31.

The profit was in line with its prospectus forecast and up from $11.5 million in the previous financial year.

Synlait shares, with an issue price of $2.20 a share, listed on the NZX in July 2013.