Synalit shares down as profit forecast cut

Profits at newly listed Synlait Milk are expected to be $7.5m lower than prospectus forecast.

Newly-listed Synlait Milk's share price fell in morning trading after the company said its net profit for 2014 would be $7.5 million lower than forecasts for the July 31 financial year due the high NZ dollar and a reduced advantage from a favourable product mix in the second half.

By late morning, the shares were trading at $3.20, down 20c from Thursday's close, after earlier dipping as low as $3.15.

Synlait chairman Graeme Milne said dairy company's forecast 2013/14 net profit had been revised from a range of $25.0m to $30m to $17.5m to $22.5m. The prospectus forecast was $19.8m.

"We had been expecting to maintain the benefits of a very favourable product mix for the remainder of this financial year, however the exceptional market conditions experienced in the first half of the year have moderated," Milne said in a statement.

International commodity price volatility coupled with a high New Zealand dollar had resulted in the forecast milk price for the 2014 season dropping from a range of $8.30 to $8.40 per kg of milk solids o $8.20 to $8.40 per kg.

The new season forecast milk price for was $7.00 per kg.

See here: Fonterra sets $7.00 milk price for new season

Synlait Milk was the most successful float on the NZX in 2013. The shares were issued at $2.20 but debuted on the NZX in July at $2.62 - a 19 per cent premium. This morning's price represents a 45.5 per cent premium to the issue price.

The company's milk price forecasts follow Fonterra's announcement this week of a $7.00 per kg milk price for 2014/15 and a reduced milk price for the current season of $8.40 from $8.65.

Synlait managing director John Penno said that despite challenging market conditions the company's financial performance remained on track.

"The infant formula and nutritional market continues to prove challenging due to regulatory changes in China and it is clear that we will not meet our volume targets for this financial year," he said in a statement.

Read the statement here:

"However, the development of this business in key markets outside of China with our tier one multi-national companies continues to be strong and we remain confident of meeting our long term objectives," he said.

Penno said he was confident of receiving the required Chinese regulatory approval to export finished infant formula into China following construction of a new dry blending and consumer packaging facility due for completion in June.

Synlait is 39 per cent owned by China's Bright Dairy and 10 per cent by Holland's FrieslandCampina - one of the world's five largest dairy companies. Japan's Mitsui and Co has about 8 per cent.