Synlait profits halve as milk prices drop

Canterbury dairy company Synlait Milk has almost halved its net profit for the July year to $10.6 million, driven by lower than expected sales of the protein, lactoferrin, and its decision to prioritise payments to milk suppliers in a period of a very low milk prices.

The company's underlying net profit after tax was $12.2 million compared with $19.6 million in the previous year. The $10.6 million net profit was after unrealised foreign exchange losses, which it said would be unwound in future.

Revenue for the period was $448.1 million compared to $600.5 million in the previous year, largely due to falls in dairy prices.

"The underlying net profit after tax, while within market guidance, was down on expectations due to lower than anticipated lactoferrin sales and Synlait's board of directors choosing to prioritise payments to milk suppliers in a period of a very low milk price," the company said.

At the same time, Synlait Milk cut its forecast milk price for the current 2015/16 season to $5.00 a kg of milksolids from $5.50 a kg. Synlait Milk paid its milk suppliers a total average milk price of $4.54 per kgMS for the 2014/2015 dairy season.

The company said milk prices have fallen to unsustainably low levels, which was reflected in the sharp drop in revenue.

"Our suppliers are an important part of our business and we've prioritised paying them higher advances and final payments for their milk, relative to our earnings, in what has turned out to be the first of probably two very challenging years on farm," chairman Graeme Milne said.

He said there would be an initial focus in 2016 commissioning Synlait's third large scale spray dryer and new quality testing laboratory in October, but that focus would then shift towards developing nutritional and infant formula products with key customers.

The board had decided not to pay a dividend.

See more from the latest Synlait result here: