19 Sep 2018

Synlait Milk's profit climb with infant formula sales growth

4:46 pm on 19 September 2018

Speciality dairy producer Synlait Milk has nearly doubled its profit with a strong increase in sales of infant formula.

Milk in glass jug.

Synlait Milk full-year net profit rose off the back of a strong increase in finished infant formula sales. Photo: 123rf

Canterbury-based Synlait's full-year net profit rose 89 percent to $74.6 million in the 12 months ended in July, almost twice last year's $39.5m.

Sales rose 16 percent to $879m, reflecting a strong increase in finished infant formula sales.

The company said recent investments in blending and consumer packaging space helped increase the production of the finished formula.

It expected ongoing improvements would result in further efficiency gains in the current financial year.

"In November 2017, we completed our second Dunsandel wetmix kitchen, and the same month commissioned our Auckland blending and consumer packaging facility. Both these projects have allowed us to increase our finished infant formula capacity," chairman Graeme Milne said.

The company also announced a plan to buy the assets of Geraldine-based Talbot Forest Cheese for between $30m and $40m, including property, plant and equipment at a new 12,000 metric tonne Temuka site, the consumer cheese brand and customer relationships.

Synlait planned to take control of the operations from next August, subject to conditions being met.

Mr Milne said the new $125m packaging facility at Dunsandel, which will produce fresh milk and cream for Foodstuffs South Island private label brand, would be built with an electrode boiler, in line with a policy not to build another facility with a coal-fired boiler.

"The plant is highly efficient and capable of producing many existing products, as well as product variants which are new and match emerging global trends," he said.

Synlait said its final average total milk price for FY18 was $6.78 per kilogram of milk solids, including a base milk price of $6.65 per kg of milk solids and seasonal and average value-added incentive payments of $0.13 per kg of milk solids.

It said the forecast milk price for the current season was $6.75 kg of milk solids, given declining commodity prices, although an improvement was anticipated in the medium-term.

Synlait's chief executive, Leon Clement, who recently replaced John Penno, said the partnership with The a2 Milk Company had continued to grow, with an extended supply agreement, which provided Synlait with a minimum five-year term through to July 2023.

Synlait would continue to be the exclusive manufacturer of the a2 Milk's infant formula for the Australia, New Zealand and China markets, he said.

In addition, Mr Clement said the company was working to register its New Hope's Akara and Bright Dairy's Pure Canterbury brands in China, while the Munchkin Grass Fed infant formula registration was also progressing through the regulatory process with the United States Food and Drug Administration.

"The Grass Fed product is doing well in Australia, following its introduction into the nationwide supermarket chain Coles," he said.

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