This result caused an immediate 36c fall in the share price to $2.65 on the NZX. They had recovered to $2.77 at time of writing.
In the same period a year earlier, Canterbury-based Synlait made an after-tax profit of $12.1m, benefiting from high commodity prices and a favourable product mix based on milk powders.
The company’s multi-pronged growth programme has also impacted earnings, with depreciation and interest costs both higher.
The forecast for the full year to July 31 compares with last year’s profit of $19.6m.
Synlait’s gross profit per metric tonnes (MT) on product sold fell to $623 in the latest period from $919 previously. Some product manufactured during the 2014 year when commodity prices were higher had to be discounted for sale during the latest interim period, managing director John Penno said.
During the half-year, Synlait sold 42,702MT (39,636 ingredient and 3067 nutritionals) compared to 43,510MT (40,505 ingredients and 3005 nutritionals) earlier.
Productions volumes lifted to 64,639MT (61,617 ingredients and 3022 nutritionals) from 60,980MT (56,254 and 4726).
Total revenues fell to $197.5m from $284.9m.
The industry was going through a challenging and volatile period at the same time as Synlait was investing heavily to build its nutritionals capacity but this investment would create value for the business in the long term, Penno said. Directors were confident there were sufficient committed contracts in place to meet the new profit forecast.
Synlait had an operating cash outflow of $62.58m for the half year (compared to an outflow of $8m previously) but this was mostly caused by a greater level of the forecast annual milk price already being paid to suppliers as at January 31. Advance payments made up 92% of the forecast milk price, up from 72% at the same time last year.
Milk prices have fallen since the year started with a forecast price of $7/kg milksolids (MS) – by January 31, Synlait had paid advances of $4.50kg. Its latest forecast is for a final price of between $4.50 and $4.70/kg MS.
One of the major growth projects was the new lactoferrin protein plant. There had been challenges during the first year of commercial production and there was an increasing risk the full-year sale target of 15MT may not be achieved, Penno and chairman Graeme Milne said.
In the half year there were 7.5MT of contracts sales but only 1MT of product delivered because of the technical issues, which had now been resolved.
Although the international market for lactoferrin was softening because of additional production capacity, Synlait would have significant extra volumes for sales during the second half at “very strong margins”. It still expects the unit to exceed the business case for sales volumes and pricing for the first full year of operations.
Overall sales of bulk infant formula and canned product would be below initial expectations.
Milk supply for the half year was up to 33.5m kilograms of milksolids from $31.4m, and further growth is expected to exceed 2016 full-year volume targets.
At balance date, Synlait had total assets of $548.78m and liabilities of $386.56m, including borrowings of $278m (up from $156.6m). The ratio of debt to total debt plus equity was 70.4%, slightly up on the 67% a year earlier.
The outlook through the current year and 2016 was for international commodity prices to remain weak and fragile and for uncertainty over the key NZ-United States currency exchange rate direction, Milne and Penno said.
Dairy production in Europe would increase as quota ended, demand in China and Russia would remain constrained and the low oil price was reducing the buying power of oil-exporting countries.
Against this, demand was building for consumer-packaged infant formulas and Synlait expected to almost double its manufactured volumes in 2016.
