It is adding 25% in capacity to a second infant formula and nutritionals spray drier – with construction about to start – increasing the value of the project to $135 million from the original $103.5m.
The company has also indicated it will build a fourth large-scale spray drier.
“We’re indicating that now and making sure the site is designed for the future growth,” chairman Graeme Milne said. “Our confidence is still very strong.”
He was speaking after Synlait Milk reduced its July 31 full-year after-tax profit forecast to $25m-$30m, from $30m-$35m given to the market in late January.
The latest forecast is still well ahead of the $19.8m figure provided last year in the prospectus leading up to the capital-raising and listing on the NZX.
The share price on the NZX had been based on the higher forecast, so the latest news took the shares down to $3.70 in early trading from $3.99, a 7% fall.
The continuing regulatory review in China has meant sales of infant formula and nutritionals have not reached targeted levels, though they are growing.
New Zealand’s dairy trade issues from last year are also a factor, as is the expectation the value of the kiwi dollar will be higher for longer than budgeted for.
Synlait Milk is a business-to-business supplier of dairy products and ingredients, selling to manufacturers of branded products.
It expected to be in a strong supplier position when the China regulatory process was completed and was pleased with its sales progress to customers outside China, Milne said.
The company reported an after-tax profit of $12.1m for the six months ended January 31, up from $6.8m in the same period a year earlier, before the capital raising and NZX listing.
Total sales were $284.9m, up from $176.4m, and higher margins were achieved. The gross profit was $40m, up from $32.8m.
Milk powder and cream products achieved strong earnings. With a favourable product mix and more products being sold into value-added applications, those earnings were expected to continue to outperform the prospectus projection, he said.
The half-year report does not include a new farmgate payout to suppliers, with the next update due in May.
In late January Synlait increased the payout forecast to $8.30-$8.40 a kilogram of milksolids, from an earlier figure of $8.
Synlait had made good progress with its target first-tier multi-national customers, managing director John Penno said.
It expected to be supplying infant formula and finished products to four of the six targeted groups during the 2015 financial year.
That business was expected to account for up to 30% of total production.
Additional milk supply had already been secured, he said.
One of the top-tier customers is Dutch group FrieslandCampina, which increased its shareholding in Synlait recently to nearly 10% from 7.5%.
Synlait has significant expansion already on the go, with projects including a lactoferrin plant, drystore extension, and new blending and canning plant all due to be commissioned this year, on or close to their planned dates.
The lactoferrin plant is in the commission and production stage.
The interim accounts show an operating cash outflow of $8.27m, an improvement on the $67.3m outflow a year earlier. Receipts from customers were $243.5m, with payment for milk of $189.3m and payments to staff and suppliers totalling $52.6m.
Total assets at balance date were $538m, with shareholders’ funds of $176.5m, providing an equity ratio of just less than 40%.
That is a low figure, but is explained by the heavy construction programme on site, taking up some of the trade payables of $183m and $100m of borrowing in the current liabilities and the $57.2m of non-current borrowing.
Total borrowing made up 29% of total assets.
Inventory at balance date was $172m, up from $102m a year earlier, with the increase caused partly by slower-than-expected sales of infant formula and nutritionals to China.
