The company was building its sales of infant formulas and other value-added products though they were offset for the moment by higher debt and operational costs associated with the major projects done this year, shareholders were told at the annual meeting in Christchurch on Tuesday.
That meant current year earnings were expected to be round the $19.6 million after-tax profit achieved in the July 2014 year, with gains from the expansion projects showing up in the 2016 year, chairman Graeme Milne said.
Lower milk prices meant it would be easier to add margins on value- add products but it did not make a big difference.
Managing director John Penno described the international market as very weak and marked by uncertainty. He didn’t make any price predictions.
“We need to sell the right amount of product every month and make sure we don’t fall behind and we are on plan.”
Synlait was now selling products to four of the world’s six major multi-national dairy manufacturers, up from two at the same time last year.
It eventually wanted to have 70% of total sales made to that group — the ratio this year was expected to be 45% of revenues.
The company continued to improve on the main measure of operating performance, the gross profit per metric tonne of product sold. It was $824 in 2014, up from $751 a year earlier and $385 in 2011.
One of the completed projects Synlait had high hopes for was the lactoferrin plant, built at a cost of $21.9m.
It expected to sell more than 15 tonnes this financial year at a price of more than US$500,000 a tonne, Milne said. Eventual capacity for the plant would be about 20 tonnes a year.
Lactoferrin is a whey-based protein extracted from milk and provided antibiotic and anti-inflammatory properties.
Synlait’s lactoferrin extraction and purification process was unique and top secret, Penno told shareholders.
That created technical challenges which increased the cost of the plant from the budgeted $15m, chief financial officer Nigel Greenwood said.
The payback would be the highest return on investment of any of the product produced at the Dunsandel site.
Synlait was also spending above budget on its third dryer, due for completion in September next year.
The expected cost was now $135m, up from $103m because it was being built to a 10-tonne capacity, rather than the original eight tonnes, because of product demand, he said.
So Synlait was deferring a new butter plant for a year to 2016 because of the higher costs which included building a new warehouse, packaging operation and laboratory.
Milne told shareholders increases in European Union milk production ahead of supply quotas being lifted next year were a major reason for price weakness.
It was the biggest milk producer with about 140 million tonnes a year (compared to NZ’s 18 million tonnes) and its extra annual production was now about half the NZ volumes.
Higher United States milk production was also suppressing prices, Chinese demand had reduced after last year’s overstocking and the Russian ban on imports mainly from Europe meant thousands of tonnes of butter and cheese was being diverted to other markets.
Regulatory changes in China had affected Synlait’s 2014 annual sales but it was now fully licensed for exports.
With the plant expansion Synlait would be looking for more milk supply for the 2016 season and beyond, Penno said.
The good progress with the work was giving the company confidence for the next challenging projects.
Directors would update shareholders with earnings guidance at the time of the half year result, Milne said.
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