The changes taking effect next year were likely to have a maximum three brands being produced at any one site and a new site would increase the range available for Synlait, managing director John Penno said.
He had expected the three-brand rule to apply on a company basis so the site criteria was good news for the company because, though a new site involved higher cost, that would be greatly outweighed by the reduced business risk of having a second site and the value of being able to work with a larger group of customers.
The major base-powder milk processing operations would continue at Dunsandel, where a fourth drier was planned in the next couple of years and the directors said plans for the second site for blending and packaging would be announced in the next few months.
A fourth shift would start in May at the existing plant, making it a 24/7 operation.
Reporting the company’s interim result, Penno indicated the final milk price payout for this season could be below $6kg/MS, compared to a February forecast of a $6.25/kg. Commodity prices had fallen since then though Synlait was not yet making a formal update.
The after-tax profit for the six months ended January 31 was $10.6 million, up from $10.2m a year earlier.
That was on revenues of $288.7m, up from $213.4m. The business was growing well, largely based on increasing infant formula sales and a strong balance sheet meant Synlait could explore new areas of business and pursue them aggressively, Penno said.
Powders and cream, up 10% year-on-year, still made up the bulk of sales volumes but largest growth was in consumer packaged including infant formula, up 24%, and specialty ingredients, up 20%.
An operating cash outflow of $14m was recorded, compared with positive cashflow of nearly $4m previously.
A straight earnings result was provided, unlike last year when an underlying after-tax profit of $12.3m was reported.
That allowed for one-off impacts and chief financial officer Nigel Greenwood said that on the same basis in the latest period the result would have been $15.2m.
Gross margins fell to $716 a tonne of sales, from $900 a year earlier.
China was the biggest market for infant formula, followed by the United States.
Synlait had shipped the first consignment the new Grass Fed brand product to new customer and shareholder Munchkin in readiness for market approval in the US. That was expected soon though significant sales were not expected until next financial year.
Penno said there had been a lot of talk about how onerous the new Chinese regulations might be but his view was that they were just putting China on a proper regulatory footing and they were no harder than getting access to other developed markets. The US was more difficult.
Synlait had just been approved to sell lactoferrin nutritional protein into the US. That market was recovering from the slump in prices of the last few years.
Overall, infant formula sales had returned to strong growth since the half-year balance date and that was expected to continue into next financial year.
The directors expected modest improvement in full-year earnings from last year’s $34.4m after-tax figure but were not providing a detailed forecast.
The big capital raising transformed Synlait’s balance sheet to the point where borrowings funded only 20% of total assets of $737.4m at balance date, compared to 45% of total assets of $659.5m a year earlier.
Borrowings fell from $292m to $147m.
