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Synlait boosts payout to farmers, as profits triple

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New Zealand dairy processor Synlait boosted its expectations for the prices paid to its suppliers, as it unveils plans to rapidly increase its infant formula production capacity.

Synlait reported a three-fold rise in profits, driven by an almost fourfold increase in canned infant formula volumes.

And the company issued an upbeat outlook for infant formula sales, despite the expected tighter regulation of the key Chinese market.

Tighter controls

China, the world's top infant formula importer, is introducing new controls on infant formula, requiring certification for products bought into the country by e-commerce channels.

"With a fully accredited quality testing laboratory and in-house technical capability, Synlait is well positioned to comply with Chinese infant formula regulations coming into effect from January 2018," said Chief Executive.

"It's likely the Chinese regulations will moderate canned infant formula growth […] as the market deals with the changing landscape, but we expect the market to normalise in the longer term," said Mr Penno.

Higher milk payout

Synlait boost its forecast pay-out to its milk producers to NZ$5.0 a kilogram, up from NZ$4.50 a kilogramme, citing recent improvements to dairy commodity prices.

The company reported a net profit of NZ$34.4m for the year ended July 31.

This is up 225% from a year ago, and the biggest profit on record.

Revenue was up 22% year on year, at $546.9m.

Expansion plans

And Synlait unveiled ambitious expansion plants, starting with the issuing of shares to raise NZ$98m, as it listed on the Australian stock exchange.

Synlait, which listed on the New Zealand exchange in 2013, is looking at investing about NZ$300m in expansion projects over the next three years.

This includes investments aimed at doubling its infant formula capacity to 80,000 million tons a year to meet forecast growth in demand.

Milk prices support land market

The Real Estate Institute of New Zealand reported that its dairy price index rose 24% in the three months to July 2016 compared to the three months to June, as milk prices rallied. The Index was up 17% from the same period last year.

"On a price per kilo of milk solids basis the median sales price was $33.62 per kilogramme of milk solids for the three months ended July 2016, compared to $30.40 per kilogramme of milk solids for the three months ended June 2016," the institute said.

But Reinz warned that "care needs to be taken during the winter months as the low level of sales can distort the Index figures".


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