Wednesday, December 6, 2023

Demand dip evaporates Synlait net profit

Avatar photo
Weaker call for infant dairy formula from a2 Milk Company reflected in latest guidance.
Synlait attributed the dip in profits to further demand reductions that affected consumer-packaged infant formula volumes and base powder production.
Reading Time: 2 minutes

Weaker demand for infant formula dairy base has caused Synlait to knock $20 million off its net profit after tax guidance for the 2023 financial year, now in the range of plus $5m to minus $5m.

An impact estimated at $16.5m was from “further demand reductions, mostly from one of Synlait’s customers”.

Although not named, the major customer and part-shareholder is a2 Milk Company.

The impact is to consumer-packaged infant formula volumes and base powder production, Synlait said.

“The remainder of the net profit after tax (Npat) impact (approximately $3.5m) is attributable to less material factors, including higher financing and supply chain costs.”

Synlait has also announced a 20c drop in its milk price to farmers this season to $8.30.

“Actual and forecast commodity prices fell lower than Synlait was forecasting when it announced its last forecast in mid-March, which assumed dairy commodity prices would rise as Chinese demand recovers, in line with market expectations.

“The slower-than-expected Chinese recovery and a negative shift in sentiment towards the broader global economy have resulted in falling commodity prices, underpinning Synlait’s decision to reduce its forecast base milk price.”

Synlait made reassuring comments about its Chinese re-registration process, the potential demand for advanced nutrition products from its new undisclosed multinational customer for the Pokeno plant and its financing arrangements.

Demand factors in the ingredients, foodservice and consumer businesses are unchanged, it said.

“Synlait remains highly focused on diversifying its customers, mitigating risk, and reducing its cost base and inventory to strengthen its balance sheet.”

Trading in the company’s shares was suspended for a five-day period over the weekend and Anzac Day and when it resumed the offering price was around $2.

The share price has lost about $1 in the past month.

Subsequently a2 Milk said it was the customer referenced by Synlait and that there was not material change to its FY23 outlook as announced in February.

Its revenue guidance is for low double-digit growth, around 10%.

People are also reading