Wednesday, December 6, 2023

Synlait drags out earnings recovery

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Surprise market guidance paints drastically different picture of profitability.
The surprise new guidance from Synlait, announced on March 17, is a third to a quarter of the previous one.
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Synlait has warned of a substantial slump in profitability ahead of its interim FY2023 results to be released on March 27.

It announced a new market guidance of $15 million to $25m net profit after tax for the full financial year, compared with $38.5m last financial year.

Its share price immediately lost 30c or 10%, and it now sits at $2.85.

In January the dairy company said its full-year guidance was unchanged but that earnings would be delayed until the second half.

At that time the guidance was for a result similar to FY21’s $75m.

The surprise new guidance announced on March 17 is now one-third to one-quarter of the old, and was released because of the variance with the expectations of investment analysts.

Synlait chief executive Grant Watson cited three factors in the earnings slump:

• Reduced and delayed forecast demand and production of A2 infant formula base.

• Operational stability and cost challenges, including CO2 shortages.

• Continued challenges with the implementation of the SAP Enterprise Management System.

“It is now clear that our two-year recovery plan will take three years. While underlying momentum is lifting, our full financial recovery will take longer than expected.”

He said the ingredients and consumer businesses remain strong and commercial UHT cream sales have begun as planned.

“The focus remains on stabilising Synlait to ensure we have strong foundations to deliver sustainable and diversified growth across our customers, channels, categories, and geographies.”

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