Synlait Milk’s first half profit slumps 83pc on reduced demand

Synlait is still recovering from a 2021 earnings slump. Photo / NZME

Synlait Milk said its first half net profit fell by 83 per cent to $4.8 million, driven by reduced forecast demand for infant formula including from its biggest customer, a2 Milk.

Revenue fell 3 per cent to $769.8m and net debt jumped by 32 per cent to $518.6m in the six months to January 31.

Earnings before interest, taxes, depreciation, and amortisation (ebitda) were down 25 per cent at $51.5m.

“Advanced nutrition forecast demand and production has been reduced or delayed following forecast changes by Synlait’s largest customer during the first half and more recently by other customers,” Synlait said.

“Operational stability and cost challenges are evident across Synlait, including a reduction in milk processed, raw material supply challenges, carbon dioxide shortages, an extremely tight labour market, extreme weather events, and high inflationary costs pressures,” it said.

In December, Synlait said implementing and stabilising its new SAP system significantly impacted its ability to release and ship products to customers in the first quarter.

The flow-on effects resulted in higher inventory levels and costs, including interest costs.

Despite the earnings decline, the performance of Synlait’s Ingredients and Consumer businesses remained strong, it said.

Combined, the business units would contribute more than in full year 2022.

Synlait chief executive, Grant Watson. Photo / Supplied

The ingredients business would not likely experience the one-off foreign exchange gains experienced in 2022.

The consumer business continued to navigate high milk and cheese commodity prices and expansion into overseas markets.

The business said it was managing several risks, including China’s State Administration for Market Regulation (SAMR) licence re-registration timeline, UHT volume ramp up, a tight labour market, and high inflationary cost pressures.

These factors could impact Synlait’s current guidance.

On March 17, Synlait Milk released a full-year 2023 net profit guidance range of $15m to $25m, compared with market expectations of $50m.

Synlait will look to provide a further update on its performance and outlook on May 8 at its Investor Day.

Shares in Synlait, which is 20 per cent owned by a2 Milk, last traded at $2.40, having dropped by 28 per cent over the last 12 months.

Dunsandel-based Synlait is a2 Milk’s sole supplier of infant formula.