Synlait shares tumble as it slashes net profit guidance

Synlait chief executive Grant Watson. Photo / Supplied

Synlait Milk shares fell by 14 cents or 6.5 per cent in early morning trading has slashed its full-year net profit guidance to a possible loss and cut its forecast milk price by 20 cents. The company now expects to report anywhere from a net loss of $5 million to a net profit of $5m for the year ended July 31. The dairy company previously told the market in late March net profit after tax was going to be in the range of $15m to $25m.

Synlait put a trading halt on its shares and bonds on Friday because it needed time to properly consider new information. That trading halt was lifted this morning. The new guidance is mostly due to a reduction in Synlait’s advanced nutrition demand from one of its customers, it said.

The remainder is attributable to fewer material factors, including higher financing and supply chain costs.

According to Synlait, demand from its new multinational customer agreement in Pōkeno, once commercial production commenced, would also help assist in delivering strong double-digit growth in its Advanced Nutrition sales volumes next year. “The State Administration for Market Regulation (SAMR) re-registration process remains on track,” Synlait said.

“The on-site audit process is complete and Synlait still expects to receive re-registration and commence production in the fourth quarter of the full 2023 financial year, subject to SAMR approval.”

Curdling milk price

The firm also reduced its forecast base milk price for the 2022-23 season by 20 cents, from $8.50 kilograms of milk solids (kgMS) to $8.30 kgMS. Synlait said in its market update that actual and forecast commodity prices “fell lower than Synlait was forecasting” when the market announced its last forecast in mid-March. The company had assumed at the time that dairy commodity prices would rise as Chinese demand recovered “in line with market expectations”.

It said: “The slower-than-expected Chinese recovery and a negative shift in sentiment towards the broader global economy have resulted in falling commodity prices.”

The company reiterated it is reviewing its capital strategy to ensure it has the appropriate funding for the 2024 financial year and beyond, with the focus of the review primarily on its debt levels.

“Synlait is not considering an equity capital ‚raising as part of the capital strategy review,” the company said.

It also said amendments to certain banking covenants had been approved for the remainder of the financial. These largely centre around the leverage and senior leverage ratios. In late March it reported an 83 per cent slump in its first-half profit to $4.8m as it dealt with increasingly expensive supply issues and faces a tougher outlook.

Surprise and no surprise

“Obviously it’s taking a while for this to come out, but based on that trading halt, it was no surprise that they were going to reduce their profit guidance again,” Peter McIntyre from Craigs IP told BusinessDesk. “It’s probably more of a surprise to see that they’ve dropped their milk price payout.”

He said the shares had fallen 6.5 per cent immediately after the market opened and could fall further as the day progressed. A2 Milk also voiced surprise at the extent of the reduction.

“In response to Synlait’s announcement, which indirectly refers to a2MC, the Company is surprised at the extent of the reduction in Synlait’s guidance range,” the company said in a statement. A2 Milk added there was no material change to its own outlook.

- BusinessDesk