Synlait said it had decided to update shareholders on its expected 2023 performance because it was outside market consensus forecasts.
Dunsandel-based Synlait and its 20 per cent owner, a2 Milk, were particularly hard hit by disruption arising from Covid 19, which left them both with an inventory overhang.
Synlait has placed a great deal of importance on the addition of a new, large, and as yet unnamed customer.
Chief executive Grant Watson said it had become “increasingly clear” that its two-year recovery plan would now take three years.
“While underlying momentum is lifting, our full financial recovery will take longer than planned,” he said.
“Key drivers of the guidance range include a reduction or delay in advanced nutrition demand, operational and SAP stability challenges and an increasing cost base.
“This is on top of inflationary and interest rate pressures.”
The key drivers of this guidance were:
- Advanced nutrition forecast demand and production had been reduced or delayed following forecast changes by Synlait’s largest customer - a2 Milk - during the half and more recently by other customers.
- Operational stability and cost challenges were 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.
The company had installed an SAP system which had taken time to properly bed in.
“As signalled in December, implementing and stabilising SAP significantly impacted Synlait’s 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,” Watson said.
Forsyth Barr analyst Matt Montgomerie said the guidance came as a shock to the market as it appeared as early as last December that the company was comfortable with market forecasts for the annual 2023 net profit to be around $50m.
“So it effectively was a $35m net profit downgrade in less than three months, which is a big surprise,” he said.
“It’s very difficult to reconcile the statement provided and the numbers.
“It feels to me as if by far and away the biggest driver is advanced nutrition in terms of one - a2 Milk - and two - continued delays for its new customer.
“It also seems unlikely that volumes and contributions [from the new customer] in this financial year will commence when they initially flagged it to be.
“They [Synlait] had commenced the road to recovery but this print just highlights the lack of visibility for us on key drivers,” Montgomerie said.
The company has had a turbulent share price history since listing on the sharemarket in 2013.
Synlait rode the coattails of a2 Milk’s explosive share price performance, hitting a record high of $13.40 in September 2018.
During the pandemic the stock traded as low as $2.80 but started to kick back into life late last year and early this year.
In today’s statement, Watson said the performance of Synlait’s ingredients and consumer businesses remained strong.
Commercial UHT cream sales commenced as planned in the food service business, and market feedback was positive, he said.