Synlait Milk’s reliance on a2 Milk Company exposes its vulnerability
New Zealand dairy company Synlait Milk has revised its profit forecasts after suffering from The a2 Milk Company’s revenue downgrade. Here’s why.
NEW Zealand dairy company Synlait Milk has revised the outlook for its key infant formula business in the wake of major client and shareholder The a2 Milk Company cutting its financial forecasts last week.
Synlait Milk told the Australian Securities Exchange today it expected its infant formula volumes to fall 35 per cent in 2020-21, with net profit after tax to decrease about 50 per cent, as a direct result of a2 Milk exports to China being severely cut.
The a2 Milk Company was Synlait’s sole customer and China its sole destination for infant formula in 2019-20, although the company was looking to broaden its client base.
Last week, a2 Milk slashed its profit forecasts after realising sales of its infant formula had taken a bigger hit in the Chinese daigou market than previously expected.
The daigou market has suffered from a lack of Chinese students and tourists visiting Australia due to the coronavirus pandemic.
The a2 Milk Company said it expected its revenue for 2020-21 to be about $250 million to $500 million lower than forecasts made public in September.
The announcement resulted in its share price plummeting from $13.30 to $10.14, or 23.7 per cent.
It wiped more than $2.3 billion off the company’s market capitalisation in a single day.
The a2 Milk Company’s share price gained a modest 12 cents in trading today.
Synlait Milk suffered a small drop in its share price today after going into a trading halt on Friday.
It is now 16 cents below its $4.70 share price at close of trading on Thursday.
Synlait said it would “continue to actively pursue opportunities to mitigate the impact of this development that includes focusing on the execution of its diversification strategy, asset optimisation and prudently managing costs”.
“There has been no disruption to manufacturing or demand for Synlait’s ingredient, lactoferrin or consumer goods businesses, and Synlait remains confident that it can deliver on its medium to long-term objections,” it said.
MORE
A2 MILK COPS A FINANCIAL WHACK
US regulators back dairy in the diet
While it may be fashionable with some to dismiss dairy, some of America’s best nutritionists have confirmed it’s beneficial to have some milk, yoghurt and cheese in our diets.
Call to examine farmgate freeze
Dairy Connect chief executive Shaughn Morgan has called for the Australian Competition and Consumer Commission to examine this season’s static farmgate figures.