Synlait Milk profits fall as infant formula market hit by COVID-19

See how the flow-on from a2 Milk’s falling infant formula sales have affected another dairy company’s revenue.

Synlait Milk is expecting a break-even year as infant formula revenue dries up.

HEADWINDS in the dairy industry have eaten away the profits of New Zealand milk processor Synlait Milk Limited.

Releasing its first half accounts for the six months to January 31 to the Australian Securities Exchange today, Synlait Milk chairman Graeme Milne said the company was facing a “period of significant uncertainty and volatility”.

While the company’s first half revenue had risen 19 per cent to $NZ664 million ($A610.9 million), its net profit after tax had fallen 76 per cent to $NZ6.4 million ($A5.9 million) when compared to the previous corresponding period.

In the first half of the 2020 financial year, Synlait posted revenue of $NZ559.3 million ($A514.6 million) and NPAT of $NZ26.2 million ($A24.1 million).

In this year’s first half results, Synlait’s key consumer-packaged infant formula sales had fallen 16 per cent to 18 million tonnes.

Volatility in Global Dairy Trade prices, exchange rates and changing product mix, plus delays in global shipping chains have also impacted the dairy processor’s sales revenue.

Synlait Milk said demand for infant formula was uncertain, which had a flow-on effect to base powder production and efficient use of its assets.

The a2 Milk Company was a major customer for its infant formula production, with a lot of its sales going into China.

The loss of daigou buyers as a result of the COVID-19 pandemic hitting Chinese visitors and students to Australia and NZ had forced a2 Milk to revise its profit forecasts late last year.

Synlait said today it had switched milk flows from consumer-packaged infant formula production to powders and cream late in the second half to limit the damage to its profits.

The company said cheese and butter demand from its Dairyworks division had risen in NZ and Australia.

But the ongoing uncertainty in The a2 Milk Company’s expected demand for the remainder of 2021 and 2022 financial years had impacted on Synlait’s business.

“Synlait does not currently have sufficient confidence to forecast when this recovery will occur,” it said.

“There is still a range of scenarios contributing to the company’s profitability, and our current outlook suggest a broadly break-even FY21 NPAT result.

“While all banking covenant ratios were met during HY21, Synlait has proactively engaged with its banking syndicate to increase its leverage ratios to manage any risk at the end of FY21.

“The company’s FY21 business plan is fully funded by its current banking syndicate.”

Shares in Synlait Milk fell 15 cents to $3.12, or 4.6 per cent, in trading on the ASX today.

MORE

SYNLAIT RANKS NO. 11 IN TOP 50 ASX-LISTED AGRIBUSINESSES

POOR DAIGOU SALES HITS A2 MILK'S REVENUE

SYNLAIT MILK IN PROFIT FORECAST DOWNGRADE