Synlait updated its guidance range for the 12 months to the end of July, saying it expects to report anything from a loss of $5 million to a profit of $5m. That’s $20m down from its previous expectation for a profit of $15m to $25m, and below last year’s $38.5m profit.
The company’s shares dived 21.5% to $1.68 in early afternoon trading on the NZX on Wednesday, having earlier touched a record low $1.65. The stock was the biggest decliner on the sharemarket.
Synlait attributed $16.5m of the downgrade to weaker demand for advanced nutrition from one of its customers which impacted consumer-packaged infant formula volumes and base powder production. Other factors such as higher financing and supply chain costs would reduce profit by about $3.5m, it said.
The a2 Milk Company, which outed itself as the Synlait customer referred to in the announcement, said it was surprised at the extent of the reduction in Synlait’s guidance.
Synlait is the exclusive manufacturer of a2 Milk’s infant formula for the Chinese market, the world’s largest. A2 Milk has achieved huge success in China as its A2 protein infant milk powder is seen as easier to digest than the more common A1 protein.
A2 Milk said it had provided two forecasts to Synlait since the milk processor’s last profit guidance on March 17. It had lowered its total forecast production volume needs for English label infant milk formula for March, April, May and June by a total of 1650 metric tonnes, which it said equated to less than 5% of Synlait’s advanced nutritional sales volumes over the 12 months to the end of January.
A2 Milk said the lower forecast volumes were due to continued weakness in the Australia and New Zealand “daigou”, or reseller market; Synlait’s delayed delivery of English label infant formula which would bolster supplies over a short period; and less demand for English label inventory as more customers and distributors were supplied directly out of Hong Kong and China.
The companies were in talks about the allocation of one-off production, supply chain and other related costs, it said.
A2 Milk said revenue growth for this year would be at the lower end of its previously announced expectations for low-double digit percentage growth, at about 10%. English label infant formula revenue was expected to be down to mid-single digits, partially offset by strong double-digit growth in China label infant formula, it said.
Shares in a2 Milk were the second-biggest decliner on the NZX, down 5.3% to $5.91.
