New Zealand-based dairy nutrition company Synlait Milk [ASX:SM1] has released a full-year 2023 net profit after tax guidance ahead of schedule in the range of NZ$15–25 million, after previously communicating it would do so later in March.
The reason given by the dairy products manufacturer was so it can update its shareholders despite outside market consensus.
The update today reveals the company’s now tracking towards a new target of three years to bring its business to financial recovery, rather than the initially outlined two years.
As a result, shares for SM1 were plunging 9%, at time of writing the share price was trading for $2.64 apiece.
In the past week alone, SM1 shares fell 14.5%, it’s down 10% in its sector’s 12-month average, and 21% in the 2023 calendar year so far:
Source: TradingView
Financial recovery moves further way for Synalit
Spurred on by outside market consensus, the New Zealand milk and dairy products manufacturer decided to release an update regarding its FY23 NPAT (net profit after tax) guidance range, NZ$15–25 million.
Synlait also said that its goal of reaching financial recovery will now take an extra year than first planned, now three years.
The company chose to release the announcement earlier than intended, which was originally set for Monday, 27 March, bringing its considerations to shareholders a week ahead of schedule to quell outsider assumptions.
But what drove the company to make such a drastic change?
Synlait said the key drivers of the guidance range and extended recovery were due to three main factors.
One, the group reported that Advanced Nutrition demand and product have been forecast at a lower rate because delays and changes have been enforced by its largest customer during the first half of fiscal 2023, and more recently, by some of its other customers.
Two, the group reports operational stability and cost challenges cropping up across the board, which include a reduction in processed milk, raw materials supply challenges, C02 shortages, a tight labour market, extreme weather events, and the ongoing impact of inflationary cost pressure.
And third, in its efforts to implement and stabilise SAP (its new software system), the group continues to experience challenges in shipping products to its customers, most of which impacted the first quarter of fiscal 2023, causing a ripple effect of higher inventory levels, costs, and interest.
Synlait CEO Grant Watson commented:
‘It has become increasingly clear that our two year recovery plan will now take three years. While underlying momentum is lifting, our full financial recovery will take longer than planned.
‘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 focus of our leadership team remains on stabilising Synlait to ensure we have strong foundations to deliver sustainable and diversified growth across our customers, channels, categories, and geographies.’
The dairy corporation will be providing further information in a complete FY23 guidance statement and half-year result on Monday, 27 March.
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For Money Morning