Milk and dairy nutrition corporation Synlait Milk [ASX:SM1] has disappointed its shareholders today by posting a fall of 83% in net profit after tax, reaching NZ$4.8 million (A$4.9 million) for the six months ending 31 January.
With the group’s full-year profit guidance having been set around $15–25 million, investors may be left wondering if this is now a possible goal, with half the year already much lower than expected.
SM1’s share price tumbled 5% in the early afternoon, trading for $2.13 at the time of writing.
In the last week alone, the milk and dairy manufacturer’s share price has decreased by more than 20%.
Year-to-date, the SM1 share price has dropped 36%:
Source: tradingview.com
First-half profit takes a sharp decline for Synlait
The dairy company has presented a pointed decline in first-half profit, with lower sales volumes and some technical issues cropping up in the group’s planning systems.
Not helping matters is the continued higher inflation costs ballooning the company’s expenses.
The group’s main financial highlights compared with 1H2022:
- Group revenue took a 3% deficit totalling NZ$769.8 million
- Earnings before interest taxes, depreciation and amortization (EBITDA) toppled 25%, with NZ$51.5 million earned
- Adjusted EBITDA went down 5% to NZ$55 million
- Net profit after tax (NPAT) came to NZ$4.8 million after falling 83%
- Adjusted NPAT was down 43%, to NZ$8.9 million
- The group’s net debt climbed 32% to NZ$518.6 million
- Forecast base milk price for 2022/23 $8.50 per kilo of milk solids
The above results include a gain of NZ$11.9 million from its sale of leaseback for property in Auckland.
Chief Executive of Synlait, Grant Watson, put the lower results down to a 28% fall in sales volumes, while problems with the group’s new software system, SAP, have also been causing a fair share of supply disruptions.
This has had a significant impact on the group’s ability to release and ship products to its customers over the half year.
These disruptions nearly halved sales volumes for the first four months of fiscal 2023, beating up the group’s profit margins.
Lack of operational stability and cost challenges have had a huge impact on the group’s performance, with a range of economic and climatic factors limiting operations.
Nevertheless, Mr Watson assured shareholders the group is focused on delivering better quality execution:
‘We have aligned our organisation structure to our refreshed strategy, and capability and accountability are lifting. While our full financial recovery will take longer than planned momentum is building.’
What’s next for Synlait?
SM1 has forecast profit between NZ$15 million to NZ$25 million for the full year. This may be difficult, with the year’s first half having lower-than-expected returns.
However, Watson refused to be beaten down by the most recent results, stating the group’s SAP systems are now working better, and exports of ingredients are sliding back into normalcy.
He said the group is benefiting from a better mix of products, growing its advanced nutrition and consumer operations, and tracking along with food services.
The group continues to diversify products and consumers so that it will not be so heavily dependent on its offtake partner, A2 Milk.
Synlait’s two-year recovery is now tracking to three years, and the group’s full financial recovery is taking longer than initially anticipated.
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Regards,
Mahlia Stewart,
For Money Morning
