Synlait Milk, a company based in New Zealand and listed on the Australian Securities Exchange (ASX), anticipates reporting a loss for the six months ending on January 31. The company has attributed this forecast to manufacturing challenges at its Dunsandel facility. Synlait owns Dairyworks, a supplier of cheese, butter, and ice cream to Australian supermarkets.
Financial Projections
Synlait anticipates an underlying net loss after tax of NZ$33 million to $38 million, as well as a reported net loss after tax of $77 million to $82 million for the six-month period. This is a significant drop from the previous year, which saw an underlying net profit after tax (NPAT) of $8.7 million and a reported NPAT of $4.8 million.
The company expects its underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) for the half year to range from breakeven to $5 million, with a projected reported EBITDA loss of $28 million to $33 million.
Manufacturing Challenges and Cost Impacts
While Synlait has primarily resolved the manufacturing issues at the Dunsandel site, it is still grappling with related cost and operational effects. The necessity to rebuild inventory across product segments entailed substantial adjustments to Synlait’s manufacturing plans for the current dairy season. To facilitate these adjustments, the company increased its raw milk sales, which negatively affected margins and operating costs.
Low returns from the commodities portfolio also adversely impacted Synlait’s half-year performance. Furthermore, the company took a cautious approach, choosing not to recognize additional deferred tax assets stemming from unused tax losses beyond those recorded at the end of July.
Effects on the Company’s Future
Synlait’s CEO, Richard Wyeth, expressed disappointment with the results and the subsequent slowdown in the company’s recovery. Nevertheless, he affirmed that progress has been made in operations, including the establishment of a revitalized executive leadership team (ELT) in Canterbury and the forthcoming sale of Synlait’s North Island assets.
This sale, slated for completion on April 1, is expected to substantially reinforce Synlait’s financial position, with the proceeds being used to reduce debt. The sale will also allow Synlait to concentrate its primary operations in Canterbury, with an emphasis on continual operational excellence and customer diversification to bolster long-term profitability.
However, both Wyeth and Synlait acknowledge that the company’s recovery will take time, with a minimum of 12 months projected. Further details will be provided when Synlait releases its half-year results on March 23.
Questions & Answers
What contributed to Synlait’s projected financial loss?
Manufacturing challenges at its Dunsandel facility, the need to rebuild inventory, increased raw milk sales, and low returns from the commodities portfolio all contributed to Synlait’s projected losses.
What is the company’s current strategy for recovery and long-term profitability?
Synlait’s recovery strategy includes the sale of its North Island assets to reduce debt, focusing its core operations on Canterbury, pursuing operational excellence, and diversifying its customer base.
When does Synlait expect to see a recovery?
The company anticipates that the recovery will take at least 12 months.
