Speciality dairy producer Synlait Milk has almost halved its profit forecast after its key customer downgraded its earnings outlook because of lower sales.
Synlait is a major supplier of infant formula to A2 Milk, which on Friday said disruption in the daigou sales channel, involving purchases in Australia and New Zealand on behalf of consumers in China, had been more significant than expected.
A2 said it expected full-year revenue between $1.4-$1.55 billion, down from guidance of $1.8-$1.9b given at the annual meeting last month, sending its shares 21 percent lower.
Synlait said it now expected sales volumes of infant formula to fall by 35 percent as a result of A2 Milk’s lower sales.
“This updated guidance announcement reflects the impact that Covid-19 has had on Synlait’s strategic customer,” it said in a statement to the stock exchange.
“As a result of this change, initial estimates, on currently available information, indicate that the overall financial year 21 NPAT (net profit after tax) result will be approximately half that of the FY20 NPAT result.”
That would mean a profit of about $37m against last year’s $75.2m.
Synlait has been broadening its customer and product base, including signing up an unnamed new customer to supply packaged products which it expected to boost earnings from 2023. It also owns cheese maker Talbot Forest, and smaller rival Dairyworks, which makes butter, cheese, and other dairy produce.
“Synlait’s Board and Management continue to actively pursue opportunities to mitigate the impact of this development that include focusing on the execution of its diversification strategy, asset optimisation and prudently managing costs.
“There has been no disruption to manufacturing or demand for Synlait’s ingredient, lactoferrin or consumer-goods businesses, and Synlait remains confident that it can deliver on its medium to long term objectives,” the company said.