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A2 Milk's poor infant formula sales is impacting Synlait's earnings.
Canterbury milk processor Synlait has downgraded its earnings forecast.
This follows its strategic customer and cornerstone shareholder a2 Milk Company reporting a massive drop in infant formula sales.
Synlait now expects its total consumer-packaged infant formula volumes to be 35% lower than last year.
The company says it is trying to mitigate the impact of this drop in sales through its diversification strategy and keeping costs down.
“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,” it says.
It says the updated guidance announcement reflects the impact that Covid-19 has had on Synlait’s strategic customer.
“It also remains subject to the ongoing effects of Covid-19, with consumer behaviour, channel dynamics and supply chain disruptions all subject to change.”
Synlait will provide an update on infant formula sales during its half-year result announcement in late March.
a2 Milk says disruption in cross-border exporting (daigou channel), which represents a significant proportion of its infant nutrition sales in Australia and New Zealand, had been more significant than expected.
“With the recent sales performance in the daigou channel not being as strong as previously expected, we now consider that the recovery in this important channel through the balance of the fiscal year will also be slower.
“We expect that Covid-19 related travel restrictions will continue to negatively impact the reseller channel due to reduced travel between Australia and China through the remainder of FY21, with limited prospect of a return of a significant number of international students and tourists to Australia during the period.”
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