a2MC eyes own processing plant, more Chinese labels
The a2 Milk Company (a2MC) says securing more China label registrations and developing its own nutritional manufacturing capability are high on its agenda.
The listed company has signalled that its half-year results, due March 25, could be a net loss in the range of $17 million to $21 million. Synlait recorded a $4.8 million net profit after tax for the same period last year.
The market announcement did little to calm investor nerves: Synlait’s share price plummeted to 68c last week, valuing the company at just $149 million. One year ago, Synlait shares were trading at $3.48.
Ashburton-based Synlait supplier and former Federated Farmers dairy chair Willy Leferink told Dairy News that he was concerned with the company’s situation.
Leferink says other farmers had “similar worries”.
Another worry was the lower advance rate Synlait was paying its farmer suppliers, compared to Fonterra.
“They are also $1 lower in the advance compared to Fonterra which creates quite a bit of cash flow stress,” says Leferink.
According to Synlait’s 2023 annual results, it collected 84 million kgMS from contracted farmer suppliers last season. Synlait has factories in Dunsandel and Pokeno and collects milk in Canterbury and Waikato.
Synlait says its half-year results are being impacted by increased financing and operational costs, ingredient margin reductions and advanced nutrition margin reductions. “The range is based on Synlait’s initial consolidated result, which is subject to further review and may be subject to further adjustments as the company prepares its half-year 2024 financial statements for release.
“The HY24 result remains subject to review procedures by Synlait’s auditor, and the range excludes any additional adjustments, including accruals, provisions, and impairments, which are still being assessed,” it says.
The company is also signalling that its full-year results will be either broadly flat or down on the 2023 financial results – a net loss of $4.3m.“In September 2023, Synlait stated its earnings before interest, taxes, depreciation, and amortisation (EBITDA) performance was expected to improve in FY24, compared to FY23. Synlait’s expectation is now that the FY24 EBITDA result is expected to be broadly flat or down on FY23.
“The board and management are actively working on the need to deleverage Synlait’s balance sheet as a priority. The company will provide an update when it releases its HY24 result in March.”
Synlait is 39% owned by China’s Bright Dairy. A 19% stake is owned by a2 Milk Company, which is involved in a dispute with Synlait after trying to cancel an exclusive deal on manufacture and supply of A2 infant formula. The two parties failed to resolve the dispute during a binding arbitration process and have proceeded to arbitration.
Sources say Synlait’s falling share price could open the door for Bright Dairy to launch a takeover bid.
Meanwhile, Synlait has lifted its forecast base milk price for the 2023-24 season by 25c to $7.50/ kgMS.
It says dairy commodity prices have continued to improve since its previous announcement, underpinning the forecast increase.
“While global demand remains subdued, global milk production has tightened, increasing dairy commodity prices. The revised forecast milk price will bring some relief to Synlait farmer suppliers operating under tough economic market conditions,” it says.
Fonterra last week lifted its forecast milk price for the season by 30c to a new range of $7.30 to $8.30/kgMS, with a new mid-point of $7.80/kgMS.
