Listed Canterbury milk processor Synlait is heading towards its first financial loss ever, but is telling its farmer suppliers not to worry.
For the six months ended January 2020, Synlait’s net profit after tax fell 30% to $26.2 million, compared to $37.3 million in its 2019 half-year report.
The independent milk processor says the decline is a result of higher depreciation and interest costs as a result of increased investments.
Total half-year revenue increased by 19% to $559 million and total milk processed grew by 8.5%.
Synalit says its core earnings growth remains sound, however the time and costs of creating new growth opportunities has impacted profitability short-term.
“This is not a reflection of core business non-performance, but a moderation of our own expectations against the investments we are making for our future,” the company wrote to its Shareholders.
“Yes, adjusted assumptions around our infant formula base sales, consumer-packaged infant formula volumes, and lactoferrin pricing mean we will not be able to absorb the costs of standing up our new investments this year – but long-term confidence in our business remains unchanged.”
Last month, Synlait updated it forecast net profit after tax for the full year 2020 to be between $70 million to $85 million.
“We recognise this was not expected, but it forms part of Synlait’s acceptable risk story, which we have been upfront about as we work to diversify and grow.
“Yes, we hoped to increase asset utilisation and earnings at a faster rate, but we remain confident that decisions made will regain shareholder value over the medium to long-term. Delivering on this is front of mind for the board and executive team.”