Embattled Canterbury milk processor Synlait has taken another hit, with key customer and shareholder a2 Milk issuing its fourth earnings downgrade.
The company revealed last week that it now expects to make a net loss of between $20 million and $30 million for the financial year ending this July. Last year, Synlait recorded a net profit of $75 million.
The milk processor has had a challenging 18 months. Key stakeholder, and one of its major customers, the a2 Milk company downgraded its forecasts because of disrupted markets and problems with its key Chinese market - leaving Synlait with large inventories of base powder and infant formula.
Synlait co-founder John Penno has returned to his former role of chief executive and is leading a reset of the business.
He says ultimately dairy companies need strong support from farmers and, at the same time, farmers never want to see their milk processor struggling.
Penno points out that Synlait has had nine strong years of profitability and the struggles are only short-term.
"We will return to profitability very quickly. We will continue to work with our farmers and continue rewarding them for sustainability. We won't disappoint them."
Under Penno's leadership, Synlait is going "back to the basics".
While the company's strategy remains in place, the new management team plans to focus on short-term targets.
"I don't think we got anything wrong strategically, we are just moving away from long-term plans to execute short-term ones."
The company is looking at ensuring plants in Dunsandel and Pokeno operate at full capacity.
"The plants aren't full...we need to operate them at near capacity," Penno concedes.
Synlait has changed its full year forecast due to several factors.
The company has blamed ongoing shipping delays that will result in the asale of some ingredient products occurring post the FY21 balance date, as well as getting lower prices for ingredient products than it would normally expect, relative to prevailing market prices through a combination of sales phasing and volume pressure.
The company says it has no plans to raise capital.
Synlait's banking syndicate continues to be supportive and has granted a waiver of relevant covenants this finance year.
Penno says the company is working constructively with the syndicate to ensure it has the appropriate funding for the next financial year.
"I am disappointed to share this news with our investor base. As a team we are focused on closing out this year as well as we can, then resetting and delivering a much-improved financial performance in FY22."
Changes Keep Coming
Last week's investor briefing was hosted by John Penno and new chief financial officer Rob Stowell.
Synlait has lost several key executives this year: In April chief executive Leon Clement suddenly quit after only two-and-a-half-years in the role. Last month, Angela Dixon resigned as chief financial officer after only 12 months in the role.