• Synlait Milk has disputed The a2 Milk Company’s (a2MC) right to cancel the exclusive manufacturing and supply rights contract between the two.
    Synlait Milk has disputed The a2 Milk Company’s (a2MC) right to cancel the exclusive manufacturing and supply rights contract between the two.

New Zealand dairy business Synlait Milk has updated its FY23 guidance, setting its guidance range for FY23 net profit after tax (NPAT) to NZ$($5)-NZ$5 million.

The two main components of the downgrade were further reduction in demand or Advanced Nutrition, and less material factors including higher financing and supply chain costs.

The reduction in Advanced Nutrition, impacting consumer-packaged infant formula volumes and base powder production, will have an NPAT impact of around NZ$16.5 million in FY23.

The material factors – higher financing and supply chain costs – would impact the remaining NPAT of NZ$3.5 million.

The a2 Milk Company (a2MC) said it was surprised at the extent of the reduction in Synlait’s revised guidance. The a2 Milk Company owns a 19.8 per cent share in the company and is Synlait’s exclusive manufacturer for its infant formula business.

“In response to Synlait’s announcement, which indirectly refers to a2MC, the company is surprised at the extent of the reduction in Synlait’s guidance range.

A2MC said it had provided Synlait with two forecasts since Sylait’s guidance update on 17 March in which it lowered forecast production volume needs for English label consumer-packaged infant milk formula (IMF) from March to June, by around 1650 metric tonnes in total.

“Equating to less than 5 per cent of Synlait’s reported Advanced Nutritional sales volumes over 12 months ended 31 January 2023,” it said.

For a2MC, the reduction was due to continued weakness in the ANZ Daigou/reseller market that according to Kantar Worldpanel is down 49 per cent in Q2 FY23 on prior corresponding period.

It added that it had to manage the impact of “significant cumulative delays in English label consumer-packaged IMF deliveries from Synlait to a2MC resulting in a material amount of inventory arriving within a relatively short period which needs to be managed”.

More customers were also being supplied directly out of Hong Kong and China, leading to lower future inventory requirements, it said.

A2MC said there was no material change to its FY23 outlook as provided on 20 February. While it maintained its FY23 revenue guidance of low double digit percentage growth on FY22, the company warned growth would be at the low end of expectations at around 10 per cent, with revenue for English label IMF expected to be in mid-single digits.

Synlait said the re-registration process remains on track for State Administration for Market Regulation (SAMR), with the onsite audit process completed. It expects production to commence in Q4 FY23 subject to SAMR approval.

Demand from new multinational customer Synlait Pokeno is forecast to deliver strong double-digit growth in Advanced Nutrition sales volumes in FY24, once commercial production commences.

It said there had been no demand changes in the Ingredient, Foodservice, or Consumer businesses.

Synlait said its banking syndicate remains strongly supportive.

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