Owners of A2 Milk Company Ltd (ASX: A2M) shares can learn quite a bit from the Synlait Milk Ltd (ASX: SM1) HY23 report.
A2 Milk owns a large amount of Synlait shares and Synlait is one of A2 Milk’s main suppliers.
Synlait has a nutritional facility that allows it to make formulas to specific customer requirements. It collects more than 800 million of litres of milk each year. It’s capable of processing 4.2 million litres of raw milk per day, from which up to 450 metric tonnes to 500 metric tonnes of milk powder can be produced. It also has canning facilities.
Synlait HY23 half-year result
Here are some of the highlights from the result:
- Revenue declined by 3% to $769.8 million
- Gross profit up 18% to $518.6 million
- EBITDA (EBITDA explained) fell by 25% to $51.5 million
- Adjusted EBITDA declined 5% to $55 million
- Net profit after tax (NPAT) sank 83% to $4.8 million
- Adjusted NPAT dropped 43% to $8.9 million
The business continues to “navigate” high milk and cheese commodity prices and expansion into overseas markets. But, Synlait said that the performance of its ingredients and consumer businesses remain “strong”. Combined, the business units will “contribute more than in FY22”.
But, the company said that a range of economic and climactic factors have impacted the stability of Synlait’s daily operations. It talked about cost challenges on the business, as well as supply challenges, labour challenges and extreme weather events.
What A2 Milk share owners can learn from the result
Synlait did say that its advanced nutrition forecast demand and production has been “reduced or delayed following forecast changes by Synlait’s largest customer during the FY23 first half and more recently by other customers.”
What that suggests to me is that it’s likely talking about A2 Milk.
Synlait also said that while underlying momentum is lifting, its full financial recovery will take “longer than planned”.
The company also said that it’s on track for re-registration in the China market for access to continue. It said that re-registration and commencement of production in the FY23 fourth quarter.
Outlook and thoughts on the Synlait share price
It’s expecting its full year FY23 NPAT to be between $15 million and $25 million.
I think this is interesting for A2 Milk shareholders, but I’m not sure about how strong Synlait can become. However, the huge fall of the Synlait share price could be a recovery opportunity. But I’m not looking to buy shares.
