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Synlait Milk (ASX:SM1) - Outgoing CEO, Leon Clement
Outgoing CEO, Leon Clement
Source: NZ Herald
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  • Shares in Synlait Milk (SM1) have tanked today after the company was forced to scrap its 2021 earnings guidance amid ongoing COVID-19 struggles
  • The milk and infant formula company initially updated its 2021 financial year profit guidance in late-December
  • The update came on the back of a guidance update from The a2 Milk Company (A2M), a major shareholder in Synlait and a key business partner
  • However, Synlait says since then, several factors have brought “significant uncertainty and volatility” to the business, causing it to withdraw its full-year guidance completely
  • The company cited demand uncertainty in demand and an expected drop in infant formula base powder production for the guidance slash
  • Synlait closed 9.75 per cent lower with on the ASX today with shares at $3.24 each

Shares in Synlait Milk (SM1) have tanked today after the company was forced to scrap its 2021 earnings guidance amid ongoing COVID-19 struggles.

The milk and infant formula specialist initially updated its full-year guidance in late-December 2020 following a guidance update from The a2 Milk Company (A2M), a major shareholder in Synlait and key business partner.

At the time, Synlait said it was expecting full-year net profit after tax for the 2021 financial year to be about half of the 2020 financial year’s profit, reflecting the impact COVID-19 had on Synlait and a2 Milk.

For reference, Synlait’s net profit after tax for the 2020 financial year was NZ$75.2 million (around A$70 million).

However, Synlait has withdrawn this guidance completely today, citing “significant uncertainty and volatility” within its business.

What’s changed?

In the months since Synlait’s latest profit guidance, the company said several new factors have emerged which are expected to adversely impact its 2021 financial year earnings.

First and foremost, Synlait said there is ongoing uncertainty in expected demand for A2M’s products for the remainder of the year and through to the 2022 financial year.

This comes as A2M rebalances inventory levels and recovers from major COVID-19-induced blows to the Daigou and Chinese cross-border e-commerce (CBEC) markets.

Because of this, Synlait is expecting a significant drop in infant formula base powder production — impacting its manufacturing recoveries.

At the same time, tight global border controls because of the pandemic are causing global shipping delays, which will further impact Synlait’s 2021 financial year result.

When coupling all this with volatile commodity prices, it seems Synlait decided it just couldn’t predict what the rest of the 2021 financial year will bring.

Following the guidance slash, shares in Synlait Milk quickly retreated remained subdued for the rest of the trading day. SM1 closed 9.75 per cent lower with shares at $3.24 each.

The a2 Milk Company closed 0.43 per cent lower at $9.36 per share.

SM1 by the numbers
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