Synlait's plant at Pōkeno is no longer processing raw milk. Photo / NZME
Shares in dairy processor Synlait Milk fell sharply after the infant formula maker said it had experienced “challenges” at its flagship plant at Dunsandel, in Canterbury.
In a business update, Synlait said it expects to report a big lift in its underlying earnings for the current year and for its net bottom-line loss to shrink.
“However, as well as the headwinds signalled at the half-year, Synlait has had manufacturing challenges at its Dunsandel facility across a range of product segments, resulting in one-off costs in financial year 2025,” it said.
By mid-afternoon, the stock was trading at 56c, down 6c or 9.2%.
Synlait said its manufacturing challenges had been resolved.
The facility had undergone routine winter maintenance and was now in new season production, it said.
In a response to a Herald inquiry, a Synlait spokesperson said: “As you know, dairy processors have one-off events, which incur costs all the time.
“Running stainless steel is not seamless.
“We won’t be talking to the specifics as we are still finalising the numbers for the year and preparing the final result.”
Synlait’s financial year ends tomorrow, July 31, and it reports its annual result on September 29.
The company said it now expects to report a net loss of $27 million to $40m for 2025, compared with a loss of $182.1m in 2024.
Synlait expects “reported” earnings before interest, tax, depreciation and amortisation (ebitda) of $50m to $68m (from a loss of $4.1m in 2024).
“Synlait’s overall performance has improved year-on-year and the final 2025 result will be a marked improvement on the prior year,” the company said.
The company expects underlying ebitda of $100m to $110m (compared with $45.2m in 2024) with a break-even underlying net profit (compared with a loss of $60.4m in 2024).
The recently-recapitalised Synlait said it is targeting a closing net debt balance of $300m for the year and remains in compliance with its banking covenants.
Newly-appointed chief executive Richard Wyeth said Synlait’s recovery had been tracking in line with expectations and he was confident of success.
“Synlait has strong foundations – its assets are well-located with the capacity and capability to manufacture complex products that are in high demand around the world,“ Wyeth said.
In March, Synlait – which last year came close to collapsing before undertaking a big capital raise – reported first-half ebitda of $63.1m, just over the company’s previously advised guidance of $53m to $63m.
The company – just under 20% owned by a2 Milk and 65% by China’s Bright Dairy – reported a net profit of $4.8m for the six months, up from a $96.2m net loss in the previous comparable period.
Forsyth Barr senior analyst Matt Montgomerie said Synlait’s manufacturing issues came as a surprise to the market, but said the underlying numbers contained in the update looked to be broadly in line with market expectations.
“But the significant amount of one-off costs in the second half related to manufacturing issues is a new development,” he said.
Synlait is a major supplier of infant formula to a2 Milk.
Montgomerie said the timing of Synlait’s manufacturing issues should not have an impact on a2 Milk for its 2025 financial year, which ended on June 30.
“It may raise some questions [for a2] around financial year 2026.
“Demand remains strong but clearly that’s almost irrelevant when the product is struggling to be manufactured,” he said.
“At face value, with manufacturing issues being resolved, it probably will not be a material headwind in 2026, but it will come down to the level of inventory that a2 has in-market to mitigate the headwind.”
Export data from Christchurch for June showed a significant amount of formula was being air-freighted, which was indicative of a2 wanting to get products into market quickly in response to Synlait’s manufacturing issues, Montgomerie said.
Meanwhile, China on Monday introduced a nationwide childcare subsidy programme to support families and encourage childbirth.
The programme will offer families 3600 yuan ($841) per year for each child under the age of three, which is expected to benefit more than 20 million families a year.
A2 Milk’s China label formula retails for around 360 yuan per tin.
“I suspect it’s just a drop in the ocean of what’s needed to meaningfully change the demographics, so it will be really interesting to see,” Oyvinn Rimer, Harbour Asset Management senior research analyst, said.
“At the margin it’s good for consumption for young families, they’re going to have a little bit more financial flex,” Rimer said.
“But will it change family planning decisions? I would hesitate to think so.”
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.