The Synlait Milk Ltd (ASX: SM1) share price is up more than 2% after its FY23 result.
It’s a manufacturer of dairy products, including infant formula for A2 Milk Company Ltd (ASX: A2M).
Synlait FY23 result
Here are some of the highlights from the 12 months to 31 July 2023:
- Revenue declined 3% to $1.6 billion
- Gross profit dropped 2% to $144 million
- EBITDA (EBITDA explained) down 31% to $90.7 million
- Net profit after tax (NPAT) sank 111% to a loss of $4.3 million
- Operating cashflow sank 83% to $39 million
- Net debt up 21% to $413.5 million
The company’s Chair Simon Robertson said that the result was “challenging” and it wasn’t where it needed to be, though the business is building towards a “stronger Synlait”.
The CEO Grant Watson explained that there were a number of contributing factors including lower customer demand, CO2 shortages, extreme weather events, inflation of costs and so on.
Outlook for the Synlait share price
Synlait said that it could still face “challenging China market dynamics, softening global conditions more generally, and continuing inflationary pressures across its cost base, which could impact future customer demand and the company’s overall profitability.”
However, it does expect its advanced nutrition volumes to continue to grow at the Pokeno site in FY24 and the company’s overall EBITDA performance is also expected to improve in FY24 compared to FY23.
The “purported cancellation” of the exclusive arrangement with A2 Milk is not expected to impact Synlait’s FY24 result. Synlait said that it disputes that A2 Milk has the right to cancel the exclusivity arrangements.
Synlait said that it’s confident in its strategy to right-size its cost base and the near-term advanced nutrition and foodservice growth opportunities.
It also re-iterated it’s committed to refresh its strategy to create a more focused company and remains “largely on track” to meet its five-year (FY28) strategic ambitions.
Final thoughts on the Synlait share price
Since the start of 2023, Synlait shares have fallen by over 60%. Its prospects have seriously worsened, and I’m not sure how the A2 Milk relationship will play out.
It’s hard to say when things will improve, or how much it can recover, so there are plenty of other ASX growth shares I’d rather invest in.
