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Synlait flags first-half loss in another profit warning

New Zealand dairy company Synlait has issued a new profit warning for the first six months of its fiscal 2024, predicting a substantial loss.

The business expects to post a net loss after tax of between NZ$17m and NZ$21m ($10.4m and $12.9m) for the six-month period.

Synlait pointed to increased financing and operational costs, as well as lower margins at its ingredient and Advanced Nutrition divisions

It originally expected the half-year net profit after tax to be down on the previous year, without specifying by how much. Synlait’s net profit was NZ$4.8 million.

In September 2023, the company stated its EBITDA was expected to improve in the full-year compared to the previous 12 months. The dairy company has now forecast the full-year EBITDA result to be “broadly flat or down on FY23”.

The group added: “The board and management are actively working on the need to deleverage Synlait’s balance sheet as a priority.”

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Synlait is due to release its first-half results on 25 March.

The New Zealand-based company has been entangled in a recent contract row with A2 Milk, another dairy business.

The dispute – in which Synlait disagrees that A2 Milk had the right to cancel an exclusivity of supply arrangement – has recently entered arbitration. In a stock-exchange announcement in December, Synlait revealed a new area of disagreement between the companies.

It said: “Synlait recently entered a good faith negotiation period under the NPMSA [the Nutritional Powders Manufacturing and Supply Agreement] regarding a separate issue between the parties about pricing regarding products manufactured by Synlait for The A2 Milk Co.

“The resolution of this matter is important because it could impact the margin for certain products manufactured under the NPMSA historically and going forward.

“Synlait advises that the good faith negotiation period under the NPMSA expired yesterday. Synlait wants the matters resolved and will refer the pricing matters to a confidential binding arbitration.”

The original dispute resulted from A2 Milk, which is Synlait’s second-largest shareholder with a 19.8% stake, providing Synlait in September with written notice cancelling exclusive manufacturing and supply rights enjoyed by the company.

It said it cancelled the exclusivity deal “due to Synlait’s delivery in full and on time performance during FY-23 falling below the level required for Synlait to maintain such exclusive rights”.

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