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Highlights
- Synlait returns to profitability after previous losses
- Revenue and earnings show significant year-on-year growth
- Outlook tempered by second-half risks and external pressures
Shares in New Zealand-based dairy producer Synlait Milk (ASX:SM1) dropped sharply, falling 12% to 80.5 cents, even as the company reported a return to profitability in the first half of its financial year. The surprising market reaction followed the release of results that marked a significant turnaround from a loss-making period in the previous year.
For the six months ending 31 January, Synlait posted a net profit of NZ$4.8 million (approximately $4.4 million), compared to a loss of NZ$96.2 million in the same period a year earlier. The company also reported earnings of NZ$63.1 million, slightly exceeding the top end of its previously announced guidance, while revenue rose by 16% to NZ$916.8 million. This rebound is being credited to strong operational execution and tight cost control measures.
Despite the positive numbers, market sentiment was overshadowed by Synlait's caution about the second half of the financial year. The company noted that financial progress is expected to slow as it navigates a complex mix of opportunities and risks. Among the challenges highlighted were uncertainties around milk stream returns and ongoing fluctuations in foreign exchange markets.
Synlait described the profit rebound as a “considerable commercial achievement,” especially following last year’s significant full-year loss and subsequent recapitalisation. This included financial backing from key shareholders Bright Dairy and A2 Milk (ASX:A2M), as well as a successful bank debt refinancing effort.
Looking ahead, Synlait aims to improve full-year earnings while also targeting a reduction in net debt. The company is guiding for a closing net debt balance between NZ$250 million and NZ$300 million and is aiming for a senior debt to earnings ratio of 2.5x by FY25.
The market reaction reflects a cautious stance from investors, who appear to be weighing the improved first-half results against the forward-looking uncertainties that could impact the second half. While the turnaround in profitability demonstrates strong internal execution, the external environment remains a key factor influencing sentiment around Synlait’s financial trajectory.
