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Synlait Milk (ASX:SM1) share price on watch after FY 2020 profit decline

baby with wide eyes and mouth signifying surprise results from A2 Milk Company
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The Synlait Milk Ltd (ASX: SM1) share price will be on watch on the Monday following the release of its full year results.

How did Synlait Milk perform in FY 2020?

For the 12 months ended 31 July 2020, the dairy processor reported a 27% increase in revenue to NZ$1.3 billion.

This was driven by a 15% increase in consumer-packaged infant formula sales to 49,180 MT and a 46% lift in lactoferrin sales to 30 MT.

Margin contraction from a higher cost base led to Synlait’s earnings before interest, tax, depreciation, and amortisation (EBITDA) not increasing in line with sales. It rose 13% to NZ$171.4 million in FY 2020.

Things were worse on the bottom line, with the company’s net profit after tax falling 9% to NZ$75.2 million.

Resilient performance.

Synlait’s Chair, Graeme Milne, commented: “Synlait’s financial performance was resilient when viewed against the backdrop of COVID-19. The company remains solid and highly profitable with EBITDA growing strongly demonstrating the strength of our core infant and lactoferrin businesses.”

Mr Milne notes that its profits were down in FY 2020 due to the company investing in its future growth. He appears confident these investments will create long term value for shareholders.

He explained: “Our NPAT performance did reduce reflecting investments made in new facilities and acquisitions over the past two years to achieve our growth ambitions. We are however well positioned to grow earnings off our current asset base.”

The company’s CEO, Leon Clement, echoed this sentiment and appears positive on the future.

Mr Clement commented: “Synlait is focused on building a sustainable, diverse and recurring earnings base that comes from multiple customers, sites, markets and categories.”

“We are achieving this while balancing the needs of people, planet and profit in our decisions, and responding to changing customer demand against the backdrop of COVID-19. Our strategy to create a strong, diverse company, is more relevant than ever given the uncertain world ahead. Our team delivered a strong result in an exceptional year,” he added.

Outlook.

In light of the uncertain economic environment, at this point the company is targeting a similar or slightly improved profit result in FY 2021.

A further update will be provided at Synlait’s half year result in March 2021.

Elsewhere in the industry, this morning A2 Milk Company Ltd (ASX: A2M) warned of tough trading conditions in the daigou channel for infant formula sales. It is one of Synlait’s largest customers.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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