The Synlait Milk Ltd (ASX: SM1) share price is having a tough start to the week.
In afternoon trade, the ASX All Ords dairy processor's shares are down 6% to $2.10.
Why is the Synlait share price falling?
Investors have been selling this ASX All Ords stock on Monday after the company's half-year results disappointed the market. Here's a summary of its performance:
- Revenue down 3% to NZ$769.8 million
- Earnings before interest, tax, depreciation and amortisation (EBITDA) down 25% to NZ$51.5 million
- Net profit after tax down 83% to NZ$4.8 million
- Net debt up 32% to NZ$518.6 million
What happened during the half?
For the six months ended 31 January, Synlait reported a 3% decline in revenue to NZ$769.8 million and an 83% decline in net profit after tax to NZ$4.8 million.
Management advised that this reflects operational stability and cost challenges, which have impacted its performance. In addition, delayed shipments of ingredients resulted in lower sales volumes in the first four months of FY 2023, significantly impacting first half profitability.
The ASX All Ords stock's CEO, Grant Watson, explained:
A range of challenges, several driven by COVID-19, have created impacts across Synlait, including a reduction in milk processed, raw material supply challenges, CO2 shortages, a tight labour market and extreme weather events. This is on top of high inflationary cost pressures across every part of our business.
Unfortunately, these challenges are expected to continue in the second half. He adds:
There are no signs of these challenges abating, and we are constantly reviewing how this impacts our broader set of Synlait stakeholders, particularly at the farm gate. Since our last result, we have revised our farm gate milk price forecast twice due to subdued global economic activity and a slower-than-expected recovery of Chinese demand following COVID-19.
Outlook
In light of the above, the ASX All Ords stock is expecting its full-year profits to be down year over year.
It is guiding to a full-year profit in the range of NZ$15 million to NZ$25 million. This compares to FY 2022's net profit after tax of NZ$38.5 million.
