Shares in New Zealand-based dairy company Synlait Milk Ltd (ASX: SM1) are trading sharply lower after the company said it would swing to a net loss after a "disappointing" first half.
The company said in a statement to the ASX on Wednesday morning that while manufacturing challenges at its Dunsandel operations had been largely resolved, "Synlait continues to face related cost and operational impacts''.
The company went on to say:
The need to rebuild inventory across product segments required significant adjustments to Synlait's manufacturing plans this dairy season, relative to a normal year. To enable these adjustments, additional raw milk sales were made during HY26, which weighed heavily on margins and operating costs.
Synlait said its first-half performance had also been impacted by lower relative returns from its commodities portfolio.
The company was also taking a "conservative approach" and not recognising further deferred tax assets "arising from unused tax losses beyond those recorded at 31 July 2025''.
Bottom line to plunge into the red
The company said that, given the impacts referred to above, it expected the first half underlying EBITDA to be between break-even at $5 million and a reported EBITDA loss of $28 to $33 million.
It also expected an underlying net loss of $33 to $38 million and a reported net loss after tax of $77 to $82 million.
For the same period last year, the company reported a net profit of $4.8 million.
The company said it had lodged an insurance claim to recoup losses as a result of its manufacturing challenges, and while the claim had been accepted, "the final amount and timing of reimbursement remain subject to further assessment and settlement processes''.
Synlait Chief Executive Officer Richard Wyeth said regarding the expected result:
We are very disappointed with the six-month result and the impact it has had on the pace of our financial turnaround. However, we have made progress with real momentum in our operations, a renewed Canterbury-based executive leadership team, and the North Island sale set to fundamentally strengthen Synlait. Our strategy is being reset, and we are confident it will provide a pathway to return Synlait to success, although this will take at least 12 months.
The company said the sale of the North Island assets was due for completion on April 1, with the proceeds to be used to "significantly reduce debt''.
The company added:
The sale will enable Synlait to centre its core operations on Canterbury, with renewed focus on delivering continuous operational excellence and customer diversification to support longer-term profitability, however, it is clear the company's recovery will take time.
Synlait shares were 5.8% lower at 49 cents in early trade.
The company was valued at $313.7 million at the close of trade on Tuesday.
Synlait will report its full-year results on March 23.
