A2 Milk Co. has insisted there is “no material change” to its full-year outlook after a profit warning from supplier Synlait Milk hit its share price.

Dairy and infant-formula group A2 Milk said it was “surprised” at how far Synlait Milk had cut its own guidance earlier in the day.

In a filing to the New Zealand stock exchange, Synlait Milk – which supplies A2 Milk with dairy and infant-formula products and ingredients – warned investors it could now book a net loss of NZ$5m in its current financial year.

Synlait Milk’s fresh estimate – which ranged from the NZ$5m (US$2.8m) loss to a net profit of NZ$5m – compared to its previous forecast of an annual net profit after tax of NZ$15-25m. In the company’s last financial year, it generated a net profit of NZ$38.5m.

Shares in Synlait Milk closed down 27.1% at NZ$1.56, the steepest fall across all listed stocks in New Zealand today (26 April).

Meanwhile, shares in A2 Milk listed on the New Zealand stock exchange finished the day down 5.45%.

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By GlobalData

According to Synlait Milk’s 2022 annual report, A2 Milk Co. is the second-largest shareholder in the business, owning 19.8% of the company. The biggest investor – with 39% – is China’s Bright Dairy.

Synlait Milk’s profit warning came five days after the company requested a halt to the trading in its shares, with an indication a change in its guidance was in the offing.

In today’s stock-exchange announcement, the company pointed to lower demand for “advanced nutrition” products, including infant formula and base powder. Synlait Milk warned the fall in demand could hit its net profit by NZ$16.5m.

In response, A2 Milk, which said Synlait Milk’s profit warning “indirectly refers” to its own business, said it had lowered the volume of English-label consumer-packaged infant milk formula it needs from its supplier up to the end of June.

A2 Milk said the lower planned orders were due to three factors: “continued weakness” in the daigou market in Australia and New Zealand; delays in previous orders from Synlait arriving, leading to inventory “which needs to be managed”; and ongoing changes to A2 Milk’s distribution of English-label products.

The company added it has recently confirmed its forecast demand for China-label consumer-packaged infant formula in line with estimates Synlait announced in March. “A2 Milk is pleased with this progress,” the business noted.

“Taking all of the above factors noted by the company into account, A2 Milk confirms that there is no material change to its FY23 outlook as confirmed at the time of the announcement of its 1H23 results on 20 February 2023,” A2 Milk added.

“The company maintains its FY23 revenue guidance of low-double-digit percentage growth on FY22.”

In the year to 30 June, A2 Milk generated revenue of NZ$1.45bn, up 19.8% on the previous year.

However, A2 Milk added revenue from its English-label infant milk formula is now expected to be “down mid-single digits” but “partially offset” by “double-digit growth” in revenue from China-label infant milk formula revenue.

“As a result, the company expects revenue growth to be at the low end of its previous expectations i.e. approximately 10%,” A2 Milk added. “The company continues to expect an EBITDA margin (% of sales) similar to FY22.”

In the group’s last financial year, that margin metric stood at 13.6%.