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Synlait slumps 18% on forecast profit drop

Gus McCubbing
Synlait has flagged subdued FY20 profit guidance of between $NZ70m and $NZ85m

Synlait says significantly lower-than-expected infant powder sales caused by Chinese market consolidation will sap its first-half net profit, while the coronavirus outbreak also presents a risk for the company.

The milk processor, part owned by a2 Milk Co, told the ASX on Thursday its FY20 earnings would be between $NZ70 million and $NZ85 million net profit after tax ($A67.15 million to $A81.54 million), down from $NZ82.2 a year earlier.

This would follow an expected first-half profit of between $NZ26.5 million to $NZ28.5 million, down from $NZ37.3 million at HY19.

Synlait's ASX-listed shares fell by as much as 20 per cent to $6.42 at 1318 AEDT - a near-two-year low.

Synlait said its first-half net profit would be affected by lower-than-expected sales of ingredient products due to sales phasing and product mix impacts, as well as lower sales of infant base powders due to China infant nutrition market consolidation.

The New Zealand company said sales of consumer-packaged infant formula volumes have increased against the prior corresponding half-year period, and that it expects continuing volume growth over the full-year.

However, increased incremental interest, higher manufacturing costs associated with the Pokeno factory and advanced liquid dairy packaging facilities will weigh on its balance sheet.

Chief executive Leon Clement said although the coronavirus outbreak had caused no short-term impact on the company's performance, it represented some downside risk going forward.

He said this was considered as part of the broader outlook update and contributed to Synlait's decision to issue a wider guidance range at this stage.

The chief executive of A2 Milk, Geoffrey Babidge, said despite Synlait's fallen net profits, a2's business performance remained strong and continued to be in compliance with its disclosure obligations.

This appeared to be reflected in the company's stable stock price, which had increased by five cents, or 0.36 per cent, to $15.21 at 1431 AEDT on Thursday.

A2 Milk will release its half-year results on February 27.