The Synlait Milk Ltd (ASX: SM1) share price is trading lower on Thursday despite the release of a positive update.
At the time of writing the New Zealand-based dairy processor's shares are down 3.5% to $4.70.
What did Synlait Milk announce?
This afternoon the manufacturer and supplier to A2 Milk Company Ltd (ASX: A2M) revealed that the Overseas Investment Office has granted consent to its NZ$112 million acquisition of Dairyworks.
Dairyworks is a specialist in the processing, packaging, and marketing of dairy products. It is the leader in the Everyday Dairy category in New Zealand and supplies consumers in the country with almost half of its cheese, a quarter of its butter, as well as milk powder and ice cream. It also has a growing Australian presence.
As the Overseas Investment Office consent was the only condition attached to the acquisition of Dairyworks, management advised that arrangements can now be made for settlement on April 1.
Synlait CEO Leon Clement said: "This acquisition accelerates the execution of Synlait's Everyday Dairy strategy. It provides us with instant scale in the sector, new growth opportunities, and a diversified earnings base for our shareholders. Dairyworks gives Synlait the opportunity to extract more value from our milk pool and we see strong synergies with our recent Talbot Forest acquisition. We'll now be closer to the consumer and own more of the value chain."
Guidance update.
In light of this development, Synlait has provided an update to its guidance for FY 2020.
Management expects Dairyworks to make an EBITDA contribution of approximately NZ$4 million during the remainder of FY 2020.
This translates to a net profit after tax contribution of approximately NZ$2 million, after borrowing costs and depreciation.
As a result, the company has reiterated that it remains comfortable with its FY 2020 earnings guidance range. This is for a net profit after tax between NZ$70 million and NZ$85 million.
